2025 (7) TMI 1413 - AT - Money Laundering

Money Laundering - scheduled offences - attachment of property - proceeds of crime - conspiracy - publishing falsified books of accounts including artificially inflating the balance sheets and Annual Financial Statements of M/s SCSL - failure to take into consideration that Section 8 of the PMLA mandates an opportunity of hearing to the person holding a property - violation of principles of natural justice - HELD THAT - Based on the investigation part of the purchase consideration amounting to Rs. 41, 52, 512/- for the above said property was paid from the account No.422070000202 of Sh. V. Srinivas maintained with HDFC Bank, Begumpet Hyderabad. The source for the above money was traced to the proceeds derived out of sale of inflated shares of M/s SCSL by Sh. V. Srinivas to M/s DSP Merrill Lynch. Further it is not clear whether the loan taken by Sh. V. Srinivas was entirely used by the Applicant for acquiring the said immovable property. Sh. V. Srinivas has admitted in his statement that the loan taken from the ICICI bank is only a part of the said purchase consideration. Thus the averment that only the payment made beyond the loan amount would be proceeds of crime would not be correct. Considering the wide interpretation given to the term value of any such property mentioned in Sec. 2(1)(u). Proceeds of crime would also include property equivalent in value to the property derived from the criminal activity relating to the scheduled offence even though acquired through legitimate and known sources of income. Similar view has been taken by this Tribunal in the case of Ayush Kejriwal vs. Dy. Director ED 2024 (6) TMI 451 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI . The objective of the PMLA is distinct from the purpose of SARFAESI Act. In this case SARFAESI and PMLA deal with different aspects of the same transaction. Therefore the view that SARFAESI has an overriding effect over PMLA is hereby rejected. Appeal dismissed.

Summary

ISSUES:

Whether the Adjudicating Authority (AA) erred in attaching immovable property alleged to be proceeds of crime without affording opportunity of hearing to the charge-holder bank having mortgage interest.Whether the property in question qualifies as "proceeds of crime" under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 (PMLA), considering part payment was from a legitimate bank loan.Whether the "reason to believe" standard under Sections 5 and 8 of PMLA was properly applied by the AA and the Tribunal in confirming attachment of the property.Whether the doctrine of "mingling" or "interconnected transactions" under Section 23 of PMLA justifies presuming the entire property value as proceeds of crime despite partial legitimate funding.Whether the bank's rights under mortgage and SARFAESI Act override or are affected by attachment orders under PMLA.Whether the property adjacent to the attached property, forming a superstructure, should also be released from attachment for practical and equitable reasons.

RULINGS / HOLDINGS:

The Tribunal held that the bank was given adequate opportunity to present its case and the appellant's contention that it was not made a party or heard is without merit, satisfying the principle of natural justice.The property in question constitutes "proceeds of crime" under Section 2(1)(u) of PMLA as it was acquired through funds derived from criminal activity relating to scheduled offences, notwithstanding part payment by bank loan; the definition includes "the value of any such property."The "reason to believe" standard under PMLA is a lower threshold than criminal standard; sufficient material existed on record to establish reason to believe that the property was proceeds of crime, justifying attachment.Section 23 of PMLA creates a presumption for interconnected transactions and mingling of proceeds of crime with legitimate funds, making bifurcation impossible and permitting attachment of the entire property value.The bank's rights under mortgage and SARFAESI Act continue to subsist but do not override the attachment under PMLA; the PMLA provisions have overriding effect over inconsistent laws as per Section 71.The Tribunal declined to release adjacent properties forming the superstructure along with the attached property, noting that the appeal concerned only the first property and the issue of adjacent properties was outside the scope of the present appeal.

RATIONALE:

The Tribunal applied the statutory framework of the Prevention of Money Laundering Act, 2002, particularly Sections 2(1)(u), 5, 8, 23, and 71, to assess the attachment of property alleged to be proceeds of crime.The interpretation of "proceeds of crime" was guided by authoritative precedents emphasizing its wide ambit to include "the value of any such property" derived from criminal activity, allowing attachment of property even if partially funded by legitimate loans.The "reason to believe" standard was construed as a prima facie threshold, lower than criminal proof, consistent with legislative intent to enable effective prevention of money laundering.Section 23's presumption of interconnected transactions was invoked to address complexities arising from mingling of tainted and legitimate funds, precluding the necessity of strict bifurcation in attachment proceedings.The Tribunal recognized the coexistence of rights under other laws (such as SARFAESI Act and mortgage rights) but affirmed the overriding effect of PMLA provisions in money laundering matters, rejecting arguments of conflict or precedence.The Tribunal acknowledged procedural safeguards including opportunity of hearing to affected parties and reliance on statements under Section 50 of PMLA, ensuring compliance with principles of natural justice.No dissenting or concurring opinions were expressed; the decision aligns with evolving jurisprudence emphasizing broad and purposive interpretation of PMLA to combat money laundering effectively.