2026 (3) TMI 1077 - AT - Money Laundering

Flow of tainted funds must be shown to attach property; common directorship alone cannot support provisional attachment.

Provisional attachment under the Prevention of Money Laundering Act is sustainable only where material exists showing that proceeds of crime, or their ... Provisional attachment of immovable properties - absence of material establishing flow of proceeds of crime (tainted funds) from the accused/scheduled-offence - definition of 'proceeds of crime' under Section 2(1)(u) - value of such property - reason to believe - characterisation of 'related companies'​​​​​​​. Proceeds of crime - value of such property - HELD THAT: - The authority must have reason to believe based on material in its possession that the person is in possession of any proceeds of crime. The definition of proceeds of crime includes the value of such property, but invocation of the value element requires evidence that some part of the actual proceeds flowed to the person in whose hands attachment is sought. The PAO and related records established only common directorship/shareholding between the accused entities and certain companies; they did not establish any flow of funds from the accused entities to those 'related' companies, nor from those companies to the appellants. The respondent did not produce evidence rebutting the appellants' contention that no tainted funds flowed to them. In the absence of any material showing such flow, neither the properties themselves nor their value could be treated as proceeds of crime, and the confirmation of attachment could not be sustained on that basis. [Paras 29, 30, 31, 32, 33] Attachment of the appellants' properties under the PAO cannot be sustained for lack of material showing flow of tainted funds to them; the confirmation of attachment is set aside on this ground. Reason to believe - Other contentions raised by appellants (non-supply of forensic reports, alleged use of 'related company' concept, attachment to protect revenue, and settlement/repayment of accounts) were not adjudicated because appeal was allowed on the sole ground of absence of material of flow of tainted funds - HELD THAT: - Having decided that there was no material to show flow of proceeds of crime to the appellants, the tribunal did not examine or decide the remaining arguments raised by the appellants, including non-supply of forensic audit reports, the characterisation of 'related companies', alleged repayment/settlement of accounts, or the contention that attachments were made to protect revenue. Those issues were left unadjudicated because they were unnecessary to the dispositive finding on the core question of flow of tainted funds. [Paras 32] Other challenges to the attachment were not considered and remain undetermined because the appeal was allowed solely on the absence of material showing flow of proceeds of crime. Final Conclusion: The appeals are allowed solely on the ground that there was no material to show flow of proceeds of crime to the appellants; the confirmation of provisional attachment is set aside for that reason, and other contentions were not decided. Issues: Whether the confirmation of the provisional attachment of immovable properties of the appellants under the Prevention of Money Laundering Act, 2002 can be sustained in the absence of material establishing flow of proceeds of crime (tainted funds) from the accused/scheduled-offence entities to the alleged 'related companies' and thence to the appellants.Analysis: The Tribunal examined the Provisional Attachment Order, the Original Complaint and the impugned adjudication order to determine whether the attaching authority had material to form a reason to believe that the appellants were in possession of proceeds of crime or the value thereof. The PAO relied upon forensic audit reports and identified three companies as 'related' to the accused by virtue of common directors/shareholders, and recorded transactions between those related companies and the appellants. The Tribunal found no material on record showing any flow of funds from the accused entities (including M/s ASL) to those three related companies. The respondent was specifically asked to point to evidence of any such flow; none was produced. The Tribunal applied the statutory definition of 'proceeds of crime' under Section 2(1)(u) and the statutory threshold for provisional attachment under Section 5(1), concluding that invocation of the 'value' limb requires material showing that actual proceeds flowed, directly or indirectly, to the person whose property is sought to be attached. Mere common directorship/shareholding, without evidence of transfer of tainted funds, does not establish such a flow and cannot support attachment in the hands of the appellants. The Tribunal noted precedent principles permitting attachment of properties in whose name proceeds are kept, but emphasised that attachment cannot stand where there is no evidence of any tainted money reaching the person whose property is attached.Conclusion: The appeals are allowed and the confirmation of attachment of the appellants' properties under the Prevention of Money Laundering Act, 2002 is set aside for want of any material showing flow of proceeds of crime to the appellants.Ratio Decidendi: For provisional attachment under Section 5(1) of the Prevention of Money Laundering Act, 2002 the authority must have material to form a reason to believe that proceeds of crime (or their value) flowed, directly or indirectly, to the person whose property is sought to be attached; mere common directors or shareholders without evidence of transfer of tainted funds is insufficient to sustain attachment.