2022 (6) TMI 1389 - HC - Money Laundering

Money Laundering - Provisional attachment order (against four immovable properties and five bank accounts of the petitioners) - proceeds of crime - reasons to believe - siphoning off of funds - HELD THAT - The general conclusion in respect of the immovable properties is that proceeds of crime have been siphoned off from the I-Core Group to the 1st petitioner and DPMPL for over a decade and has been concealed/changed in form. The order records that now it is barely possible to track down the trail of the whole POC from the complex web of account transactions - There are no independent factual findings for the five bank accounts which have been provisionally attached. The narration of facts and the conclusions arrived at with regard to the proceeds of crime acquired by the petitioners show a singular absence of a causal connection between the two. The findings under each head of immovable property (except Flat Nos. 9F and 9G where there is no finding) is that the petitioners acquired proceeds of crime from their association with I-Core Group. The order also records that the proceeds of crime have been identified and are therefore liable to be attached. The finding is also that the petitioners have acquired property by indirect payment out of the proceeds of crime . The impugned order in the present case falls short on several counts. Besides the lack of a factual nexus between the acquisition of the immovable property and the identification of the property as proceeds of crime , there is also no reference to the property being derived from any direct or indirect criminal activity relating to a scheduled offence. There is also a stark absence of the basis of any apprehension of risk that the property may be wasted or dealt with in a manner so as to render the proceedings under 5(1)(b) infructuous. The general conclusion in paragraph 11 of the impugned order is that the petitioners will frustrate further proceedings. The factual narration containing random statements of facts cannot satisfy the requirement of reasons to believe being recorded in writing - Having regard to all the facets of the impugned order of attachment which have been challenged in this writ petition, this Court is accordingly of the considered view that the impugned order of attachment fails to fulfill the requirements of the relevant provision of the PMLA and should hence be quashed. Application disposed off.

Summary

Issues Involved:
1. Quashing of the provisional order of attachment by the Enforcement Directorate.
2. Compliance with the requirements of Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA).
3. Establishment of a causal connection between the petitioners and the proceeds of crime.
4. Adequacy of the "reasons to believe" recorded by the designated authority.

Detailed Analysis:

1. Quashing of the provisional order of attachment by the Enforcement Directorate:
The petitioners sought the quashing of a provisional order of attachment dated 29.03.2022, issued by the Enforcement Directorate (ED), which included immovable and movable properties. The properties listed in Schedule-II of the order and five bank accounts were provisionally attached. The petitioners argued that they were ancillary parties with no connection to the alleged charges against I-Core Group, and that the requirements of Section 5(1) of the PMLA were not satisfied.

2. Compliance with the requirements of Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA):
The court examined whether the ED's provisional attachment order met the criteria under Section 5(1) of the PMLA. This section mandates that the designated officer must have "reasons to believe" that the person is in possession of "proceeds of crime" and that such property is likely to be concealed, transferred, or dealt with in a manner that may frustrate any proceedings related to confiscation. The court found that the impugned order lacked a factual nexus between the acquisition of the immovable property and its identification as "proceeds of crime." There was no reference to the property being derived from any direct or indirect criminal activity related to a scheduled offense.

3. Establishment of a causal connection between the petitioners and the proceeds of crime:
The court noted a significant absence of a causal connection between the petitioners and the "proceeds of crime." The findings under each head of immovable property (except for Flat Nos. 9F and 9G) indicated that the petitioners acquired "proceeds of crime" from their association with the I-Core Group. However, the court found that the general conclusion that the petitioners would frustrate further proceedings did not fulfill the mandate of Section 5(1)(b) and the 2nd proviso. The court emphasized that the chain of "reasons to believe" must indicate specific terms and that the property in question was derived directly or indirectly from criminal activity related to a scheduled offense.

4. Adequacy of the "reasons to believe" recorded by the designated authority:
The court highlighted that the "reasons to believe" must be recorded in writing and must indicate that the property in possession of a person meets the criteria of the definition of "proceeds of crime." The court found that the impugned order fell short on several counts, including the lack of a factual nexus and the absence of any apprehension of risk that the property might be wasted or dealt with in a manner that would render the proceedings infructuous. The court referred to precedents like Opto Circuit India Limited vs Axis Bank and Tofan Singh vs State of Tamil Nadu, which emphasized the importance of the "reason to believe" requirement.

Conclusion:
The court concluded that the impugned order of attachment failed to fulfill the requirements of the relevant provisions of the PMLA and should hence be quashed. The writ petition was disposed of accordingly.