2025 (2) TMI 746 - AT - Money Laundering

Money Laundering - proceeds of crime - challenge to Provisional Attachment Order - mala fide intention to misappropriate the fund - withdrawing and utilizing funds without knowing the actual source and without receiving confirmation from the Council - non-recording of satisfaction by the respective authorities - Properties purchased much before the alleged predicate offence - Amount in question had been utilized fully by the appellant in the month of April 2008 itself for the purposes of their business more particularly for payment of vehicle loan overdraft facility payment to labourers etc. Non-recording of satisfaction by the respective authorities - violation of sections 5 and 8 of PMLA - HELD THAT - The authority has merely repeated the language of the statute and has not arrived at any independent satisfaction to the fact that the offence of money laundering has been committed under section 3 and if the property was not attached immediately the proceedings under the Act will be frustrated. The decisions of the Hon ble Punjab and Haryana High Court in Seema Garg v. Deputy Director Directorate of Enforcement 2020 (3) TMI 460 - PUNJAB HARYANA HIGH COURT and the judgment of the Hon ble Delhi High Court in J. Sekar v. Union of India Ors. 2018 (1) TMI 535 - DELHI HIGH COURT are relied upon. It is also contended that though the judgment in the latter case has been stayed by the Hon ble Supreme Court as per the settled legal position its ratio would continue to apply. There are no substance in the contention of the appellants that the condition u/s 5(1) of recording the reasons was not met. It is found that detailed reasons for the action initiated under the provision have been recorded by the respondents before initiating the action. As regards the reasons under section 8 it is seen that the language of the said provision is different insofar as section 8 does not specifically lay down that the reasons to believe are to be recorded or that there should be any material in possession other than the original complaint filed by the Directorate under section 5(5). Nor does the provision specifically necessitate recording of the reasons in writing. There are no sufficient grounds to hold that the actions taken under sections 5 and 8 were not valid for want of recording of reasons (which were duly recorded) or on account of non-communication of the reasons by the relevant authorities. Properties purchased much before the alleged predicate offence - HELD THAT - The Canara Bank was impleaded as respondent in the present case vide an order dated 04.12.2018 based on the finding that the Canara Bank was Defendant No. 7 in the complaint and the subject properties had been mortgaged with the Bank. With its reply on 31.01.2019 the Bank had submitted copies of the title deeds of the properties standing in the name of the appellants herein which had been offered as securities to the Bank. The same were taken on record. In subsequent proceedings it was submitted on behalf of the Bank that the loan account has since been closed and the Bank has no further interest in the case. Accordingly there are no issues pending for decision before this Appellate Tribunal in the present case in so for as Respondent No. 2 (Canara Bank) is concerned - thus the subject properties have been attached by the respondents in the present case as value of proceeds of crime. Amount in question had been utilized fully by the appellant in the month of April 2008 itself for the purposes of their business more particularly for payment of vehicle loan overdraft facility payment to labourers etc. - HELD THAT - The present position is that a charge sheet dated 21.01.2011 stands filed against the two appellants herein along with Shri Depolal Hojai and Shri Dabiruz Jaman in the Court of Special Judge CBI Assam Guwahati. Though the appellants have moved the Hon ble Gauhati High Court for quashing of the Special Case filed against them under Sections 3 and 4 of PMLA 2002 the said petition of the appellants is still pending before the Hon ble High Court. Further as clarified by both parties in the hearing held on 08.01.2025 prosecution complaint under the PMLA 2002 also stands filed against the accused persons in this case. Proceedings in the prosecution case under the PMLA 2002 have been stayed by the Ld. Special Judge following the stay granted by the Hon ble Guwahati High Court - 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. The same by itself does not disturb the ownership title of the appellants and does not deprive them of possession and enjoyment of the same. Thus so long as the source of the money is alleged to be proceeds of crime within the meaning of the Act it can be attached by the respondents regardless of whether the appellants herein themselves stood charged of any scheduled offences or the prosecution complaint filed under the PMLA 1999 or not. In the present case as already noted the appellants have been named in the prosecution case filed under the PMLA 2002. However even if they were not accused in the PMLA case the properties could have been attached so long as there was evidence to indicate that alleged proceeds of crime traveled from one or more persons who are so accused. Conclusion - i) The procedural requirements under sections 5 and 8 of the PMLA 2002 were met and the attachment of properties was valid. ii) The properties acquired before the alleged crime can be attached if they represent the value of the proceeds of crime following the three-limb definition of proceeds of crime. iii) The retrospective application of the PMLA 2002 is constitutionally valid as the attachment is a civil action. Appeal dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment include:

• Whether the conditions prescribed under sections 5 and 8 of the Prevention of Money Laundering Act (PMLA), 2002, for recording satisfaction by the respective authorities, were met in the present case.
• Whether the properties attached were acquired prior to the alleged predicate offence, and if so, whether they could still be attached as "proceeds of crime" under the PMLA, 2002.
• Whether the retrospective application of the PMLA, 2002, is constitutionally valid, particularly when the alleged offences were not part of the Schedule to the PMLA at the time of their commission.
• Whether the appellants' contention that the funds received were part of a legitimate compensation award holds merit, and how this impacts the attachment of properties.

ISSUE-WISE DETAILED ANALYSIS

1. Compliance with Sections 5 and 8 of PMLA, 2002

• Legal Framework and Precedents: Sections 5 and 8 of the PMLA, 2002, require that the authorities record reasons to believe that an offence of money laundering has been committed. The appellants cited precedents such as Seema Garg v. Deputy Director, Directorate of Enforcement, and J. Sekar v. Union of India, arguing that mere repetition of statutory language does not suffice.
• Court's Interpretation and Reasoning: The Tribunal found that detailed reasons were recorded by the authorities, satisfying the conditions under section 5(1). Section 8 does not specifically require recording reasons in writing, and the Tribunal found the actions under sections 5 and 8 valid.
• Conclusion: The Tribunal concluded that the procedural requirements under sections 5 and 8 were met, and the appellants' contention was rejected.

2. Attachment of Properties Acquired Prior to Predicate Offence

• Legal Framework and Precedents: The appellants argued that properties acquired before the alleged crime cannot be considered proceeds of crime. They relied on Pavana Dibbur Vs. Directorate of Enforcement, which held that such properties cannot be attached.
• Court's Interpretation and Reasoning: The Tribunal referred to its own judgment in Sadananda Nayak v Deputy Director, which held that properties can be attached as "value thereof" if the actual proceeds of crime are not available. The Tribunal emphasized the three limbs of the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA.
• Conclusion: The Tribunal rejected the appellants' argument, holding that the properties were attached as the equivalent value of the proceeds of crime.

3. Retrospective Application of PMLA, 2002

• Legal Framework and Precedents: The appellants contended that the retrospective application of the PMLA is unconstitutional, as the offences were not part of the Schedule at the time of their commission.
• Court's Interpretation and Reasoning: The Tribunal cited the Supreme Court's decision in Vijay Madanlal Choudhary vs. Union of India, which held that attachment under the PMLA is a civil action, not criminal, and thus not barred by Article 20 of the Constitution.
• Conclusion: The Tribunal found that the attachment of properties under the PMLA is valid, even if the offences were not scheduled at the time of their commission.

4. Legitimacy of Compensation Award

• Key Evidence and Findings: The appellants argued that the funds received were part of a legitimate compensation award from the NC Hills Autonomous Council. The Tribunal noted that a prosecution complaint is pending, and the criminality of the appellants' actions is yet to be established.
• Court's Interpretation and Reasoning: The Tribunal emphasized that the PMLA allows for attachment of proceeds of crime regardless of the accused's involvement in the scheduled offence. The Tribunal found that the appellants' properties could be attached as the proceeds of crime.
• Conclusion: The Tribunal dismissed the appellants' contention, allowing the attachment to stand.

SIGNIFICANT HOLDINGS

• The Tribunal affirmed that the procedural requirements under sections 5 and 8 of the PMLA, 2002, were met, and the attachment of properties was valid.
• The Tribunal held that properties acquired before the alleged crime can be attached if they represent the value of the proceeds of crime, following the three-limb definition of "proceeds of crime."
• The Tribunal found that the retrospective application of the PMLA, 2002, is constitutionally valid, as the attachment is a civil action.
• The Tribunal dismissed the appeals, maintaining the attachment of the appellants' properties as "value thereof" of the proceeds of crime.