2025 (6) TMI 18 - AT - Money Laundering

Money Laundering - attachment of property - relevance and sufficiency of investigation and evidence linking the attached properties to the alleged money laundering offence - delay of over ten years since the FIR affects the validity of the attachment orders - HELD THAT - The property which is inherited or acquired prior to the commission of the scheduled offence can also be attached by ED as value thereof as value thereof under the second limb of the definition of proceeds of crime under Section 2(1)(u) of the Prevention of Money-Laundering Act 2002. The judgment of the Apex Court in the case of Smt. Pavana Dibbur vs The Directorate of Enforcement 2023 (12) TMI 49 - SUPREME COURT has also been considered which is silent about para 68 of Vijay Madanlal Choudhary Vs. Union of India. It seems that this particular para 68 was not pointed out during the arguments in case of Pavana Dibbur case. Even otherwise findings given by three judges Bench of the Apex Court in the Vijay Madanlal Choudhary Vs. Union of India has been relied to give interpretation to the definition. In the light of the above there are no force in the argument when the proceeds out of crime was not available with the appellant rather vanished and siphoned off the property of equivalent value has been attached. In the light of the aforesaid second limb of the definition of proceeds of crime has been applied to attach the property of equivalent value. Thus the ground raised by the appellant cannot be accepted. Appeal dismissed.

Summary

The core legal questions considered in this appeal under Section 26 of the Prevention of Money Laundering Act (PMLA), 2002, pertain to the validity and scope of attachment of properties by the Enforcement Directorate (ED) as "proceeds of crime." Specifically, the issues include:

1. Whether properties inherited or acquired prior to the commission of the scheduled offence can be attached as proceeds of crime or their equivalent value under the PMLA.

2. The applicability and interpretation of the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA, particularly the second limb relating to the value of any such property or property equivalent in value.

3. The legitimacy of attaching properties in the name of the accused's family members, including those allegedly purchased from the proceeds of crime.

4. The relevance and sufficiency of investigation and evidence linking the attached properties to the alleged money laundering offence.

5. Whether the delay of over ten years since the FIR affects the validity of the attachment orders.

Issue-wise Detailed Analysis:

1. Attachment of Properties Inherited or Acquired Prior to the Scheduled Offence

The legal framework revolves around the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA, which includes:

"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."

The Court referenced the Delhi High Court's judgment in Prakash Industries Ltd. v. Directorate of Enforcement, which clarified that properties acquired prior to the enforcement of the Act are not completely immune from attachment. The Court explained that the Act contemplates attachment not only of tainted property but also untainted property to the extent of the value of proceeds of crime, particularly when the actual tainted property cannot be traced.

The Tribunal also relied on its own precedent in Sadananda Nayak v. Deputy Director, ED, which upheld the principle that properties acquired before the offence may be attached as value equivalent to proceeds of crime, subject to safeguards protecting bona fide third parties.

Further, the Supreme Court's ruling in Vijay Madanlal Chaudhary v. Union of India was pivotal, especially paragraph 68, which emphasized the wide scope of the definition of "proceeds of crime," allowing attachment of properties equivalent in value within the country even if the tainted property is held abroad or is untraceable.

Applying this legal framework, the Court held that the appellant's inherited properties and those acquired prior to the offence could be attached as value equivalent to proceeds of crime, especially since the actual proceeds were not available or had been siphoned off.

2. Attachment of Properties in the Name of Family Members Purchased from Proceeds of Crime

The appellant contended that properties in the name of his wife were purchased from her own earnings and savings, and thus should not be attached. The ED countered by stating that the properties were acquired in 2006-07, contemporaneous with the commission of the offence, and no evidence was produced to prove the wife's independent source of income or savings.

The Court, relying on the Supreme Court's Vijay Madanlal Chaudhary judgment, held that properties purchased from the proceeds of crime, even if in the name of family members, are liable for attachment. The appellant failed to establish the independent source of funds for these properties, thus justifying their attachment.

3. Sufficiency of Investigation and Evidence Linking Properties to Money Laundering

The appellant argued that the ED's attachment was based solely on the FIR and allegations without independent investigation, and that no documentary proof was provided regarding the payment of Rs. 2.49 crores in cash. The appellant also challenged the complainant's financial capacity to make such payments.

The Court observed that the ED's investigation included seizure of incriminating documents from the appellant's residence, statements of witnesses and co-conspirators, and tracing of properties and bank accounts linked to the offence. The investigation established that the appellant received Rs. 2.49 crores in cash from the complainant and that other amounts were deposited in a forged account.

Regarding the complainant's financial capacity, the Court noted that such issues are to be tested during the criminal trial and cross-examination, not at the stage of attachment under PMLA. The Court found no infirmity in the ED's reliance on the investigation and evidence to attach the properties.

4. Delay in Attachment Proceedings

The appellant contended that attachment after more than ten years from the FIR was unjustified. The ED argued that money laundering is a continuing offence and delay does not vitiate the attachment.

The Court agreed with the ED, holding that the PMLA contemplates attachment at any stage during the continuing offence and investigation. Delay alone is not a ground for releasing attached properties.

5. Interpretation of "Proceeds of Crime" under Section 2(1)(u) PMLA

The Court undertook a detailed interpretation of the definition, emphasizing three limbs:

• Property directly or indirectly derived from criminal activity.
• The value of any such property.
• Property equivalent in value held within or outside the country.

The Court highlighted that when actual tainted property cannot be located, the Act permits attachment of untainted property or property equivalent in value to ensure recovery of proceeds of crime. The Court distinguished the recent Supreme Court judgment in Pavana Dibbur v. ED, noting that it did not consider paragraph 68 of Vijay Madanlal Chaudhary, which supports the broader interpretation adopted here.

Significant Holdings:

"The property which is inherited or acquired prior to the commission of the scheduled offence can also be attached by ED as value thereof, as value thereof under the second limb of the definition of 'proceeds of crime' under Section 2(1)(u) of the Prevention of Money-Laundering Act, 2002."

"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."

"In the light of the aforesaid, second limb of the definition of 'proceeds of crime' has been applied to attach the property of equivalent value."

"Attachment of properties after the 10 years of FIR is no ground to release the properties as the offence of money laundering is a continuing offence."

"The issue regarding the financial condition of the complainant to pay sale consideration to the appellant cannot be doubted at this stage, as the present appellant is at liberty to cross examine the complainant on this aspect in the criminal trial."

The Court concluded that the appellant failed to establish any infirmity in the attachment orders. The properties, including inherited and family members' properties, were rightly attached as proceeds of crime or their equivalent value. The appeal was dismissed, with a caveat that no coercive action be taken by the ED until the criminal prosecution attains finality, except under exceptional circumstances.