2025 (6) TMI 1271 - AT - Money Laundering

Money Laundering - attachment of properties - proceeds of crime - scheduled/predicate offence - reasonable belief that the properties identified during the PMLA investigation were acquired from the proceeds of crime or not - HELD THAT - The appellant failed to point out any valid ground to allow the present appeal. Out of sale consideration of Rs. 29, 79, 816/- the present appellant tendered the sum of Rs. 14, 79, 816/- by way of installments from 2007 onwards during the period of commission of predicate offence which is apparently part of the proceeds of crime. The total quantum of allegation against the present appellant is for a sum of Rs. 16, 99, 000/- which is approximately equivalent to the part payment made by the present appellant for acquiring the aforesaid property. Hence the property of the present appellant cannot be released at this premature stage as trial is pending against him in the prosecution complaint case in the scheduled/ predicate offence. Conclusion - i) The attachment of the appellant s property was rightly confirmed by the Adjudicating Authority. ii) The appellant s acquisition of the property is connected to proceeds of crime. iii) The appeal challenging the confirmation of attachment is dismissed The present appeal is hereby dismissed being devoid of any merits. However no coercive step for possession and confiscation be taken by respondent ED till the said criminal trial attains finality except under exceptional circumstances.

Summary

The core legal questions considered in this appeal under section 26 of the Prevention of Money Laundering Act, 2002 (PMLA) pertain to:

(i) Whether the properties attached by the Enforcement Directorate (ED) under the Provisional Attachment Order (PAO) dated 31.03.2016 were rightly confirmed by the Adjudicating Authority (AA) as proceeds of crime;

(ii) Whether the appellant's acquisition of the immovable property, specifically the flat purchased via Sale Deed No. 52 dated 03.03.2010, was directly or indirectly from the proceeds of crime;

(iii) Whether the appellant had knowledge or involvement in the predicate offences alleged under the Indian Penal Code (IPC) and the Prevention of Corruption (PC) Act, 1988, which underpin the money laundering investigation;

(iv) The validity and sufficiency of the investigation conducted by the ED and the evidentiary basis for attachment;

(v) The applicability of interim relief concerning possession and confiscation pending the finality of the criminal trial.

Issue-wise Detailed Analysis:

1. Validity of Attachment of Property under PMLA and Connection to Proceeds of Crime

The legal framework governing attachment under PMLA requires that the ED form a reasonable belief that the property is "proceeds of crime" as defined under section 2(1)(u) of the Act. The Court considered the investigation reports, charge sheets filed by the Central Bureau of Investigation (CBI), and the statements recorded under section 50 of PMLA, alongside documentary evidence obtained from banks and other sources.

Precedents emphasize that attachment is a preventive measure and the burden lies on the appellant to prove that the property is not connected to the proceeds of crime. The Court noted that the ED's investigation revealed that the appellant was involved in the misappropriation of funds amounting to Rs. 16,99,000/- out of a larger sum of Rs. 5,49,00,000/- which was siphoned off from government funds intended for afforestation and development projects.

The Court found that the appellant's property acquisition coincided with the period during which the predicate offences were committed, and part payments towards the property were made during this timeframe from alleged proceeds of crime. The appellant's claim of loan from HDFC and savings was scrutinized against payment receipts and bank records, which indicated that payments were made directly to the builder during the period of commission of offences, undermining the appellant's defense.

Consequently, the Court applied the principle that where there is a prima facie link between the property and proceeds of crime, attachment is justified pending trial. The Court rejected the appellant's contention that the property was acquired from legitimate sources, emphasizing the ongoing criminal proceedings and the need to preserve the status quo.

2. Appellant's Knowledge and Involvement in Predicate Offences

The predicate offences involved conspiracy, criminal breach of trust, cheating, forgery, and corruption under IPC sections 120B, 409, 420, 468, 471, and under sections 13(1)(c), 13(1)(d), and 13(2) of the PC Act, 1988. The appellant was a Divisional Forest Officer (DFO) during the relevant period and was alleged to have deposited substantial sums into accounts controlled by accused persons involved in fraudulent activities.

The appellant argued he was a subordinate officer following instructions from the Chief Executive Member of the Autonomous District Council and had no knowledge of irregularities. However, the Court noted that the charge sheet and investigation revealed active involvement of the appellant in depositing funds into accounts of firms linked to the accused conspirators, which were subsequently misappropriated.

The Court found the appellant's defense of ignorance unsubstantiated in light of documentary evidence and the modus operandi of the conspiracy, which included the appellant's financial transactions facilitating the laundering of proceeds. The Court held that mere subordinate status does not absolve responsibility when the accused has handled proceeds of crime.

3. Sufficiency and Independence of ED Investigation

The appellant contended that the ED's investigation was not independent and was based on presumptions and assumptions, relying heavily on the CBI's chargesheets without conducting a fresh probe. The Court observed that the ED had recorded statements under section 50 PMLA, collected extensive documentary evidence, and traced the flow of funds through bank accounts, thereby forming a reasonable belief necessary for attachment.

The Court reaffirmed that under PMLA, the ED's investigation can be based on predicate offence investigations and that the formation of reasonable belief does not require proof beyond reasonable doubt at the attachment stage. The Court found the investigation sufficient to uphold the attachment.

4. Application of Law Regarding Attachment and Trial Status

The Court applied the settled principle that attachment under PMLA is a preventive measure to ensure that proceeds of crime are not dissipated before trial. The Court noted the ongoing prosecution and held that premature release of attached property would defeat the purpose of the Act.

However, the Court also balanced this with the principle of fairness by directing that no coercive steps for possession or confiscation be taken until the criminal trial attains finality, except in exceptional circumstances as held by the Supreme Court in the cited precedent. This preserves the appellant's rights while safeguarding the investigation and trial process.

Treatment of Competing Arguments

The Court carefully considered the appellant's arguments regarding lack of knowledge, legitimate source of funds, and the timing of payments. It also weighed the respondent's evidence of financial transactions linked to the proceeds of crime and the pattern of misappropriation.

The Court found the appellant's arguments insufficient to rebut the reasonable belief formed by the ED and the confirmation by the AA. The Court emphasized the ongoing nature of trial and the need to maintain attachment to prevent dissipation.

Conclusions

The Court concluded that the properties attached were rightly confirmed as proceeds of crime at this stage. The appellant failed to establish a legitimate source of funds for the property acquisition or to disprove involvement in the predicate offences. The appeal was dismissed, with directions protecting the appellant's interest pending trial.

Significant Holdings

"Out of sale consideration of Rs. 29,79,816/-, the present appellant tendered the sum of Rs. 14,79,816/- by way of installments from 2007 onwards, during the period of commission of predicate offence, which is apparently part of the proceeds of crime."

"Hence, the property of the present appellant cannot be released at this premature stage as trial is pending against him in the prosecution complaint case in the scheduled/predicate offence."

"No coercive step for possession and confiscation be taken by respondent ED, till the said criminal trial attains finality, except under exceptional circumstances as held by the Hon'ble Supreme Court of India."

The core principles established include:

- Attachment under PMLA requires a reasonable belief that the property is proceeds of crime, which can be formed on the basis of predicate offence investigations and supporting evidence.

- Mere subordinate status of an accused does not absolve responsibility if there is evidence of involvement in handling proceeds of crime.

- The burden lies on the appellant to prove legitimate acquisition of property.

- Interim attachment is justified pending trial to prevent dissipation of proceeds of crime, but coercive action should be deferred until trial conclusion unless exceptional circumstances exist.

- The ED's investigation need not be entirely independent but must be sufficient to form reasonable belief under PMLA.

Final determinations:

(i) The attachment of the appellant's property was rightly confirmed by the Adjudicating Authority;

(ii) The appellant's acquisition of the property is connected to proceeds of crime;

(iii) The appeal challenging the confirmation of attachment is dismissed;

(iv) No coercive possession or confiscation shall be taken until the criminal trial attains finality except in exceptional cases.