Proceeds of crime under PMLA upheld where a money trail linked diverted company funds to appellants and lawful source was unproved

Retention and freezing of movable properties and bank accounts were upheld under the PMLA where investigation, including forensic audit findings, established a prima facie money trail from company funds to fictitious vendors and then to the appellants and related entities. The appellants failed to substantiate lawful acquisition through consultancy income, salary or rental receipts, as no reliable documentary proof of genuine services, appointment records, rent documents or similar evidence was produced. In these circumstances, the explanation for the assets was rejected and the assets were treated as proceeds of crime.

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Issues: Whether the retention, freezing and seizure of movable properties and bank accounts were sustainable under the Prevention of Money Laundering Act, 2002, and whether the appellants had shown lawful source of funds to displace the allegations that the assets represented proceeds of crime.

Analysis: The material on record, including the forensic audit and investigation findings, showed a money trail from the company's funds to fictitious vendors and then to the appellants, their relatives and entities controlled by them. The explanation of consultancy income, salary and rental receipts was found unsubstantiated, with no reliable documentary proof of genuine services, appointment details, rent documentation or other evidence of lawful acquisition. In view of the allegations of kickbacks, manipulation of accounts and diversion of funds, the burden on the appellants to explain the source of assets was not discharged.

Conclusion: The freezing and seizure of the movable properties were upheld and the challenge to the impugned order failed.

Ratio Decidendi: Where investigation establishes a prima facie money trail linking assets to diverted company funds, and the claimant fails to prove a lawful source of acquisition, retention of the properties as proceeds of crime is justified under the PMLA.

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