2025 (6) TMI 1512 - AT - Money Laundering

Money Laundering - attachment of property - scheduled offences - Proceeds of crime - reasons to believe - failure to confirm Provisional Attachment Order (PAO) qua the bank account held by the respondent M/s Bhide Associates - HELD THAT - Respondent MC Bhide of M/s Bhide Associates stated that he did not supply any fabricated pro-forma invoices of M/s. Lakshmi Machine Works Limited in support of his certificate. The documents supplied by the office bearers of Tayal Group of companies were included in project progress report as well as project completion report and he issued certificate in good faith. It is failed to understand that how a Chartered Accountant can be so negligent to issue project progress report and project completion report by relying upon the documents tendered by the party who is taking huge loan from the bank. Just because of negligence of the respondent the Tayal Group of Companies were able to commit the fraud UCO Bank. The said conduct on the part of the respondent cannot be termed as an act done in good faith but either in blind faith or inclusion with the accused persons. By committing professional negligence he cannot take the plea that the said attached amount was in fact his professional fees. The ED by taking a lenient view towards this respondent attached his account only for the meagre amount of the Rs. 3, 34, 585.89/- held in account no.60046165871 in Bank of Maharashtra THK Marg Mumbai. The Adjudicating Authority failed to confirm this particular account on the pretext of professional fees without looking into the professional negligence on the part of respondent which resulted in bank fraud. Accordingly the present appeal needs to be allowed qua the said account of the respondent by modifying the order passed by the Adjudicating Authority. Conclusion - The Adjudicating Authority erred in not confirming the attachment of the respondent s account as prima facie it represented proceeds of crime or was involved in money laundering. The order dated 21.03.2017 passed by the Adjudicating Authority is modified qua the account of the present respondent which is hereby confirmed for attachment - Appeal allowed.

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

1. Whether the Adjudicating Authority erred in not confirming the Provisional Attachment Order (PAO) qua the bank account held by the respondent M/s Bhide Associates, despite incriminating evidence linking the respondent to the predicate offences and money laundering activities involving the Tayal Group of Companies.

2. Whether the amount of Rs. 3,34,585.89 in the respondent's bank account constitutes proceeds of crime under the PMLA, thereby justifying attachment.

3. Whether the respondent's claim that the amount in the bank account represents legitimate professional fees, and that the certificates issued were in good faith, absolves it from liability under the PMLA.

4. The extent to which professional negligence or complicity in the predicate offence affects the application of attachment provisions under the PMLA.

Issue-wise Detailed Analysis

Issue 1: Validity of non-confirmation of PAO qua respondent's bank account

Legal Framework and Precedents: Under Section 5 of the PMLA, attachment of property is permissible if the property is proceeds of crime. The Adjudicating Authority must be satisfied on the basis of material that the property is involved in money laundering. The appellate authority under Section 26 reviews whether the Adjudicating Authority's order is justified on facts and law.

Court's Interpretation and Reasoning: The Court examined the detailed allegations and FIRs registered against the Tayal Group of Companies and associated persons, including the respondent M/s Bhide Associates. The allegations include fraudulent certification of project completion reports, diversion of bank loan funds sanctioned for machinery purchase, and creation of fictitious companies to launder proceeds of crime. The respondent, as CEO of Bhide Associates, issued certificates relied upon by banks for loan disbursement, which were allegedly false or fabricated.

The Court noted that the Adjudicating Authority, while confirming attachment of other properties, declined to confirm attachment of the respondent's bank account on the ground that the amount represented professional fees and was not proceeds of crime. The Court found this reasoning inadequate in light of the incriminating evidence and the respondent's role in facilitating the predicate offences.

Key Evidence and Findings: Statements of witnesses including Shri Dalip Stayendra Mehta revealed the use of numerous front companies by the Tayal Group to transfer illicit funds. The respondent's own statements admitted reliance on party-supplied documents, which were later found to be fabricated or destroyed. The trail of funds showed siphoning off of bank loans through fictitious entities, with the respondent's certificates enabling such disbursements.

Application of Law to Facts: Given the respondent's involvement in issuing certificates that facilitated diversion of loan funds, the amount in its bank account cannot be presumed to be clean professional fees without further scrutiny. The PMLA's objective to prevent and control money laundering supports attachment where prima facie involvement is established.

Treatment of Competing Arguments: The respondent's plea of good faith and legitimate professional income was rejected as insufficient, given the negligence or complicity in the predicate offence. The Adjudicating Authority's lenient approach was found to undermine the statutory mandate.

Conclusion: The Court held that the Adjudicating Authority erred in not confirming the attachment of the respondent's account, as prima facie it represented proceeds of crime or was involved in money laundering.

Issue 2: Whether the amount in the respondent's account is proceeds of crime

Legal Framework: Section 2(1)(u) of PMLA defines proceeds of crime as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity. The burden is on the Enforcement Directorate to establish a prima facie link between the property and the scheduled offence.

Court's Reasoning: The Court observed that the amount held in the respondent's account was professional fees earned for services rendered. However, these services involved issuing false certificates that enabled the Tayal Group to divert bank loans fraudulently. The Court emphasized that professional fees earned through complicity or negligence facilitating a scheduled offence cannot be disentangled from proceeds of crime.

Evidence: Statements and documentary evidence showed that the respondent's certificates were instrumental in the fraudulent disbursement of loans. The respondent's failure to verify original documents and reliance on forged invoices indicated complicity.

Application: The Court applied the principle that proceeds of crime include property obtained through criminal activity or as a result of such activity. Here, the professional fees were linked to the predicate offence and thus fell within the ambit of proceeds of crime.

Competing Arguments: The respondent's claim of legitimate income was considered but rejected because the income was earned in connection with the commission of the scheduled offence.

Conclusion: The Court concluded that the amount in the respondent's account constituted proceeds of crime and was liable for attachment.

Issue 3: Effect of professional negligence or good faith on liability under PMLA

Legal Framework: The PMLA does not require proof of mens rea beyond reasonable doubt at the stage of attachment; a prima facie case suffices. Professional negligence or complicity in facilitating money laundering attracts liability.

Court's Interpretation: The Court rejected the respondent's contention that the certificates were issued in good faith. It held that negligence or blind faith is insufficient to absolve liability when the professional's conduct enables the commission of scheduled offences.

Evidence and Findings: The respondent's inability to produce original documents and reliance on forged invoices undermined the claim of good faith. The Court noted that the respondent's conduct facilitated the fraudulent diversion of bank loans.

Application: The Court applied the principle that professionals engaged in acts facilitating money laundering cannot shield themselves behind claims of good faith if their conduct is negligent or complicit.

Competing Arguments: The respondent's plea of honest professional conduct was outweighed by the evidence of negligence and involvement in the predicate offence.

Conclusion: Professional negligence or complicity in predicate offences negates the plea of good faith and supports attachment under PMLA.

Issue 4: Scope of attachment where accused have not directly received proceeds of crime

Legal Framework: Attachment under PMLA extends to properties representing proceeds of crime or their value. Liability depends on involvement in the offence or possession of proceeds.

Court's Reasoning: The Adjudicating Authority had held that defendants 11 to 13, including the respondent, had not directly received proceeds of crime and thus their accounts could not be attached. The Court disagreed, reasoning that the respondent's involvement in issuing false certificates was integral to the laundering process, and the professional fees earned were linked to the proceeds.

Evidence: The trail of funds and the role of fictitious companies demonstrated a scheme to launder proceeds, with the respondent's role facilitating such transfers.

Application: The Court held that indirect receipt or facilitation resulting in professional income linked to proceeds of crime suffices for attachment.

Competing Arguments: The respondent's argument of no direct receipt of proceeds was rejected in light of the broader scheme and connection to proceeds.

Conclusion: Attachment is justified even where the accused have not directly received proceeds, if their involvement and income are linked to the laundering process.

Significant Holdings

"Just because of negligence of the respondent, the Tayal Group of Companies were able to commit the fraud on UCO Bank. The said conduct on the part of the respondent cannot be termed as an act done in good faith, but either in blind faith or in collusion with the accused persons."

"Prima facie they are liable for the scheduled offences to the extent as specified in charge sheet. The Provisional Attachment Order specifically concludes that funds received from the banks by the Tayal group of companies for a specific purpose were siphoned off through a maze of fictitious companies and ultimately reached the entities of Tayal Group of Companies and from there unknown destinations."

"There is nothing to show that the Defendant 11 to 13 have received any proceeds of crime emerging from the receipts of the amounts received from the banks by Tayal group of companies. The Defendants 11 and 13 having not received any proceeds of crime cannot be made liable for attachment by invoking the provisions of 'value thereof' or equivalent value of proceeds of crime, in the absence of any reasons in this regard." (This reasoning was rejected by the Court.)

"The amount of Rs. 3,34,589.89 in the name of D-11 lying in Bank of Maharashtra ... cannot be covered under the definition of proceeds of crime and hence the attachment in respect thereof cannot be confirmed." (This was overruled by the appellate authority.)

"We fail to understand that how a Chartered Accountant can be so negligent to issue project progress report and project completion report by relying upon the documents tendered by the party who is taking huge loan from the bank."

"Accordingly, we are of the considered view that present appeal needs to be allowed qua the said account of the respondent by modifying the order passed by the Adjudicating Authority."

"The order dated 21.03.2017 passed by the Adjudicating Authority is modified, qua the account of the present respondent ... which is hereby confirmed for attachment."

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