2025 (6) TMI 1273 - AT - Money Laundering

Money Laundering - proceeds of crime - attachment of property - criminal conspiracy for committing fraud with various banks - name of accused and even the name of present appellants is not mentioned in the ECIR and the chargesheet - non-corporeal juristic person - reasons to belief that the appellant is in possession of proceeds of crime - legitimate source of income - provision of value thereof for attaching the properties equivalent the value held within the country will be applicable with the retrospective effect or not. Whether the property of the appellants can be attached despite the fact that the said FIR is silent regarding the name of M/s SRV Polished Diamonds Pvt. Ltd. and M/s M/S SJR Commodities Consultancies Pvt. Ltd. as an accused and even the name of present appellants is not mentioned in the ECIR and the chargesheet? - HELD THAT - The law on this issue now stands settled by the landmark judgment of the Hon ble Supreme Court in the case of Vijay Madanlal Choudhary and Ors. vs. Union of India (UOI) and Ors. 2022 (7) TMI 1316 - SUPREME COURT (LB) where it was held that We find force in the stand taken by the Union of India that the objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering. The second proviso therefore addresses the broad objectives of the 2002 Act to reach the proceeds of crime in whosoever s name they are kept or by whosoever they are held. Therefore the property in the hands of any person in possession of proceeds of crime can be attached even if he is not accused of the predicate offence investigated by the police/CBI. Accordingly this issue is decided against the appellants and in favour of respondent ED. Whether the properties of the appellant companies can be attached for any offence allegedly committed by its shareholders/directors as the appellant companies are non-corporeal juristic person? - HELD THAT - The fact that the accused persons were major shareholders in M/s SRV and in M/s SJR Commodities Consultancies Pvt. Ltd and were managing the affairs of the said companies the role of the said accused persons/shareholders cannot be segregated to give immunity to the appellant companies simply because the remittance was sent outside the country by the other accused companies of the said shareholders. However the appellant companies can pursue the alternate remedy against the said shareholders (apart from holding and appropriating the shares of the accused shareholders and accused companies) for their acts and omissions which led loss to the present appellant companies. However these appellant companies are at liberty to raise their defence before the Ld. trial court as per law. This issue is disposed of. Whether the respondent ED has brought on record any tangible material and has any reasons to belief that the appellants are in possession of proceeds of crime and such proceeds are likely to be concealed transferred or dealt with any manner which may result in frustrating any proceedings under the Act and thereby fulfilled the requirements of Section 5? - HELD THAT - The registration of FIR against the accused persons acquisition of proceeds of crime by sending the remittance to foreign countries layering the proceeds of crime in the name of the companies of the accused persons and filing of the prosecution complaint during this intervening period the said properties are rightly attached by the ED and confirmed by the Adjudicating Authority. This issue is accordingly decided against the appellants and in favour of ED. Moreover the contention of the appellants that they are not accused in the predicate offence and that they have not transmitted any money to the foreign countries and thus the property equivalent in value under the third limb of the definition of proceeds of crime cannot be attached does not hold good in light of the fact that the present companies are the group companies of the main accused persons and the accused companies. Conclusion - The properties attached were rightly considered proceeds of crime or equivalent in value thereof acquired through layering and concealment of criminal proceeds. The appellants failed to establish legitimate source or break the nexus with the predicate offence. The retrospective application of the 2015 amendment was upheld in the limited context of tracing proceeds. The attachment was lawful even though appellants were not named accused in the predicate offences. Appeal dismissed.

Summary

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

i) Whether properties can be attached despite the appellants not being named in the FIR, ECIR, or charge sheet related to the predicate offence;

ii) Whether properties of appellant companies, as non-corporeal juristic persons, can be attached for offences allegedly committed by their shareholders or directors;

iii) Whether the Enforcement Directorate (ED) has produced tangible material and valid reasons to believe that the appellants possess proceeds of crime liable for attachment under Section 5 of the PMLA;

iv) Whether the impugned properties were acquired from legitimate income sources and thus do not constitute proceeds of crime;

v) Whether the provision for attachment of properties equivalent in value to proceeds of crime, inserted in 2015, applies retrospectively;

vi) Whether properties can be attached as equivalent in value held within the country under the third limb of the definition of proceeds of crime, despite the appellants not being accused and considering the retrospective application of this provision.

Issue-wise Detailed Analysis:

i) Attachment despite appellants not named in FIR/ECIR/charge sheet:

The appellants contended that they were not named in the FIRs registered by CBI or in the ECIR and charge sheet filed under PMLA, hence their properties should not be attached. The Tribunal referred to the authoritative Supreme Court judgment which clarified that Section 5(1) of the PMLA is not confined to accused persons in the predicate offence. The provision extends to any person involved in activities connected with the proceeds of crime. The Court emphasized the legislative intent to combat money laundering by targeting proceeds regardless of the holder's status as an accused in the underlying offence. Thus, the mere absence of appellants' names in FIR or charge sheet does not preclude attachment of their properties if they are found in possession of proceeds of crime. This issue was decided against the appellants.

ii) Attachment of properties of appellant companies for acts of shareholders/directors:

The appellants argued that as companies are separate legal entities (non-corporeal juristic persons), their properties cannot be attached for offences committed by shareholders or directors. The Tribunal noted that the accused persons were major shareholders and managed the companies' affairs; hence, their acts cannot be segregated to exempt the companies. The companies could pursue remedies against errant shareholders but cannot claim immunity from attachment. The appellants retain the right to raise defenses in trial courts. This issue was accordingly disposed of with the conclusion that properties can be attached notwithstanding the corporate veil.

iii) Tangible material and reasons to believe under Section 5:

The appellants challenged the ED's attachment for lack of tangible material and reasons to believe that proceeds of crime were in their possession and likely to be concealed or transferred. The Tribunal analyzed the extensive investigation details including multiple FIRs, charge sheets, evidence of layering proceeds of crime through group companies, foreign remittances, and property transactions. The material established a nexus between the appellants and proceeds of crime. The Tribunal found the reasons to believe were honest, based on direct evidence, and fulfilled statutory requirements. Thus, the attachment was justified and confirmed by the Adjudicating Authority. This issue was decided against the appellants.

iv), v), and vi) Legitimacy of property acquisition, retrospective application of value equivalent provision, and attachment under third limb of proceeds of crime definition:

The appellants contended that properties were acquired from legitimate income, supported by cash flow statements and purchase documents predating offences. They also argued that the provision for attachment of properties equivalent in value, inserted in 2015, cannot apply retrospectively. Further, they claimed that as non-accused, properties cannot be attached under the third limb of proceeds of crime definition.

The Tribunal examined the definition of "proceeds of crime" under Section 2(1)(u) of PMLA, which comprises three limbs: (1) property derived or obtained directly or indirectly from criminal activity; (2) the value of such property; and (3) property equivalent in value held within the country or abroad if the proceeds are held outside India. The third limb was inserted to address situations where proceeds are outside India and unavailable for attachment.

The Tribunal relied on authoritative judgments, including a detailed Delhi High Court decision and the Supreme Court's ruling in Vijay Madanlal Choudhary, which clarified that:

• Properties acquired prior to the offence may be attached if the accused had an interest in them at the time of the offence;
• Attachment of "untainted" property equivalent in value to proceeds of crime is permissible when actual tainted property is untraceable;
• The definition of proceeds of crime is broad and includes value equivalent properties to further legislative intent;
• The retrospective application of the 2015 amendment is limited but valid where the accused had interest in the property during the offence.

In the present case, the proceeds of crime amounting to over USD 1.26 billion were siphoned abroad in the form of gold and diamond-studded jewelry, layered through foreign companies controlled by the accused and their families. The impugned properties were acquired through complex shareholding patterns and transfers designed to camouflage real ownership and divert investigation. The Tribunal found that the properties were rightly attached as equivalent in value to proceeds of crime under the third limb of the definition.

The appellants' arguments regarding legitimate source of income and absence of direct remittance were rejected, given the overwhelming evidence of layering and control by accused persons. The Tribunal also rejected the contention that non-accused status exempts attachment under the third limb, as group companies and front persons were used to shield assets.

Significant Holdings:

"The sweep of Section 5(1) is not limited to the Accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being Accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime."

"The objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering. The second proviso, therefore, addresses the broad objectives of the 2002 Act to reach the proceeds of crime in whosoever's name they are kept or by whosoever they are held."

"Properties which were acquired prior to the enforcement of the Act may not be completely immune from action under the Act... 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 Tribunal concluded that the properties attached were rightly considered proceeds of crime or equivalent in value thereof, acquired through layering and concealment of criminal proceeds. The appellants failed to establish legitimate source or break the nexus with the predicate offence. The retrospective application of the 2015 amendment was upheld in the limited context of tracing proceeds. The attachment was lawful even though appellants were not named accused in the predicate offences.

Accordingly, the appeals were dismissed as devoid of merit while preserving the parties' rights to contest issues in trial proceedings.