2026 (3) TMI 1074 - AT - Money Laundering

Proceeds of Crime linked to diverted investor funds - attachment upheld and valuation aligned with fair market value definition.

Provisional attachment and its confirmation were upheld where investigative material, bank transaction records, unexplained cash deposits, admissions in ... Provisional attachment - definition of “proceeds of crime” given under Section 2(1)(u) - unexplained cash deposits and transfers, and findings of diversion of investor money from the multi-level marketing scheme - commission of crime and earned out of spongy scheme - burden to establish legitimate source of funds - valuation of the property for attachment exceeds the value attributable to proceeds of crime. Whether the provisionally attached property was acquired prior to the commission of the predicate offence and therefore could not be treated as proceeds of crime - HELD THAT:- The Tribunal examined statements and transactional material showing acquisition during the period of the offending scheme and found transactions, cash deposits and transfers connecting the appellant or her close family to diversion of investor funds. The appellant's recorded statement admitted the purchase and the Tribunal noted absence of satisfactory explanation for the deposits and transfers purportedly from family members. On these facts the Tribunal held that the property was not shown to have been acquired prior to the offence and could properly be considered as proceeds of crime for the purposes of provisional attachment under the PMLA. The challenge that the property was acquired prior to the commission of the offence was rejected and the property was held to be capable of attachment as proceeds of crime. Burden to establish legitimate source of funds - HELD THAT:- The Tribunal accepted that the appellant alleged part payment by her father/husband and sale of gold but found no documentary proof or credible explanation for the cash deposits and transfers revealed by the bank accounts. The husband's involvement as a principal accused and the absence of proof of genuine sources meant the appellant did not discharge the requisite burden to show the funds were legitimate; transfers from the husband were thus susceptible to being treated as derived from proceeds of the offending scheme. The appellant failed to establish legitimate sources for the funds used to purchase the property and this ground of challenge was rejected. Fair market value for determining value of property - HELD THAT:- The Tribunal referred to the statutory definition of 'value' as the fair market value on the date of acquisition or, if that date cannot be determined, the date of possession. Applying that definition, the Tribunal found no basis to hold that the attachment exceeded the proceeds of crime and therefore found no error in the valuation approach adopted for the purposes of attachment. The challenge to valuation was rejected; the valuation was held to be consistent with the statutory definition and not excessive relative to the proceeds of crime. Final Conclusion: The Tribunal found no merit in the appellant's contentions regarding prior acquisition, legitimate source of funds, or valuation and dismissed the appeal, upholding the provisional attachment and its confirmation. Issues: (i) Whether the provisional attachment and its confirmation correctly treat the impugned property as proceeds of crime; (ii) Whether the appellant's contention that the property was acquired out of her own legitimate funds or commission income succeeds; (iii) Whether the valuation of the property for attachment exceeds the value attributable to proceeds of crime.Issue (i): Whether the provisional attachment and its confirmation correctly treat the impugned property as proceeds of crime.Analysis: The Tribunal examined investigative material, statements recorded under Section 50(2) and 50(3) of the Prevention of Money Laundering Act, 2002, bank transaction records showing unexplained cash deposits and transfers, and findings of diversion of investor money from the multi-level marketing scheme. The appellant's admission regarding transactions, her relationship to the main accused, and unexplained cash deposits were considered in light of the statutory definition of 'proceeds of crime' under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002. The Tribunal found linkage between the diverted investor funds and transactions resulting in acquisition of the property.Conclusion: The provisional attachment and its confirmation as proceeds of crime are upheld and the conclusion is in favour of the Respondent.Issue (ii): Whether the appellant's contention that the property was acquired out of her own legitimate funds or commission income succeeds.Analysis: The appellant claimed personal funds and commission income, and that Rs.10 lakhs were given by her father and Rs.8 lakhs from sale of gold. The Tribunal noted absence of documentary proof for the alleged sources, the appellant's inability to explain transactions, and evidence of routing/diversion of funds by company directors. The appellant's role as an agent was not substantiated and was treated as nominal in the investigative record.Conclusion: The contention that the property was acquired from legitimate personal funds or commission is rejected and the conclusion is in favour of the Respondent.Issue (iii): Whether the valuation of the property for attachment exceeds the value attributable to proceeds of crime.Analysis: The Tribunal applied the statutory definition of 'value' (Clause (zb) of Section 2 of the Prevention of Money Laundering Act, 2002) referring to fair market value on date of acquisition or possession. Using the definition, the Tribunal found no over-attachment relative to proceeds attributed to the appellant and concluded the valuation approach adopted was appropriate.Conclusion: The valuation for attachment does not exceed the value attributable to proceeds of crime and the conclusion is in favour of the Respondent.Final Conclusion: The appeal is without merit on all decided issues and the impugned provisional attachment order and its confirmation require no interference; the Adjudicating Authority's order is sustained.Ratio Decidendi: Where investigative evidence including account transactions, unexplained cash deposits, admissions in statements under Section 50(2)/(3), and linkage to diversion of investor funds establish that assets were acquired from diverted investor money, such assets qualify as 'proceeds of crime' under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002, and provisional attachment and valuation must be assessed by reference to the fair market value as defined in Clause (zb) of Section 2 of the Prevention of Money Laundering Act, 2002.