2019 (1) TMI 1249 - AT - Money Laundering

Tribunal Quashes Attachment Orders, Deems Funds Legitimate

Nilesh J. Thakur, ACE Card Trading Pvt. Ltd., ACE Card HR Pvt. Ltd., ACE Card Export Pvt. Ltd., Dhan Share Trading Pvt. Ltd., ACE Card InfrasolPvt. Ltd., ACE Card Power Pvt. Ltd., ACE Card Media Pvt. Ltd., ACE Card Construction Pvt. Ltd., ACE Card Hotels & Resorts Pvt. Ltd., ACE Card AGRO Industries Pvt. Ltd., ACE Card Reality Pvt. Ltd., M/s ACE Card InfrasolPvt. Ltd. Versus The Joint Director Directorate of Enforcement, Mumbai

The Tribunal allowed all appeals, setting aside the Adjudicating Authority's orders and quashing the provisional attachment orders against the properties. ... Offence under PMLA - provisional attachments - property purchased as proceeds from crime - inter-se dispute between the two brothers - Held that:- Whatever property Shri Nilesh J. Thakur has purchased on behalf of SPCL or invested money for himself and his associate group of company, the said money is invested by Nilesh Thakur which is received from SPCL. There is no direct or indirect evidence available on the record that SPCL has ever taken the favour of the position of Nitish J. Thakur. No doubt, it appears that there is inter-se dispute between the two brothers. Nitish J. Thakur has been making statements against the SPCL also but from the record, it appears that it was merely the allegation raised by Mr. Nitish J. Thakur in order to save his skin from the various authorities initiated against him, but the fact remains that the entire money is owned by SPCL. The inter-se dispute between two brothers cannot be decided in the present cases. Similarly, the inter-se dispute between the Nilesh J. Thakur and Kalyani Education Pvt. Ltd. and the connected matters, the same can only be determined in other forum in accordance with law. The scope of these cases is very limited as to whether the amount paid by SPCL to Nilesh J. Thakur is tainted amount or it is a proceed of crime. No such evidence is available on record. Even Mr. Atri admits that it is a clean money and is not a proceed of crime and no case is made out against SPCL for prevention of money laundering. There is not even prima-facie evidence produced by the Respondent No. 1 in order to show that the subject properties are proceeds of crime and are liable to be attached under the provisions of the Prevention of Money Laundering Act 2002. The question of money laundering does not arise in the present case. Subject matter is a civil dispute. It has already been decided by the Bombay High Court by passing the Decree. No hindrance of any nature is necessary on the part of ED to frustrate the decree. Issues Involved:1. Legality of the attachment of properties.2. Validity of the provisional attachment orders (PAOs).3. Relationship between the funds transferred from SPCL to the appellant.4. Whether the funds were proceeds of crime.5. Compliance with Section 5 of the Prevention of Money Laundering Act (PMLA), 2002.6. Impact of the Bombay High Court's consent decree.7. Alleged involvement of Nitish J. Thakur in the transactions.8. Findings of the Income Tax Appellate Tribunal (ITAT).Detailed Analysis:1. Legality of the Attachment of Properties:The Tribunal found that the attachment of the properties was 'wholly illegal' and the Adjudicating Authority failed to appreciate the fundamental requirements of Section 5 of the PMLA, 2002. The appellant demonstrated the sources of income and assets with supporting evidence, and the Adjudicating Authority was duty-bound to declare the attachment illegal and set it aside.2. Validity of the Provisional Attachment Orders (PAOs):The Tribunal noted that the PAOs were confirmed arbitrarily and without application of mind. The attachment orders were based on prima facie conclusions without substantial evidence. The Tribunal emphasized that the failure to comply with the express mandate of Section 5 of the PMLA renders the entire proceedings illegal.3. Relationship Between the Funds Transferred from SPCL to the Appellant:The Tribunal recognized that the funds transferred from SPCL to the appellant were for a legitimate business purpose under a valid and legally binding contract. The funds were transferred through normal banking channels and were not proceeds of crime. The Tribunal noted that SPCL is an innocent party and the funds used for the purchase of the subject properties were legitimate.4. Whether the Funds Were Proceeds of Crime:The Tribunal found no evidence to suggest that the funds were connected to any criminal activity. The funds were transferred in an open and transparent manner, and there was no indication that SPCL was aware of any potential benefits that could be derived from the appellant's brother, Nitish J. Thakur. The Tribunal concluded that the funds were clean and not proceeds of crime.5. Compliance with Section 5 of the PMLA, 2002:The Tribunal emphasized that the Adjudicating Authority failed to comply with the requirements of Section 5 of the PMLA. The attachment orders were confirmed mechanically without proper consideration of the evidence and legal requirements.6. Impact of the Bombay High Court's Consent Decree:The Tribunal highlighted that the Bombay High Court's consent decree dated 19.10.2011 directed the appellant to refund the monies to SPCL and hand over any properties purchased with the funds. This decree was passed much before the filing of the FIR and the commencement of proceedings by the respondent. The Tribunal noted that the mutual obligations between the appellant and SPCL had crystallized before the criminal proceedings commenced.7. Alleged Involvement of Nitish J. Thakur in the Transactions:The Tribunal found no direct or indirect evidence to suggest that SPCL took any favor from Nitish J. Thakur. The Tribunal noted that the inter-se dispute between the two brothers and the allegations made by Nitish J. Thakur were not substantiated by evidence. The Tribunal concluded that the allegations were raised to save his skin from various authorities.8. Findings of the Income Tax Appellate Tribunal (ITAT):The Tribunal took into account the ITAT's Order and Judgment dated 17.11.2017, which upheld the appellant's case that the funds received from SPCL were business advances under a valid agreement and not income. The ITAT's findings confirmed that the transactions were legal and legitimate. The Tribunal noted that the ITAT's earlier Order dated 10.4.2015 had also found the funds to be legitimate business advances.Conclusion:The Tribunal allowed all the appeals, set aside the impugned orders passed by the Adjudicating Authority, and quashed the orders of provisional attachments against the subject properties. The Tribunal concluded that the funds were not proceeds of crime, and the attachments were illegal and unwarranted. The Tribunal emphasized that the subject matter was a civil dispute already decided by the Bombay High Court, and no hindrance from the Enforcement Directorate was necessary to frustrate the decree.