2025 (7) TMI 221 - HC - Money Laundering

Money Laundering - provisional attachment order - proceeds of crime or not - legality of attachment when properties were purchased in the year 2003 while the offences which the Appellant is alleged to have committed were registered in several FIRs only in 2010 - immoral trafficking of women - reasons to believe - HELD THAT - The material on record indicates that after the arrest of the Appellant and his associates their criminal activities were studied which revealed that the Appellant was indulged in continuing unlawful activities in an organized manner since 1997 and in such commission had managed to generate huge wealth approximately to the tune of Rs. 1.5 crores. The Appellant was also found to be involved in several criminal cases along with his associates between the 1997 and 2003 making it abundantly clear that the Appellant is not unknown to criminal activity. At the time of deposing under Section 50 of PMLA the Appellant inter alia had stated that he filed annual income tax returns during the period of 1996 to 2006 however did not remember any details of such filings or his PAN card number. In light of this statement the Respondent/ED had obtained documents from the Income Tax Department which revealed that the Appellant had filed returns only for Financial Years 2003-04 2004-05 and not before. Further analysis of the returns revealed that total money available with the Appellant since 2000-01 is merely Rs. 2, 38, 720/- and with such amount it was impossible for the Appellant to have invested approximately Rs. 1.88 lakhs for purchase of property depositing in bank accounts investment in policies and payment for rented accommodations especially when these investments did not find place in the said ITRs. It is apposite to mention that with the background of Appellant s criminal history that comes through in light of the investigation carried out by the Respondent/ED this Court is constrained to deduce that all the investments etc. carried out by the Appellant at least post-1997 are linked to the criminal syndicate the Appellant has been developing over the years. Merely because the FIR was registered in 2010 would not be sufficient to draw an adverse inference against the Respondent/ED and conclude that the attached properties have no link to the predicate offences of which the Appellant is accused of. Having been actively involved in the commission of offences under various penal legislations and no satisfactory explanation regarding legal source of income the conclusion arrived at by the Tribunal that the properties attached by the Respondent/ED are in fact tainted being properties acquired directly or indirectly from the proceeds of the Appellant s criminal activity does not warrant any interference. This Court is inclined to uphold the conclusion arrived at by the learned Appellate Tribunal - Appeal dismissed.

Summary

The core legal questions considered in this judgment include:

1. Whether the attachment of properties acquired by the appellant under the Prevention of Money Laundering Act, 2002 (PMLA) was justified, given that the properties were purchased in 2003, while the alleged predicate offences were registered only in 2010.

2. Whether the offence of money laundering under PMLA can be applied retrospectively to properties acquired before the scheduled offences were registered.

3. Whether the appellant discharged the burden of proof under Section 24 of PMLA to establish that the attached properties were not proceeds of crime.

4. The interpretation and application of the definitions of "proceeds of crime" under Section 2(1)(u) and the offence of money laundering under Section 3 of PMLA, particularly in relation to continuing offences and indirect derivation of property.

5. The validity of the Enforcement Directorate's attachment order and the Appellate Tribunal's confirmation thereof.

Issue-wise detailed analysis:

1. Justification of Attachment of Properties Acquired Prior to Registration of Scheduled Offences

The legal framework centers on the definition of "proceeds of crime" under Section 2(1)(u) of PMLA, which includes any property derived directly or indirectly from criminal activity relating to a scheduled offence. Section 3 defines the offence of money laundering as any process or activity connected with proceeds of crime, including concealment, possession, acquisition, use, or projecting as untainted property. The explanation clarifies that the offence is continuing in nature.

The Court relied heavily on precedents, particularly the Apex Court's decision in Vijay Madanlal Choudhary, which held that money laundering is a continuing offence and that property acquired indirectly from criminal activity, even if before the scheduled offence was registered, may be subject to attachment if the accused continues to possess or use proceeds of crime. The Court emphasized that the relevant date for the offence is when the person indulges in activities connected with proceeds of crime, not the date of the predicate offence.

Key evidence included the appellant's criminal history dating back to 1997, involvement in organized immoral trafficking, and accumulation of wealth to the tune of approximately Rs. 1.5 crores. Investigations revealed extensive material such as diaries, cheque books, cash, insurance policies, and vehicles linked to illegal trade. The appellant's income tax returns showed insufficient declared income to justify the acquisition of properties and investments.

The Court applied the law by concluding that the appellant's properties, although acquired in 2003, were linked directly or indirectly to criminal activity ongoing since 1997. The continuing nature of money laundering meant that the attachment was justified despite the temporal gap between acquisition and registration of offences.

Competing arguments by the appellant that the properties were acquired legally prior to offences and that PMLA does not apply retrospectively were rejected based on the continuing offence doctrine and the extensive material indicating illicit sources of income.

The Court concluded that the attachment was lawful and supported by evidence and legal principles.

2. Burden of Proof Under Section 24 of PMLA

Section 24 places the burden on the person from whom property is seized to prove that it is not proceeds of crime. The appellant contended that he earned income from lawful religious ceremonies and had saved legitimately to acquire the properties.

The Court noted the appellant's failure to provide credible evidence or satisfactory explanation for the source of funds, especially given the discrepancies in income tax filings and the extensive material seized during investigation indicating involvement in illegal activities. The appellant's claim that possession of unaccounted property acquired legally does not constitute proceeds of crime was found insufficient in light of the evidence.

The Court held that the appellant did not discharge the burden of proof, reinforcing the attachment order.

3. Interpretation of "Proceeds of Crime" and Continuing Offence

The Court reiterated the Apex Court's interpretation that "proceeds of crime" includes property derived directly or indirectly from criminal activity, and that money laundering is a continuing offence. The explanation to Section 3 clarifies that the offence continues as long as the person enjoys or deals with proceeds of crime.

The Court cited the Apex Court's observations that the offence is not dependent on the date of commission of the scheduled offence but on the date of indulging in activities connected with proceeds of crime. This principle was crucial in rejecting the appellant's contention that the attachment was invalid due to the time gap.

The Court also referenced the judgment in Pradeep Nirankarnath Sharma, which emphasized that money laundering is an ongoing process, and possession or use of proceeds of crime at any point constitutes the offence.

4. Validity of Enforcement Directorate's Attachment Order and Appellate Tribunal's Confirmation

The Adjudicating Authority, after considering the Respondent/ED's complaint and evidence, confirmed the provisional attachment order. The Appellate Tribunal upheld this confirmation, noting the appellant's habitual criminality and ongoing involvement in immoral trafficking since 1998.

The appellant's contention that the Appellate Tribunal failed to specify the predicate offence and reasons to believe was addressed by the Court's finding that the offences under the Immoral Trafficking (Prevention) Act and MCOCA formed the basis of the money laundering investigation. The Court found no infirmity in the Tribunal's reasoning or the confirmation of attachment.

The Court dismissed the appeal, affirming the attachment of bank accounts, insurance policies, vehicle, and immovable property as proceeds of crime.

Significant holdings include the following verbatim excerpts:

"The offence of money laundering is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever."

"It is only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence that can be regarded as proceeds of crime."

"The relevant date is the date on which the person indulges in the process or activity connected with such proceeds of crime."

"Merely because the FIR was registered in 2010 would not be sufficient to draw an adverse inference against the Respondent/ED and conclude that the attached properties have no link to the predicate offences."

Core principles established:

- Money laundering under PMLA is a continuing offence, not confined to the date of the predicate offence.

- "Proceeds of crime" includes property derived directly or indirectly from criminal activity, regardless of when acquired.

- The burden of proof lies on the person claiming the property to be untainted to establish lawful acquisition.

- Attachment orders under PMLA can be sustained even if properties were acquired prior to registration of scheduled offences, if linked to ongoing criminal activity.

Final determinations:

- The attachment of the appellant's properties was justified and lawful under PMLA.

- The appellant failed to discharge the burden of proof to show that the properties were not proceeds of crime.

- The Appellate Tribunal's confirmation of the attachment order was upheld.

- The appeal was dismissed with all pending applications disposed of.