2026 (3) TMI 916 - AT - Money Laundering

Proceeds of Crime: property acquired before offences may be provisionally attached as equivalent value when statutory tests are met.

The article addresses whether provisional attachment under the Prevention of Money Laundering Act was sustainable and whether property acquired before ... Validity of Provisional attachment - Determination of proceeds of crime by calculation of excess excavation as wrongful gain - licence holders quarried red sand beyond the permitted quantities without payment of seigniorage fees - wrongful loss - Offences under Sections 420 and 120B IPC and Section 13 of the Prevention of Corruption Act are scheduled offences under the PMLA - predicate offence without application of mind - attachment of property of equivalent value including property acquired prior to commission of scheduled offence - Onus on accused under Section 24 to demonstrate legitimate source. Determination of proceeds of crime by calculation of excess excavation as wrongful gain - HELD THAT:- The Tribunal held that the Enforcement Directorate provided a factual basis for computing proceeds by comparing licensed permissible lorry-loads with actual quantities excavated and transported, relying on recorded statements and documentary material to estimate excess loads and resultant revenue loss. The appellants did not satisfy the statutory burden to demonstrate that excavation and receipts corresponded to legitimate, permitted quantities; consequently there was no illegality in the Adjudicating Authority's determination of proceeds of crime on that basis. The Tribunal expressly treated disclosed income in returns as insufficient to displace the respondent's calculation when the disclosed income exceeded what would be attributable to legitimately permitted excavation. [Paras 31, 32, 33] Tribunal upheld the Adjudicating Authority's calculation of proceeds of crime and found that appellants failed to discharge the burden to demonstrate legitimate source. Attachment of property of equivalent value including property acquired prior to commission of scheduled offence - HELD THAT:- The excess income was taken to be illegitimate source of income and the property purchased out of it has rightly been taken it to be out of proceeds of crime. It is also necessary to clarify that the property purchased prior to commission of crime can also be subject to the provisional attachment if the equivalent value of proceeds is not available with the accused having siphoned off or is not traceable. The issue aforesaid has been settled by this Tribunal in the case of Sadananda Nayak [2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI] after referring various judgments of the High Courts and the Supreme Court. The Tribunal affirmed that the definition of 'proceeds of crime' contemplates not only property directly or indirectly derived from scheduled offences but also the value of any such property, permitting attachment of property of equivalent value where tainted property is not traceable. Relying on precedents recognising the three limb construction of Section 2(1)(u), the Tribunal held that properties acquired prior to the commission of the offence can be provisionally attached as equivalent-value property subject to the safeguards and tests articulated in the authorities cited, and therefore the Adjudicating Authority did not err in confirming attachment of such properties in the facts of the case. [Paras 34, 35, 37] Tribunal held provisional attachment of properties (including those purchased prior to the alleged offences) as equivalent-value property was permissible and sustained the Adjudicating Authority's confirmation subject to established safeguards. Final Conclusion: The Tribunal found no infirmity in the Adjudicating Authority's confirmation of the provisional attachment: the proceeds were validly computed on the basis of excess excavation which the appellants failed to rebut, and attachment of properties (including certain properties acquired prior to the alleged offences) as equivalent-value proceeds was permissible under the statutory definition and settled precedents; accordingly the appeals were dismissed. Issues: (i) Whether the Adjudicating Authority rightly confirmed the Provisional Attachment Order under the Prevention of Money Laundering Act, 2002 in respect of the properties provisionally attached; (ii) Whether properties acquired prior to the commission of the predicate offences can be provisionally attached as 'proceeds of crime' or as property equivalent in value under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002.Issue (i): Whether the confirmation of the Provisional Attachment Order (PAO) under Section 3 read with Section 2(1)(u) and Section 24 of the Prevention of Money Laundering Act, 2002 was legally sustainable.Analysis: The determination of proceeds of crime was made by assessing excess excavation and transport of red sand over permitted quantities and converting the excess into a monetary figure. The tribunal examined the evidentiary basis for the calculation, including statements and records relied upon to estimate excess lorry loads and resultant revenue loss, and contrasted that with the appellants' disclosure in income-tax returns. The analysis applied the statutory framework that places an initial burden under Section 24 of the Act on the accused to demonstrate legitimate sources, and evaluated whether the respondent had made a prima facie case for attachment by showing a basis for the estimated proceeds.Conclusion: The confirmation of the PAO is sustainable; the provisional attachment of the properties was rightly upheld against the challenge.Issue (ii): Whether properties acquired prior to the alleged commission of scheduled offences can be attached as proceeds of crime or as property equivalent in value under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002.Analysis: The statutory definition of 'proceeds of crime' was interpreted to encompass three limbs, including (a) property derived or obtained directly or indirectly from criminal activity, and (b) the value of any such property where the actual tainted property is not traceable, which permits attachment of property equivalent in value. Precedent and precedent analysis were applied to conclude that where proceeds are siphoned off or not traceable, attachment of other property of equivalent value (including property acquired prior to the offence) is permissible subject to safeguards. Disclosure in income-tax returns does not by itself render property legitimate for the purposes of the Act if the income source is not established as legitimate.Conclusion: Properties acquired prior to the commission of the predicate offences can be provisionally attached as property equivalent in value under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 provided the statutory tests and safeguards are satisfied; the tribunal upheld attachment on that basis.Final Conclusion: The tribunal dismissed the appeals and upheld the Adjudicating Authority's confirmation of the provisional attachment, affirming that the respondent established a prima facie basis for the determination of proceeds of crime and that properties (including those acquired prior to the alleged offences) may be provisionally attached as property equivalent in value when statutory criteria are met.Ratio Decidendi: The definition of 'proceeds of crime' in Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 includes both property derived directly or indirectly from scheduled offences and the value of any such property, thereby permitting provisional attachment of property equivalent in value (including property acquired prior to the offence) where the actual tainted property is not traceable, subject to the statutory safeguards and the burden allocation under Section 24 of the Act.