PMLA Overrides Contractual Forfeiture in Proceeds of Crime Cases: Appellate Tribunal - 2025-04-14

Appellate Tribunal Upholds Attachment of FDRs in PMLA Case, Overriding Earnest Money Forfeiture Claim

New Delhi, April 2nd, 2025 - The Appellate Tribunal under the Special Act SAFEMA (Smugglers and Foreign Exchange Manipulators (Forfeiture of Property Act) and NDPSA (Narcotic Drugs and Psychotropic Substances Act)) at New Delhi has dismissed an appeal filed by Ashish Srivastava, upholding the attachment of his Fixed Deposit Receipts (FDRs) by the Directorate of Enforcement (ED) under the Prevention of Money Laundering Act (PMLA), 2002. The tribunal ruled that the overriding provisions of the PMLA take precedence over contractual forfeiture clauses, especially when dealing with proceeds of crime.

Case Background: Allegations of Bank Fraud and Earnest Money

The case originated from a FIR filed by the CBI against Hinish Ramchandani and others for allegedly defrauding the State Bank of India (SBI) of ₹46.42 crore. The ED initiated investigations under the PMLA, leading to a provisional attachment order (PAO) in 2013 on several properties, including two FDRs worth ₹2.02 crore belonging to Ashish Srivastava. These FDRs represented earnest money received by Srivastava from M/s SRS Developers, a company linked to Hinish Ramchandani, in a property sale agreement.

The Adjudicating Authority confirmed the PAO in 2019, prompting Srivastava to appeal. He argued that the earnest money had been forfeited in 2009 due to the buyer's failure to complete the sale, predating the attachment order.

Appellant's Arguments: Forfeiture, No Proceeds of Crime, and Retrospective Application

Represented by Advocates Vikas Mehta and Ankit Vashisth, Srivastava contended that the FDRs could not be considered proceeds of crime as the earnest money was legitimately forfeited under the sale agreement. He cited a clause in the agreement stipulating forfeiture if the balance payment wasn't made by a specific date. Furthermore, he argued that prior rulings from the Debts Recovery Tribunal (DRT) and its appellate body (DRAT) had exonerated him from any liability to return the forfeited money. Srivastava also raised the point that some scheduled offences under PMLA were added after the initial transaction, implying retrospective application of the Act.

ED's Counter Arguments: Proceeds of Crime and Overriding Effect of PMLA

Represented by Advocate Anubha Bhardwaj, the ED strongly opposed the appeal. They argued that the letter claiming forfeiture was dubious and potentially fabricated. The ED highlighted inconsistencies in Srivastava's forfeiture claim and emphasized that Hinish Ramchandani, in his statements, never mentioned forfeiture. Crucially, the ED invoked Section 71 of the PMLA, asserting its overriding effect over any other law, including contractual agreements regarding forfeiture. They presented evidence demonstrating the flow of funds, establishing a direct link between the defrauded bank money and the earnest money held by Srivastava.

SBI's Stand: Claim for Recovery and Proceeds of Crime

SBI, as Respondent No. 6, supported the ED's action and claimed that the amount paid to Srivastava was part of the proceeds of crime and should be returned to the bank to recover losses from the fraud. They argued that even if considered earnest money, it originated from illicit funds and thus remained proceeds of crime.

Tribunal's Analysis: PMLA's Supremacy and Definition of Proceeds of Crime

Member V. Anandarajan of the Appellate Tribunal meticulously analyzed the arguments and evidence. The tribunal acknowledged the existence of a forfeiture clause in the sale agreement and the appellant's claim of forfeiture predating the PAO. However, relying on Section 71 of the PMLA, the tribunal emphasized the Act's overriding effect, citing the Karnataka High Court's ruling in Dyani Antony Paul and Ors. vs. Union of India and Ors. which affirmed PMLA's prevalence over other laws.

The tribunal further referenced the Supreme Court's landmark judgment in Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. , reiterating that PMLA's objective is to combat money laundering by attaching and confiscating proceeds of crime, regardless of who holds them or their knowledge of the funds' tainted nature.

> "Considering the above legal position, I am of the view that there is little room for any doubt that the provisions of the Act, including those relating to attachment of properties under Section 5, would definitely prevail over the agreement signed by the parties in exercise of the general law provisions."

The tribunal concluded that the funds received by Srivastava as earnest money were indeed "proceeds of crime" as defined under Section 2(1)(u) of the PMLA, originating from the defrauded bank funds channeled through M/s SRS Developers. The argument of retrospective application was also rejected, citing precedents that money laundering is a continuous offence, and PMLA applies to handling proceeds of crime even if the predicate offense occurred before the PMLA schedule amendment.

Decision and Implications

Ultimately, the Appellate Tribunal dismissed Ashish Srivastava's appeal, upholding the Adjudicating Authority's order and confirming the attachment of the FDRs. The decision reinforces the stringent provisions of the PMLA and its overarching authority in cases involving proceeds of crime, even when contractual rights like forfeiture are claimed. It underscores that the source of funds, if linked to a scheduled offense, can lead to asset attachment under PMLA, irrespective of the holder's contractual claims or awareness of the funds' illicit origin.

The case serves as a crucial reminder of PMLA's powerful reach in combating money laundering and the priority it accords to recovering proceeds of crime, potentially overriding established contractual and civil law principles.