2025 (5) TMI 161 - AT - Money Laundering

Money Laundering - investments/acquisitions made by the appellant prior to the alleged period of offence - proceeds of crime or not - Negotiation with the complainant for amicable settlement. Investments/acquisitions made by the appellant prior to the alleged period of offence are proceeds of crime or not - HELD THAT - The perusal of the definition of proceeds of crime reveals three limbs of the definition out of which first part refers to the property acquired or derived directly or indirectly by a person relating to the criminal activity to a scheduled offence. The second part includes the value of any such property . The second part is generally mixed with third part for giving interpretation. However an elaborate judgment on the issue has been given by the Delhi High Court in the case of Prakash Industries Ltd. v. Directorate of Enforcement 2022 (7) TMI 877 - DELHI HIGH COURT where it was held that properties purchased prior to 01 July 2005 may also become vulnerable and subject to action under the Act. However enforcement action against such properties would have to satisfy the tests and safeguards as propounded in Axis Bank with the learned Judge observing that in such a situation it would have to be established that the person accused of money laundering had an interest in such property at least till the time that he indulged in the proscribed criminal activity. The learned Judge further observed that bona fide rights acquired by third parties prior to the commission of the predicate offense would stand saved. Further this Tribunal has also given an elaborate judgment on this issue in the case of Sadananda Nayak v. The Deputy Director Directorate of Enforcement Bhubaneswar 2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI where all the judgments on the issue have been considered and thereby this issue was decided in favour of ED. Negotiation with the complainant for amicable settlement - HELD THAT - The same is likely to be settled and further contention that FIR no. 135/2013 is already settled with the complainant and same is likely to be quashed by Hon ble High Court of Gujarat is also devoid of any merits seeing the fact that the appellant is facing the number of criminal cases of similar nature as mentioned in table from page 13 to 17 of impugned order which are also the part of Original Complaint no.1009/2018. Thus the quantum of offence and generation of proceeds of crime is much larger and cannot restricted to just two FIRs. Therefore even if the FIR no.105/2016 135/2016 are quashed even then the appellant will face trial in other criminal cases of similar nature as mentioned in the PAO Original Complaint and impugned order. He cannot be permitted to enjoy the fruits of crime by settling with the complainant of just two cases. Even otherwise commission of offence under section 467 468 IPC are non-compoundable offences. Conclusion - i) Attachment under the PMLA can extend to properties acquired prior to the offence if the tainted property is not traceable and the attached property is equivalent in value provided the accused had an interest in such property at the relevant time. ii) The settlement or quashing of some FIRs does not automatically entitle the accused to relief from attachment when multiple related criminal cases are pending particularly where serious offences like forgery and cheating are involved. Appeal dismissed.

Summary

The core legal questions considered by the Appellate Tribunal under the Prevention of Money Laundering Act, 2002 (PMLA) in this appeal are:

1. Whether immovable properties acquired by the appellant prior to the commission of the alleged predicate offences can be attached as "proceeds of crime" under the PMLA.

2. Whether an amicable settlement or quashing of related FIRs impacts the attachment of properties under the PMLA, especially when multiple criminal cases of similar nature are pending against the appellant.

3. The applicability and interpretation of the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA in the context of attachment of properties equivalent in value to the proceeds of crime.

Issue 1: Attachment of Properties Acquired Prior to the Alleged Offence

The legal framework central to this issue is Section 2(1)(u) of the PMLA, which defines "proceeds of crime" as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence, or the value of any such property, including property equivalent in value held within or outside the country. The explanation clarifies that proceeds of crime include property derived not only directly from the scheduled offence but also indirectly.

The appellant contended that all 24 immovable properties attached were acquired before the commission of the alleged predicate offences and hence should not be subject to attachment. Reliance was placed on the Supreme Court judgment in Pavana Dibbur vs. Enforcement Directorate (2023), which was argued to support the appellant's claim.

The Tribunal examined authoritative precedents, including a detailed analysis from the Delhi High Court in Prakash Industries Ltd. v. Directorate of Enforcement (2022), which clarified that properties acquired prior to the enforcement of the Act are not completely immune from attachment. The Court in that case held that the expression "proceeds of crime" encompasses both "tainted property" and "untainted property," allowing attachment of the latter only when the tainted property cannot be traced. Additionally, the accused must have an interest in the property at least until the time of the criminal activity, and bona fide rights of third parties acquired prior to the offence are protected.

The Tribunal also referred to its own prior ruling in Sadananda Nayak v. Deputy Director, Directorate of Enforcement (2024), which supported the interpretation favoring the Enforcement Directorate (ED) in cases where the proceeds of crime are siphoned off and layered through various entities, necessitating attachment of properties of equivalent value.

Crucially, the Tribunal relied on paragraph 68 of the Supreme Court's judgment in Vijay Madanlal Choudhary v. Union of India (2022), which emphasized that the definition of "proceeds of crime" is sufficiently wide to include the value of any such property, not limited to properties situated outside India. This interpretation furthers the legislative intent of recovering proceeds of crime effectively.

While the Pavana Dibbur judgment was considered, the Tribunal gave primacy to the larger Bench decision in Vijay Madanlal Choudhary, noting that the latter's interpretation governs. Applying these principles to the facts, the Tribunal found that since the actual tainted proceeds were siphoned off and could not be traced, attachment of properties of equivalent value was justified. The appellant's argument that the properties were acquired prior to the offences and thus immune from attachment was rejected.

Issue 2: Effect of Settlement and Quashing of FIRs on Attachment

The appellant's second contention was that one of the FIRs (No. 135/2016) had been settled with the complainant and was subject to a pending petition for quashing before the High Court. Further, the appellant was negotiating settlement in another FIR (No. 105/2016) and sought relief on this basis.

The Tribunal noted that the appellant faced multiple criminal cases of similar nature, as detailed from pages 13 to 17 of the impugned order, which formed part of the Original Complaint. The quantum of the alleged offences and the generation of proceeds of crime were thus much larger than just the two FIRs cited by the appellant.

It was held that even if the two FIRs were quashed or settled, the appellant would still be subject to trial in other criminal cases involving similar allegations. Therefore, the appellant could not be allowed to enjoy the fruits of crime by settling only a subset of cases. Additionally, offences under Sections 467 and 468 of the Indian Penal Code (IPC), which relate to forgery and use of forged documents, are non-compoundable and cannot be settled through compromise.

The Tribunal thus rejected the appellant's plea for relief based on settlement or quashing of the FIRs.

Issue 3: Interpretation of "Proceeds of Crime" and Attachment of Equivalent Value Property

This issue overlaps with Issue 1 but merits separate mention due to its centrality. The Tribunal undertook an exhaustive interpretation of the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA, emphasizing the three limbs:

• Property derived or obtained directly or indirectly from criminal activity relating to a scheduled offence;
• The value of any such property;
• Property equivalent in value held within or outside the country.

The Tribunal underscored that the legislative intent is to ensure recovery of the proceeds of crime effectively, even when the actual tainted property is not traceable. The attachment of properties equivalent in value is a statutory mechanism to prevent dissipation of illicit gains.

In applying this framework, the Tribunal evaluated the evidence showing that the appellant and co-accused had hatched a criminal conspiracy involving forgery of power of attorney documents, fraudulent transactions through bank accounts, and usurpation of valuable immovable properties worth hundreds of crores. The investigation revealed layering and diversion of proceeds through various group companies, making direct tracing of tainted property difficult.

Consequently, the Tribunal found that the attachment of the appellant's properties of equivalent value was legally sustainable and consistent with judicial precedents, including the Supreme Court's ruling in Vijay Madanlal Choudhary.

Additional Observations and Treatment of Competing Arguments

The appellant's reliance on the Pavana Dibbur judgment was acknowledged but distinguished on the basis that the larger Bench ruling in Vijay Madanlal Choudhary prevails on the interpretation of "proceeds of crime." The Tribunal emphasized that the latter judgment's para 68 was not considered in Pavana Dibbur and thus remains authoritative.

The respondent ED's submissions highlighted the multiplicity of cases against the appellant and the broader conspiracy, arguing that the attachment could not be limited to the two FIRs under settlement or negotiation. The Tribunal agreed with this reasoning, finding that the appellant's efforts to settle only select cases did not warrant release of attached properties.

The Tribunal also noted the non-compoundable nature of certain offences involved, thereby limiting the scope of compromise as a ground for relief.

Significant Holdings

The Tribunal preserved the following crucial legal reasoning verbatim from Vijay Madanlal Choudhary:

"68. It was also urged before us that the attachment of property must be equivalent in value of the proceeds of crime only if the proceeds of crime are situated outside India. This argument, in our opinion, is tenuous. For, the definition of 'proceeds of crime' is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence, but also of the value of any such property. If the property is taken or held outside the country, even in such a case, the property equivalent in value held within the country or abroad can be proceeded with. The definition of 'property' as in Section 2(1)(v) is equally wide enough to encompass the value of the property of proceeds of crime. Such interpretation would further the legislative intent in recovery of the proceeds of crime and vesting it in the Central Government for effective prevention of money-laundering."

The Tribunal established the core principle that attachment under the PMLA can extend to properties acquired prior to the offence if the tainted property is not traceable and the attached property is equivalent in value, provided the accused had an interest in such property at the relevant time.

It also reaffirmed that settlement or quashing of some FIRs does not automatically entitle the accused to relief from attachment when multiple related criminal cases are pending, particularly where serious offences like forgery and cheating are involved.

The final determination was to dismiss the appeal, thereby upholding the Adjudicating Authority's confirmation of the provisional attachment order dated 04.01.2019. The Tribunal found no merit in the appellant's contentions and maintained the attachment of the 24 immovable properties as proceeds of crime under the PMLA.