2024 (12) TMI 1458 - HC - Money Laundering

Money Laundering - predicate offence - proceeds of crime - petitioner is a bona fide purchaser or not - petitioner can be subjected to proceedings under the Prevention of Money Laundering Act, 2002 (PMLA) based on the alleged predicate offences committed by the vendor or not - HELD THAT - The link in the chain of events and undisputed dates are taken note of, what could be unmistakably gathered is, that the petitioner is a bona fide purchaser. Having purchased the property long before the crime even being initiated against the vendors of the petitioner would not mean that the axe should fall on the petitioner, that too for attachment of properties which have changed hands after they are purchased by the petitioner. The proceedings instituted by the Enforcement Directorate, though civil in nature or the petitioner is having alternate remedy to challenge the orders of attachment would not mean that this Court could permit such an action to be taken against the petitioner, without him being involved in any manner. If that would be permitted, every purchaser who has purchased the property from a person who gets indicted in the crime at a later stage would have to face the proceedings for no fault of him. In somewhat identical circumstances, the Apex Court in the case of Pavana Dibbur v. Directorate of Enforcement 2023 (12) TMI 49 - SUPREME COURT upturning the order passed by this Court holds that unless conspiracy is alleged, all and sundry cannot be drawn into the web of proceedings under the Act. Though in the case at hand, in one of the crimes so registered there is offence punishable under Section 120B of the IPC, but that cannot drag the petitioner into the web of those proceedings, as all the transactions that the petitioner is projecting have happened long before initiation of predicate offence even. Therefore, there are no hesitation to hold that the impugned proceedings are unsustainable, in the peculiar facts of this case. Conclusion - A bona fide purchaser who acquires property before any predicate offence is registered cannot be subjected to proceedings under the PMLA without evidence of conspiracy or direct involvement. Petition allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the petitioner, a bona fide purchaser of property, can be subjected to proceedings under the Prevention of Money Laundering Act, 2002 (PMLA) based on the alleged predicate offences committed by the vendor, Sri K.G. Krishna.
Whether the attachment of properties purchased by the petitioner from Sri K.G. Krishna, who is accused in various crimes, is justified under Section 17 of the PMLA.
Whether the proceedings initiated by the Enforcement Directorate against the petitioner are sustainable given the timeline of property transactions and the initiation of predicate offences.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Bona Fide Purchaser and PMLA Proceedings

Relevant legal framework and precedents: The PMLA, particularly Section 17, which deals with the attachment of properties believed to be proceeds of crime. The case of Pavana Dibbur v. Directorate of Enforcement was referenced to highlight the necessity of a conspiracy or direct involvement in the predicate offence for PMLA proceedings.
Court's interpretation and reasoning: The court emphasized that the petitioner is a bona fide purchaser who acquired the property before any predicate offence was registered against the vendor. The court noted that the petitioner was not an accused in any related crime.
Key evidence and findings: The petitioner purchased the property through 12 sale deeds between October 2021 and August 2022. The predicate offences against the vendor were registered in 2023, after the transactions.
Application of law to facts: The court applied the principles from the Pavana Dibbur case, concluding that without evidence of conspiracy or involvement in the predicate offence, the petitioner should not face proceedings under the PMLA.
Treatment of competing arguments: The Enforcement Directorate argued that the properties were proceeds of crime due to the vendor's alleged offences. However, the court found that the petitioner's transactions predated the offences, and the petitioner was not implicated in any wrongdoing.
Conclusions: The court concluded that the proceedings against the petitioner were unsustainable, as the petitioner was a bona fide purchaser not involved in the predicate offences.

Issue 2: Justification of Property Attachment

Relevant legal framework and precedents: Section 17 of the PMLA, which allows for the attachment of properties believed to be proceeds of crime.
Court's interpretation and reasoning: The court reasoned that the attachment of the petitioner's properties was unjustified, as the transactions occurred before any allegations of crime against the vendor.
Key evidence and findings: The timeline of property transactions and the registration of predicate offences against the vendor were crucial in determining the lack of justification for attachment.
Application of law to facts: The court applied the legal principles to the facts, emphasizing that the petitioner's bona fide status and the timing of transactions precluded the application of Section 17.
Treatment of competing arguments: The Enforcement Directorate's argument for attachment was based on the vendor's alleged offences, but the court found this insufficient to implicate the petitioner.
Conclusions: The court held that the attachment of the petitioner's properties was not justified under the circumstances.

3. SIGNIFICANT HOLDINGS

Verbatim quotes of crucial legal reasoning: "The petitioner is a bona fide purchaser. Having purchased the property long before the crime even being initiated against the vendors of the petitioner would not mean that the axe should fall on the petitioner."
Core principles established: The court established that a bona fide purchaser who acquires property before any predicate offence is registered cannot be subjected to proceedings under the PMLA without evidence of conspiracy or direct involvement.
Final determinations on each issue: The court quashed the proceedings initiated by the Enforcement Directorate against the petitioner, emphasizing the petitioner's bona fide status and the lack of involvement in the predicate offences.

ORDER