2019 (8) TMI 1911 - AT - Money Laundering

Money Laundering - Provisional Attachment Order - proceeds of crime - scheduled offence - Whether the Appellant has committed any offence under Section 3 of the Prevention of Money Laundering Act, 2002? - HELD THAT - The entire purchase consideration was funded from the Appellant's own income/personal funds obtained from legitimate and fully documented sources, as supported by the Appellant's Bank Statement. Therefore, it cannot be said that the Appellant and the Respondents 5 and 8 acted in concert or that the purchase of the said Property, was part of any conspiracy related to the predicate offence or the alleged offence under the PMLA. It appears from the Impugned Confirmation Order that the Enforcement Directorate/Respondent and the Adjudicating Authority were aware that the Appellant was a 'Claimant' to the said Property in terms of proviso to Section 8(2), PMLA, in view of material available on record. Despite the above, Respondent and the Adjudicating Authority did not issue notice to the Appellant or to afford a hearing to him, during the adjudication proceedings. Thus, the mandatory statutory requirement of the Proviso to Section 8(2), PMLA, the Respondent was cognizant of the details regarding the purchase of the said property and was in possession of the relevant documents. A bare perusal of the same shows that the said Property could not have been attached as proceeds of crime , even if one were to invoke the concept of equivalent value . Locus standi - HELD THAT - It is settled law that the rights in any asset of a company acquired by any person prior to initiation of the winding-up proceedings against the said company are absolute and cannot be defeated by the winding-up proceedings, subject to the transaction being an arms-length transaction - In the present case, the Agreement to Sell entered into by the Appellant with M/s UBHL is dated 21.05.2012 and the entire purchase consideration was duly paid in advance by 22.09.2012 i.e. prior to even the initiation of the winding-up proceedings and much prior to the subject Provisional Attachment Order. Further, it is not even the Respondent ED's case that the purchase of the subject Property vide inter alia the Agreement to Sell dated 21.05.2012 is not an arms length transaction. As such, the rights of the Appellant would prevail over the rights of the other secured creditors and the Respondent ED. Whether the subject property is proceeds of crime and the Appellant is in possession of proceeds of crime? - HELD THAT - It is evident that the appellant was the claimant in the flat. By making the entire payment, the appellant is become stake-holder as the amount paid by the appellant was not proceed of crime. The appellant is also not involved in the money laundering. The question of link and nexus in the criminal activities directly or indirectly does not arise. As far as the impugned order dated 1.12.2016 is concerned, the same is not sustainable in law as per facts of the present case. The same is set-aside against the appellant with regard to flat in question. The provisional order is also quashed accordingly by allowing the appeal. Appeal allowed.

Summary

Issues Involved:

1. Whether the Appellant has committed any offence under Section 3 of the Prevention of Money Laundering Act, 2002?
2. Whether the subject property is proceeds of crime and the Appellant is in possession of proceeds of crime?

Issue-wise Detailed Analysis:

Issue 1: Offence under Section 3 of PMLA

The Appellant contends that there is no allegation against them of committing any offence under Section 3 of the Prevention of Money Laundering Act, 2002. It is highlighted that the Appellant is not involved in any scheduled offence, nor is there any prosecution complaint filed against them. The Appellant asserts that they are an innocent bona fide purchaser of the property in question, having paid the complete consideration through legal banking channels before the registration of any FIR or ECIR. The Tribunal recognizes that the Appellant is not named in the FIR or ECIR and finds no evidence linking the Appellant to any criminal activities or money laundering offences.

Issue 2: Subject Property as Proceeds of Crime

The Appellant argues that the subject property, Apartment No. 7A in Kingfisher Towers, should not be considered as 'proceeds of crime.' The Appellant claims to have acquired the property through legitimate means, with the purchase consideration paid by 22.09.2011, well before the initiation of any legal proceedings against the alleged offenders. The Tribunal notes that the Appellant was not made a defendant in the Provisional Attachment Order or the Confirmation Order, and no notice was issued to them, which is a breach of the mandatory provisions under Section 8(2) of the PMLA. The Tribunal finds that the Appellant's purchase was an arm's length transaction, funded from legitimate and documented sources, and thus, the property cannot be deemed as proceeds of crime.

Locus Standi and Procedural Lapses

The Tribunal acknowledges the Appellant's locus standi, as they are a bona fide purchaser who paid the entire purchase consideration legally. The Tribunal criticizes the procedural lapses by the Enforcement Directorate and the Adjudicating Authority for failing to issue a notice or provide a hearing to the Appellant, despite being aware of their claim to the property. The Tribunal emphasizes that the non-issuance of notice constitutes a breach of the Act, rendering the Adjudicating Authority's order liable to be quashed.

Conclusion and Tribunal's Decision

The Tribunal concludes that the Appellant was a legitimate claimant to the property and not involved in money laundering. The Tribunal sets aside the impugned order dated 1.12.2016 concerning the attachment of the flat, quashing the provisional order as well. However, it clarifies that this decision does not affect other proceedings against the accused parties, including extradition proceedings. The Tribunal also instructs that no third-party interest should be created in the property until a final order is passed in favor of the Appellant. No costs are awarded.