2011 (9) TMI 1143 - HC - Money Laundering

Prevention of Money-Laundering Act, 2002 - Held that - If the appellants were eventually entitled for return of the deposit on the conclusion of the trial against the accused persons concerning the Scheduled Offence. The fact that the appellants are likely to suffer financial loss because of the difference of rate of interest cannot be the basis to hold that the Appropriate Authority could not have proceeded to provisionally attach the subject property, which, it had reason to believe, was proceeds of crime. Indeed, whether the appellants ought to be compensated and by whom is a matter which can be addressed at the appropriate stage; but, certainly, because the appellants are likely to suffer loss of interest to some extent cannot be the basis to doubt the action of the Appropriate Authority, which action is in conformity with the scheme of the PMLA. That takes us to the argument that the order of provisional attachment does not disclose the satisfaction of the Authority that it has reason to believe that the properties were derived from proceeds of crime. This argument deserves to be stated to be rejected. In the earlier part of the judgment, we have already reproduced the provisional attachment order as well as the notice to show cause in its entirety. On conjoint reading thereof, it is amply clear that the Appropriate Authority has recorded satisfaction of having reason to believe that the properties were involved in money laundering and may have to be eventually confiscated, for which, were required to be provisionally attached. Hence, there is no substance even in this submission.

Summary

Issues Involved:
1. Validity of the provisional attachment order under Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA).
2. Burden of proof regarding the legitimacy of funds.
3. Relationship and transactions between the involved parties.
4. Provisional attachment of funds already frozen under the NDPS Act.
5. Financial loss due to provisional attachment.
6. Satisfaction of the Authority in issuing the provisional attachment order.

Detailed Analysis:

1. Validity of the Provisional Attachment Order:
The appeals challenge the common Judgment and Order passed by the Appellate Tribunal under PMLA, New Delhi, which confirmed the provisional attachment order No.8/2008 under Section 5 of the PMLA. The provisional attachment was based on the belief that the funds in question were proceeds of crime, used for laundering to project tainted money as untainted. The Adjudicating Authority and the Tribunal upheld this order, noting that similar orders had been confirmed in related cases involving the same transaction. The Court found no reason to distinguish the present case from the earlier decisions, thus upholding the provisional attachment.

2. Burden of Proof Regarding Legitimacy of Funds:
The Tribunal emphasized that under Section 24 of the PMLA, the burden of proof to show that the funds were not proceeds of crime lies on the appellants. The Tribunal found that the appellants failed to provide evidence to prove the legitimate source of the funds received from two NRI investors. The Tribunal rejected the argument that the funds lost their identity after being utilized for business purposes, noting that the funds kept changing form, exemplifying the layering and integration stages of money laundering.

3. Relationship and Transactions Between the Involved Parties:
The Tribunal noted that the parties involved were closely related and engaged in international transactions. The funds in question were invested by two NRI ladies, who were related to the directors of the appellant company. The Tribunal found that the investments were proceeds of crime, integrated with the company's funds to project them as untainted. The Tribunal also highlighted the interconnected transactions and the presumption under Section 23 of the PMLA, which the appellants failed to rebut.

4. Provisional Attachment of Funds Already Frozen Under the NDPS Act:
The appellants argued that a significant portion of the funds was already frozen under the NDPS Act and secured by a High Court order. The Court rejected this argument, stating that the purpose of freezing under the NDPS Act is different from provisional attachment under the PMLA. The Court held that the provisional attachment under the PMLA was necessary to secure the availability of the property for confiscation if the accused were found guilty.

5. Financial Loss Due to Provisional Attachment:
The appellants contended that the provisional attachment caused financial loss due to lower interest rates on the re-invested funds. The Court dismissed this argument, stating that potential financial loss cannot undermine the authority's action under the PMLA. The primary concern is securing the proceeds of crime, and any compensation for financial loss can be addressed later.

6. Satisfaction of the Authority in Issuing the Provisional Attachment Order:
The appellants argued that the provisional attachment order lacked the necessary satisfaction of the Authority having reason to believe the properties were proceeds of crime. The Court found this argument baseless, noting that the order and the show cause notice clearly recorded the Authority's satisfaction and reasons for believing the properties were involved in money laundering.

Conclusion:
The appeals were dismissed, upholding the provisional attachment order. The Court reiterated that the findings were specific to the provisional attachment and did not preclude further legal proceedings.