2025 (1) TMI 942 - AT - Money Laundering

Money Laundering - proceeds of crime - no reasons to believe - scheduled offences - acquisition of property in a public auction conducted by the SBI - validity of notice - legality of provisional attachment of the property under Section 5 of the Prevention of Money Laundering Act 2002 (PMLA). The first contention of the appellant in the appeal is that there was no reason to believe on the basis of information in possession that the appellant is in possession of proceeds of crime - HELD THAT - In view of the detailed and very specific reasons which have been discussed in detail in the Provisional Attachment Order and also considering the discussions in paragraphs 48-51 of the impugned order by the Ld. AA before whom this very issue had been raised by the defendants therein there are no merit in the contention that there was no material in the possession of the officer passing the order to have reason to believe that the appellant was in possession of proceeds of crime. Accordingly this contention of the appellant is hereby rejected. It is next contended that the subject property was purchased by the appellant on 19.02.2009 and at that time the relevant provision of the Indian Penal Code (IPC) and the Prevention of Corruption Act 1988 (PC Act) were not scheduled offences and the Legislature has not given retrospective effect to the amendment to the Schedule which came into force w.e.f. 01.06.2009 - HELD THAT - It is by now well-settled that the issue of retrospectivity or otherwise in so far as offence of money laundering is concerned has to be examined with reference to the act which constitutes money laundering under Act regardless of the time of occurrence of the scheduled offence. Further the offence of money laundering is a continuing offence. A continuing offence is one which is susceptible of continuance and is distinguishable from one which is committed once and for all. A continuing offence occurs and re-occurs and each time an offence is committed. It was so held by the Hon ble Supreme Court in State of Bihar Vs. Deokaran Nenshi 1972 (8) TMI 133 - SUPREME COURT . In Dyani Antony Paul and Ors. Vs. Union of India and Ors. 2020 (12) TMI 1296 - KARNATAKA HIGH COURT the Hon ble Karnataka High Court has held that money laundering is a continuing offence and as such the issue of retrospective effect does not arise. The decision of the Hon ble Delhi High Court in Prakash Industries Limited 2022 (7) TMI 877 - DELHI HIGH COURT may also be referred to in this context wherein it was held that it is well settled relating to retroactive application of penal previous that merely because requisite or facet for initiation of action pertains to a period prior to the enforcement of the statute that would not be sufficient to characterize statute as being retrospective. It must be borne in mind that the Act with which are concerned penalizes acts of money laundering. It does not create a separate punishment for a crime prescribed under the Penal Code. The Act does not penalize the predicate offence. That offence merely constitutes the substratum on which charge of money laundering is being raised. The next contention of the appellant is that the appellant company had acquired the property in a public auction conducted by the SBI which was a perfectly legal activity and the consideration paid by the appellant for the same has absolutely no linkage to the alleged criminal activity - HELD THAT - There is no merit in the appellant s contention that there is no linkage between the alleged proceeds of crime and the acquisition of the assets by the appellant company. It is to be noted that the definition of proceeds of crime under Section 2(1)(u) includes not only property derived or obtained directly as a result of criminal activity but also property derived indirectly as a result criminal activity. Furthermore it is also includes the value of such property . In this regard the Hon ble Supreme Court in its landmark judgment in the case of Vijay Madanlal Choudhary 2022 (7) TMI 1316 - SUPREME COURT (LB) has held that the definition of proceeds of crime is vide enough to not only refer to property derived or obtained as a result of criminal activity relating to a scheduled offence but also the value of such property. The definition of property as in Section 2(1)(v) is equality vide enough to encompass the value of property of proceeds of crime. The Hon ble Apex Court held that such interpretation of the term would further the legislative intent in recovery of the proceeds of crime and vesting it in the Central Government for effective prevention of money-laundering. It is next contended that the notice issued by the Adjudicating Authority under Section 8(1) was not valid because the same is dependent on the requirement of the property being proceeds of crime - HELD THAT - There was more than sufficient evidence to come to the conclusion at this stage of the proceedings that the subject property constituted proceeds of crime so as to place it under attachment until the outcome of criminal proceedings under the Act. It may be mentioned in this context that the legal position is well-settled that attachment of property is a balancing arrangement to secure the interests of the person as also ensure that the proceeds of crime remain available to be dealt with in the manner provided by the Act. Mere attachment of property does not alter the position with regard to the ownership to even possession/use of the properties which are the subject matter of such attachment. The Hon ble Supreme Court has held in the aforesaid case of Vijay Mandanlal Choudhary 2022 (7) TMI 1316 - SUPREME COURT (LB) and further clarified in the case of Ganpati Dealcom Pvt. Ltd. 2022 (8) TMI 1047 - SUPREME COURT that possession of properties attached under the PMLA 2002 can only be taken under exceptional circumstances such as crimes involving terrorist activities drug cartels or organized criminal activities. Therefore at this stage when the criminal trial of the appellants herein is still pending before a court of competent jurisdiction even the balance of interests lies in favour of continued attachment of the subject properties. Conclusion - Money laundering is a continuing offence and that the procedural and substantive requirements of the PMLA must be strictly adhered to. The provisional attachment is upheld. The procedural validity of the actions taken under the PMLA confirmed. The present appeal is hereby dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions presented and considered in the judgment include:

Whether the provisional attachment of the property under Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA) was legal and within jurisdiction.
Whether the property in question could be considered "proceeds of crime" under the PMLA, given the timeline of the alleged offences and the amendments to the schedule of the Act.
Whether the acquisition of the property through a public auction negates its classification as "proceeds of crime."
Whether the procedural requirements under Sections 8(1) and 8(3) of the PMLA were met by the Adjudicating Authority.
Whether the legal presumption under Section 24 of the PMLA applies to the case at hand.
Whether the attachment of the property can stand if the property cannot be ultimately confiscated under Section 8(5) of the PMLA.
Whether the possession of the attached property should be taken by the Directorate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Provisional Attachment

Legal Framework and Precedents: Section 5 of the PMLA requires a "reason to believe" that a person is in possession of "proceeds of crime" and that such proceeds are likely to be concealed or transferred.
Court's Interpretation and Reasoning: The court found that the Provisional Attachment Order provided detailed reasons to believe that the appellant was in possession of proceeds of crime.
Key Evidence and Findings: The order cited the CBI's charge-sheet and statements recorded under Section 50 of the PMLA.
Application of Law to Facts: The court concluded that the attachment was justified based on the evidence and material in possession.
Treatment of Competing Arguments: The appellant's argument that there was no material basis for the attachment was rejected.
Conclusions: The attachment was held to be legal and within jurisdiction.

Issue 2: Classification of Property as "Proceeds of Crime"

Legal Framework and Precedents: The definition of "proceeds of crime" under Section 2(1)(u) of the PMLA includes property derived directly or indirectly from criminal activity.
Court's Interpretation and Reasoning: The court emphasized that money laundering is a continuing offence and the timing of the scheduled offence does not affect the classification.
Key Evidence and Findings: The court noted the money trail and the involvement of intermediary companies controlled by Pradeep Mehta.
Application of Law to Facts: The court found a clear linkage between the proceeds of crime and the acquisition of the property.
Treatment of Competing Arguments: The appellant's argument regarding the legality of the auction purchase was dismissed.
Conclusions: The property was classified as "proceeds of crime."

Issue 3: Procedural Requirements under Sections 8(1) and 8(3) of the PMLA

Legal Framework and Precedents: Section 8(1) requires a "reason to believe" that a person has committed money laundering or is in possession of proceeds of crime.
Court's Interpretation and Reasoning: The court found that the procedural requirements were met, as the notice and order were based on sufficient evidence.
Key Evidence and Findings: The court relied on the detailed discussions in the Provisional Attachment Order and the Adjudicating Authority's order.
Application of Law to Facts: The court upheld the procedural validity of the actions taken under Sections 8(1) and 8(3).
Treatment of Competing Arguments: The appellant's challenge to the procedural validity was rejected.
Conclusions: The procedural requirements were satisfied.

Issue 4: Legal Presumption under Section 24 of the PMLA

Legal Framework and Precedents: Section 24 provides for a presumption regarding the involvement of proceeds of crime in money laundering.
Court's Interpretation and Reasoning: The court held that the presumption applied, given the established linkage between the proceeds of crime and the property.
Key Evidence and Findings: The court noted the money trail and the involvement of intermediary companies.
Application of Law to Facts: The court found that the burden of proof was on the appellant to disprove the presumption.
Treatment of Competing Arguments: The appellant's argument against the presumption was dismissed.
Conclusions: The presumption under Section 24 applied.

Issue 5: Confiscation and Attachment of Property

Legal Framework and Precedents: Section 8(5) provides for the confiscation of property involved in money laundering.
Court's Interpretation and Reasoning: The court held that attachment is an interim measure in aid of potential confiscation.
Key Evidence and Findings: The court noted the ongoing criminal proceedings and the need to secure the proceeds of crime.
Application of Law to Facts: The court found that the attachment was justified to secure the property for potential confiscation.
Treatment of Competing Arguments: The appellant's argument against attachment was rejected.
Conclusions: The attachment was upheld as a necessary interim measure.

Issue 6: Possession of Attached Property

Legal Framework and Precedents: The court referenced the Supreme Court's guidance on possession of attached properties.
Court's Interpretation and Reasoning: The court noted that possession should only be taken under exceptional circumstances.
Key Evidence and Findings: The court considered the nature of the property and the ongoing proceedings.
Application of Law to Facts: The court found no immediate need to take possession of the property.
Treatment of Competing Arguments: The appellant's argument against dispossession was noted.
Conclusions: Possession of the property was not ordered at this stage.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The definition of 'proceeds of crime' is wide enough to not only refer to property derived or obtained as a result of criminal activity relating to a scheduled offence, but also the value of such property."
Core principles established: The judgment reinforced the principle that money laundering is a continuing offence and that the procedural and substantive requirements of the PMLA must be strictly adhered to.
Final determinations on each issue: The court upheld the provisional attachment, classified the property as "proceeds of crime," confirmed the procedural validity of the actions taken under the PMLA, and did not order immediate possession of the property.

← Previous Next →