2025 (5) TMI 1999 - AT - Money Laundering

Company loses appeal against property attachment worth Rs. 37 lakh for assisting illegal loan operations through threatening tactics

M/s Xiaomi Communications and Logistics India Pvt. Ltd. Versus The Dy. Director, Directorate of Enforcement, Hyderabad

The Appellate Tribunal under SAFEMA dismissed an appeal concerning money laundering charges under PMLA. The appellant company assisted the main accused in ... Money Laundering - commission of crime in effecting recoveries of the borrowed funds - proceeds of crime - offence under Section 417, 419, 420 of Indian Penal Code, 1860 and under Section 66-C and 66-D of Information Technology Act - HELD THAT:- The perusal of the statement shows admission of the Ex- Director of the appellant company that they were assisting Krazybee Services Pvt. Ltd. in risk assessment for potential borrowers and for recovery. The Company launched Mi Credit App. The purpose of the said application was to connect potential borrowers interested in availing loans to potential lenders/creditors. The said application would allow potential lenders / creditors to fill in the application for the facility as per the details sought by the lenders / creditors on Mi Credit App. The company assisted Krazybee Services Pvt. Ltd. with risk assessment of potential borrowers in terms of the agreement for a period of 3 months - The fact further remains that the appellant was involved and provided assistance to the main accused for attracting the borrowers and after evaluation to make recommendation and thereby was part of the process of disbursement of loan. It is further a fact that the appellant company was providing assistance for recovery of the amount where the modus operandi of the accused company and others was that after a week of disbursement of loan, they used to call the borrowers for repayment at a higher rate of interest. They used to give threatening by using abusive language apart from sending even letters / notices to the relatives and friends to blackmail the borrower. The appellant company was involved in the process indicated above and it is otherwise admitted that it received a sum of Rs. 40,38,500/-. Proceeds of crime - HELD THAT:- The Ld. Counsel for the respondent has submitted that the assessment of the proceeds of crime was based on the available material and otherwise contrary to those material, Ex-Director did not produce any document despite assurance by him while recording statement under Section 50 of the Act of 2002. The appellant had received a sum of Rs. 40,38,500/- from main accused and the attachment is for Rs. 37,13,588/- only - The quantification of amount is based on the material and otherwise Ex-Director sought and given one-weeks’ time to produce relevant document to indicate the total amount received by the appellant company from the NBFC’s. It is, otherwise, a fact that towards the fee for service, the appellant received Rs. 35 to 40 crores from different NBFC which obviously would include the receipt of the amount from the accused company which was stated to be Rs. 40,38,500/-. Thus, it is not correct to state that the amount of proceeds of crime was not assessed and otherwise no one prevented the appellant to produce the document or material to show that assessment of proceeds of crime is not proper. Appellant has failed to do so and accordingly there are no error in the assessment of proceeds of crime. Conclusion - i) The appellant company was involved in the commission of offences by assisting the main accused in illegal loan disbursal and recovery. ii) The properties of the appellant company were rightly attached as proceeds of crime under PMLA. iii) The assessment and quantification of proceeds of crime attributed to the appellant company were proper and supported by evidence. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDERED- Whether the appellant company was involved in the commission of offences related to loan disbursal and recovery, specifically in assisting the main accused in extending loans and recovering amounts from borrowers through illegal means.- Whether the properties of the appellant company were rightly attached as proceeds of crime under the Prevention of Money-Laundering Act, 2002 (PMLA), given the allegations and evidence.- Whether the assessment and quantification of proceeds of crime attributed to the appellant company was proper and supported by evidence.- Whether the appellant company's claim of non-involvement and lack of connection with the main accused's illegal activities holds merit to warrant release of attached properties.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Involvement of the appellant company in illegal loan disbursal and recovery activitiesRelevant Legal Framework and Precedents: The offences alleged pertain to cheating and criminal intimidation under Sections 417, 419, 420 of the Indian Penal Code, 1860, and offences under Sections 66-C and 66-D of the Information Technology Act. The PMLA, 2002, provides the framework for attachment of proceeds of crime where property is derived from or involved in criminal activity.Court's Interpretation and Reasoning: The Court examined the statements recorded under Section 50 of the PMLA Act from the Ex-Director of the appellant company. The statement admitted that the appellant company assisted the main accused company, Krazybee Services Pvt. Ltd., in risk assessment of potential borrowers and in loan recovery activities. The appellant launched the 'Mi Credit App' to connect borrowers with lenders and submitted risk assessment findings to Krazybee, which decided loan eligibility. Further, the appellant entered into a service agreement with Krazybee's affiliate, Finnovation, to assist in recovery of loans.Key Evidence and Findings: The Ex-Director's statement detailed that the appellant company was involved in the loan process for a period of three months, facilitating risk assessment and recovery assistance. The appellant admitted receiving fees for these services, including Rs. 40,38,500 during the relevant period. The modus operandi of the main accused involved abusive, harassing, and threatening calls to borrowers and sending fake legal notices to relatives and friends to coerce repayment, which the appellant was linked to through its assistance.Application of Law to Facts: The Court found that the appellant company's admitted assistance in loan disbursal and recovery linked it to the commission of offences under IPC and IT Act, and consequently, the proceeds of crime under PMLA. The appellant's role was not peripheral but integral to the illegal activities of the main accused.Treatment of Competing Arguments: The appellant contended non-involvement and lack of connection with illegal activities, arguing that assistance provided was legal and did not amount to participation in crime. The Court rejected this, relying on the appellant's own admissions and the nature of services rendered, which facilitated the illegal recovery methods.Conclusions: The appellant company was found to be involved in the commission of offences by assisting the main accused in loan disbursal and recovery, thereby attracting liability under the relevant penal provisions and PMLA.Issue 2: Validity of attachment of appellant company's properties as proceeds of crimeRelevant Legal Framework and Precedents: Under the PMLA, properties derived from or involved in criminal activity can be provisionally attached pending adjudication. The Adjudicating Authority's order confirming the provisional attachment was challenged.Court's Interpretation and Reasoning: The Court noted that the appellant company received substantial fees (Rs. 35 to 40 crores) from NBFCs for services related to loan disbursal and recovery, including Rs. 40,38,500 from the main accused. Despite being given opportunity, the appellant failed to produce documents to disprove the flow of proceeds of crime or to establish the legality of the amounts received.Key Evidence and Findings: The failure of the appellant to produce documentary evidence after undertaking to do so was taken as adverse inference. The admitted receipt of fees in connection with illegal loan recovery activities was sufficient to justify attachment.Application of Law to Facts: Given the admitted involvement and receipt of amounts linked to illegal activities, the attachment of properties as proceeds of crime was justified and in accordance with PMLA provisions.Treatment of Competing Arguments: The appellant's contention that properties were wrongly attached due to lack of connection with crime was rejected on the basis of admissions and failure to rebut the assessment of proceeds of crime.Conclusions: The attachment of the appellant company's properties was proper and valid under the PMLA.Issue 3: Assessment and quantification of proceeds of crime attributed to the appellant companyRelevant Legal Framework and Precedents: The PMLA requires assessment of proceeds of crime based on available material, and the burden to disprove such assessment lies on the attached party.Court's Interpretation and Reasoning: The Court found that the assessment of proceeds of crime was based on the statement of the Ex-Director and other material. The appellant's failure to produce documents despite time granted to do so justified the assessment made by the Adjudicating Authority.Key Evidence and Findings: The admitted receipt of Rs. 40,38,500 as fees for services and the inability to produce documents to challenge the assessment supported the conclusion that the proceeds of crime were correctly quantified.Application of Law to Facts: The Court applied the principle that non-production of documents after undertaking to furnish them permits an adverse inference, validating the assessment of proceeds of crime.Treatment of Competing Arguments: The appellant's assertion that the assessment was improper was dismissed due to lack of supporting evidence and failure to challenge the material relied upon.Conclusions: The quantification of proceeds of crime was proper and supported by the record.3. SIGNIFICANT HOLDINGS'Assisting an NBFC, Krazybee Services Pvt, Ltd. ('Krazybee'') in risk assessment for potential borrowers, and with recovery: In or around August 2018, the Company launched the Mi Credit App... The Company also provided assistance in the recovery of loans... The total amount disbursed during the 3-month period referred above was Rs. 40,38,500, while the total amount repaid/recovered was Rs. 37,13,588.''The appellant was involved and provided assistance to the main accused for attracting the borrowers and after evaluation to make recommendation and thereby was part of the process of disbursement of loan... The appellant company was providing assistance for recovery of the amount where the modus operandi of the accused company and others was that after a week of disbursement of loan, they used to call the borrowers for repayment at a higher rate of interest... They used to give threatening by using abusive language apart from sending even letters / notices to the relatives and friends to blackmail the borrower.''The appellant had received a sum of Rs. 40,38,500/- from main accused and the attachment is for Rs. 37,13,588/- only... The appellant has failed to produce any document to fortify the amount received from the NBFC's... We do not find any error in the assessment of proceeds of crime.'Core principles established include that admission of assistance in illegal loan disbursal and recovery activities, coupled with failure to produce evidence to rebut the assessment, justifies attachment of properties as proceeds of crime under PMLA. The Court emphasized the significance of statements under Section 50 of the PMLA and the adverse inference drawn from non-production of documents.Final determinations:- The appellant company was involved in the commission of offences by assisting the main accused in illegal loan disbursal and recovery.- The properties of the appellant company were rightly attached as proceeds of crime under PMLA.- The assessment and quantification of proceeds of crime attributed to the appellant company were proper and supported by evidence.- The appeal challenging the attachment and involvement of the appellant company was dismissed.