2025 (6) TMI 1181 - AT - Money Laundering

Money Laundering - confirmation of provisional attachment order - bogus/benami transaction of shares by the individual based in Gulf Countries and transfer of money without consideration - impugned order has been passed by the Adjudicating Authority without application of mind because he has merely reproduced the pleadings of both the parties but failed to give reasoning for drawing conclusion - failure to identify predicate/scheduled offence that led to generation of alleged cash - erroneous invocation of section 5(1) of PMLA 2002 - Violation of principles of natural justice - HELD THAT - The appellant is not agreed upon that there is no element of proceed of crime despite failure of the appellant to account for 90 lakhs and serious allegation for heading in supporting PFI for their illegal deeds through the person managing the appellant Company and otherwise Section 5(1) of the Act of 2002 was rightly invoked by the respondent because there remains apprehension of alienation or concealment of the property at any time and it is not necessary that actual concealment or transfer should be made because word likely has been used under section 5(1) of the Act of 2002 to form basis for attachment of property which means apprehension of the concealment or transfer of the property. The argument can be analyzed from other angle that if the appellants did not intend to conceal or transfer the property then even attachment would not affect them rather challenge to the attachment of the properties indicates their intention to sell or conceal the property to frustrate the proceeding of confiscation. Thus the impugned order does not suffer in reference to section 5 (1) of the Act of 2002. So far as the argument that there was no nexus between the appellant company and scheduled offence. Elaborate material has been referred to indicate as to how the affairs of the appellant company relates to scheduled offence. The appellant could not justify deviation of Rs. 90 lakhs which is an outcome of discrepancies in two cash books rather there was admission of discrepancy in the books of accounts by Rajenderan Unni and even Abdul Raza DP - The argument has been made in ignorance to serious allegations and that it became a case of projecting tainted money to be untainted and even its concealment to make out an offence under section 3 of the Act of 2002. The appellant has raised an issue in reference to the predicate offence and proceeds of crime out of it. The appellant said to be not involved in the predicate offence thus there was no basis to even quantify the proceeds of crime in its hand - The appellant Company said to be to layer the money to advance the cost taken by PFI and thus is connected with the predicate offence. They could not disclose the reason of discrepancy of Rs. 90 lakhs in the books of account and that to the cash amount hence rightly taken to be the proceeds of crime. In the light of the allegation that money was coming from abroad and within the country to many person and entities in absence of the explanation to the discrepancy of 90 lakhs in cash. It was connected with activities of PFI and for that to give financial support to the organization. Conclusion - i) The attached immovable properties of the appellant company are held to be proceeds of crime involved in money laundering activities linked to scheduled offences committed by PFI and its associates. ii) The invocation of Section 5(1) for provisional attachment is justified due to reasonable apprehension of concealment or transfer. iii) The appeal challenging the confirmation of provisional attachment order under Section 5(1) of the PMLA is dismissed. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the Adjudicating Authority applied its mind appropriately in confirming the provisional attachment order under Section 5(1) of the PMLA, or merely reproduced pleadings without reasoning.
• Whether the property attached, including immovable assets of the appellant company, constitutes "proceeds of crime" as defined under the PMLA, i.e., property derived directly or indirectly from criminal activity relating to scheduled offences.
• Whether the appellant company has nexus with the predicate/scheduled offences committed by the members of the banned organization (PFI and its associates), especially in relation to money laundering activities.
• Whether the invocation of Section 5(1) of the PMLA for provisional attachment was justified, including the existence of a "likelihood" of concealment or transfer of property.
• Whether the attachment of common areas of the real estate project was legally sustainable, particularly in light of the Kerala Real Estate (Regulation and Development) Rules.
• Whether discrepancies in cash books and alleged unaccounted cash expenses in the appellant company's accounts amount to proceeds of crime or merely accounting irregularities.
• Whether the foreign remittances and transactions involving the appellant company were legitimate business transactions or were part of a criminal conspiracy to launder money for PFI's unlawful activities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Application of Mind by Adjudicating Authority in Confirming Provisional Attachment

Legal Framework and Precedents: Under Section 5(1) of the PMLA, provisional attachment of property can be ordered if the property is "likely" to be involved in money laundering. The Adjudicating Authority must apply its mind and give reasoned orders while confirming such attachment.

Court's Interpretation and Reasoning: The appellant contended that the Adjudicating Authority merely reproduced pleadings without independent reasoning, rendering the order liable to be set aside. The Tribunal rejected this contention, finding that the order was supported by sufficient material and reasoning, and that the statutory requirement of "likely" concealment or transfer was rightly invoked.

Key Evidence and Findings: The Tribunal noted that the apprehension of concealment or transfer does not require actual concealment or transfer but only a reasonable likelihood. The appellant's challenge to the attachment itself indicated an intention to alienate or conceal property.

Conclusion: The Tribunal upheld the confirmation order, holding that the Adjudicating Authority applied its mind properly and the invocation of Section 5(1) was justified.

Issue 2: Whether the Attached Property Constitutes Proceeds of Crime

Legal Framework and Precedents: "Proceeds of crime" under PMLA means any property derived or obtained directly or indirectly from criminal activity relating to scheduled offences. The burden lies on the authorities to establish a prima facie link between the property and the offence.

Court's Interpretation and Reasoning: The Tribunal examined documentary evidence, statements under Section 50 of PMLA, and investigation reports showing that the appellant company's project was used as a front to launder funds collected abroad and domestically by PFI members. The company had unaccounted cash expenses of approximately Rs. 90 lakhs unexplained by management, suspicious foreign remittances, and share transactions with no consideration indicating benami dealings.

Key Evidence and Findings: - Statements of PFI members and directors of the appellant company revealed involvement in fund collection and transfer through illegal channels.
- Discrepancies between petty cash books and official cash books suggested concealment of proceeds.
- Foreign remittances received by company officials could not be satisfactorily explained.
- Share transfers without consideration pointed to layering of proceeds.
- FIRs and chargesheets under IPC, UAPA, Explosives Act, and Arms Act against PFI members corroborated criminal conspiracy and predicate offences.

Application of Law to Facts: The Tribunal held that the unexplained cash discrepancies, suspicious share transactions, and nexus with PFI's unlawful activities established a prima facie case that the property was proceeds of crime.

Treatment of Competing Arguments: The appellant argued that the company was engaged in legitimate real estate business, and cash payments were normal in construction. The Tribunal rejected this, emphasizing that accounting irregularities of such magnitude and failure to explain sources of funds, especially in the context of criminal conspiracy, could not be ignored.

Conclusion: The property attached was rightly held to be proceeds of crime under the PMLA.

Issue 3: Nexus of Appellant Company with Scheduled Offences

Legal Framework and Precedents: For attachment under PMLA, a link between the property and scheduled offences must be established. Mere association with accused persons is insufficient unless there is evidence of involvement in money laundering.

Court's Interpretation and Reasoning: The Tribunal found that the appellant company was not merely associated with PFI members but was actively used as a conduit to launder funds raised by PFI for terrorist and unlawful activities. The company's directors and shareholders included PFI members and associates who failed to explain suspicious transactions.

Key Evidence and Findings: Statements of directors and shareholders under Section 50 showed involvement in fund collection and transfer. The company's financial irregularities and foreign remittances were linked to PFI's activities, including funding anti-CAA protests and inciting communal riots.

Application of Law to Facts: The Tribunal held that the appellant company was part of the criminal conspiracy and its property was used to facilitate money laundering for scheduled offences.

Treatment of Competing Arguments: The appellant contended that majority shareholders had no link with PFI and that the company was registered under the Companies Act conducting legitimate business. The Tribunal rejected this, noting that the presence of PFI members in key positions and failure to explain irregularities established nexus.

Conclusion: The appellant company had sufficient nexus with scheduled offences to justify attachment under PMLA.

Issue 4: Justification for Invocation of Section 5(1) PMLA and Provisional Attachment

Legal Framework and Precedents: Section 5(1) allows provisional attachment if the property is likely to be involved in money laundering and there is risk of concealment or transfer.

Court's Interpretation and Reasoning: The Tribunal emphasized that the word "likely" does not require actual concealment but only a reasonable apprehension. The appellant's challenge to attachment itself suggested possible intention to alienate property.

Key Evidence and Findings: Given the serious allegations, unexplained cash discrepancies, and involvement in criminal conspiracy, the apprehension of concealment or transfer was reasonable.

Conclusion: The invocation of Section 5(1) for provisional attachment was justified and properly exercised.

Issue 5: Legality of Attachment of Common Areas in the Real Estate Project

Legal Framework and Precedents: The appellant argued that common areas like roads, swimming pool, etc., are indivisible and jointly held by allottees under Kerala Real Estate (Regulation and Development) Rules, and thus could not be attached individually.

Court's Interpretation and Reasoning: The Tribunal held that the appellant failed to demonstrate that all villas were sold and that common areas were exclusively held by individual allottees. No appeal was filed by any allottee claiming prejudice. Hence, attachment of common areas was sustainable.

Conclusion: The attachment of common areas was not illegal or improper.

Issue 6: Whether Discrepancies in Cash Books Amount to Proceeds of Crime

Legal Framework and Precedents: Mere accounting irregularities do not constitute money laundering unless linked to proceeds of crime.

Court's Interpretation and Reasoning: The Tribunal found that the discrepancies in cash books totaling over Rs. 90 lakhs were unexplained by the appellant despite repeated opportunities. The large scale of discrepancies combined with the nexus to PFI's unlawful activities indicated that the cash was tainted money.

Key Evidence and Findings: Statements of company officials admitted discrepancies but failed to explain sources. The cash was used for purposes other than project expenses and was not accounted in official books.

Conclusion: The discrepancies amounted to concealment of proceeds of crime and supported the attachment.

Issue 7: Legitimacy of Foreign Remittances and Business Transactions

Legal Framework and Precedents: Legitimate foreign remittances and business transactions are not proceeds of crime.

Court's Interpretation and Reasoning: The appellant claimed that foreign funds were invested by NRIs through proper channels and payments to related companies were for business purposes. The Tribunal found that the foreign remittances were routed through underground and illegal channels, as admitted by PFI members and corroborated by seized documents. The transactions with related companies lacked commercial justification and were part of layering proceeds of crime.

Key Evidence and Findings: Statements under Section 50, seized documents, and investigation reports showed concealment of foreign funds, use of hawala channels, and suspicious share transfers without consideration.

Conclusion: The foreign remittances and business transactions were part of the money laundering scheme and not legitimate business dealings.

3. SIGNIFICANT HOLDINGS

"The word 'likely' under section 5(1) of the Act of 2002 to form basis for attachment of property means apprehension of the concealment or transfer of the property and actual concealment or transfer is not necessary."

"The unexplained discrepancy of Rs. 90 lakhs in cash expenses in the appellant company's books of account, coupled with the nexus to a banned organization involved in scheduled offences, constitutes a prima facie case of proceeds of crime."

"Mere association of shareholders with an unlawful organization does not automatically implicate the company; however, when the company is used as a front to launder money and there is evidence of involvement of its officials in the criminal conspiracy, the company's property can be attached under PMLA."

"Attachment of common areas in a real estate project is sustainable where the appellant fails to prove that all villas are sold and the common areas are indivisible and jointly held by allottees."

"Foreign funds collected by the banned organization through illegal channels and routed through the appellant company for unlawful activities constitute proceeds of crime and are liable to attachment."

"Discrepancies in cash books and failure to account for large cash amounts in a company engaged in construction business, within the context of criminal conspiracy, amount to concealment of proceeds of crime."

"The Adjudicating Authority's order confirming provisional attachment, supported by material and reasoned findings, cannot be faulted for lack of application of mind."

Final determinations:

• The appeal challenging the confirmation of provisional attachment order under Section 5(1) of the PMLA was dismissed.
• The attached immovable properties of the appellant company were held to be proceeds of crime involved in money laundering activities linked to scheduled offences committed by PFI and its associates.
• The nexus between the appellant company and the predicate offences was established on the basis of investigation evidence, statements, and financial irregularities.
• The invocation of Section 5(1) for provisional attachment was justified due to reasonable apprehension of concealment or transfer.
• The attachment of common areas in the real estate project was upheld.
• Foreign remittances and suspicious transactions were held to be part of the criminal conspiracy to launder money.