2025 (5) TMI 856 - AT - Money Laundering

Money Laundering - attachment of properties acquired by the appellants prior to the period of the alleged predicate offence - proceeds of crime - attachment of properties which are already mortgaged with the banks and the physical possession of the same is also taken over by the mortgagee bank - absence of any apprehension for transfer or alienation of the said mortgaged property - Release of the attached properties which are stated to be attached as value thereof by way of deposit of FDR. Attachment of properties acquired by the appellants prior to the period of the alleged predicate offence - proceeds of crime - HELD THAT - There are no force in the first argument when the proceeds out of crime was not available with the appellant rather vanished and siphoned off the property of equivalent value has been attached. Whether the properties which are already mortgaged with the banks and the physical possession of the same is also taken over by the mortgagee bank cannot be attached in absence of any apprehension for transfer or alienation of the said mortgaged property? - HELD THAT - As per Section 2(1)(za) of PMLA 2002 defines Transfer as it includes sale purchase mortgage pledge gift loan or any other form of transfer of right title possession or lien. Thus even if the said properties are mortgaged with the bank or financial institution even then the appellants/mortgagors can transfer the said property by any other mode without discharging the loan liability by any of the aforesaid means without execution of any sale deed i.e. by way of taking more loan if the value of the property is more than the amount of loan; can be gifted to any person along with rights and liabilities; the possession can be handed over to any third party by way of lease of any period (without knowledge to the ED and the mortgagee bank) etc. - the fact cannnot be ignored that proceeds of crime are already misappropriated/laundered by the appellants and were not available/traced during investigation of this case by ED. The attached properties were attached by ED as value thereof in absence of direct/indirect proceeds of crime. Thus any attachment under PMLA cannot be equated with type of attachment under SARFAESI Act on account of mortgage of the property. The purpose of attachment proceedings is to protect the property till the conclusion of trial. In the present case the prosecution complaint has been filed by the ED against the appellant as pointed out by Ld. Counsel for the respondent. Once the prosecution complaint for commission offence u/s-3 punishable u/s 4 of PMLA is filed wherein the attached properties are mentioned for purpose of confiscation in case of conviction then it becomes the case property and hence now it is the prerogative of the concerned court to decide the rival claims of the parties if any. Release of the attached properties which are stated to be attached as value thereof by way of deposit of FDR - HELD THAT - In absence of any specific rule under PMLA for substitution of immovable property this Appellate Tribunal cannot grant such permission to the appellants. Even otherwise the total quantum of fraud is much more than the properties attached by ED hence the question of any substitution does not arise. It is correct that ED cannot investigate and file complaints qua the offence of benami properties under PBPT Act but certainly the properties can be attached under PMLA if it is revealed that the said properties are purchased by beneficial owner in the name of benamidar in pursuance to conspiracy by committing a fraud on the bank on the shoulder of a benamidar. In the landmark case of Vijay Madanlal Chaudhary Ors. v. Union of India Ors. 2022 (7) TMI 1316 - SUPREME COURT (LB) the Hon ble Supreme Court of India has categorially observed that the objective of the PMLA 2002 is to reach the proceeds of crime in whosoever s name they are kept or by whosoever they are held. Hence this issue is also decided in favour of the respondent ED and against the appellants. Conclusion - i) The expression proceeds of crime envisages both -tainted property as well as untainted property with it being permissible to proceed against the latter provided it is being attached as equal to the value of any such property or property equivalent in value held within the country or abroad. However both the italicised categories would be liable to be invoked in cases where the actual tainted property cannot be traced or found out. ii) The definition of proceeds of crime is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence but also of the value of any such property. If the property is taken or held outside the country even in such a case the property equivalent in value held within the country or abroad can be proceeded with. Appeal dismissed.

Summary

The core legal questions considered by the Appellate Tribunal under the Prevention of Money Laundering Act, 2002 (PMLA) in the present appeals are as follows:

1. Whether properties acquired by the appellants prior to the period of the alleged predicate offence (2009-2012) can be attached as proceeds of crime or equivalent value under the PMLA.

2. Whether properties mortgaged with banks and in physical possession of the mortgagee banks can be attached by the Enforcement Directorate (ED) in the absence of apprehension of transfer or alienation.

3. Whether substitution of attached immovable properties by way of cash deposits or Fixed Deposit Receipts (FDRs) is permissible under PMLA.

4. Whether statements recorded under Section 50 of PMLA, alleged to be involuntary confessional statements, can be relied upon as incriminating evidence.

5. Whether properties already gifted or transferred by way of General Power of Attorney (GPA) or lease, but still under control of the accused, can be attached.

6. Whether ED has jurisdiction to investigate and attach benami properties under PMLA, given that benami properties are governed by the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act), and whether properties held in the name of benamidars can be attached if they represent proceeds of crime.

Issue-wise Detailed Analysis

1. Attachment of Properties Acquired Prior to the Predicate Offence Period

Legal Framework and Precedents: The definition of "proceeds of crime" under Section 2(1)(u) of PMLA includes not only property directly or indirectly derived from criminal activity but also the value of such property. The Supreme Court's judgment in Vijay Madanlal Chaudhary v. Union of India clarified that attachment of property equivalent in value to proceeds of crime is permissible even if the proceeds are situated outside India. The Delhi High Court in Prakash Industries Ltd. v. Directorate of Enforcement interpreted that properties acquired prior to the offence are not immune if the tainted property cannot be traced, provided the accused had an interest in such property during the offence period. The Appellate Tribunal's own precedent in Sadananda Nayak v. Deputy Director, ED, also supports this interpretation.

Court's Interpretation and Reasoning: The Tribunal held that the appellants' contention that properties acquired before the offence period cannot be attached is without merit. The second limb of the definition of "proceeds of crime" allows attachment of property equivalent in value when the actual tainted property is not traceable. Since the proceeds of crime were siphoned off and not available, attachment of equivalent value properties is justified. The Tribunal relied on the Supreme Court's authoritative interpretation in Vijay Madanlal Chaudhary and the Delhi High Court's reasoning in Prakash Industries Ltd.

Application of Law to Facts: The ED could not trace the direct proceeds of crime, thus attaching properties of equivalent value, including those acquired before the offence period, was lawful. The appellants failed to establish any bona fide third-party rights or legitimate ownership that would exempt such properties from attachment.

Conclusion: Attachment of properties acquired prior to the predicate offence period as equivalent value proceeds of crime is valid under PMLA, and this ground of appeal was rejected.

2. Attachment of Mortgaged Properties in Possession of Banks

Legal Framework: Section 2(1)(za) of PMLA defines "transfer" broadly, including mortgage, pledge, gift, lease, or any transfer of right, title, possession, or lien. The second proviso to Section 5(1) of PMLA permits attachment if there is a reason to believe that the property is likely to be transferred or alienated to frustrate proceedings.

Court's Interpretation and Reasoning: The Tribunal rejected the appellants' argument that mortgaged properties in bank possession cannot be attached. It reasoned that despite mortgage, appellants could transfer or alienate the properties by various means without discharging liabilities, such as gifting or leasing, which could frustrate recovery. Therefore, immediate attachment is necessary to prevent such eventualities. The Tribunal distinguished attachment under PMLA from SARFAESI Act proceedings, emphasizing the protective purpose of attachment pending trial.

Application of Law to Facts: Given that the proceeds of crime were misappropriated and not traceable, and considering the risk of alienation, the ED's attachment of mortgaged properties was justified to safeguard the properties until trial conclusion.

Conclusion: Mortgaged properties, even in possession of banks, can be attached under PMLA to prevent transfer or alienation, and this contention was rejected.

3. Substitution of Attached Properties by Cash Deposits or FDRs

Legal Framework: PMLA does not provide specific rules permitting substitution of immovable attached properties with cash deposits or FDRs.

Court's Interpretation: The Tribunal held that in absence of any statutory provision, it cannot permit substitution of immovable properties with cash deposits. Furthermore, since the total quantum of fraud exceeds the value of attached properties, substitution is not warranted.

Conclusion: The prayer for substitution of attached properties by cash deposits or FDRs was denied.

4. Reliance on Statements Recorded Under Section 50 of PMLA

Legal Framework: Section 50 of PMLA provides for recording statements of persons during investigation. The voluntariness and admissibility of such statements are subject to scrutiny.

Court's Interpretation: The Tribunal found no evidence that the statements recorded under Section 50 were involuntary or confessional in nature. The case against appellants was primarily supported by documentary evidence showing loans sanctioned without proper verification and non-existence of fish tanks, corroborated by statements.

Conclusion: The contention that statements under Section 50 were involuntary and inadmissible was rejected.

5. Attachment of Properties Already Gifted or Transferred

Legal Framework: Transfer under PMLA includes gift and transfer by GPA or lease. Attachment can be made if properties are under control of accused or part of proceeds of crime.

Court's Interpretation: The Tribunal held that properties allegedly gifted or transferred but still under control of the accused represent an afterthought to evade attachment. Such properties are liable to be attached as proceeds of crime or their equivalent value.

Conclusion: Attachment of properties gifted or transferred but controlled by accused was upheld.

6. Jurisdiction of ED over Benami Properties and Attachment of Properties Held in Benami Names

Legal Framework: Investigation of benami properties is under the PBPT Act, 1988. However, PMLA empowers attachment of proceeds of crime irrespective of ownership or benami status, as per the Supreme Court's ruling in Vijay Madanlal Chaudhary.

Court's Interpretation: The Tribunal clarified that while ED may not investigate benami offences, it can attach properties if they are proceeds of crime held in benami names as part of a conspiracy. The objective of PMLA is to reach proceeds of crime "whosoever's name they are kept."

Application of Law to Facts: The properties purchased in names of family members or benamidars but linked to the accused's criminal activity were rightly attached.

Conclusion: Attachment of benami properties as proceeds of crime under PMLA is valid, and this ground was rejected.

Significant Holdings

"The expression proceeds of crime envisages both -tainted property as well as 'untainted property' with it being permissible to proceed against the latter provided it is being attached as equal to the 'value of any such property' or 'property equivalent in value held within the country or abroad.' However, both the italicised categories would be liable to be invoked in cases where the actual tainted property cannot be traced or found out." (Para 5, quoting Prakash Industries Ltd.)

"The definition of 'proceeds of crime' is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence, but also of the value of any such property. If the property is taken or held outside the country, even in such a case, the property equivalent in value held within the country or abroad can be proceeded with." (Para 5, quoting Vijay Madanlal Chaudhary)

"Even if the said properties are mortgaged with the bank or financial institution, the appellants/mortgagors can transfer the said property by any other mode without discharging the loan liability... Therefore, we are not satisfied with the contention that there is no apprehension or reason to believe that the mortgaged properties, if not attached immediately, can likely frustrate any proceeding." (Para 6)

"The objective of the PMLA, 2002 is to reach the proceeds of crime in whosoever's name they are kept, or by whosoever they are held." (Para 10, citing Vijay Madanlal Chaudhary)

The Tribunal ultimately dismissed the appeals, affirming the Adjudicating Authority's confirmation of attachment orders. It emphasized that attachment under PMLA is a protective measure pending trial and confiscation, and that the rights of parties will be considered by the trial court based on evidence. The judgment clarifies the broad scope of "proceeds of crime" to include properties acquired before the offence period as equivalent value, the permissibility of attaching mortgaged and benami properties, and the inadmissibility of substitution of attached properties without statutory authority.