2025 (7) TMI 416 - AT - Money Laundering

Money Laundering - provisional attachment order - calculation of quantum of proceeds of crime - reliability upon documents and statements u/s 50 of the PMLA - it is contended that the Appellants are neither named as accused in any FIR/Charge Sheet/Supplementary Charge Sheet nor they have any nexus with the alleged scheduled offences - possession in violation of Rule 4(1) of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by The Adjudicating Authority) Rules 2013 - freezing of accounts beyond 30 days - violation of the Rules 8 9 of The Prevention of Money Laundering (Forms Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority Impounding and Custody of Records and the Period of Retention) Rules 2005 - confirmation order u/s 8(3) can be passed without any order u/s 8(2) of PMLA or not. Whether the FIRs registered before 01.07.2005 (i.e. coming into force of PMLA 2002) can not be considered for calculating quantum of proceeds of crime? - HELD THAT - The relevant date is the date when the tainted property is projected to be untainted irrespective of the date of coming into force of PMLA 2002 and subsequent amendments. In the present case the ECIR No. PTZO/03/ 2018 was recorded on 29.03.2018 showing the commission of the offence under Section 3 of the 2002 Act. The relevant date to find out the offence of money laundering is when it is projected to be untainted property to make out an offence under section 3 of the Act of 2002 irrespective of the date of commission of schedule/predicate offence - the issue is decided against the appellants and in faovur of the respondent ED. Whether the properties of the present appellants need to be released from attachment being not named as accused in any FIR or police report u/s 173 Cr.P.C.? - HELD THAT - The property in the hands of any person in possession of proceeds of crime can be attached even if he is not accused of any predicate offence or the offence of money-laundering. This issue is accordingly decided against the appellants and in favour of ED. Whether the attached properties were purchased by the appellants from legit sources of income and not from the proceeds of crime as stressed by appellants? - HELD THAT - In absence of any documentary evidence tendered by the appellant it is not inclined to accept the contention of the appellant that he purchased the properties from legal sources of income. Accordingly this issue is decided against the appellants and in favour of the Respondent ED with liberty to lead their defence in the criminal trials. Whether police is empowered to take the physical possession of the vehicles at the instance of respondent ED? - Whether the possession was taken in violation of Rule 4(1) of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by The Adjudicating Authority) Rules 2013? - HELD THAT - Bare perusal of the Rule reflects that there is no specific bar that ED cannot give direction to the local police for taking the physical possession of the vehicle acquired from the proceeds of crime. Ld. Counsel for appellants failed to point out that how this Rule is violated by ED - issues are decided against the appellants and in favour of respondent ED. Whether the freezing of accounts cannot continue beyond 30 days in absence of any application u/s 17(4) of PMLA within 30 days? - Whether the freezing of accounts can be done only u/s 17(1A) of PMLA but not u/s 5(1) of PMLA? - HELD THAT - After seizure of documents/property under Section 17(1) or freezing of bank accounts under Section 17(1A) of PMLA 2002 the ED has to move an application under Section 17(4) within 30 days before the Adjudicating Authority for retention of such records or property and for continuation of the freezing of accounts. However this is not the only course of action on the part of ED for proceeding with the properties seized/frozen. Thus filing of original application for retention of such record or property as per Section 17(4) of PMLA 2002 is not the only course of action for ED as the authorised officer can retain the seized or frozen property for the purpose of adjudication under Section 8 for a period not exceeding 180 days as per Section 20(1) 21 (1) of the PMLA 2002. Therefore after exercising the later course of action the respondent ED can pass the provisional attachment order (PAO) and thereafter move original complaint before the Adjudicating Authority for confirmation of said PAO. In the present case respondent ED passed the PAO No. 13/2018 on 30.05.2018 and thereafter moved original complaint before the Adjudicating Authority for confirmation of PAO. Therefore the course of action adopted by respondent ED is in conformity with the rules. Accordingly the issues are decided against the appellants and in favour of respondent ED. Whether there is any violation of the Rules 8 9 of The Prevention of Money Laundering (Forms Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority Impounding and Custody of Records and the Period of Retention) Rules 2005 ? - HELD THAT - The appellants failed to point out how and in which manner the Rules 8 9 of The Prevention of Money Laundering (Forms Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority Impounding and Custody of Records and the Period of Retention) Rules 2005 were violated by respondent ED. All the official acts which are prescribed to be done in a particular manner are presume to be done in the said manner only and not otherwise in absence of any contrary proof in this regard - the issue decided against the appellants and in favour of respondent ED. Whether the confirmation order u/s 8(3) cannot be passed without any order u/s 8(2) of PMLA? - HELD THAT - Perusal of PAO reveals that the Authorised Officer/Deputy Director on the basis of reasonable belief that the said properties are acquired by the appellants from the proceeds of crime provisionally attached the same - Present appellants were also examined during investigation under PMLA and their statements were also recorded. Accordingly proviso to section 8(2) of PMLA 2002 is also duly complied by the ED before passing the PAO as per the procedure - the issue also decided against the appellants and in favour of ED. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Appellate Tribunal considered the following core legal questions:

i) Whether FIRs registered before 01.07.2005, the date of enforcement of the Prevention of Money Laundering Act, 2002 (PMLA), can be considered for calculating the quantum of proceeds of crime under the PMLA?

ii) Whether properties owned by appellants, who are not named as accused in any FIR or charge-sheet under Section 173 Cr.P.C., can be attached under the PMLA?

iii) Whether the attached properties were legitimately acquired by the appellants from lawful sources and not from proceeds of crime?

iv) Whether the police have the authority to take physical possession of vehicles attached by the Enforcement Directorate (ED) under the PMLA?

v) Whether the possession of attached properties was taken in violation of Rule 4(1) of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by The Adjudicating Authority) Rules, 2013?

vi) Whether freezing of bank accounts can continue beyond 30 days without an application under Section 17(4) of the PMLA?

vii) Whether freezing of accounts can be effected only under Section 17(1A) of the PMLA and not under Section 5(1)?

viii) Whether there was any violation of Rules 8 and 9 of The Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005?

ix) Whether an order confirming attachment under Section 8(3) of the PMLA can be passed without a prior order under Section 8(2)?

2. ISSUE-WISE DETAILED ANALYSIS

Issue i: Consideration of FIRs registered before 01.07.2005 for calculating proceeds of crime

The appellants contended that since five out of six FIRs identified by the ED pertained to offences committed before the PMLA came into force on 01.07.2005, the provisions of the PMLA should not apply to them. They argued that offences committed prior to the Act's enforcement cannot be the basis for attachment under PMLA.

The Tribunal referred to authoritative precedents, including Dyani Antony Paul v. Union of India and Vem Krishna Keerthan v. Directorate of Enforcement, which clarified that the offence of money laundering is a continuing offence and is independent of the date of commission of the predicate scheduled offence. The relevant date for determining money laundering is when the proceeds of crime are projected as untainted property or are dealt with in a manner connected to proceeds of crime.

The Tribunal also relied on the Supreme Court judgment in Vijay Madanlal Chaudhary v. Union of India, which stated that the offence under Section 3 of PMLA concerns the process or activity connected with proceeds of crime, irrespective of when the predicate offence was committed. The offence of money laundering can be committed even after the scheduled offence if the accused continues to possess or deal with proceeds of crime.

Applying this legal framework, the Tribunal held that the date of commission of the scheduled offences is not determinative; rather, the relevant date is when the accused indulges in activities connected with the proceeds of crime. Therefore, FIRs registered before 01.07.2005 can be considered for calculating proceeds of crime if the money laundering activities occurred after the Act's enforcement.

This issue was decided against the appellants and in favor of the respondent ED.

Issue ii: Attachment of properties of persons not named as accused in FIR or charge-sheet

The appellants argued that since they were neither named as accused in any FIR nor in charge-sheets, their properties should not be attached under the PMLA.

The Tribunal referred to the Supreme Court's ruling in Vijay Madanlal Chaudhary, which clarified that Section 5(1) of the PMLA is not limited to accused persons named in predicate offences. The section applies to any person involved in any process or activity connected with proceeds of crime, regardless of whether they are named in the FIR or charge-sheet.

The Court emphasized the broad objective of the PMLA to attach and confiscate proceeds of crime, irrespective of the person holding the property. Hence, properties held by persons not named as accused can be attached if they are involved with proceeds of crime.

The Tribunal accordingly rejected the appellants' contention and upheld the attachment.

Issue iii: Whether attached properties were acquired from legitimate sources

The appellants claimed that the attached properties were purchased from legitimate sources such as agricultural income, transport business earnings, and loans from banks and friends. They contended that no incriminating evidence was produced against them.

The Tribunal noted the absence of any documentary evidence such as income tax returns, bank statements, or loan documents to substantiate the appellants' claim of legitimate acquisition. In the absence of such proof, the Tribunal was not inclined to accept the appellants' contentions.

The Court observed that the appellants remain free to lead their defence during the criminal trials but that the material on record justified the attachment.

This issue was decided against the appellants and in favor of the ED.

Issues iv and v: Authority of police to take physical possession and compliance with Rule 4(1) of 2013 Rules

The appellants contended that the police had no authority to take physical possession of the vehicles attached by the ED and that such possession was taken in violation of Rule 4(1) of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by The Adjudicating Authority) Rules, 2013, which mandates that the authorized officer shall take physical possession and deposit the property in a warehouse or storage place.

The Tribunal examined Rule 4(1) and found no explicit prohibition against the ED directing local police to take physical possession of movable attached property. The appellants failed to demonstrate how the Rule was violated.

The Tribunal concluded that the police taking possession at the ED's instance was lawful and did not contravene the Rules.

These issues were decided against the appellants and in favor of the ED.

Issues vi and vii: Continuation of freezing of accounts beyond 30 days and applicable provisions for freezing

The appellants argued that freezing of accounts could only be done under Section 17(1A) of the PMLA and not under Section 5(1), and that freezing could not continue beyond 30 days without an application under Section 17(4).

The Tribunal analyzed Section 17(4), which requires that an application for retention or continuation of freezing be filed within 30 days. However, the Tribunal noted that Sections 20 and 21 of the PMLA permit retention of seized or frozen property and records for up to 180 days if the authorized officer has reason to believe such retention is necessary for adjudication.

Therefore, filing an application under Section 17(4) is not the sole method to retain frozen property; the ED can retain property under Sections 20 and 21 for adjudication purposes.

In the present case, the ED passed the Provisional Attachment Order (PAO) and filed the Original Complaint for confirmation within the prescribed period, complying with the procedural requirements.

Accordingly, the Tribunal held that the freezing and retention of accounts and properties were lawful and in conformity with the PMLA.

These issues were decided against the appellants and in favor of the ED.

Issue viii: Alleged violation of Rules 8 and 9 of the 2005 Rules

The appellants alleged violations of Rules 8 and 9 of The Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005.

The Tribunal observed that the appellants failed to specify how these Rules were violated. In the absence of any contrary proof, the Court invoked the presumption under Section 114(e) of the Indian Evidence Act, 1872, that official acts have been regularly performed.

The Tribunal thus rejected the contention of violation of these Rules.

This issue was decided against the appellants and in favor of the ED.

Issue ix: Whether confirmation order under Section 8(3) can be passed without an order under Section 8(2)

The appellants contended that the Adjudicating Authority erred in confirming the PAO under Section 8(3) without passing an order under Section 8(2).

The Tribunal examined Section 8(2), which requires the Adjudicating Authority to consider replies, hear parties, and record a finding whether any of the properties are involved in money laundering. The proviso mandates giving an opportunity to persons claiming the property.

The Tribunal found that the ED had complied with the procedural requirements by issuing the PAO on reasonable belief, filing the Original Complaint, and recording statements of the appellants under Section 50 of the PMLA. The proviso to Section 8(2) was duly complied with.

Therefore, the confirmation order under Section 8(3) was validly passed following the procedure under Section 8(2).

This issue was decided against the appellants and in favor of the ED.

3. SIGNIFICANT HOLDINGS

The Tribunal established several core principles and made key determinations as follows:

"The relevant date to find out the offence of money laundering is when the proceeds is projected to be untainted property. The offence of money laundering is a continuous offence. The date of commission of the scheduled offence may not be relevant to prosecute a person for the offence of money laundering at a later point of time."

"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."

"In absence of any documentary evidence tendered by the appellant to prove legitimate acquisition, the claim that properties were purchased from legal sources cannot be accepted."

"Rule 4(1) of the 2013 Rules does not prohibit the ED from directing local police to take physical possession of attached movable property."

"Sections 20 and 21 of the PMLA allow retention of seized or frozen properties for up to 180 days for adjudication purposes, and filing an application under Section 17(4) is not the only course for continuation of freezing."

"In absence of any proof to the contrary, official acts including compliance with Rules 8 and 9 of the 2005 Rules are presumed to be regularly performed."

"The Adjudicating Authority's confirmation order under Section 8(3) is valid where procedural requirements under Section 8(2) have been complied with, including opportunity to the person claiming the property."

Based on these principles, the Tribunal dismissed the appeals, affirming the attachment and confirming the orders of the Adjudicating Authority. The appellants were granted liberty to apply for release of vehicles subject to deposit of fixed deposit receipts equivalent to their insured values or for the ED to notify financiers for auction and deposit of excess amounts, safeguarding financiers' interests.