2026 (3) TMI 1450 - AT - Money Laundering

Attachment of equivalent value under PMLA upheld where proceeds of crime were not traceable and proof was insufficient.

Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 permits attachment of property of equivalent value where direct proceeds of crime are not ... Provisional attachment - statutory definition of 'proceeds of crime' in Section 2(1)(u) - burden of proof - utilization of bitumen under forged invoices - Whether property of equivalent value can be provisionally attached where the actual proceeds of crime are not traceable. Proceeds of crime include property equivalent in value - HELD THAT:- The High Court of Jharkhand in the Writ Petition (Criminal) preferred by the appellant and decided by the order dated 26.10.2021. Therein the provisional attachment order passed earlier was interfered on the ground that movable or immovable property attached by the respondent could not be linked directly with the proceeds of crime. The matter was sent to the respondents for afresh proceedings in pursuance to which the fresh provisional attachment order was caused. There the reference of the judgement in the case of Madhu Koda [2024 (6) TMI 1570 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI] has been given where definition of proceeds of crime given under section 2(1)(u) of the Act of 2002 has been explained. We may clarify that the proceeds of crime does not mean a property acquired or derived directly or indirectly out of the criminal activity relating to scheduled offence only, but in absence of the availability of the proceeds, the property of equivalent value can also be attached as would fall within the definition of proceeds of crime. The Tribunal applied the three limb interpretation of the definition of 'proceeds of crime' and held that where tainted property is not available or has vanished, the second limb permits attachment of property equivalent in value. Reliance was placed on the Tribunal's earlier reasoning and binding Supreme Court authority to conclude that the statutory phrase permits attaching deemed tainted or equivalent value property to protect interests pending trial; the impugned provisional attachment was therefore sustainable on that basis. [Paras 23, 24, 26] Attachment of property equivalent in value to the proceeds was permissible and the provisional attachment was upheld on this legal basis Provisional attachment valid where proceeds cannot be traced but prima facie nexus exists - Whether the appellants' claim that the subcontractor was responsible for the alleged fake invoices absolves the appellants from provisional attachment - HELD THAT:- The Tribunal found that the agreement for execution of work was between the appellant and the authority and that responsibility for compliance remained with the appellant. The appellants failed to substantiate transfers to the subcontractor by reliable documentary evidence (such as bank statements), and ledger entries alone were insufficient. Consequently, the alleged subcontractor liability did not negate the prima facie nexus relied upon for provisional attachment. [Paras 19, 21, 22] The plea of transfer of responsibility to the subcontractor was rejected and did not preclude confirmation of the provisional attachment Provisional attachment valid where proceeds cannot be traced but prima facie nexus exists - HELD THAT:- The Tribunal treated the contractual deduction imposed for non deposit of drums as corroborative of non compliance with contractual obligations and not as negating the respondents' case. The penalty did not demonstrate utilisation of the alleged quantity of bitumen nor displace the prima facie finding that supported attachment of equivalent value property. [Paras 27] The deduction/penalty did not vitiate the provisional attachment The Tribunal considered the charge that the Adjudicating Authority's order was a template and found that the Tribunal's own detailed consideration of the appellants' arguments is now merged with that order. The Tribunal held that the order was not a cyclostyle or template order and that arguments raised had been addressed. [Paras 28] Allegation of a cyclostyle order was rejected Final Conclusion: The Tribunal dismissed the appeals, upheld the provisional attachment of property equivalent in value to the proceeds of crime, rejected the appellants' claims of subcontractor responsibility and of a template order, and found no ground to interfere with the confirmation of attachment. Issues: Whether the provisional attachment order dated 17.01.2023 and its confirmation dated 04.07.2023 by the Adjudicating Authority, made under Section 26 of the Prevention of Money Laundering Act, 2002, for value equivalent to alleged proceeds of crime arising from forged bitumen invoices, is liable to be set aside.Analysis: The statutory definition of 'proceeds of crime' in Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 contains three limbs, including property derived or obtained directly or indirectly from scheduled offences and the value of any such property; where direct proceeds are not traceable, property of equivalent value may be attached. Binding precedents permit attachment of deemed tainted property subject to safeguards and assessment (even tentative) of wrongful gain. The factual matrix shows production of allegedly forged invoices alleged to have caused wrongful gain of Rs. 1,08,95,583/-, partial genuine invoices, a failure to account fully for required bitumen drums, and absence of reliable documentary proof (bank statements) to establish that the entire receipts were transferred bona fide to a subcontractor. The requirement to establish a traceable nexus to the proceeds was engaged and, given that direct proceeds were not shown to be available, statutory power to attach property of equivalent value was invoked; procedural and evidentiary safeguards for third parties were considered and applied in the assessment of the attachment. The contention that the appellant discharged responsibility to a subcontractor was not substantiated by bank evidence adequate to rebut the attachment of equivalent value.Conclusion: The provisional attachment and its confirmation are valid and the appeals are dismissed; result is in favour of the respondent.Ratio Decidendi: Where direct proceeds of a scheduled offence are not traceable, Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 authorises attachment of property of equivalent value subject to assessment of wrongful gain and protection of bona fide third-party interests; absence of adequate documentary proof to trace proceeds permits attachment of equivalent value.