2025 (7) TMI 415 - AT - Money Laundering

Money Laundering - Provisional Attachment Order - predicate offences - presumption as to commission of scheduled offence under the PMLA 2002 - burden to establish the money trail demonstrating the flow of proceeds of crime - HELD THAT - There is no substance in the appellant s contention that unless a causal link/connection is established between the scheduled offence and the property sought to the attached such property would not fall within the ambit of proceeds of crime and that property as defined under Section 2(1)(v) of the Act is required to have a direct proximate and intricate link to the commission of the scheduled offence and in the absence of the same the provisions of PMLA would not get attracted at all. Moreover in the present case the argument of the appellant is not tenable even on factual grounds since the respondents have been able to establish the flow of funds from the accused person to the account of M/s Harin Ventures in which the appellant and his wife were the partners and from M/s Harin Ventures account towards payment of consideration for the acquisition of the attached immovable property. It is pertinent to note that the present status of the case is that a Prosecution Complaint under Section 44 and 45 of the Prevention of Money Laundering Act 2002 has already been filed inter alia against the accused Sai Chandrasekhar on 12.11.2000 before the Special Court (PMLA) Saket New Delhi wherein the attached properties vide the Provisional Attachment Order dated 04.02.2022 have been prayed for confiscation. Cognizance in the matter has already been taken by the Ld. Trial Court. As such the attached property is now the case property and confiscation or otherwise of the same will be decided by the Ld. Trial Court. The legal position is well-settled that attachment of property is a balancing arrangement to secure the interests of the person as also ensure that the proceeds of crime remain available to be dealt with in the manner provided by the Act. Therefore at this stage when the criminal trial of the appellants herein is still pending before a court of competent jurisdiction even the balance of interests lies in favour of continued attachment of the subject properties. All these appeals shall stand dismissed.

Summary

The core legal questions considered in this judgment include:

1. Whether there exists an underlying predicate offence under the Prevention of Money Laundering Act, 2002 ("PMLA") to justify attachment of properties under Section 5(1) of the Act.

2. Whether the Respondent Directorate of Enforcement ("ED") has discharged its burden to establish a money trail linking the appellants to proceeds of crime.

3. Whether the properties attached were acquired out of clean, untainted money or proceeds of crime.

4. Whether the statutory requirements under PMLA, including communication of reasons to believe, were complied with before passing the provisional attachment orders.

5. Whether the properties attached have a direct, proximate, and intricate link to the commission of scheduled offences as required under Sections 2(1)(u) and 2(1)(v) of the PMLA.

6. Whether the application for substitution of attached property is maintainable under the relevant Rules framed under the PMLA.

Issue 1: Existence of Underlying Predicate Offence

The relevant legal framework is Section 5(1) of the PMLA, which allows attachment of property involved in money laundering linked to scheduled offences. The scheduled offences here include offences under Sections 409, 420, 468, 471, 477A, and 120-B of the Indian Penal Code ("IPC"). The FIR and charge sheets filed by the Economic Offences Wing ("EOW") against the principal accused, including M/s BFOPL and its directors, form the predicate offence for the PMLA proceedings.

The Court referred to the Supreme Court's judgment in Vijay Madanlal Choudhary, which clarified that Section 5(1) of PMLA is not limited to accused named in the scheduled offence but extends to any person involved in activities connected with proceeds of crime. The objective is to attach and confiscate proceeds of crime regardless of whose name they are held in.

The Court found that the predicate offences were clearly established by the FIR and charge sheets, and the appellants were linked to the proceeds of crime generated by the principal accused. Thus, the contention that no predicate offence exists was rejected.

Issue 2: Burden to Establish Money Trail

The appellants argued that the Respondent failed to establish a money trail linking the attached properties to proceeds of crime. The Court examined the investigation records, including statements, bank ledgers, and international cooperation documents.

Key evidence included:

• Summons to the Managing Director of the builder company and ledger showing payments for the property without creditors mentioned.
• Bank records revealing a payment of Rs. 89,00,000/- from M/s Harin Ventures Limited, Dubai, for the property purchase.
• Documents proving Sai Chandrasekhar's association with M/s Harin Ventures Ltd., despite his denial.
• Funds transferred from the main accused Virkaran Awasty to M/s Harin Ventures Ltd. accounts in Dubai, which were then routed to Sai Chandrasekhar's personal accounts and further to the builder.

The Court observed inconsistencies and false statements by the appellants regarding sources of funds, including a fabricated claim of loan from a relative that was disproved by bank records indicating layering of funds.

Applying the law to these facts, the Court held that the Respondent had successfully demonstrated a credible and direct link between the proceeds of crime and the attached properties, thereby discharging the burden of establishing the money trail.

Issue 3: Acquisition of Property from Clean Money

The appellants claimed the properties were acquired from legitimate sources, including commissions from trading, salary from employment, and housing loans. However, the Court found these claims contradicted by the evidence of fund transfers from the accused's accounts to the Dubai company and then to the appellants.

The Court noted that the appellants' explanations were false and deliberately misleading, reinforcing the conclusion that the properties were acquired from proceeds of crime.

Issue 4: Compliance with Statutory Requirements and Communication of Reasons

The appellants contended that the "reasons to believe" recorded by the ED were not communicated to them, citing a judgment of the Delhi High Court. The Court observed that the Supreme Court had stayed the operation of that judgment and that the Madras High Court had held that Section 5 of the PMLA does not mandate communication of reasons before provisional attachment.

The Court distinguished between the requirements under Section 5(1) and Section 8(1) of the PMLA, noting that the Adjudicating Authority need not record reasons at the stage of confirmation of attachment. The provisional attachment order itself serves as a show cause notice. Hence, the statutory requirements were held to be complied with.

Issue 5: Link Between Property and Scheduled Offence

The appellants argued that the property must have a direct, proximate, and intricate link to the scheduled offence to be attachable. The Court analyzed Sections 2(1)(u) and 2(1)(v) of the PMLA and relied on the Supreme Court's ruling in Vijay Madanlal Choudhary, which interpreted "proceeds of crime" broadly to include the value of such property, not only the property directly obtained from the offence.

The Court cited the Delhi High Court's detailed judgment explaining three categories of attachable property:

• Tainted property directly derived from crime.
• Value of such property.
• Equivalent value property held abroad or in India when tainted property is untraceable.

The Court emphasized the legislative intent to enable attachment of property to prevent dissipation during investigation and trial, even if the property is not directly the tainted asset but of equivalent value.

Applying these principles, the Court found that the attached properties had a sufficient causal link to the scheduled offences through the money trail and were rightly attached as proceeds of crime.

Issue 6: Application for Substitution of Attached Property

The appellants sought substitution of the attached immovable property with other property or security. The Court referred to Rule 4 of the Prevention of Money Laundering (Attachment and Adjudication) Rules, 2013, which governs the manner of taking possession of attached property.

The Court noted that Rule 4 allows substitution only in limited cases such as movable property liable to speedy decay or conveyances, where fixed deposit receipts may be accepted as security. However, bullion, jewellery, or immovable property are required to be physically attached or kept in custody without provision for substitution.

The Court relied on a recent ruling of the Appellate Tribunal holding that substitution of attached property is not permissible except as per the specific provisions of the Rules, which do not cover immovable property.

Accordingly, the application for substitution was dismissed.

Additional Findings and Observations

The Court noted that a prosecution complaint under Sections 44 and 45 of the PMLA had been filed against the accused Sai Chandrasekhar, and cognizance had been taken by the Special Court. The attached properties had become case property, and their confiscation would be decided by the trial court.

The Court underscored that attachment is a balancing measure to protect the interests of the parties and to prevent dissipation of proceeds of crime pending trial. Given the ongoing criminal proceedings, the balance favored continued attachment.

Significant Holdings:

"The sweep of Section 5(1) of PMLA, 2002 is not limited to the accused named in the 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 objective of enacting the PMLA was the attachment and confiscation of proceeds of crime which is the quintessence, so as to combat the evil of money-laundering, by reaching the proceeds of crime in whosoever's name they are kept or by whosoever they are held."

"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."

"The legislature has made provision for 'provisional attachment' bearing in mind the possibility of circumstances of urgency that might necessitate such power to be resorted to... The authority for 'provisional' attachment of suspect assets is to ensure that the same remain within the reach of the law."

"Rule 4 of the Rules of 2013 allows substitution of attached property only in limited cases such as movable property liable to speedy decay or conveyances. It does not permit substitution of immovable property or bullion."

"Attachment of property is a balancing arrangement to secure the interests of the person, as also ensure that the proceeds of crime remain available to be dealt with in the manner provided by the Act."

Final determinations include dismissal of all appeals challenging the attachment orders, rejection of the contention that no predicate offence existed, affirmation that the Respondent established the money trail linking the appellants to proceeds of crime, holding that statutory requirements were met, and denial of the application for substitution of attached property.