2025 (7) TMI 352 - AT - Money Laundering

Money Laundering - proceeds of crime - misappropriation of public funds - replication of investigation by Respondent Directorate conducted by CBI without independent application of mind - HELD THAT - It is necessary to examine the explanations as to the funding of purchase of the impugned property. The Appellants have stated that the property was purchased through loan of Rs. 30, 00, 000/- from PNB. Another Rs. 7, 00, 000/- was taken as loan from Ms. Reema Khorana. The Appellants have explained the source of the rest of the amount to have come from the sale of old properties owned by them. It has been pointed out in the Impugned Order that the Appellant Smt. Malvee Sudershan failed to disclose the identity and the address of the lender during the course of investigation. Subsequently Ms. Reema Khorana had filed an affidavit which did not indicate the source of money available with her. Moreover no documentary evidence has been placed to establish the genuineness of the transaction. With respect to the loan of PNB it appears that the margin money of Rs. 2, 00, 000/- was deposited in cash which too was not explained adequately. Moreover it is seen from the investigation that substantial amount of funding was done in cash. Even the payment attributed to proceeds from sale of old properties in the name of the Appellants was made in cash. Merely bald assertion without details and documentary evidence for generation of the income and of utilization for such purposes cannot be accepted. The analysis made during the course of investigation of the joint account of the two Appellants in PNB Kavi Nagar Ghaziabad has clearly brought out that for repayment of bank loan with every EMI cash deposits were made in the bank account just prior to the date when the EMI became due. The source of these cash deposits is not corroborated through evidence documentary or otherwise. The Appellants also argued that the Appellant Smt. Malvee Sudershan has not been charged for either the Scheduled Offence or the Money Laundering Offence and therefore her property could not have been attached. In this regard this Tribunal in the matter of Sant Singh versus The Deputy Director Directorate of Enforcement Chandigarh 2024 (8) TMI 523 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI may be cited wherein a similar issue was dealt and elaborated upon by the Co-ordinate Bench where the appeal was dismissed upholding the attachment of the appellant s property as proceeds of crime and confirming that the Provisional Attachment Order did not lapse due to the delay in confirmation considering the exclusion of the COVID-19 period - thus even this contention of the Appellants that in the absence of trial against the Appellant Ms. Malvee Sudershan her property could not be attached is also to be rejected. Appeal dismissed.

Summary

The core legal questions considered in this judgment include:

1. Whether the property in the name of the appellant, who is not directly charged with the scheduled offence, can be provisionally attached under the Prevention of Money Laundering Act, 2002 (PMLA) as proceeds of crime.

2. Whether the impugned property purchased by the appellant's wife is indeed proceeds of crime derived from the alleged money laundering activities connected to the scheduled offence.

3. Whether the explanations and evidences provided by the appellants regarding the source of funds for purchasing the attached property are sufficient and credible.

4. The scope and applicability of the provisions of PMLA, particularly sections 2(1)(u), 3, and 5, in relation to attachment of property of persons not directly accused but found in possession of proceeds of crime.

Issue-wise detailed analysis:

Issue 1: Attachment of property in the name of a non-accused person under PMLA

The legal framework revolves around the definitions and provisions under PMLA, particularly Section 2(1)(u) which defines "proceeds of crime" as any property derived or obtained directly or indirectly from criminal activity relating to a scheduled offence. Section 3 criminalizes money laundering, including possession and use of proceeds of crime. Section 5 authorizes provisional attachment of property if there is reason to believe that any person is in possession of proceeds of crime, regardless of whether that person is directly accused.

The Court referred to a precedent from a coordinate bench which clarified that possession of proceeds of crime by any person, not necessarily the accused in the scheduled offence, suffices for attachment. This was further supported by a Supreme Court judgment which emphasized that the sweep of Section 5(1) is broad and includes persons indirectly involved or in possession of proceeds of crime.

The Court rejected the appellants' contention that since the wife was not charged in the scheduled offence or money laundering, her property could not be attached. The Tribunal held that attachment is permissible if the property is found to be proceeds of crime in possession of any person, as per the legislative intent and judicial precedents.

Issue 2: Whether the impugned property is proceeds of crime

The Adjudicating Authority (AA) found that the excess conversion charges amounting to Rs. 6.38 crores received from the Uttar Pradesh Government constituted proceeds of crime. The impugned property, a duplex apartment, was purchased partly through loans and partly through sale proceeds of old properties. The AA noted intermingling of funds among various bank accounts of the NGO and the appellants, unexplained cash deposits, and transfers from the NGO's accounts to personal and partnership firm accounts.

The appellants claimed the property was funded by a loan from Punjab National Bank, a loan from a friend (Ms. Reema Khorana), and proceeds from sale of old properties. However, the AA found the explanation unsatisfactory due to lack of documentary evidence regarding the lender's creditworthiness, failure to disclose identity and address during investigation, and unexplained cash deposits and withdrawals. The AA also observed that the appellants' claimed business as a fashion designer lacked evidence of generating sufficient income.

The Court agreed with the AA's findings, noting the unexplained cash flow and intermingling of funds as indicative that the property was acquired using proceeds of crime. The timing of cash deposits coinciding with loan repayments further supported the inference that proceeds of crime were used to finance the property.

Issue 3: Credibility and sufficiency of appellants' explanations on funding

The appellants' explanations were scrutinized against bank statements, income tax returns, and investigation reports. The Court noted that the appellants failed to provide credible documentary proof for the source of funds, especially regarding the friendly loan and the fashion designing business income. The cash deposits and withdrawals in bank accounts were not satisfactorily explained. The Court emphasized that bald assertions without corroborative evidence cannot rebut the presumption of proceeds of crime under PMLA.

The Court also rejected the appellants' argument that the Directorate of Enforcement merely replicated the CBI investigation without independent application of mind, holding that the AA's findings were based on material on record and proper analysis.

Issue 4: Applicability of PMLA provisions for attachment and the standard of proof

The Court reiterated that provisional attachment under Section 5 of PMLA is a preventive measure to safeguard property suspected to be proceeds of crime. The standard of proof at this stage is not the same as in a criminal trial but requires reason to believe based on material. The Court emphasized that the question of guilt or innocence of the accused is to be decided by the Special Court during trial, whereas the Tribunal's role is to examine whether the property is involved in money laundering and liable for attachment.

The Court relied on legislative provisions and judicial precedents to affirm that attachment can be made on the basis of possession of proceeds of crime by any person, and that the provisional attachment is necessary to prevent frustration of confiscation proceedings.

Significant holdings:

"Section 5(1)(a) and (b) does not make a reference of the possession of the `proceeds of crime' in the hands of the accused but `any person'. In the light of the aforesaid, it is not necessary that for attachment of the `proceeds of crime' it should be only from the accused, rather it can be from any person in possession of the `proceeds of crime'."

"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."

"Merely bald assertion without details and documentary evidence, for generation of the income and of utilization for such purposes, cannot be accepted."

"The analysis made during the course of investigation of the joint account of the two Appellants in PNB, Kavi Nagar, Ghaziabad has clearly brought out that for repayment of bank loan, with every EMI, cash deposits were made in the bank account just prior to the date when the EMI became due. The source of these cash deposits is not corroborated through evidence, documentary or otherwise."

"The question whether the property which has been attached is proceed of crime and involved in Money Laundering as decided in the Impugned Order, is to be examined."

Final determinations:

The Tribunal dismissed the appeals filed by the appellants challenging the confirmation of provisional attachment of the property. It upheld the findings of the Adjudicating Authority that the property in question is proceeds of crime and liable for attachment under PMLA. The Tribunal rejected the appellants' contentions regarding the innocence of the wife and the sufficiency of explanations for the source of funds. The attachment was held to be valid and justified in law, pending trial and final adjudication on the scheduled offence and money laundering charges.