2025 (3) TMI 1353 - AT - Money Laundering

Property attachment upheld despite civil decree as company acquired assets using depositors' funds from money laundering

Syed Mohammed, Syed Ali Agha, Fatima Kubra, Sheheda Begum, Syed Hamza, Sakina Begum, Mumtaz Begum, Shahnaz Begum, Syed Hassan Agha, Syed Ali Abdul Hassan, Smt. Nowhera Shaik Versus The Deputy Director, Directorate of Enforcement, Hyderabad.

The Appellate Tribunal under SAFEMA dismissed an appeal challenging provisional attachment of property under money laundering proceedings. The property ... Money Laundering - proceeds of crime - Provisional Attachment Order - diversion of depositors amount to personal accounts routed through company’s bank accounts for wrongful gain and amassed huge movable and immovable assets by utilizing illegally gained money of depositors - impact of a civil court decree in favor of the appellants regarding the title and possession of the disputed property - HELD THAT:- The property in question was existing in the name of Heera Retail Pvt. Ltd. of Hyderabad on the payment of consideration of Rs.5 Crores and other amount of Rs. 2 Crore paid by M/s Heera Gold Exim Ltd. and Rs.3.48 Crore by M/s Heera Retail Pvt. Ltd. much prior to the decree dated 19.11.2018. The statement given above shows that the property in question was existing in the name of M/s Heera Retail Pvt. Ltd. out of proceeds of crime much prior to the decree and was not challenged in the suit and M/s Heera Retails Pvt. Ltd. was not even made party to the suit. Apart from the Civil Suit, the appellant even preferred a Writ Petition No. 15019/2019 to challenge the attachment of the property under the Act of 1999. The Writ Petition was disposed of with liberty to the appellant to avail alternate remedy under Section 7(3) of the Act of 1999. The appellant accordingly approached the Metropolitan Sessions Judge to challenge the order of attachment under the Act of 1999. The learned Metropolitan Sessions Judge allowed the application preferred by the appellant. It was based on the Civil Decree ignoring the fact as to whom it would be binding and how the decree was taken by the appellant. The Metropolitan Sessions Judge though took note of the fact that the property was conveyed in favour of M/s Heera Group of companies who was none else but accused. It ignored consequence of sale deed in favour of M/s Heera Group of companies which has purchased the property out of the proceeds of crime. It was made party to the civil suit yet, an order was passed against the interest of the company holding the property. The accused was otherwise not interested to pursue the claim because in that case, it would have been auctioned in the light of the order passed by the Apex Court. In the instance case, M/s Heera Retail Pvt. Ltd, was not party to the suit, despite purchase of the property and whose sale deed was never challenged. The decree cannot operate against it. Since the property was owned by M/s Heera Retail Pvt. Ltd., a group company of main accused Smt. Nowhera Shaik, we do not find any illegality in the attachment as the decree of the Civil Court was not binding on the group company of accused M/s Heera Retails Pvt. Ltd. The Apex Court in the case of Niyamat Ali Molla Vs. Sonargon Housing Co-operative Society Ltd. and Ors. [2007 (10) TMI 616 - SUPREME COURT] held that persons not parties to the suit would not be bound by the decree. The claim of the appellants based on collusive decree by City Civil Court cannot be accepted against others than party to the suit. It is more so when it is going against the sale deed executed in favour of the accused’s Company M/s Heera Retail Pvt. Ltd. and remain unchallenged. No suit for cancellation of sale deed was filed against the said Company and even the sale deed in favour of M/s Neelanchal Technocrats Pvt. Ltd. The claim of the appellants is based on the Civil Suitwhere M/s Heera Retail Pvt. Ltd. was not a party. The decree in the Civil Suit binds only the parties and not the others. The property came to the accused’s company pursuant to the sale deed in its favour in the year 2016 by M/s Neelanchal Technocrats Pvt. Ltd. who was holding it under the deed and whose title and sale deed was never challenged by the appellants even while filing a suit to claim their right. The execution of sale deed was in the knowledge of the appellant as is coming out from the suit yet it was not challenged. The accused colluded with the appellants after registration of the FIR in the year 2012. The suit was not contested by M/s Neelanchal Technocrats Pvt. Ltd. after a sale deed in favour of M/s Heera Retail Pvt. Ltd. The property of the accused M/s Heera Retail Pvt. Ltd. has been attached as it was purchased out of the proceeds of crime. Thus, there is no case to cause interference in the impugned orders. The order produced before this Tribunal is dated 28.03.2023 where a detailed order was passed for settling the dues of the investors and therein it was made clear that the property attached by the ED can be released for realization of the dues if the prospective purchasers are willing to deposit the amount of Rs. 641 crores and in that case, the attachment of the ED would be lifted but leaving the parties to take remedies for their respective rights - The subsequent order produced before us is dated 11.11.2024. The reference of the order of the Apex Court has been given to clarify that confirmation of attachment would not in any way affect the investors for realization of the amount, rather the order passed by us would also remain subject to the further direction of the Apex Court in pending cases. The detailed order is, however, passed by this Tribunal to clarify the claim of the appellants. This is not a case to cause interference in the orders. Conclusion - The decree cannot operate against a person who was not party to the suit. Since the property was owned by M/s Heera Retail Pvt. Ltd., a group company of the main accused Smt. Nowhera Shaik, there are no illegality in the attachment as the decree of the Civil Court was not binding on the group company of accused M/s Heera Retails Pvt. Ltd. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment revolve around the legality and validity of the Provisional Attachment Order dated 16.08.2019 and its subsequent confirmation by the Adjudicating Authority. The issues include:Whether the properties attached under the Prevention of Money Laundering Act, 2002 (PMLA) were legitimately acquired by the appellants or constituted 'proceeds of crime' as defined under Section 2(1)(u) of the PMLA.The impact of a civil court decree in favor of the appellants regarding the title and possession of the disputed property, and whether this decree affects the attachment order under PMLA.The relevance of the appellants not being accused in the criminal proceedings and whether their properties could still be attached under PMLA.The role of the Supreme Court's ongoing proceedings in influencing the Tribunal's decision on the attachment order.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The primary legal framework involves the Prevention of Money Laundering Act, 2002, specifically focusing on the definition of 'proceeds of crime' under Section 2(1)(u) and the authority to attach properties under Section 5(1). Additionally, the judgment references various precedents, including decisions from the Supreme Court and High Courts, to interpret the scope and application of these provisions.Court's interpretation and reasoning:The Tribunal examined the appellants' claim that the properties were decreed in their favor by a civil court, which they argued should preclude attachment under PMLA. However, the Tribunal noted that the civil decree was not contested by any defendants, including the accused entities, and the decree did not address the sale deed in favor of M/s Heera Retail Pvt. Ltd., the accused company. The Tribunal emphasized that the decree could not bind parties not involved in the civil suit, particularly when the property was acquired through a sale deed by the accused company prior to the decree.Key evidence and findings:The Tribunal highlighted that the properties in question were acquired by M/s Heera Retail Pvt. Ltd. through a sale deed executed in 2016, well before the civil decree in 2018. The sale deed was never challenged by the appellants, and the property was identified as part of the 'proceeds of crime,' given its acquisition through funds allegedly defrauded from investors.Application of law to facts:Applying the PMLA provisions, the Tribunal found that the properties were rightly attached as they were acquired by the accused company using funds obtained through criminal activities. The Tribunal rejected the appellants' reliance on the civil decree, noting its collusive nature and lack of binding effect on non-parties, particularly the accused entities.Treatment of competing arguments:The Tribunal addressed the appellants' arguments regarding their non-involvement in the criminal proceedings and the civil court's decree. It countered these by emphasizing the legal principle that a decree does not bind non-parties and highlighted the collusive nature of the civil proceedings, which did not challenge the sale deeds in favor of the accused company.Conclusions:The Tribunal concluded that the attachment of the properties was justified under the PMLA, as the properties were acquired using proceeds of crime. The civil decree did not preclude the attachment, given its non-binding nature on non-parties and the failure to challenge the sale deeds.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:The Tribunal emphasized, 'The decree cannot operate against a person who was not party to the suit. Since the property was owned by M/s Heera Retail Pvt. Ltd., a group company of the main accused Smt. Nowhera Shaik, we do not find any illegality in the attachment as the decree of the Civil Court was not binding on the group company of accused M/s Heera Retails Pvt. Ltd.'Core principles established:The judgment underscored the principle that a civil court decree cannot bind non-parties, particularly in cases where the decree is collusive and does not address the underlying sale deeds. It also reinforced the authority of the PMLA to attach properties deemed as proceeds of crime, irrespective of the civil court's findings.Final determinations on each issue:The Tribunal dismissed the appeals, affirming the Provisional Attachment Order and its confirmation by the Adjudicating Authority. It held that the properties were legitimately attached under PMLA as they were acquired through proceeds of crime, and the civil decree did not affect this determination.