2025 (6) TMI 1177 - AT - Money Laundering

Money Laundering - attachment of properties - proceeds of crime - illegal activity of exchange of old demonetized currency into new currency with a conspiracy and collusion with the bank officials - existence of direct evidence that the property was acquired from the proceeds of crime or not - HELD THAT - Admittedly at present appellant is not facing any trial along with the co-accused persons in predicate offence and even no charge sheet is filed against him. However question of releasing the property on this ground does not arise seeing the fact that no closure report is filed by the police against the accused persons till date. Therefore till the filing of the charge sheet or the closure report it is not inclined to allow the appeal at this pre mature stage. In the present case FIR is already registered against the accused persons for commission of predicate. The role of the present appellant is clearly mentioned - Hence PAO was rightly passed by the ED fir attaching the property of the appellant. Conclusion - 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 which says Whether any proceeds of crime were generated by commission of crime/predicate offence has been applied to attach the property of equivalent value. Thus the ground raised by the appellant cannot be accepted. The present appeal is hereby dismissed being devoid of any merit.

The core legal questions considered by the Tribunal in this appeal under Section 26 of the Prevention of Money Laundering Act, 2002 (PMLA) are as follows:

1. Whether the provisional attachment order (PAO) passed by the Enforcement Directorate (ED) and confirmed by the Adjudicating Authority against the appellant's property as "value thereof" of proceeds of crime is valid in the absence of a charge sheet or trial in the predicate offence.

2. Whether the property of the appellant can be attached as "value of proceeds of crime" under the PMLA when there is no direct evidence that the property was acquired from the proceeds of crime.

3. Whether the second proviso to Section 5(1)(b) of the PMLA, which mandates certain procedural safeguards including the filing of a police report under Section 173 Cr.P.C. before attachment, applies to attachment of property as "value thereof" and whether the ED complied with the requirement of recording "reason to believe" before attachment.

4. The scope and ambit of the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA, particularly the interpretation of the phrase "value of any such property" and the applicability of this interpretation to properties acquired prior to commission of the predicate offence.

5. The extent of ED's investigative powers vis-`a-vis the predicate offence investigation by the police and the interplay between the predicate offence investigation and money laundering investigation.

Issue-wise Detailed Analysis

1. Validity of Provisional Attachment Order and Confirmation in Absence of Charge Sheet

Legal Framework and Precedents: Section 5 of the PMLA empowers the ED to provisionally attach properties involved in money laundering. The provisos to Section 5(1)(b) require that no attachment shall be made unless a police report under Section 173 Cr.P.C. or a complaint has been filed in relation to the scheduled offence. The Apex Court judgment in Smt. Pavana Dibbur v. Directorate of Enforcement (2023) was cited by the appellant to argue that attachment without charge sheet or trial is impermissible.

Court's Interpretation and Reasoning: The Tribunal noted that although no charge sheet has been filed against the appellant in the predicate offence, no closure report has been filed either. Therefore, the absence of a charge sheet does not automatically entitle the appellant to release of the attached property at this premature stage. The Tribunal emphasized that the ED's role is limited to investigating money laundering and not re-investigating the predicate offence, which remains the police's domain.

Application of Law to Facts: Since FIR was registered and investigation was ongoing, the Tribunal held that the ED was justified in proceeding with attachment under PMLA. The appellant's contention that the attachment is premature was rejected.

Treatment of Competing Arguments: The appellant's reliance on the absence of charge sheet and the Pavana Dibbur judgment was considered but distinguished on facts. The Tribunal pointed out that the Pavana Dibbur judgment did not consider the entire scope of Section 5 provisos and the ongoing investigation status.

Conclusion: The attachment was valid notwithstanding the absence of a charge sheet, given the ongoing investigation and no closure report.

2. Attachment of Property as "Value Thereof" Under Definition of Proceeds of Crime

Legal Framework and Precedents: Section 2(1)(u) of PMLA defines "proceeds of crime" to include "any property derived or obtained, directly or indirectly, by any person as a result of criminal activity" or "the value of any such property." The Tribunal relied on the Delhi High Court judgment in Prakash Industries Ltd. v. Directorate of Enforcement (2022) and the Apex Court judgment in Vijay Madanlal Chaudhary v. Union of India (2022) which interpret the ambit of "value of any such property" to include properties not directly acquired from proceeds of crime but equivalent in value, especially where the actual tainted property cannot be traced.

Court's Interpretation and Reasoning: The Tribunal observed that the definition has three limbs: (i) property directly or indirectly derived from criminal activity; (ii) "value of any such property"; and (iii) property equivalent in value held within or outside India. The second and third limbs allow attachment of untainted properties or properties acquired prior to the offence, provided they are equivalent in value to proceeds of crime that cannot be located.

Key Evidence and Findings: The investigation revealed a detailed money laundering scheme involving demonetized currency, bogus billing, layering of funds through front companies, and conversion into bullion. The appellant was involved in the scheme, and the ED attached his property as "value thereof" of proceeds of crime.

Application of Law to Facts: Since the actual proceeds of crime were dissipated or siphoned off, the Tribunal held that attachment of the appellant's property as equivalent value was justified under the second limb of the definition.

Treatment of Competing Arguments: The appellant argued that since the property was not directly purchased from proceeds of crime, it cannot be attached. The Tribunal rejected this, relying on authoritative judgments that allow attachment of equivalent value property to prevent dissipation of proceeds of crime.

Conclusion: The property attached as "value thereof" is valid under Section 2(1)(u) of PMLA.

3. Applicability of Provisos to Section 5(1)(b) and Requirement of "Reason to Believe"

Legal Framework: The provisos to Section 5(1)(b) require that attachment orders be preceded by a police report or complaint and that the ED record reasons to believe in writing before attachment to prevent frustration of proceedings.

Court's Interpretation and Reasoning: The appellant contended that no reason to believe was recorded by the ED before passing the PAO or by the Adjudicating Authority before confirmation. The Tribunal found that the FIR and investigation material provided sufficient basis for the ED's belief. The Tribunal held that the second proviso's safeguards are primarily directed at attachment of properties directly involved in money laundering, but do not preclude attachment of properties as "value thereof" where proceeds have been dissipated.

Application of Law to Facts: The ED had recorded ECIR and conducted detailed investigation, including statements and seizure of material, which supported the belief that attachment was necessary to prevent frustration of proceedings.

Conclusion: The procedural requirements under the provisos were satisfied in substance, and the attachment was valid.

4. Scope of ED's Investigative Powers and Interplay with Police Investigation

Legal Framework: The ED's mandate under PMLA is to investigate money laundering offences, which are consequential to predicate offences investigated by police under IPC or other statutes.

Court's Interpretation and Reasoning: The Tribunal reiterated that ED is not empowered to re-investigate the predicate offence but must satisfy itself on prima facie evidence of scheduled offence, proceeds of crime, and laundering thereof. The police investigation and filing of charge sheet or closure report remain essential for prosecution of predicate offence.

Application of Law to Facts: The FIR registered under IPC Sections 420 and 120B, and subsequent addition of Prevention of Corruption Act sections, formed the predicate offence investigation. ED's investigation focused on money laundering aspects, including layering and conversion of demonetized currency.

Conclusion: The ED's investigation and attachment were consistent with its statutory role and did not encroach upon police investigation.

5. Evidentiary Findings and Application of Law to Facts

The investigation revealed a complex scheme involving multiple accused, front companies, bank officials, and bullion traders to convert demonetized currency into monetized assets and gold. Statements under Section 50 of PMLA, seizure of cash and gold bars, forged documents, and bank records established the modus operandi and involvement of the appellant and others. The appellant's property was attached as equivalent value of proceeds of crime which were dissipated.

Significant Holdings

"The first three points mentioned above are sufficient to give a reasonable believe to take immediate action by ED for search, seizure & attachment of properties. In the present case FIR is already registered against the accused persons for commission of predicate. The role of the present appellant is clearly mentioned in para no.2 above. Hence, PAO was rightly passed by the ED for attaching the property of the appellant."

"Even the properties if not purchased from the proceeds of crime, even then, in absence of the proceeds of crime, the properties can also be attached 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."

"It is only where the respondents are unable to discover the tainted property that they can take the statutory recourse to move against properties which may fall within the ambit of 'value of any such property' or 'property equivalent in value held within the country or abroad.'"

"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 appeal is hereby dismissed being devoid of any merit. However, it is made clear that nothing expressed herein will affect the right of any party and respondent ED will not take any coercive action, till the prosecution complaint attains finality, except under exceptional circumstances."

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