2025 (1) TMI 1096 - AT - Money Laundering

Money laundering - proceeds of crime - provisional attachment of properties - applicability of Section 5 (1) of the PMLA - issuance of SCN without application of mind - HELD THAT - As there is nothing on record that appellants are in possession of any proceeds of crime. Moreover there is nothing on record that such proceeds of crime are likely to be conceive transfer or dealt with in any manner by the appellants. Appellant M/s Emaar Hills Township Pvt. Ltd. took the specific plea that even prior to the passing of PAO the appellant was unable to transfer or deal with the properties in terms of the order dated 21.12.2010 passed by Hon ble Company Law Board Chennai Bench in CP No.608/2010 without the consent of the Conciliation Board. A perusal of this definition would show that the proceeds of crime includes the property derived or obtained directly or indirectly out of criminal activity but that is not end of the definition of Proceeds of Crime. It can be for value of any such property . The aforesaid words used in the definition of Proceeds of Crime is to cover those properties which are not derived or obtained directly or indirectly out of the criminal activity but attached for value equivalent to the Proceeds of Crime if money acquired has been vanished. The Act of 2002 was enacted pursuant to the International Convention to address the offence of money laundering. If the definition of Proceeds of Crime is given restricted meaning to hold that it shall include only the properties obtained or derived directly or indirectly from the criminal activity then it would nullify the very objects of the enactment and the consequence of it would be serious. It would result to a situation where the accused would immediately try to vanish or siphon off the proceeds so that the properties may not be attached. Any property of equivalent value can be attached when the proceeds directly or indirectly obtained out of the crime has been vanished or siphoned off. Here the significance would be to the property acquired even prior to commission of crime. It is for the reason that any property acquired subsequent to the commission of crime would be directly or indirectly proceeds of crime and then it would fall in the first limb of the definition of proceeds of crime. In the second limb which refers to the value of any such property would indicate any other property which was acquired prior to the commission of crime and it would be attached only when the proceeds directly or indirectly obtained or derived out of the criminal activity is not available. Conclusion - The definition of proceeds of crime is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence but also of the value of any such property. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the properties attached by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 (PMLA) are "proceeds of crime" as defined under Section 2(1)(u) of the PMLA.
Whether the Provisional Attachment Order (PAO) No. 03/2014 issued by the ED was valid under Section 5(1) of the PMLA.
Whether the properties attached can be considered as equivalent in value to the proceeds of crime if the actual proceeds have been siphoned off or are not traceable.
Whether the appellants, who claim to be bona fide purchasers or unrelated to the alleged criminal activities, can have their properties released from attachment.
Whether the issuance of show cause notices by the Adjudicating Authority was done with due application of mind.
Whether properties can be attached in a piecemeal manner by issuing multiple PAOs over time.
Whether the appellants not being named as accused in the predicate offence affects the validity of the property attachment.
Whether the appellants' claims of legitimate transactions and market value of properties negate the allegations of money laundering.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Definition and Scope of "Proceeds of Crime"

Legal Framework and Precedents: The definition of "proceeds of crime" under Section 2(1)(u) of the PMLA includes property derived or obtained directly or indirectly from criminal activity, as well as property equivalent in value to such proceeds.
Court's Interpretation and Reasoning: The court emphasized that the definition is broad, encompassing both directly obtained property and equivalent value property, to prevent the nullification of the Act's objectives.
Key Evidence and Findings: The court noted the evidence of disproportionate financial transactions and the existence of a criminal conspiracy to deprive APIIC of its legitimate revenue share.
Application of Law to Facts: The court found that the attached properties, although not directly derived from crime, are equivalent in value to the proceeds of crime, thus falling within the definition.
Treatment of Competing Arguments: The appellants argued that their properties were acquired legally and before the alleged criminal activities. The court rejected this, citing the broad scope of "proceeds of crime."
Conclusions: The properties attached are validly considered "proceeds of crime" under the PMLA.

Issue 2: Validity of Provisional Attachment Order

Legal Framework and Precedents: Section 5(1) of the PMLA allows for provisional attachment of property if it is believed to be proceeds of crime and likely to be concealed or transferred.
Court's Interpretation and Reasoning: The court found that the conditions for issuing the PAO were met, given the evidence of a conspiracy to conceal proceeds of crime.
Key Evidence and Findings: The court highlighted the systematic efforts to undervalue property sales and conceal excess proceeds.
Application of Law to Facts: The court applied the legal standards for provisional attachment, finding the ED's actions justified.
Treatment of Competing Arguments: The appellants contended that the properties were not proceeds of crime and that the PAO was issued without proper basis. The court disagreed, citing substantial evidence.
Conclusions: The PAO was validly issued under the PMLA.

Issue 3: Attachment of Equivalent Value Properties

Legal Framework and Precedents: The PMLA allows for attachment of property equivalent in value to proceeds of crime when the actual proceeds are not traceable.
Court's Interpretation and Reasoning: The court supported the attachment of equivalent value properties, emphasizing the legislative intent to prevent money laundering.
Key Evidence and Findings: The court noted the lack of traceable proceeds and the necessity to attach equivalent value properties.
Application of Law to Facts: The court found the attachment justified given the circumstances.
Treatment of Competing Arguments: The appellants argued against attaching properties acquired before the alleged crimes. The court rejected this, citing the need to address money laundering effectively.
Conclusions: Attachment of equivalent value properties is upheld.

Issue 4: Bona Fide Purchasers and Unrelated Parties

Legal Framework and Precedents: Under the PMLA, bona fide purchasers without knowledge of criminal origins can claim attached properties.
Court's Interpretation and Reasoning: The court found insufficient evidence to establish bona fide purchaser status for some appellants.
Key Evidence and Findings: The court noted the lack of sale deeds and possession for certain appellants claiming bona fide status.
Application of Law to Facts: The court found that bona fide claims must be decided by the trial court.
Treatment of Competing Arguments: Appellants argued they were bona fide purchasers. The court directed them to seek remedy under PMLA provisions.
Conclusions: Bona fide claims are not resolved in this judgment but left for trial court determination.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The definition of 'proceeds of crime' is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence, but also of the value of any such property."
Core principles established: The broad definition of "proceeds of crime" under the PMLA includes equivalent value properties to prevent money laundering. Provisional attachment is justified when proceeds are likely to be concealed or transferred.
Final determinations on each issue: The court upheld the attachments, finding them consistent with the PMLA's objectives and the evidence presented. Bona fide claims are to be addressed by the trial court.

In conclusion, the judgment reaffirms the broad scope of the PMLA in addressing money laundering, emphasizing the importance of attaching properties equivalent in value to the proceeds of crime to thwart attempts at concealing illicit gains. The appeals were dismissed, with the court directing that bona fide claims be adjudicated by the trial court under the relevant provisions of the PMLA.

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