2025 (6) TMI 687 - AT - Money Laundering

Money Laundering - attachment of properties - operation of large scale Hawala racket in online international cricket betting through U.K. based website - fulfilment of conditions precedent for attachment under Section 5(1) of the PMLA or not - HELD THAT - PMLA 2002 lays down elaborate provisions with regard to the properties and documents seized under the Act. Further the said provisions are couched in mandatory language as indicated by the use of the word shall and it is not left to the authorities acting under the provisions of the Act to choose a different course of action as per their desire. They may no doubt decide not to retain the property which has been seized and return the same to the person from whom such property was seized even before the expiration of 180 days. However if they decide that the property needs to be retained the same would have to be in accordance with the provisions of the Act. There is nothing on record in the present case to indicate that the respondent Directorate having seized the properties under Section 17(1) took any of the other mandatory steps as laid down in the Act including forwarding of reasons and material to the AA immediately after the search filing an of OA before the AA within 30 days thereafter recording any reason to believe that the property is required to be retained for the purposes of adjudication forwarding a copy of Retention Order along with the material in possession to the AA etc. - Insofar as seeking permission of the Ld. AA to retain the property beyond the initial period 180 days is concerned the same has admittedly not been done by the respondent Directorate. Instead they proceeded to attach the property already seized and lying in their custody under Section 5 and thereafter follow the procedure laid down by the Act in respect of attached properties rather than the one in respect of seized properties. In the present case admittedly the provisions of the Second Proviso have not been invoked. As is evident from the plain language of the above provision in order to invoke the powers under Section 5(1) first and foremost the twin requirements mentioned in (a) and (b) have to be met namely the Director or other officer authorised by the Director for the purposes of the section has to have reason to believe which are also required to be recorded in writing on the basis of material in his possession that (a) any person is in possession of any proceeds of crime; and (b) such proceeds of crime are likely to be concealed transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter. A perusal of the definition of person u/s 2(s) indicates that the respondent Directorate would not fall within the ambit of person for the purposes of the Act. Therefore the first requirement of the provision that the property in is the possession of any person was not met in the present case. Insofar as the second requirement in concerned namely that such proceeds of crime are likely to be concealed transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter the property being already in the custody of the respondent directorate there was no such likelihood whatsoever. Therefore as neither of the conditions prescribed u/s 5 was fulfilled the respondents could not have invoked the said provision to attach the property which was already under seizure. The respondents were required to follow the due procedure and obtain the orders of the Ld. AA under Section 8 for extension of retention of the seized property whereafter the retention of the seized property would have continued during investigation for a period not 365 days and further during the pendency of the prosecution complaint filed by them before the Special Court. The attachment of property under Section 5 fails and cannot be sustained in the eyes of law. Furthermore it is already held that once property is seized under Section 17 the only proper course of action in law is to seek its retention and not to attach the very same property under a different provision of the Act. Conclusion - The attachment order under Section 5 of the PMLA is illegal and unsustainable because the ED failed to follow the mandatory procedure for retention of seized property under Sections 17(4) and 20. The conditions for attachment under Section 5 were not fulfilled as the property was already in ED s possession negating the requirement that a person must be in possession and that there must be a risk of concealment or transfer. The impugned order is set aside - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

(a) Whether the Enforcement Directorate (ED) was legally entitled to attach properties already seized under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA) by invoking Section 5 of the PMLA, without first following the mandatory procedure for retention of seized property under Sections 17(4) and 20 of the Act.

(b) Whether the conditions precedent for attachment under Section 5(1) of the PMLA were fulfilled, particularly the requirement that the Director or authorized officer must have reason to believe that a person is in possession of proceeds of crime and that such proceeds are likely to be concealed or dealt with so as to frustrate confiscation proceedings.

(c) Whether the Adjudicating Authority (AA) complied with the procedural and substantive requirements under Section 8 of the PMLA while confirming the attachment order, including proper consideration of the appellant's submissions and evidence regarding the nature and source of the seized property.

(d) Whether the alleged offences, including cricket-betting and procurement of SIM cards by forgery, constitute scheduled offences under the PMLA, and consequently, whether the properties attached could be considered 'proceeds of crime' under the Act.

(e) Whether the seized cash amounting to Rs. 26,30,000/- legitimately belonged to the appellants or their business entities and was duly accounted for, thereby not constituting proceeds of crime.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Legality of Attachment under Section 5 after Seizure under Section 17

Relevant Legal Framework and Precedents: The PMLA provides a detailed procedural framework for dealing with seized properties. Section 17 authorizes seizure and retention of property for a limited period, requiring an application within 30 days to the Adjudicating Authority (AA) for retention beyond 30 days. Section 20 permits retention for up to 180 days, subject to AA's approval. Section 5 empowers the Director or authorized officer to provisionally attach property involved in money laundering if certain conditions are met, but this is distinct from seizure and retention under Section 17.

The Supreme Court in Vijay Madanlal Choudhary v. UOI upheld the constitutionality of Section 17 and emphasized the mandatory procedural safeguards therein.

Court's Interpretation and Reasoning: The Tribunal observed that the ED seized the properties on 09.05.2015 under Section 17 but did not follow the mandatory steps prescribed under Sections 17(4) and 20, such as filing an application for retention before the AA within 30 days or obtaining AA's permission for retention beyond 180 days. Instead, the ED issued a Provisional Attachment Order (PAO) under Section 5, attaching the same properties already in its possession.

The Tribunal held that the provisions of the PMLA are couched in mandatory terms ("shall"), and the ED was bound to follow the specific procedure for retention of seized property rather than attaching it under Section 5. The Tribunal emphasized the settled legal principle that if a statute prescribes a mode of procedure, it must be strictly followed.

Key Evidence and Findings: The record showed no application for retention under Section 17(4) or Section 20 was filed by the ED. The PAO was issued without invoking the second proviso of Section 5(1), which requires recording reasons to believe in writing.

Application of Law to Facts: Since the property was already in ED's possession, the condition in Section 5(1)(a) that any person is in possession of proceeds of crime was not satisfied. Also, the likelihood of concealment or transfer (Section 5(1)(b)) was negated by the fact that the ED already held the property. Thus, the mandatory conditions for attachment under Section 5 were not fulfilled.

Treatment of Competing Arguments: The ED argued that both retention under Section 17/20 and attachment under Section 5 were alternative remedies and that the choice of procedure was within their discretion. The Tribunal rejected this, holding that the statutory scheme mandates following the retention procedure once seizure has occurred, and attachment under Section 5 is not applicable to already seized property.

Conclusion: The attachment under Section 5 of the property already seized under Section 17 was illegal and unsustainable.

Issue (b): Fulfillment of Conditions for Attachment under Section 5(1)

Relevant Legal Framework: Section 5(1) requires the Director or authorized officer to have reason to believe, recorded in writing, that (a) any person is in possession of proceeds of crime, and (b) such proceeds are likely to be concealed or dealt with so as to frustrate confiscation proceedings.

Court's Interpretation: The Tribunal noted that the ED did not invoke the second proviso of Section 5(1) which allows attachment even without a report under Section 173 CrPC if reasons are recorded. The ED also did not record reasons to believe as required. Since the property was already in ED's custody, no "person" was in possession, and no risk of concealment or transfer existed.

Application to Facts: The Tribunal found that neither condition (a) nor (b) was fulfilled, rendering the attachment invalid.

Issue (c): Compliance with Section 8 by the Adjudicating Authority

Relevant Framework: Section 8 requires the AA to consider replies, hear parties, and record findings on whether properties are involved in money laundering before confirming attachment or retention.

Findings: The appellants contended that the AA merely reiterated submissions without applying mind or addressing whether the offences were scheduled offences, or whether the properties were proceeds of crime. The Tribunal agreed that the AA failed to properly consider the appellants' evidence, including documentary proof of legitimate business transactions and accounting.

Conclusion: The AA's confirmation of attachment was procedurally flawed and lacked proper adjudication.

Issue (d): Whether the Alleged Offences Constitute Scheduled Offences under PMLA

Context: The appellants argued that cricket-betting is not a scheduled offence under the PMLA, and the alleged forgery related to SIM cards was unrelated to the attached properties.

Tribunal's Approach: The Tribunal did not decide on this issue due to the overarching illegality of the attachment order and procedural lapses. It observed that these issues are better adjudicated in the pending prosecution before the Special Court.

Issue (e): Source and Ownership of the Seized Cash

Arguments: The appellants claimed the seized amount belonged exclusively to one brother, Tushar Bansal, proprietor of M/s Balaji Agencies, and was duly accounted for with supporting documents. The ED disputed the genuineness and sufficiency of this evidence.

Tribunal's Findings: The Tribunal noted the AA failed to properly consider this evidence and the nexus between the seized cash and scheduled offences was not established. However, since the attachment order itself was set aside on procedural grounds, the Tribunal refrained from deciding on this issue.

3. SIGNIFICANT HOLDINGS

"The provisions of the PMLA, 2002 are couched in mandatory language, as indicated by the use of the word 'shall' and it is not left to the authorities acting under the provisions of the Act to choose a different course of action as per their desire."

"Since the properties in question were already in the possession of the respondent Directorate in the present case, the first requirement of the provision that the property is in the possession of any 'person' was not met. Further, there was no likelihood of concealment or transfer as the property was already in custody of the Directorate. Therefore, the respondents could not have invoked the said provision to attach the property which was already under seizure."

"The attachment of property under Section 5 fails and cannot be sustained in the eyes of law. Once property is seized under Section 17, the only proper course of action in law is to seek its retention and not to attach the very same property under a different provision of the Act."

"The Adjudicating Authority has failed to appreciate the evidence and submissions of the appellants and has merely reiterated contentions without application of mind, thus the confirmation of attachment order is illegal."

"The order of the Adjudicating Authority confirming the attachment is hereby set aside."

The Tribunal's final determination was that the attachment order under Section 5 of the PMLA was illegal and unsustainable because the ED failed to follow the mandatory procedure for retention of seized property under Sections 17(4) and 20. The conditions for attachment under Section 5 were not fulfilled as the property was already in ED's possession, negating the requirement that a person must be in possession and that there must be a risk of concealment or transfer. The AA's confirmation of the attachment was also procedurally defective for failing to properly consider the appellants' evidence and submissions. Consequently, the impugned order confirming attachment was set aside, and the appellants were entitled to the release of the seized property. The Tribunal expressly refrained from commenting on the merits of the scheduled offence or the genuineness of the property's source, leaving those issues to be decided in the pending prosecution before the Special Court.