2025 (7) TMI 1208 - AT - Money Laundering

Money Laundering - attachment of property - predicate offence - possession of the disproportionate assets or not - statements recorded under Section 50 of PMLA and the relied upon documents formed the reasonable belief or not - Respondent ED has not conducted any independent investigation qua the predicate offence - attachment was made without the compliance/existence of the conditions as stated under the second proviso of Section 5(1) - public servant in possession of disproportionate assets. Whether the attachment needs to be set-aside as Respondent ED has not conducted any independent investigation qua the predicate offence? - HELD THAT - The ED has to confine its inquiry/investigation qua the remaining four points mentioned above. Accordingly we are of the view that ED is not required to enter into the domain of investigation of Police/CBI to conduct any investigation for the predicate offence. ED can only point out any glaring mistake or lacunae in the said investigation conducted by Police/CBI which may come to its knowledge while conducting the investigation under PMLA. However ED cannot arrive at different conclusion qua the predicate offence and quantum of fraud/POC while conducting investigation under PMLA as it is not a supervisory investigating agency over police/CBI. Thus this contention is decided against the appellant as no independent investigation is required to be made by the ED to assess the quantum of DA. Whether the attachment was made without the compliance/existence of the conditions as stated under the second proviso of Section 5(1)? - HELD THAT - The explanation and defence taken by the appellant are apparently without any basis and the same is apparently an afterthought strategy. The defence of the additional income of the Appellant and his wife are not substantiated by any documentary evidence. This defence is palpably devoid of any merits as he has not informed his department regarding the said additional income of his family as per relevant CCS Conduct Rules applicable to him - Moreover there is apparent apprehension of alienation of these properties seeing the fact that ED has recorded the ECIR and the properties of the Appellant are likely to be attached and confiscated in due course under PMLA 2002. Thus the conditions as stated under the second proviso of Section 5(1) are fulfilled. Regarding applicability of Section 5(1) (a) (b) the appellant is an accused in the FIR and the ECIR is also filed against him thus he is a person in possession of alleged proceeds of crime i.e. disproportionate assets accumulated by way of illegal gratification/bribe while working as public servant and there is likelihood of concealment or divesting of the impugned properties and hence covered under Section 5(1)(a) (b). Whether the attachment of the properties as mentioned in Para No. 1 above needs to be set aside even if the public servant is in possession of disproportionate assets just because the attached properties are acquired from the legal sources of income as alleged? - HELD THAT - Even if some assets are acquired from the legal sources of income even then the said assets can be attached as value thereof if it is practically not possible to attach the other assets of the appellant. For example if a public servant starts saving his monthly salary in his bank account without making any withdrawal and thereafter incurs his household expenses extravagant expenses like liquor gambling parties clubs and immoral purposes etc. from the illegal gratification/bribe and thereafter purchases/hold the properties from the legal source of income accumulated in his bank account he cannot take the plea that the said properties are acquired from the legal source of income and cannot be attached - the ground raised by the appellant cannot be accepted. Even otherwise against the disproportionate assets to the extent of Rs. 2, 97, 06, 108/- the ED has attached his assets only to the extent of Rs. 52, 24, 079/-. The remaining assets are yet to be attached by ED - the issue decided against the Appellant and in favour of the Respondent ED. Appeal dismissed.

Summary

ISSUES:

Whether the attachment order under the Prevention of Money Laundering Act (PMLA) requires an independent investigation by the Enforcement Directorate (ED) into the predicate offence'Whether the attachment was made without compliance with the conditions stipulated under the second proviso of Section 5(1) of the PMLA'Whether properties acquired from legal sources of income can be attached when the person is found in possession of disproportionate assets?

RULINGS / HOLDINGS:

On the first issue, the Court held that the ED is not empowered to conduct an independent investigation into the predicate offence but must rely on the FIR and police investigation; it may only identify glaring mistakes or lacunae in the police/CBI investigation. Thus, "no independent investigation is required to be made by the ED, to assess the quantum of DA."Regarding the second issue, the Court found that the conditions under the second proviso of Section 5(1) were fulfilled as there was "ample evidence" of disproportionate assets and a "likelihood of concealment or divesting" of the properties, justifying provisional attachment. The appellant failed to substantiate claims of additional income, rendering the defence "palpably devoid of any merits."On the third issue, the Court ruled that "even if some assets are acquired from the legal sources of income, even then the said assets can be attached as value thereof, if it is practically not possible to attach the other assets." It cited the Supreme Court's ruling that the definition of "proceeds of crime" includes "the value of any such property," permitting attachment of properties equivalent in value to the proceeds of crime. The attachment made was "nominal to the proceeds of crime," and thus justified.

RATIONALE:

The Court applied the statutory framework under the Prevention of Money Laundering Act, 2002, particularly Section 5(1) and its provisos, and Section 26 relating to appeals against attachment orders.The Court emphasized the division of investigative roles: the police/CBI investigate the predicate offence, while the ED investigates money laundering aspects, focusing on proceeds of crime and their laundering, layering, or dissipation.The Court relied on the Supreme Court precedent in Vijay Madanlal Chaudhary v. Union of India, which interprets "proceeds of crime" broadly to include the value of property derived from criminal activity, thereby validating attachment of assets acquired from legal sources if they represent the value of illicit proceeds.The Court rejected the appellant's contention of additional income due to lack of documentary evidence and failure to disclose such income to the relevant department, noting this as an afterthought defence.The Court clarified that the attachment order does not preclude rights during criminal trial or departmental proceedings and that coercive steps against the property must comply with Supreme Court guidelines.