2025 (7) TMI 81 - AT - Money Laundering

Money Laundering - Provisional Attachment Order - proceeds of crime - recording of statements of many persons under Section 50 of PMLA - cheating the bank in connivance with the bank officers without proper sanction/cash margin - funds of LOUs obtained fraudulently were siphoned off through their alleged overseas pilers/companies - HELD THAT - With regard to role of Mihir Bhansali (owner of property) investigation revealed that he was instrumental in setting up the scheme of transferring and layering of funds generated from the fraudulent LOUs. With his active involvement several dummy companies were formed all over the world including Dubai and Hong Kong to camouflage the real transactions. Mr. Mihir Bhansali also formed the necessary facade of overseas companies for layering the proceeds of crime generated from the fraudulent LOUs issued. He also appointed the employees/ex-employees as dummy directors in these companies. He ensured that the directors should be trust worthy and in the words of Shri Himanshu Trivedi Ex-Director of Firestar Group who do not apply much brain . A secure internal email communication system was also developed at his instance and its server was deliberately kept in Dubai for any eventuality. Apart from fund transfer and setting of shadow entities he was actively involved in rotation of goods melting of precious metal extracted from dismantling of jewellery and low-quality jewellery production/export-import with artificially high value declaration. Also Mihir Bhansali is found to be associated as director of M/s Twin Fields Investments Limited to which the investigation under PMLA revealed diversion of Proceeds of Crime amounting to USD 26.9 Million routed through layer of transactions from UAE based company of Nirav Modi group (Fine Classic FZE) which had in- turn received monies from the other Dubai and Hong Kong based companies of Nirav Modi group who were found to be beneficiaries of fraudulent LOUs in guise of trade outstanding. This fact is also corroborated in the statement recorded u/s 50 of PMLA 2002 as detailed and relied upon in the OC. In addition to the tracing of Proceeds of Crime to Twin Fields Investment Limited (of Mr. Mihir Bhansali) PMLA investigation revealed that Mr. Mihir Bhansali Nehal Modi took away 50 Kg gold (Approximately worth INR 150 million USD 2.14 Million) after breakout of the fraud from Dubai based entities of Nirav Modi Group and Mihir Bhansali also took 250, 000 Dirhams in cash. Sh. Mihir Bhansali has not participated in the investigation conducted by ED till date. It is evidently clear that transfer of ownership to his wife Appellant (Mrs. Rakhi Bhansali) was done with an intention to avoid the clutches of the US agencies or Indian Agencies on this property (i.e. to conceal the proceeds of crime and project it as untainted in the name of his wife). The allegations mentioned in the FIR and OC clearly reflects that there was sufficient ground to invoke the reasons to believe for the attachment of the property of the appellant by ED and the Adjudicating Authority while issuing Show Cause Notice respectively. The fact that the husband of the appellant failed to join proceedings and the present appellant also adopted the delaying tactics she has no right to challenge the impugned order passed by the Adjudicating Authority on the other issue pertaining to violation of the principle of natural justice as alleged. Ld. Counsel for the appellant also failed to point out that how the interest of the appellant was prejudiced in any manner as per the allegations leveled by him against respondent ED when he is already taking all the factual and legal issues in the present appeal. Appeal dismissed.

Summary

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

1. Whether the property situated at 50, Riverside Boulevard, New York, owned by Mrs. Rakhi Bhansali (formerly jointly owned with Mr. Mihir Bhansali), represents the proceeds of crime under Section 2(1)(u) of the PMLA, 2002, and is therefore liable for attachment under Section 5(1) of the Act.

2. Whether the appellant, Mrs. Rakhi Bhansali, has demonstrated independent and legitimate sources of funds for the acquisition of the attached property, thereby disentitling the property from being considered proceeds of crime.

3. Whether the transfer of property ownership from Mr. Mihir Bhansali to Mrs. Rakhi Bhansali was a bona fide transaction or a device to evade attachment proceedings.

4. Whether the Adjudicating Authority erred in confirming the Provisional Attachment Order (PAO) without affording adequate opportunity to the appellant, thereby violating the principles of natural justice.

5. The extent to which the appellant's non-participation and delaying tactics in the investigation and adjudication proceedings affect her entitlement to challenge the attachment order.

Issue-wise Detailed Analysis:

1. Status of the Property as Proceeds of Crime:

Legal Framework and Precedents: The definition of "proceeds of crime" under Section 2(1)(u) of the PMLA, 2002 includes any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, or the value of such property. The Supreme Court's ruling in Vijay Madanlal Chaudhary v. Union of India clarified that attachment may be made not only of the actual proceeds but also of property equivalent in value, even if the proceeds are held outside the country.

Court's Interpretation and Reasoning: The Tribunal emphasized that the property in question, though held in the name of Mrs. Rakhi Bhansali, is beneficially owned by Mr. Mihir Bhansali, who is implicated in the money laundering scheme involving fraudulent Letters of Undertaking (LOUs) issued by Punjab National Bank (PNB). The property is deemed to represent the value of proceeds of crime, as substantial proceeds have been traced to Mr. Mihir Bhansali and entities controlled by him.

Key Evidence and Findings: Investigation revealed that Mr. Mihir Bhansali was a key actor in the layering and transfer of funds generated from fraudulent LOUs amounting to approximately Rs. 6498.20 crores. He was involved in creating dummy companies worldwide, including Dubai and Hong Kong, to camouflage illicit transactions and launder money. The property was initially purchased jointly by Mr. Mihir Bhansali and Mrs. Rakhi Bhansali on 13 March 2017 and later transferred solely to Mrs. Bhansali on 28 February 2018 for a nominal consideration of USD 10, after the criminal case was registered.

Application of Law to Facts: Given the wide definition of proceeds of crime, the Tribunal held that the property, even if held in the name of the appellant, is liable for attachment as it represents the value of proceeds derived from criminal activity. The transfer of ownership to Mrs. Bhansali was viewed as an attempt to conceal the proceeds and frustrate confiscation proceedings.

Treatment of Competing Arguments: The appellant argued that the property was purchased with legitimate funds prior to any alleged criminal activity and that the transfer to her was a lawful transaction. However, the Tribunal found that the timing of the transfer and the appellant's failure to adequately explain the source of funds, coupled with the involvement of Mr. Mihir Bhansali in the money laundering scheme, negated these claims.

Conclusion: The property is rightly classified as proceeds of crime under PMLA and is liable for attachment.

2. Legitimacy of Funds Claimed by the Appellant:

Legal Framework and Precedents: Under PMLA, the burden to establish legitimate source of funds for acquisition of property lies with the person claiming ownership. Mere assertion without cogent evidence is insufficient.

Court's Interpretation and Reasoning: The appellant submitted bank statements and remittances from her sister and own funds to demonstrate legitimate sources. However, the Tribunal noted that the appellant is a homemaker without independent business activity. The transfer from the sister's account was scrutinized and found to be routed through the appellant's father, indicating a circuitous route possibly designed to mask proceeds of crime.

Key Evidence and Findings: The investigation traced funds from the fraudulent LOUs through multiple entities and individuals, including transfers to the appellant's family members. The appellant failed to satisfactorily explain the accumulation and transfer of USD 3,822,280 from her sister's account.

Application of Law to Facts: The Tribunal applied the principle that "reason to believe" under PMLA must be based on rational and probative evidence. Given the complex layering and the appellant's inability to provide credible explanations, the Tribunal upheld the attachment.

Treatment of Competing Arguments: The appellant's claim of independent sources was rejected due to lack of credible evidence and the context of the wider money laundering scheme.

Conclusion: The appellant failed to establish legitimate sources of funds, and the property is presumed to be proceeds of crime.

3. Transfer of Property Ownership from Mr. Mihir Bhansali to Mrs. Rakhi Bhansali:

Legal Framework and Precedents: Transfers of property to relatives or associates after initiation of investigation may be presumed to be attempts to evade attachment unless proven otherwise.

Court's Interpretation and Reasoning: The Tribunal found that the transfer for a nominal consideration of USD 10 was a device to avoid attachment, especially since the property was purchased jointly earlier and the transfer occurred after the criminal case was registered. The appellant's argument that the transfer was customary under US law was not accepted as it did not negate the intent to conceal proceeds of crime.

Key Evidence and Findings: The timing of the transfer and the nominal value consideration were critical. The outstanding loan amount of USD 1.8 million was noted but did not alter the conclusion that the transfer was intended to frustrate confiscation.

Application of Law to Facts: The Tribunal applied the doctrine of substance over form, concluding that the transfer was a sham transaction aimed at shielding proceeds of crime.

Treatment of Competing Arguments: The appellant's contention of lawful transfer and loan repayment was rejected as insufficient to rebut the presumption of concealment.

Conclusion: The transfer was held to be a device to evade attachment and does not affect the liability of the property as proceeds of crime.

4. Alleged Violation of Principles of Natural Justice:

Legal Framework and Precedents: The principles of natural justice require that a party be given adequate notice, opportunity to be heard, and access to relevant documents (such as Reasons to Believe - RUD) before adverse orders are passed.

Court's Interpretation and Reasoning: The appellant contended that notice was received after hearings had commenced, RUD was not supplied, and insufficient time was given for reply. However, the Tribunal found no evidence that the appellant's rights were prejudiced, especially since the appellant actively participated in the appeal and raised all factual and legal issues.

Key Evidence and Findings: The record showed that the appellant had multiple opportunities to present her case. The Tribunal noted that the appellant's delaying tactics and non-cooperation with investigation undermined her claims.

Application of Law to Facts: The Tribunal held that procedural irregularities, if any, did not cause prejudice to the appellant's rights and did not vitiate the attachment order.

Treatment of Competing Arguments: The appellant's reliance on procedural lapses was rejected as a ground for setting aside the attachment.

Conclusion: No violation of natural justice principles was found sufficient to invalidate the attachment order.

5. Impact of Non-Cooperation and Delaying Tactics by the Appellant:

Legal Framework and Precedents: Non-cooperation with investigation and attempts to delay proceedings may adversely impact the rights of the accused/appellant in attachment and confiscation proceedings.

Court's Interpretation and Reasoning: The Tribunal noted that both Mr. Mihir Bhansali and Mrs. Rakhi Bhansali failed to cooperate with the Enforcement Directorate (ED) despite summons. The appellant's delaying tactics were highlighted as undermining her right to challenge the attachment effectively.

Key Evidence and Findings: The ED's investigation and evidence collection were hampered by non-cooperation. The Tribunal found that such conduct disentitles the appellant from relief on procedural grounds.

Application of Law to Facts: The Tribunal applied the principle that a party cannot benefit from its own non-compliance or obstruction.

Treatment of Competing Arguments: The appellant's contentions regarding procedural fairness were dismissed in light of her conduct.

Conclusion: The appellant's non-cooperation justified dismissal of procedural objections and upheld the attachment.

Significant Holdings:

"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 transfer of ownership to his wife, Appellant (Mrs. Rakhi Bhansali) was done with an intention to avoid the clutches of the US agencies or Indian Agencies on this property (i.e., to conceal the proceeds of crime and project it as untainted in the name of his wife)."

"Reason to believe must necessarily be based on evidence of rationally probative value and mere allegations in a chargesheet cannot constitute such evidence."

"The allegations mentioned in the FIR and OC clearly reflects that there was sufficient ground to invoke the reasons to believe for the attachment of the property of the appellant by ED and the Adjudicating Authority while issuing Show Cause Notice respectively."

"The appellant's failure to cooperate with the investigation and adoption of delaying tactics disentitles her from challenging the impugned order on procedural grounds."

The Tribunal concluded that the property in question is rightly attached as proceeds of crime under the PMLA, 2002. The appellant failed to establish legitimate sources of funds for acquisition, and the transfer of property ownership was a device to evade attachment. Procedural objections raised by the appellant were found to be without merit, especially in light of her non-cooperation. The appeal was accordingly dismissed, with the Tribunal clarifying that the decision does not prejudice the rights of the parties in ongoing criminal trials.