2019 (1) TMI 1181 - AT - Money Laundering

Offence under PMLA - Provisional Attachment Order - property purchased as proceeds of crime - assessee is an educational institution - Held that - It is admitted position that the appellants are neither arraigned in any schedule offence nor in any charge-sheet. The appellants are running educational institutions and the Respondent has issued the impugned attachment order and complaint on the erroneous premise of any property of any person without focusing its attention as to first pre-requisites in law of existence of any proceeds of crime and availability of material to lead to reasons to believe as required under Section 5 of PMLA. In the present case, one fact is very clear that Adjudicating Authority has not at all considered the written submission submitted by the Appellants before him. The respondents and the Adjudicating Authority have miscarried itself in law by ordering attachment and confirmation of the attachment in the absence of any proceeds of crime . In the absence of proceeds of crime the very exercise of powers by the respondents under PMLA is beyond jurisdiction. The contentions of Appellants have not been met including denial of cross-examination. The properties of the appellants were attached towards value thereof. The said properties were not purchased from the proceed of crime. It is inter-se disputes between the appellants and Nilesh J. Thakur about the money parked at the hand of Kalyani Group. However, it is not disputed by any party that the said amount was originally owned by the SPCL which is not tainted even as admitted by the counsel for the ED. Thus, the question of proceed of crime or money laundering by any appellant in all appeals does not arise. The appellants‟ properties, therefore, wrongly attached by the ED. Appeals allowed.

Summary

Issues Involved:
1. Jurisdiction of the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA).
2. Definition and determination of "proceeds of crime" under PMLA.
3. Validity of the Provisional Attachment Order (PAO).
4. Legal presumption and procedural fairness in attachment proceedings.
5. Inter-se disputes between parties regarding the nature of transactions (investment vs. donation).

Detailed Analysis:

1. Jurisdiction of the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA):
The appellants challenged the jurisdiction of the ED to attach their properties under PMLA, arguing that the funds received were not derived from any criminal activity. The appellants were not arraigned in any scheduled offense nor mentioned in any charge-sheet, which implies that the funds received were not "proceeds of crime." The judgment emphasized that the ED could not assume jurisdiction to attach properties without proving that the funds were derived from criminal activities.

2. Definition and determination of "proceeds of crime" under PMLA:
The judgment clarified that "proceeds of crime" as defined under Section 2(u) of PMLA refers to property derived or obtained as a result of criminal activity relating to a scheduled offense. The funds in question were traceable to Shapoorji Pallonji, which was acknowledged as "clean money." The judgment cited the case of Himachal Emta Power Ltd vs. UOI, where it was established that an order of provisional attachment could only be passed if there was material evidence indicating that the property was derived from criminal activity. The ED failed to provide such evidence, making the attachment orders void ab initio.

3. Validity of the Provisional Attachment Order (PAO):
The judgment found that the PAO dated 21.07.2015 was issued without proper material evidence and was based on an erroneous understanding of the provisions of Section 13(1)(e) of the Prevention of Corruption Act (PC Act) and Section 109 of the Indian Penal Code (IPC). The ED had previously conducted investigations under ECIR No.3/MZO/2011 and did not issue any attachment order against the appellants, indicating that there were no proceeds of crime. The subsequent attachment under ECIR No.06/MZO/2011 was deemed illegal and arbitrary.

4. Legal presumption and procedural fairness in attachment proceedings:
The judgment highlighted procedural irregularities, including the lack of a specific order of reasons to believe and the suppression of material evidence. It was noted that the ED did not provide the appellants with the reasons for the attachment, violating principles of natural justice and Article 14 of the Constitution. The judgment criticized the ED for not considering the written submissions of the appellants and for denying them the opportunity for cross-examination.

5. Inter-se disputes between parties regarding the nature of transactions (investment vs. donation):
The judgment acknowledged the inter-se disputes between the appellants and Nilesh J. Thakur regarding whether the funds were donations or investments. Despite these disputes, it was clear that the funds originated from Shapoorji Pallonji and were not tainted. The judgment concluded that the appellants' properties were wrongly attached as there was no evidence of money laundering or proceeds of crime.

Conclusion:
The judgment allowed all appeals, setting aside the impugned order dated 30.12.2015 and the provisional attachment orders. It ordered the immediate release of the attached properties, emphasizing that the properties were not purchased from proceeds of crime. The judgment underscored the importance of adhering to legal procedures and the necessity of material evidence in attachment proceedings under PMLA.