2026 (3) TMI 1073 - AT - Money Laundering

Provisional Attachment under PMLA: equivalent property can be attached where proceeds are untraceable, subject to recorded reason to believe.

The note addresses provisional attachment under the Prevention of Money Laundering Act, focusing on (i) corporate links and unexplained director/share ... Provisional attachment - commission of fraud by mis- appropriation of loan amounts and generation of proceeds of crime - definition of “proceeds of crime” given under Section 2(1)(u) - value of property equivalent - reason to believe for provisional attachment under Section 5(1) PMLA - siphoning and layering. Proceeds of crime - Appellant company is part of the same group as M/s Biotor Industries Ltd. and cannot be treated as an independent entity insulated from liability - HELD THAT:- The Tribunal found that the persons who managed and benefited from M/s Biotor Industries Ltd. were previously directors and significant shareholders of the appellant company and, having resigned and replaced directorships with family members without consideration, remained de-facto controllers. The recorded shareholding changes and absence of any material showing of consideration for transfer of shares supported the conclusion that the appellant company cannot escape liability by virtue of formal changes in directorship; consequently the company was treated as part of the same group for purposes of attachment. [Paras 6] Issue decided against the appellant company; the company is part of the same group as M/s Biotor Industries Ltd. Attachment of property equivalent in value - HELD THAT:- The judgment of the Apex Court in the case of Smt. Pavana Dibbur v. The Directorate of Enforcement [2023 (12) TMI 49 - SUPREME COURT] has also been considered. However, findings given by three judges Bench of the Apex Court in the Vijay Madanlal Choudhary v. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] has been relied to give interpretation to the definition. In the light of the above, we are of the view that when the proceeds out of crime was not available with the appellant rather vanished and siphoned off, the property of equivalent value can be attached. In the present case, the proceeds of crime were siphoned off by the Directors of M/s Biotor Industries Ltd. by diverting it to various group companies and by layering the proceeds. In the light of the aforesaid, second limb of the definition of “proceeds of crime” has been applied to attach the property of equivalent value, but in fact the said attached properties are quite less than the proceeds of crime. Thus, the ground raised by the appellant cannot be accepted. Accordingly, this issue is decided against the appellant company and in favour of Respondent ED. Issue decided against the appellant company; the properties at serial nos. 9 and 11 could be attached as equivalent value. Reason to believe for provisional attachment under Section 5(1) PMLA - The requirements of Section 5(1) PMLA for provisional attachment were satisfied on the material then available - HELD THAT:- The Tribunal held that the material on record - multiple FIRs/charge sheets, consolidated investigation showing large-scale siphoning of loan funds and attempts by the appellant to effect disposal of property - furnished a recorded reason to believe that proceeds of crime existed and that non-attachment would risk frustrating proceedings. The appellant's explanations were treated as afterthoughts and insufficient to rebut the prima facie material justifying the provisional attachment under the second proviso to Section 5(1). [Paras 8] Issue decided against the appellant company; the ED had reason to believe and lawfully made the provisional attachment. Final Conclusion: The appeal is dismissed; the Tribunal affirmed the Adjudicating Authority's confirmation of attachment, finding the appellant part of the same group, that properties of earlier acquisition may be attached as equivalent value where tainted property cannot be traced, and that the conditions of Section 5(1) PMLA for provisional attachment were satisfied on the material then available. Issues: (i) Whether the appellant company is an independent company and has no link/connection with M/s Biotor Industries Ltd. and its directors; (ii) Whether the properties held by the appellant (sr. nos. 9 & 11) purchased prior to the alleged fraud cannot be attached as proceeds of crime or as equivalent value; (iii) Whether the conditions for provisional attachment under Section 5(1) of the PMLA, 2002 (including reason to believe and risk of concealment/alienation) were satisfied.Issue (i): Whether the appellant company is an independent company and has no link/connection with M/s Biotor Industries Ltd. and its directors.Analysis: The record shows the same individuals were directors of the appellant and M/s Biotor Industries Ltd. up to and during the period when proceeds of crime were generated; subsequent resignations and share transfers to relatives were found to be unexplained and consistent with a strategy to shield liabilities. The appellants did not establish receipt of consideration for share transfers or other facts sufficient to rebut the connection with the alleged criminality.Conclusion: In favour of Respondent.Issue (ii): Whether properties acquired prior to the alleged offence period (sr. nos. 9 & 11) are immune from attachment or may be attached as equivalent value.Analysis: The definition of 'proceeds of crime' includes the value of any such property and permits attachment of property of equivalent value where the actual tainted property cannot be traced. Authorities and prior decisions were applied to conclude that when proceeds have been siphoned off and cannot be located, properties of equivalent value may be attached subject to statutory safeguards. The attached properties' aggregate value was found to be less than the identified proceeds of crime; tracing the actual tainted property was not possible.Conclusion: In favour of Respondent.Issue (iii): Whether the conditions of Section 5(1) PMLA (reason to believe and likelihood of concealment/transfer) for provisional attachment were met.Analysis: Multiple FIRs, charge sheets and investigative material showed large-scale fraud and generation of proceeds of crime. Evidence of attempted disposal/public notice for the appellant's property and the pattern of transfers supported a recorded reason to believe and risk of alienation. The statutory proviso permitting immediate attachment where non-attachment would frustrate proceedings was held to be engaged on the material placed on record.Conclusion: In favour of Respondent.Final Conclusion: The appeal is dismissed and the provisional attachments confirmed; the decision upholds the Directorate's attachment of the subject properties as authorized under the Prevention of Money Laundering Act, 2002.Ratio Decidendi: Where proceeds of crime cannot be traced because they have been siphoned off or layered, property of equivalent value may be provisionally attached under Sections 2(1)(u) and 5(1) of the Prevention of Money Laundering Act, 2002, provided there is a recorded reason to believe and material demonstrating risk of concealment or transfer.