2023 (4) TMI 1359 - AT - Money Laundering

Money laundering - proceeds of crime - scheduled offences - reasons to believe - provisional attachment of the appellant company's assets - amassing assets in excess of income from legitimate sources - HELD THAT - There are no merit in the contention of the appellants that since the payments in respect of the share transactions were made through banking channels and Creative Fiscal received the entire consideration in its bank account, therefore, the transactions were genuine and above board. It is well known that one of the fundamental features of the companies involved in the entry-providing business is that on paper, they adhere meticulously to all legal procedural requirements under various laws, including the Companies Act, the I-T Act etc. Further, entry-providing operations are always carried out through banking channels. The appellant company, while claiming that it did not benefit in any way from the transaction between Creative Fiscal and the four companies, seeks to gloss over this important fact. It is important to bear in mind that the definition of proceeds of crime under section 2(u) of the Act takes within its ambit not only property derived or obtained directly as a result of criminal activity relating to a scheduled offence but also the property derived or obtained indirectly as a result of criminal activity relating to a scheduled offence, and also the value of such property. In the present case, a mere perusal of the impugned order reveals that though the initial trigger or the starting point of the PMLA investigation may have been the FIR filed by the State Vigilance Department of Jharkhand under the Indian Penal Code, 1860 and Prevention of Corruption Act, 1988 wherein the proceeds of crime were quantified at Rs. 1,40,10,333/-, the investigation carried out by the respondent Directorate revealed the actual quantum of proceeds of crime generated by the individuals and entities belonging to the group was exponentially higher than that amount. It is not out of place to mention that provisional attachment based on reason to believe that any person is in possession of proceeds of crime and such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to the confiscation of such proceeds of crime is an interim measure to prevent the person from alienating or encumbering the property in any manner until his culpability under the Act is finally established by a court of competent jurisdiction. It does not prevent the person interested in the enjoyment of the property from enjoying it. Such provisional attachment of property can be done by the director or other officer specified under section 5 on the basis of reason to believe on the basis of material in his possession . The impugned order constituted sufficient material for the director or other competent officer to have the requisite reason to believe - there are no merit in the impugned order - appeal dismissed.

Summary

Issues Involved:

1. Whether the attachment of the appellant company's assets under the Prevention of Money-laundering Act, 2002 (PMLA) was justified.
2. Whether the transactions involving the appellant company were genuine or involved proceeds of crime.
3. Whether the attachment should be limited to the quantum of disproportionate assets quantified in the charge sheet.
4. Whether the appellant company was in possession of proceeds of crime.
5. Whether the adjudicating authority exceeded its mandate in its findings.

Issue-wise Detailed Analysis:

1. Attachment of Assets:
The appellant company challenged the order of the Adjudicating Authority which confirmed the attachment of its assets. The Authority concluded that proceeds of crime were still with the appellant company, exceeding the value of the attached assets. The appellant argued that the attachment was illegal as the assets did not represent proceeds of crime. The respondent countered that the attachment was justified based on the material evidence and the involvement of the appellant in money laundering activities.

2. Genuineness of Transactions:
The appellant contended that the transactions were genuine, conducted through banking channels, and that Creative Fiscal received the entire consideration for the shares. The respondent argued that the transactions were sham, orchestrated to launder money. The Adjudicating Authority found several suspicious features, such as identical letters and cheques, common addresses, and the timing of transactions, indicating a coordinated effort to conceal proceeds of crime.

3. Limitation to Quantum of Disproportionate Assets:
The appellant argued that the attachment should be limited to the quantum of disproportionate assets quantified in the charge sheet against Mr. Madhu Koda. The Adjudicating Authority and the respondent disagreed, stating that the PMLA does not limit attachment to the quantum in the charge sheet. The Authority noted that the investigation by the Enforcement Directorate revealed a higher quantum of proceeds of crime than initially quantified.

4. Possession of Proceeds of Crime:
The appellant claimed it was not in possession of proceeds of crime, as the shares were sold to four companies and Creative Fiscal exited its investment. The respondent maintained that the appellant was used to layer tainted money, and the proceeds of crime were infused into the company. The Adjudicating Authority found that the appellant failed to discharge its burden of proof under the PMLA, and the transactions were part of interconnected money-laundering activities.

5. Adjudicating Authority's Mandate:
The appellant alleged that the Adjudicating Authority exceeded its mandate by making new allegations. The Authority, however, was found to have acted within its mandate under section 8 of the PMLA, evaluating all relevant materials to determine the involvement of properties in money laundering. The Authority's questions and conclusions were based on a thorough examination of evidence, and the appellant's contentions were rejected.

In conclusion, the appeal was dismissed as the appellant failed to demonstrate that the attachment was unjustified or that the transactions were genuine. The Adjudicating Authority's findings were upheld, confirming the attachment of the appellant's assets under the PMLA.