2025 (5) TMI 1761 - AT - Money Laundering

Money Laundering - provisional attachment orders - proceeds of crime - existence of reasons to believe or not - overriding provisions of the Madhya Pradesh Vishesh Nyayalaya Adhiniyam 2011 over PMLA - retraction of statements tendered to the Income Tax Department - retrospective applicability of attachment and confiscation proceedings - HELD THAT - It is observed that in the present case the PAO was issued on 19.09.2014 after the amendment in PMLA to include the provisions of the Prevention of Corruption Act 1988 in the Schedule to the PMLA in 2009 and 2013. The relevant date is not the date of actual commission of predicate offence but the date on which the tainted property is being projected or being claimed to be untainted as not being involved in money laundering. The PAO was issued much after the amendments to include the provisions of the Prevention of Corruption Act in the Schedule to the PMLA were made. Therefore the attachment in the present case is not hit by the retrospectivity. The Appellant Smt. Harsh Kohli has argued that the SCN under Section 8(1) of PMLA was not issued to Late Sh. Sahil Kohli even though the Impugned Property viz. Flat at Patel Nagar F-4 First Floor Sahil Homes Plot No. 40 B Sector measuring 610 Sq. Feet was registered in the joint names of the Appellant and her son Late Sh. Sahil Kohli on 12th August 2008 much before the proceedings under the Income Tax Act were initiated. In this regard a copy of the Registered Sale Deed has also been submitted. In this regard he pointed out that the second proviso of Section 8(1) of PMLA required that SCN should have been issued to Late Sh. Sahil Kohli - From the record it appears that no SCN was served on Sh. Sahil Kohli. The Impugned Order is vitiated to the extent of having confirmed the PAO issued for the said impugned Property. The Impugned Order is set aside to the extent that it confirms the provisional attachment of the property viz. Flat at Patel Nagar F- 4 First Floor Sahil Homes Plot No. 40 B Sector measuring 610 Sq. Feet and valued at Rs. 4.13 Lakhs - appeal filed by Smt. Harsh Kohli allowed.

Summary

The core legal questions considered by the Tribunal include: (1) Whether the provisional attachment orders (PAOs) under the Prevention of Money Laundering Act, 2002 (PMLA) were validly issued and confirmed with proper reasons to believe recorded and communicated; (2) Whether the appellants had lawful sources of income to justify ownership of the attached properties; (3) Whether the provisions of the Madhya Pradesh Vishesh Nyayalaya Adhiniyam, 2011 supersede or exclude the applicability of PMLA in this matter; (4) Whether the attachment and confiscation provisions of PMLA can be applied retrospectively, especially considering the date of commission of the predicate offences and constitutional protections under Article 20(1); (5) Whether principles of natural justice were violated by denial of cross-examination and procedural safeguards; and (6) Whether the failure to issue show cause notice (SCN) to a joint owner of attached property vitiates the attachment order.

Issue 1: Validity of Provisional Attachment Orders under PMLA

The relevant legal framework is Section 5(1) of PMLA, which authorizes provisional attachment where the authorized officer has "reason to believe" that property is proceeds of crime and likely to be concealed or transferred. The reasons for such belief must be recorded in writing. The Tribunal examined whether these reasons were recorded and whether they must be communicated to the appellants.

The Tribunal relied on precedent from the Madras High Court which held that failure to record reasons to believe under Section 5(1) is a statutory infraction curable at the adjudication stage under Section 8 of PMLA. Further, the statute does not require communication of reasons to the person at the provisional attachment stage. The provisional attachment is temporary (maximum 180 days) and the substantive adjudication provides full opportunity to the affected persons.

In the present case, the Tribunal found that the issuing authority had reasons recorded in writing based on material including investigation reports, property registries, and statements. The reasons were sufficient to justify the PAO. The Tribunal rejected the appellants' contention that no reasons were recorded or communicated. The Tribunal also noted that the Adjudicating Authority (AA) had issued show cause notices under Section 8(1) of PMLA to the appellants, satisfying procedural requirements.

Issue 2: Lawful Source of Income and Ownership of Properties

The appellants claimed independent, lawful sources of income supported by Income Tax Returns (ITRs), business activities, and legitimate transactions for purchase of the attached properties. They argued that the properties were acquired through declared income and that the husband/father (Sh. S.P. Kohli) had no authority to deal with their properties or make statements on their behalf.

The Respondent relied heavily on statements of Sh. S.P. Kohli recorded by Income Tax authorities and under PMLA, corroborated by handwritten books of accounts seized from the residence of the alleged original tainted source (Joshi couple). These records showed large cash transactions from the Joshi couple to Sh. S.P. Kohli, who admitted receiving crores of rupees in cash for purchase of properties in various names including the appellants'. Bank records and property sale deeds corroborated these admissions.

The Tribunal found that the appellants failed to satisfactorily explain the source of funds for the properties. The ITRs were filed belatedly after search operations, with minimal declared income prior to searches and no credible explanation for large investments. The appellants' claims of independent earnings and business activities were not supported by evidence sufficient to rebut the presumption of proceeds of crime. The Tribunal rejected the appellants' argument that statements of Sh. S.P. Kohli could not be used against them, noting that he acted on behalf of the Joshi couple and used family members' names to disguise ownership.

Issue 3: Applicability of Madhya Pradesh Vishesh Nyayalaya Adhiniyam, 2011

The appellants contended that proceedings under PMLA were not maintainable because the Madhya Pradesh Vishesh Nyayalaya Adhiniyam, 2011 (a state law) had overriding effect over PMLA, a central legislation. The Respondent argued that under Article 246(1) of the Constitution, Parliament has exclusive power to legislate on money laundering under the Union List, and the state law cannot override the central PMLA.

The Tribunal agreed with the Respondent, observing that the state law cannot supersede or exclude the central PMLA. The charge-sheet under the state law was filed prior to the PAO under PMLA, and the procedural requirements under PMLA, including filing of charge-sheet before attachment, were complied with. Thus, the PMLA proceedings were held to be maintainable and valid.

Issue 4: Retrospective Application of PMLA and Article 20(1) Challenge

The appellants argued that the properties were acquired before the PMLA notification date and before the Prevention of Corruption Act offences were scheduled under PMLA, hence attachment and confiscation under PMLA would be retrospective and violate Article 20(1) of the Constitution, which prohibits retrospective criminal laws.

The Tribunal relied on authoritative judgments clarifying that attachment and confiscation proceedings under PMLA are not penal or punitive in nature but preventive and remedial. The relevant date for attachment is the date of dealing with proceeds of crime, which can be a continuing offence even if the predicate offence predated the scheduling. The Tribunal held that the PAO was issued after the amendments including the Prevention of Corruption Act as scheduled offence, and thus the attachment was not hit by retrospectivity or constitutional infirmity.

Issue 5: Principles of Natural Justice and Cross-Examination

The appellants contended that they were denied cross-examination of witnesses, violating natural justice and Regulation 21 of the Adjudicating Authority (Procedure) Regulations, 2013.

The Tribunal observed that the attachment confirmation proceedings under Section 8 of PMLA are limited in scope and primarily for securing proceeds of crime pending trial. Allowing cross-examination at this stage would prematurely expose the appellants' defense and impair their rights during the full trial. Thus, denial of cross-examination at this stage did not violate principles of natural justice.

Issue 6: Non-Issuance of Show Cause Notice to Joint Owner

The appellants argued that the flat at Patel Nagar was jointly owned by Smt. Harsh Kohli and her son, Late Sh. Sahil Kohli, but the SCN under Section 8(1) of PMLA was not issued to the son, violating the second proviso of Section 8(1) which mandates issuance of notice to all joint owners.

The Tribunal found no evidence that SCN was served on Late Sh. Sahil Kohli. This procedural lapse vitiated the confirmation of attachment of the jointly held property. Consequently, the Tribunal set aside the Impugned Order to the extent of confirming attachment of the flat and allowed the appeal of Smt. Harsh Kohli for release of that property.

Significant Holdings:

"The language of Section 5(1) of PMLA does not provide for procedural requirement that the Deputy Director has to communicate the reasons to believe recorded under Section 5 of PMLA, to the Appellants."

"Merely because a statement is retracted, it cannot be recorded as involuntary or unlawfully obtained. ... the authority or any court intending to act upon the inculpatory statement as a voluntary one should apply its mind to the retraction and reject the same in writing." (Citing K.T.M.S Mohamed Vs. Union of India)

"The offence of money-laundering is not dependent on or linked to the date on which the scheduled offence or the predicate offence has been committed. The relevant date is the date on which the person indulges in the process or activity connected with such proceeds of crime." (Citing Supreme Court judgment)

"The provisions of Section 25 (Overriding effect) of [Madhya Pradesh Vishesh Nyayalaya Adhiniyam, 2011] will have applicability over other State Laws and not on the Central law like PMLA."

"The non-issuance of show cause notice to all joint owners as mandated under the second proviso of Section 8(1) of PMLA vitiates the confirmation of attachment of such property."

The Tribunal upheld the confirmation of attachment of the four agricultural and other immovable properties in the name of Sh. Simmant Kohli, dismissing his appeal, due to failure to demonstrate lawful source of funds and corroborated evidence of proceeds of crime. The Tribunal allowed the appeal of Smt. Harsh Kohli to the extent of setting aside attachment of the jointly held flat due to procedural non-compliance in not issuing SCN to the joint owner.