2025 (7) TMI 1547 - HC - Money Laundering

Money Laundering - scheduled/predicate offences - offences of large scale illegal extortion punishable under Section 384 read with 120B of the IPC - reasons to believe - discharge of burden under Section 8(1) of the PMLA - HELD THAT - The AA under Section 5(1) read with Section 8(1) of the PMLA is only required to form a reason to believe based on the material in possession that the property is involved in money laundering. Such belief need not be based on direct evidence but can be drawn from circumstantial indicators. The OC filed by the ED is quite exhaustive and contains relevant materials which appear to be sufficient to form a reason to believe. In the present case the chain of events including financial transactions lack of legitimate sources of income and links to the scheduled offence establishes a prima facie case that the attached property represents proceeds of crime. The purpose of attachment under the PMLA is a preventive measure to ensure that the property is not alienated or disposed of during the course of investigation and trial. It is not a final determination of guilt but a step to preserve the property suspected to be involved in money laundering. It is well-settled that offences under the PMLA are of a distinct nature where the PoC are often concealed through layered transactions and indirect modes. Direct evidence is seldom available in such cases and the determination of the proceeds of crime often rests on circumstantial evidence and the analysis of financial trails. The allegation with regard to absence of predicate offence is noticed to be rejected as similar submission was raised in case of Saumya Chaurasia v. Directorate of Enforcement 2023 (12) TMI 685 - SUPREME COURT . The learned Appellate Tribunal has quoted paragraphs 26 to 30 wherein the Hon ble Apex Court has dismissed the appeal. The Hon ble Apex Court did not consider it to be a case of dropping of the offence under Section 384 IPC. The Special Court of Karnataka had made a reference to request the State Police to transfer the offence under Section 384 of the IPC to the Chhattisgarh State Police upon which the FIR was registered by the Chhattisgarh Police which was not only for the offence referred in the FIR but was with the addition of the offences under the PC Act and other scheduled offences. The observations made by the learned Appellate Tribunal vide paragraphs 30 and 31 are reasoned one. The nexus between the appellant and the alleged PoC is also well established. It is the say of the appellants that they had duly informed the source for acquisition of the property in question and as such the orders passed by the AA as well as the Appellate Tribunal is erroneous. In the case in hand the FIR was lodged after prima facie disclosure of commission of offence but the offence was committed much earlier to registration of the ECIR and the FIR. The syndicate could not have extorted the money in a day or two but was a continuous process and it is a matter of investigation as to on which date the said extortion started. Further even if any properties were acquired by the appellants prior to the date of commission of the crime those properties can also be made the subject matter of attachment if the proceeds are not available or vanished. From perusal of the OCs which is also a detailed one wherein all the incriminating evidences have been annexed goes to suggest that a case is made out against the appellants for attachment of their properties. The appellants have failed to explain as to how those properties came to be in their names alongwith other movable assets. It is not essential for the enforcement authority to establish by direct evidence that the property in question is proceeds of crime. In a money laundering case the modus operandi often involves circuitous and opaque financial transactions making direct evidence inherently difficult to obtain. Based on the material produced including financial analysis property acquisition timelines and the absence of verifiable legitimate income this Court is satisfied that there exists a prima facie nexus between the property and the PoC. The PAO is therefore in consonance with the statutory scheme under PMLA and is liable to be upheld. Appeal dismissed.

Summary

ISSUES:

Whether the foundational facts for invoking the presumption under Section 24 of the Prevention of Money Laundering Act, 2002 (PMLA) have been established.Whether the attachment of properties under the PMLA is valid in absence of a predicate scheduled offence.Whether the Enforcement Directorate (ED) had "reason to believe" that the attached properties constitute proceeds of crime (PoC) as defined under Section 2(1)(u) of the PMLA.Whether the appellants are bona fide purchasers entitled to protection against attachment under the PMLA.Whether the procedure followed in confirming the Provisional Attachment Order (PAO) complied with the principles of natural justice.Whether the composition and constitution of the Adjudicating Authority (AA) under Section 6 of the PMLA was valid and not suffering from coram non-judice.Whether statements recorded under Section 50 of the PMLA, including those of co-accused, are admissible and sufficient to establish the case.Whether the concept of "equivalent value" property attachment under the PMLA applies to properties acquired prior to the commission of the scheduled offence.Whether the sharing of information by the ED with other law enforcement agencies under Section 66(2) of the PMLA is lawful and proper.Whether the appeals raise any substantial question of law warranting interference with the orders of the AA and Appellate Tribunal.

RULINGS / HOLDINGS:

The Court held that the foundational facts for presumption under Section 24 of the PMLA were established by the material on record, including financial transactions and linkages to the scheduled offence, and the appellants failed to rebut the statutory presumption.The absence of cognizance of the scheduled offence in the initial FIR or charge-sheet does not vitiate the attachment proceedings, as the scheduled offence was subsequently registered and investigated by competent authorities, and the ED's action under the PMLA was lawful and within jurisdiction.The ED had recorded "reason to believe" supported by material evidence, including seized documents, diary entries, and statements under Section 50 of the PMLA, sufficient to provisionally attach the properties as PoC.The appellants claiming to be bona fide purchasers failed to satisfactorily prove the legitimate source of funds for acquisition, and the properties were held to be involved in money laundering, including those acquired through sham transactions or as benami assets.The procedure adopted by the AA in confirming the PAO complied with the principles of natural justice, including issuance of show cause notices and consideration of replies; rejection of cross-examination requests at this stage was justified to prevent delay.The constitution of the AA as a single member bench, including non-judicial members, was held valid and not vitiated by coram non-judice, consistent with judicial precedents.Statements recorded under Section 50 of the PMLA, including those of co-accused, are judicial proceedings and admissible as evidence, though corroboration is necessary; the Court found sufficient corroboration in the case.The concept of attachment of property of "equivalent value" under Section 2(1)(u) of the PMLA applies to properties acquired prior to the commission of the scheduled offence if the actual PoC properties are not available, to prevent frustration of proceedings.The sharing of information by the ED with other investigative agencies under Section 66(2) of the PMLA is lawful, and subsequent FIR registration by those agencies is proper and does not affect the validity of PMLA proceedings.No substantial question of law arose warranting interference; the orders of the AA and Appellate Tribunal were upheld as well-reasoned and based on material evidence.

RATIONALE:

The Court applied the statutory framework of the PMLA, particularly Sections 3 (offence of money laundering), 5 (attachment of property), 8 (adjudication), 24 (burden of proof), and 50 (powers of authorities), along with relevant provisions of the Indian Penal Code (IPC) and procedural laws.The Court recognized that money laundering offences involve complex layering and integration of proceeds of crime, often requiring reliance on circumstantial evidence and financial analysis rather than direct proof.The presumption under Section 24 of the PMLA shifts the burden to the accused to prove innocence regarding PoC, and the Court found the appellants failed to discharge this burden adequately.The Court relied on judicial precedents affirming that attachment of properties prior to commission of offence is permissible under the "equivalent value" doctrine to prevent siphoning off of proceeds.The Court upheld the validity of the AA's composition and procedure, rejecting challenges based on natural justice and quorum, citing authoritative case law confirming single-member benches and administrative members' jurisdiction.Regarding statements under Section 50 of the PMLA, the Court emphasized their judicial nature and admissibility, subject to corroboration, and found sufficient corroboration in the present case.The Court held that the ED's sharing of information under Section 66(2) facilitates coordinated investigation and does not breach jurisdictional or procedural norms.The Court noted that the Appellate Tribunal conducted a detailed and reasoned analysis of individual appellants' cases, rejecting claims of mechanical or non-application of mind.The Court observed that the PMLA's scheme aims to prevent dissipation of illicit assets during investigation and trial, thus the attachment and confirmation orders serve a preventive and protective purpose rather than final adjudication of guilt.The Court rejected appellants' reliance on absence of scheduled offence in initial FIR or charge-sheet, noting subsequent registration and cognizance by competent authorities and Supreme Court observations affirming the continuing investigation.