MERE POSSESSION OF PROCEEDS OF CRIME WOULD BE SUFFICIENT TO INVOKE THE PROVISIONS OF PREVENTION OF MONEY LAUNDERING ACT, 2002

[Mr. M. GOVINDARAJAN]

Proceeds of crime

Section 2 (1) (u) of the Prevention of Money Laundering Act, 2002 (‘Act’ for short) defines the expression ‘proceeds of crime’ as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad.   It also includes the property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.

Offence of money laundering

Section 3(1) of the Act provides that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.

Issue

The issue to be discussed in this article is as to whether mere possession of proceeds of crime would be sufficient to invoke the provisions of the Act with reference to decided case law.

Case law

In S. SRINIVASAN VERSUS ASSISTANT DIRECTOR, DIRECTOR OF ENFORCEMENT, CHENNAI. - 2024 (10) TMI 570 - MADRAS HIGH COURT, the Central Bureau of Investigation (‘CBI’ for short) registered two First Information Reports ((‘FIR’ for short) under various provisions of Indian Penal Code read with the provisions of Sections 7, 8, 13(1)(d), 13 (1)(e) and 13(2) of the Act against one L. Balasubramanian, President of the Union,  who formed two trusts and he was the life time managing trustee along with the petitioner Srinivasan, who was the General Secretary of the Union.  Another one Mr. Masilamani was also a nominated trustee.  The charges levelled against him are-

• collecting money from various persons from lower-level cadre in Indian Overseas Bank and purchasing properties in the name of L. Balasubramanian;
• amassing huge assets disproportionate to his known source of income in the form of Fixed deposits, immovable properties to the tune of Rs.2.04 crore.

The said accumulation of wealth is disproportionate to his known income for the period from 01.01.2010 to 30.06.2011. 

The CBI filed charge sheets against the accused before the Special Court for CBI.  The Designated Court, after considering the chargesheets and the connected materials, has taken the cognizance of the same and the trial was in progress.  The Directorate of Enforcement, after the receipt of documents from CBI took up the case for investigation. During the course of investigation, the depositions were recorded under the provisions of the Act and also collected documents from the Indian Overseas Bank and Sub Registrar office etc.  The Deputy Director of Chennai issued a provisional attachment order under Section 5(1) of the Act and also fixed deposits held in the name of the All-India Overseas Bank Employees Union Welfare Charitable and Endowment Trust besides two cars and an apartment held in the name of L. Balasubramanian, considering the same as proceeds of crime in terms of Section 2(1)(u) of the Act.

The Department filed a complaint before the Adjudicating Authority under the Act, New Delhi for confirmation of the provisional attachment order.  The Adjudicating Authority, vide their order dated 11.04.2016, confirmed the provisional attachment order.  Accordingly, the properties, provisionally attached, were taken over.  The Department, subsequently, filed a prosecution complaint before the Principal Sessions Judge cum Special Court, Chennai under section 45 of the Act.

The petitioner filed the present criminal revision petition before the High Court to set aside the above said order of provisional attachment.  The petitioner submitted the following before the High Court-

• The petitioner is in no way connected with the money collected by accused No. 1 on behalf of the Trustee.
• He had not involved in the administration of the Association and therefore, implicating the petitioner as an accused is beyond the scope of the provisions of the Act.
• There is no material to establish that the allegations set out in the complaint.
• There is no specific allegation against the petitioner / A2 that he had received any illegal gratification and transferred the amount to the said trust in which he was one of the trustees.
• Even under the statement given by Mr. Balasubramanian / A1 under Section 50 of PMLA, there is no incriminating materials made available against the petitioner and therefore it cannot be used against the petitioner.
• He had not purchased any movable or immovable property out of the funds of the trust and he was not enjoying any benefits as a trustee.
• The element of ‘knowingly assist’ or ‘knowingly is a party’ or ‘is actually involved in any processes of activity connected with the proceeds of crime and projecting it as untainted property’  as contemplated under Section 3 of the Act is missing in the case of petitioner.
• The trial Court failed to consider this aspect while passing the order.

The Enforcement Directorate submitted the following before the High Court-

• Based on the scheduled offence, ECIR (Enforcement case Information Report) was recorded and the Enforcement Directorate took up the investigation independently and found that the alleged offence of money laundering is made out against the accused persons and after recording statement under Section 50 and collection of materials, complaint in C.C.No.5 of 2018 has been filed before the Special Court for PMLA.

• Therefore, there is no infirmity and the impugned order was rightly rejected by the Trial Court.

The High Court considered the submissions of the parties to this revision petition.  The High Court was to consider as to whether any prima facie materials are made available against the petitioner in the complaint filed or not.  The High Court analyzed the entire facts of the case.

The Union had provided 5% of the monthly subscription received by the Union from its members during the years 2007 and 2009.  The Trust had taken a property belonging to the Union on lease for a period of 29 years at a very nominal rent of Rs. 5000/- per month.  The Trust without the approval of the union began to let out the properties for commercial purposes such as wedding etc.  The Trust did not enter into any agreement with the union in this regard.  The members of the union have not benefited out of this income.  The alleged property was constructed at a cost of Rs. 8 crores out of the members’ subscription and special levy exclusively collected from the member for construction of the said property.  Nearly 31 lakhs were given from the Union fund to the Trust.  There is no question from the Union about the utilization of the fund by the Trust.  The properties were lent to the public at a higher cost whereas the amount given to the Union is very meagre.  The money generated in the name of the Trust was used and was still being used by the said person to show the money as legal which was obtained out of the marriage hall by cheating the Union and its members.

The trust was initially started for charitable purpose later changed into commercial purpose.  The Income Tax Department also withdrew the exemption granted to the trust and the trust is now to pay income tax at the normal rate.  The Trust had also collected money in cash as part of the rent for the Function Hall for which no receipt was given.  A car was purchased by the Union in the name of L. Balasubramanian. 

The petitioner, S. Srinivasan, Ex- Trustee of AIOBEU Trust and Accused No. 2 herein, by being the then Trustee of AIOBEU Trust, had entered into a criminal conspiracy with Accused No. 1 herein, by floating and discharging the affairs of the AIOBEU Trust and had knowingly assisted and actually involved with Accused No. 1 in the acquisition, possession and use of the Proceeds of Crime and projection of the Proceeds of Crime as untainted, and had committed the offence of Money-laundering as defined in Section 3 and punishable under Section 4 of the PMLA.

Subsequent to the registration of FIR, out of apprehension and anticipation, the petitioner has submitted his resignation letter on 11.8.2014. However, no document was produced in support of his contention nor there is any such confirmation as to if the resignation letter has been accepted by the Founder Trustee L. Balasubramanian.  By virtue of Section 46 of Indian Trusts Act, 1882, a trustee, who has accepted the trust cannot afterwards renounce it except-

• with the permission of a Principal Civil Court of Original Jurisdiction, or
• if the beneficiary is competent to contract, with his consent, or
• by virtue of a special power in the instrument of trust.

The High Court observed that a person who is as longer as in possession and enjoyment of Proceeds of Crime, PMLA can certainly be invoked. It is also submitted that the subsequent amendments made to the PMLA in respect of Section 3 of PMLA has been upheld by the Hon'ble Supreme Court of India on the premise that all the said amendments are in clarificatory in nature.

The High Court observed that the Enforcement Directorate, after a thorough and detailed investigation, had filed a complaint along with necessary annexures, detailing the proceeds of crime before this court.  The petitioner had abetted the Accused-1 in acquisition, possession and use of the proceeds of crime and in projecting such proceeds of crime as untainted properties.  Section 24 of the Prevention of Money Laundering Act places the burden of proof on the person charged with the offence of money laundering under Section 3.

The High Court further observed that the Trial Court considered the allegations set out in the complaint and formed an opinion that the petitioner has failed to made out prima facie case for discharge. We do not find any infirmity or perversity with reference to the findings made by the Special Court rejecting the discharge petition.  The High Court dismissed the petition confirming the order passed by the Sessions Court.