2025 (7) TMI 1266 - AT - Money Laundering

Money Laundering - provisional attachment order - justification to attach the properties in the hands of his relatives - statement of the appellants recorded under Section 50(2) of the Act of 2002. In the case of appellant no. 1 Smt. Prem Lata Garg - HELD THAT - The appellant has failed to disclose the source of her brother to repay the loan amount and the bank statements of her two brothers to support the aforesaid and to prove repayment of Rs. 25, 60, 000/- so as to lend it to her husband. It is apart from the fact that an amount of loan to Shri Devki Nandan Garg and accumulated amount out of it in the year 2012-2013 is shown to be Rs. 10, 47, 893/- coupled with the fact that she extended further loan to her husband for a sum of Rs. 10, 00, 000/- on 14.03.2013 - It is also a fact that the appellant had voluntarily made the statement before the Enforcement Directorate and was read out to her. The statement of the appellant is sufficient to show that purchase of the property was out of the proceeds of crime and only to layer the amount and reach in the hands of Shri Devki Nandan Garg. The appellant admittedly had no source of independent income. It is found that the summary of bank account has been given but that could not be relied in the absence of the bank statement issued by the bank authorities and in any case the appellant has failed to disclose the source of her brothers to repay the alleged loan amount to justify the purchase of property which otherwise is out of proceeds of crime and thus rightly attached by the respondent. In the case of appellant no. 2 Smt. Rakhi Garg - HELD THAT - The investigation revealed that Smt. Rakhi Garg is house-wife and not having any source of income yet she purchased the property said to be from her own source of income. The statement made by her under Section 50(2) of the Act of 2002 and voluntarily signed is sufficient to justify the attachment of the property. The amount of Rs. 15, 00, 187/- was received by her towards repayment of the loan lent by her to her father-in-law Shri Devki Nandan Garg. It is said to have been disclosed in the Income Tax Returns. She purchased the property to the equivalent amount of Rs. 15, 00, 187/- through bank transaction but no source for purchase of the property on the Eastern Side First Floor from Smt. Pushpa Devi Garg for sale consideration of Rs. 25, 00, 000/- has been disclosed - The statement of the appellant Smt. Rakhi Garg and her husband Shri Sanjay Garg reflects as to how the proceeds of crime was transferred to layer the amount and being source to purchase the property. The appellant has failed to give source to purchase the property worth of Rs. 25, 00, 000/- from Smt. Pushpa Devi Garg and therefore there are no case to cause interference in the impugned order. In the case of appellant no. 3 Smt. Anju Garg - HELD THAT - It is stated that the property No. B-79 Second Floor CC Colony was purchased by her deceased husband from Smt. Pushpa Devi Garg in the year 2014. The sale consideration of Rs. 25, 00, 000/- was paid out of the earnings of her husband. The appellant however failed to produce any document to disclose the source of income of her husband. In fact she had admitted about the involvement of her husband to provide accommodation entries in lieu of commission along with her father-in-law Shri Devki Nandan Garg. A source to acquire the property was thus remained out of the proceeds of crime otherwise no independent source of income has been disclosed. The appellant s husband was also beneficiary of the proceeds of crime. The commission came to his account was used for purchase of property which has been attached by the respondent - A reference of the statement under Section 50(2) of the Act of 2002 has been given and otherwise referred in earlier part of the order which does not fortify the case of the appellant as presented. In the case of appellant no. 4 Shri Sanjay Garg - HELD THAT - The statement of the appellant is sufficient to make out case against him and thus has been relied by the respondent. The financial transactions by the appellant in his argument does not coincide with the statement made by him. He received the amount from M/s Lachu Ram Aggarwal and being the shell company and entity of Shri Devki Nandan Garg the Adjudicating Authority refused to cause interference in the PAO finding no case in favour of the appellant. There are no case in favour of the appellant in the light of his own statement and the facts on record. In the case of appellant no. 5 Shri Raghav Garg - HELD THAT - The appellant is the recipient of the property bearing no. 4067 Naya Bazar Delhi-110006 at Third Floor along with terrace right. It was gifted by Shri Devki Nandan Garg to him and his cousin brother Shri Galav Garg. The property aforesaid was purchased by Shri Devki Nandan Garg in the year 1999 through a registered Sale Deed and thus argument was raised that it could not have been taken to be proceeds of crime in ignorance of the fact that the property has been attached for value thereof realising the effort of the main accused Shri Devki Nandan Garg to transfer the property to save it from attachment. In the same manner a reference of the amount of gift of Rs. 7, 00, 000/- and Rs. 3, 50, 000/- from his grandfather and grandmother has been given though it has not been accounted for by them and justification remains for the sake of it. In fact gift was made through banking channel but it was again out of proceeds of crime generated in the hands of Shri Devki Nandan Garg and therefore rightly attached by the respondent. It may however be clarified that if the respondent seized the bank account and finally attached few leaving others the appellant should have taken appropriate remedy to seek release of the remaining account from the seizure but there are no case to interfere in the PAO at the instance of the appellant. In the case of appellant no. 6 Shri Sarthak Garg - HELD THAT - The case of the appellant is similar to the case of the appellant no. 5 Shri Raghav Garg. Thus it needs no further discussion rather it is covered by the findings recorded in reference to the appellant no. 5. In the case of appellant no. 7 Shri Mayank Garg - HELD THAT - The transfer of the amount by Shri Devki Nandan Garg and Smt. Prem Lata Garg stands on the same footing as is referred in the case of other appellants. The amount was out of proceeds of crime and thus rightly attached by the respondent. So far as the statement of the appellant recorded by the respondent is concerned the allegations have been made in the appeal for sake of it. The appellant has not reacted and submitted the statement recorded by the respondent was different than was stated by him. In the light of the above there are no illegality to rely the statement of the appellant to attach the bank account which was nothing but the amount given by the accused Shri Devki Nandan Garg and Smt. Prem Lata Garg out of the proceeds of crime. In the case of appellant no. 8 Shri Galav Garg - HELD THAT - The case of Shri Galav Garg grandson of Shri Devki Nandan Garg is similar to other grand-sons and grand- daughters and finding no substance in their pleas the argument was not accepted by this Tribunal. Otherwise a sum of Rs. 21, 01, 000/- was additionally shown to have received by way of gift. It was nothing but a devise evolved by Shri Devki Nandan Garg to save the property from attachment and therefore the case is not made out in favour of the appellant Shri Galav Garg. In the case of appellant no. 9 Smt. Swati Garg - HELD THAT - The appellant Smt. Swati Garg is the grand-daughter-in- law of Shri Devki Nandan Garg. She has also claimed the same benefit as have been claimed by grand-sons and grand- daughters towards the gift and shockingly she had disclosed the amount of Rs. 2, 50, 000/- received by her which became Axis Mutual Fund and ICICI Mutual Fund with a value of Rs. 36, 00, 000/- and Rs. 18, 27, 633/-. It is without any details and the basis of accumulation of the amount when she said to have received only Rs. 2, 50, 000/- from Shri Devki Nandan Marg after her marriage with Shri Mayank Garg grandson of Shri Devki Nandan Garg but then failed to disclose the source to have accumulated fund of Rs. 55, 00, 000/- and therefore the case is not made out even in her favour. There are no substance in any of the appeals preferred by the appellants and accordingly appeals are dismissed.

Summary

ISSUES:

Whether the provisional attachment of movable and immovable properties under the Prevention of Money Laundering Act, 2002 (PMLA) was justified based on the formation of "cogent reasons to believe" that such properties are proceeds of crime.Whether the appellants, being relatives of the accused, lawfully acquired the attached properties through legitimate sources or whether these properties represent proceeds of crime.Whether mere filing of income tax returns or disclosure of source of funds absolves the appellants from the allegation of possession of proceeds of crime under PMLA.Whether statements recorded under Section 50(2) of the PMLA Act of 2002 can be relied upon to form the basis for attachment orders.Whether procedural irregularities, such as non-provision of statements before issuance of show-cause notices or provisional attachment orders, affect the validity of the attachment.Whether gifts and loans among family members, when linked to proceeds of crime, can be treated as layering and projection of proceeds of crime as untainted property.Whether properties acquired prior to the commission of scheduled offences can be attached for their "value thereof" under PMLA.

RULINGS / HOLDINGS:

The provisional attachment of the properties was upheld as the authorities had formed "cogent reasons to believe" that the properties were acquired out of proceeds of crime, satisfying the requirements under the Prevention of Money Laundering Act, 2002.Statements recorded under Section 50(2) of the Act, voluntarily made and signed by the appellants, were relied upon as sufficient evidence to justify attachment, notwithstanding the appellants' claims of procedural irregularities.Filing of income tax returns or disclosure of source of funds does not automatically legitimize property if the funds are linked to proceeds of crime; "declaration of illegitimate funds in Income Tax Returns does not provide any immunity from legal action under PMLA."Loans and gifts among family members, when traced to proceeds of crime and shell entities, constitute layering and projection of proceeds of crime as untainted property and justify attachment.Properties acquired prior to the commission of scheduled offences may be attached for their "value thereof" if they are shown to have been transferred to evade attachment.Failure of appellants to disclose or prove legitimate sources for repayment of loans or acquisition of properties supports the inference that such properties are proceeds of crime.Allegations of misquotation or manipulation of statements by appellants were not accepted as sufficient to invalidate the attachment orders.Provisional attachment orders were not interfered with due to lack of any substantive evidence to the contrary and due to the complex web of transactions involving shell companies and accommodation entries.

RATIONALE:

The Court applied the statutory framework of the Prevention of Money Laundering Act, 2002, particularly the provisions relating to provisional attachment of properties under Section 5 and the evidentiary value of statements recorded under Section 50(2).The Court emphasized that the burden under Section 24 of the PMLA lies on the respondent agency to form "reason to believe" that the properties are proceeds of crime, which can be inferred from the investigation, statements, and documentary evidence.The Court recognized that mere disclosure of income tax returns or claimed sources of income is insufficient if the investigation reveals that such funds are linked to criminal activity, including through shell companies and accommodation entries.The Court noted that layering and projection of proceeds of crime as untainted property through family members and dummy entities is a recognized modus operandi, justifying attachment of properties held by relatives.The Court rejected procedural objections related to non-provision of statements prior to show-cause notices, holding that such irregularities do not vitiate the attachment where the statement is voluntary and the investigation is thorough.The Court accepted the principle that properties acquired before the offence may be attached for their value if there is evidence of transfer to defeat attachment, reflecting a doctrinal approach to prevent evasion of law.The Court found no merit in appellants' claims of misrepresentation or afterthought explanations, given the consistency of investigative findings and corroborative evidence from multiple agencies.