2025 (6) TMI 17 - AT - Money Laundering

Money Laundering - proceeds of crime - no scheduled offence was committed by any person under Section 2(1)(y)(ii) of PMLA - value of the consignment was not specified as exceeding Rs. 30 lakhs - absence of any charge of predicate offence against the appellant - reason to believe. Whether no scheduled offence was committed by any person under Section 2(1)(y)(ii) of PMLA as the value of the consignment is not specified as more than Rs. 30 lakhs? - HELD THAT - It is not satisfied with the contention of the appellant that no scheduled offence was committed by any person under Section 2(1)(y)(ii) of PMLA just because the value of the consignment is not specified as more than Rs. 30 lakhs. In this regard clause 2(1)(y)(ii) is not attracted but in fact clause 2(1)(y)(i) is attracted as the NDPS offences are covered in Part A of the Schedule. Even otherwise the quantum of fraud in the present case is more than Rs. 30 lakhs. Whether the two attached properties are covered within the definition of Proceeds of Crime in any manner since the said two properties were acquired on 19/03/2004 and 18/04/2007 that is much before the alleged incident i.e. 03.12.2011? - HELD THAT - Since these properties were kept afloat by the appellants by using different payments received from Narcotics and Psychotropic Substances suppliers as discussed aforesaid thereby becoming infused with the proceeds of crime generated as a result of commission of offences in terms of Scheduled offences of PMLA these properties themselves can be termed as proceeds of crime being acquired (loan repayment) from the amount of proceeds of crime. Even otherwise it is an established fact that properties of value thereof can be attached as per the second limb of the definition of the proceeds of crime in case of non-availability of the proceeds of crime itself. In the present case since the proceeds of crime is not available the ED has rightful authority to attach the impugned properties even if they were purchased before the incident took place. There are no force in the second argument when the proceeds out of crime was not available with the appellant rather vanished and siphoned off the property of equivalent value can be attached. Whether the properties of the appellant can be attached in absence of any charge of predicate offence against the present appellant? - HELD THAT - It is settled law that regardless of the fact as to whether the appellant is accused of the scheduled offence or not the property can still be attached if the appellant was involved in the act of money laundering even being innocent receiver of the properties derived out of proceeds of crime and in the present case the impugned properties in possession of the appellant are proceeds of crime/value thereof as is evident from the detailed discussion in para 6 above where by these properties were kept afloat by the appellants by using different payments received from Narcotics and Psychotropic Substances suppliers thus becoming infused with the proceeds of crime generated as a result of commission of offences in terms of Scheduled offences of PMLA. Hence these properties themselves can be termed as proceeds of crime being acquired (loan repayment) from the amount of proceeds of crime and thus can be rightly attached regardless of the appellant not being arraigned as an accused. Whether there is nothing on record to show that officer has any reason to believe that the non-attachment of the properties will frustrate any proceedings under PMLA as per section 5(1)(b) or the adjudicating authority has any reason to believe regarding the commission of offence under section 3 of PMLA for issuing show cause notice under section 8(1)? - HELD THAT - In the present case ED recorded ECIR No. 15/AZO/2012 dated 08.11.2012 on the basis of Criminal complaint filed by the DRI against the nine accused persons for commission of offences under the NDPS Act. Thereafter ED initiated the investigation pertaining to the offence of money laundering and recorded the statements of the suspects and others under section 50 of PMLA and collected the documents from various sources. On the basis of incriminating material on record coupled with the allegations mentioned in the prosecution complaint ED passed the PAO No. 7/2015 dated 31.03.2015. Thus the 1st Proviso to sec. 5(1)(b) is duly complied for passing the PAO. Thereafter it filed original complaint no. 492/2015 before the Adjudicating Authority for confirmation of the PAO. However the Ld. Adjudicating Authority has made its careful observation and cited its reason to believe regarding the same based on the perusal of PAO complaint documents relied statements recorded u/s 50 of the PMLA and investigation conducted by the ED. Further the Hon ble High Court of Bombay in the case of Radha Mohan Lakhotia v Deputy Director Enforcement Directorate 2010 (8) TMI 947 - BOMBAY HIGH COURT has held that All that the authority is required to show is that there was sufficiently probable cause to form the opinion that the property under attachment is proceeds of crime. Thus there remains no doubt that the Adjudicating Authority had applied its mind and cited reasons to believe. Hence the impugned order was rightly passed by the Ld. AA for confirmation of PAO. Conclusion - The properties are rightly attached as proceeds of crime or value thereof the scheduled offence was established and the procedural requirements for attachment were fulfilled. The ownership and possession of the properties were to be maintained until the criminal trial attains finality. Appeal dismissed.

Summary

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

(1) Whether no scheduled offence was committed by any person under Section 2(1)(y)(ii) of PMLA as the value of the consignment was not specified as exceeding Rs. 30 lakhs;

(2) Whether the two attached properties, acquired prior to the alleged offence, fall within the definition of "proceeds of crime" under PMLA;

(3) Whether properties of the appellant can be attached in the absence of any charge of predicate offence against the appellant;

(4) Whether there was any reason to believe recorded by the Enforcement Directorate (ED) or the Adjudicating Authority that non-attachment of the properties would frustrate proceedings under PMLA, as required under section 5(1)(b) and section 8(1) of the Act.

Issue 1: Applicability of Scheduled Offence under Section 2(1)(y)(ii) of PMLA

The appellant contended that no scheduled offence was committed as the value of the consignment was not specified as exceeding Rs. 30 lakhs, which is the threshold for offences under Part B of the Schedule to PMLA. The Tribunal analyzed the relevant provisions and held that the appellant's contention was misplaced. The offences under the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) fall under Part A of the Schedule, which does not require any minimum value threshold for applicability under PMLA. Hence, Section 2(1)(y)(ii) was not attracted, but Section 2(1)(y)(i) was squarely applicable.

The Tribunal further noted that the quantum of fraud involved in the case exceeded Rs. 30 lakhs, reinforcing the applicability of PMLA provisions. This finding was based on the detailed financial investigation revealing large sums involved in the narcotics-related transactions.

Issue 2: Whether Properties Acquired Prior to the Incident Constitute 'Proceeds of Crime'

The appellant argued that the two properties attached were purchased in 2004 and 2007, well before the alleged offence in 2011, and thus could not be proceeds of crime. The Tribunal rejected this contention after a detailed examination of the evidence and legal principles.

The investigation revealed that the company controlled by the appellant's husband received substantial payments from suppliers of narcotic drugs and psychotropic substances between April and October 2011. These payments, amounting to nearly Rs. 40 lakhs, were reflected in the company's books as sales but were proceeds of crime. The properties in question were mortgaged to banks to avail credit facilities, and the proceeds of crime were used to reduce the overdraft liabilities on these properties. Thus, the properties were "infused with the proceeds of crime" and constituted proceeds of crime themselves, even if originally acquired earlier.

The Tribunal relied on the definition of "proceeds of crime" under Section 2(1)(u) of PMLA, which includes any property derived directly or indirectly from criminal activity relating to a scheduled offence, or the value of such property. The Tribunal emphasized that the second limb of the definition allows attachment of properties equivalent in value to the proceeds of crime when the actual tainted property cannot be located.

Judicial precedents were cited, including a recent decision of the Delhi High Court, which clarified that properties acquired prior to the commission of the offence are not immune if they are infused with proceeds of crime or represent the value thereof. The Tribunal also referred to the Supreme Court's ruling affirming that attachment of properties equivalent in value to proceeds of crime is permissible even if the proceeds are located outside the country.

Issue 3: Attachment of Properties in Absence of Predicate Offence Charge Against Appellant

The appellant contended that since she was not charged with the predicate offence under the NDPS Act, her properties could not be attached. The Tribunal rejected this argument, holding that under PMLA, attachment can be made if the property is proceeds of crime or value thereof, irrespective of whether the owner is accused in the predicate offence.

The Tribunal observed that the appellant's properties were infused with proceeds of crime, as demonstrated by the financial transactions and the role of the appellant's company in the laundering process. The law does not require the property owner to be an accused in the predicate offence to attach proceeds of crime. Even an innocent receiver of such property can have the property attached under PMLA.

Issue 4: Whether Reasons to Believe Were Recorded for Attachment and Confirmation

The appellant argued that no reason to believe was recorded by the ED or the Adjudicating Authority that non-attachment of the properties would frustrate proceedings under PMLA, as required under Section 5(1)(b) and for issuing show cause notice under Section 8(1).

The Tribunal found that the ED had registered an Enforcement Case Information Report (ECIR) based on a criminal complaint filed by the Directorate of Revenue Intelligence (DRI) against nine accused persons for offences under the NDPS Act. The ED conducted an independent investigation into money laundering, recorded statements under Section 50 of PMLA, and collected documentary evidence.

On the basis of this incriminating material, the ED passed the Provisional Attachment Order (PAO) and filed a complaint before the Adjudicating Authority for confirmation. The Adjudicating Authority, after examining the PAO, complaint, documents, and statements, recorded its reasons to believe that the properties were proceeds of crime and confirmed the attachment.

The Tribunal relied on the High Court's decision that the authority needs only to show that there was sufficiently probable cause to form the opinion that the property under attachment is proceeds of crime. The Tribunal concluded that the Adjudicating Authority had applied its mind and recorded valid reasons for attachment and confirmation.

Significant Holdings and Core Principles

The Tribunal held that the NDPS offences are scheduled offences under Part A of the Schedule to PMLA, and no minimum value threshold applies for invoking PMLA provisions in such cases.

It was established that properties acquired prior to the commission of scheduled offences can be attached if they are infused with or represent the value of proceeds of crime, especially when the actual tainted property is not available. The Tribunal quoted the definition of "proceeds of crime" under Section 2(1)(u) of PMLA and judicial precedents clarifying this principle:

"The expression proceeds of crime envisages both -tainted property as well as -untainted property with it being permissible to proceed against the latter provided it is being attached as equal to the 'value of any such property' or 'property equivalent in value held within the country or abroad'. However, both the italicised categories would be liable to be invoked in cases where the actual tainted property cannot be traced or found out."

The Tribunal affirmed that attachment of properties is permissible even if the owner is not charged with the predicate offence, provided the properties are proceeds of crime or their value.

It was also held that the ED and Adjudicating Authority must record reasons to believe for attachment and confirmation, which can be based on probable cause and material collected during investigation. The Tribunal found such reasons sufficiently recorded in the present case.

In conclusion, the Tribunal dismissed the appeal, holding that the properties were rightly attached as proceeds of crime or value thereof, the scheduled offence was established, and the procedural requirements for attachment were fulfilled. The ownership and possession of the properties were to be maintained until the criminal trial attains finality.