2025 (5) TMI 2100 - AT - Money Laundering

Appellate Tribunal sets aside provisional attachment order in money laundering case citing lack of nexus

M/s. Libra Hotels Pvt. Ltd. and Romy Mehra Versus The Deputy Director, Directorate of Enforcement, Mumbai

The Appellate Tribunal under SAFEMA set aside the provisional attachment order and its confirmation in a money laundering case. The appellant received ... Money Laundering - attachment of property - proceeds of crime - disclosure of source of acquisition of the attached properties - properties attached have nexus with the scheduled offences or not - HELD THAT:- The facts on record shows that mother Damayanti transferred 11,57,000/- shares of HDIL to the appellant Romy Mehra in the year 2007. It was not that those shares were held by Rakesh Wadhawan but was of her mother. It is further a fact that shares were transferred not only to appellant but her sister and thereby mother Damayanti gifted 09 lakhs share to each daughter along with 2,57,000/- bonus shares thereupon. If those shares belonged to accused Rakesh Wadhawan, then why the ED has not attached the shares of other sister could not be clarified. Thus, argument of the respondent remains for sake of it. It is also a fact that appellant Ms. Romy Mehra sold 11 lakhs shares and acquired Rs. 18,87,81,397/- in the year 2009. The issue would however be as to whether property at A-20, Kailash Colony purchased by these two companies could be taken to be the property of HDIL as alleged by the respondents. They have referred to the affidavit filed by Rakesh Wadhawan before the Bombay High Court. Affidavit filed by one party claiming property of HDIL cannot change the ownership rather it would be based on the deed and the Government record. The property at A-20 Kailash Colony was the property of M/s Libra Realtors and M/s Dewan Realtors as per record and is even the case of the respondent. It is also a fact that those Companies sold the property under a sale deed on receipt of consideration. The fact now remains as to whether the said property was under mortgage for taking the loan from the PMC Bank by those two companies. The property was not under mortgage thus purchased subsequently by the appellant Romy Mehra for which a registered deed was executed by the companies in the year 2015. Consideration of Rs. 2,13,13,468/- was paid by the appellant through banking channels and it was out of 18.87 crore received by her out of the sale of 11 lakhs shares of HDIL. The appellant has disclosed the source to acquire the property. Once the property was sold by the Companies, it no more remained in their hands so as to be attached towards the default of the company in repayment of loan amount because the company remains as a separate entity than that of the individual. The property in the hands of the individual secured by the disclosed source cannot be taken for any purpose of the company even if the individual remained a part of the company as director. It is unlike the liability of partners in the partnership firm. The issue now remains whether it can be considered to be the proceeds of crime. The respondents have taken it to be a proceeds of crime treating it to be the property of HDIL based on the affidavit of Rakesh Wadhawan in the PIL. It is unable to accept the view taken by the respondent because as against the registered deed of 1995 in favour of M/s Libra Realtors and M/s Dewan Realtors on purchase of the property in question and subsequent conveyance deed in favour of appellant Romy Mehra in the year 2015 on payment of consideration, the ownership of the property cannot be taken to be of HDIL and in view of the above, the respondents have wrongly taken it to be the proceeds of crime. The substance of the discussion made above make the things clear from the year 2007 onwards. The provisional attachment order has been issued pre-supposing transfer of 11 lakh shares to appellant Romy Mehra by her mother Damayanti in the year 2007 to be nothing but holding of those shares of Rakesh Wadhawan by appellant Romy Mehra. During the course of argument, respondent could not clarify the basis of the aforesaid conclusion when admittedly mother Damayanti was holding the shares of HDIL in the year 2007 - The provisional attachment order does not disclose attachment of any of the property as on the date of attachment in the hands of the two companies referred to above. If they have issued a separate provisional attachment order to attach the properties of M/s Dewan Realtors and M/s Libra Realtors, then it would be nothing but a case of double attachment because the consideration received by them for sale of properties to Romy Mehra to remain subject matter of attachment and at the same time properties of the appellant are also attached, it would amount to double attachment which is not permissible in law. All these issues remain unaddressed by the respondents. Conclusion - The transaction for purchase of full share in all the properties initiated in the year 2009 itself when Romy Mehra sold 11 lakh share to HDIL and secured Rs. 18.87 crores with its transfer in the same year to acquire full share in all the three properties. It may be that deeds these were executed in the year 2015 and 2016 but actual transfer of money towards the consideration was made in the year 2009, i.e. 10 years back to registration of case and in view of the above the respondents could not clarify as to how the properties attached by them would fall in the definition of the proceeds of crime. There is a case to cause interference in the impugned order and accordingly the order of provisional attachment order so as its confirmation are set aside - appeal allowed. 1. ISSUES PRESENTED and CONSIDERED- Whether the properties attached by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 (PMLA) are proceeds of crime and liable to be attached despite the appellants not being named in the original FIRRs.- Whether the appellants have disclosed the source of acquisition of the attached properties and whether such source is legitimate and not tainted by the alleged criminal activityRs.- Whether the properties attached have any nexus with the scheduled offences alleged against the accused in the FIR and supplementary charge sheetRs.- Whether the transfer of shares and properties among family members, including the appellant Ms. Romy Mehra, was bona fide, supported by valid consideration, and prior to the commission of the alleged crimeRs.- Whether the attachment of properties amounts to double attachment, considering the loan defaults by companies owning the properties and subsequent sale of those properties to the appellantsRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Attachment of properties under PMLA despite appellants not being named in FIRThe legal framework under Sections 5 and 8 of the Prevention of Money Laundering Act, 2002, permits attachment of property even if the person is not named as accused in the FIR or ECIR, provided the property is proceeds of crime. Section 8(1) mandates the noticee to disclose the source of the property, failing which attachment can be confirmed.The Court noted that the appellants, including Ms. Romy Mehra and M/s Libra Hotels Pvt. Ltd., were not named in the original FIR but appeared in the supplementary charge sheet based on the provisional attachment order. The appellants challenged the attachment on the ground of absence of nexus with the crime and non-involvement in the FIR.The Court observed that non-naming in the FIR does not preclude attachment if the property is proceeds of crime. However, the appellants' case that the properties were acquired from disclosed and legitimate sources prior to the alleged offences and FIR registration was considered relevant.Issue 2: Disclosure and legitimacy of source of acquisition of propertiesThe appellants claimed that Ms. Romy Mehra received 9 lakh shares of HDIL from her mother in 2007, along with 2,57,000 bonus shares in 2008, long before the commission of the alleged offences. These shares were sold in 2009 for Rs. 18.87 crores, and the proceeds were used to acquire full shares in the attached properties through registered sale deeds executed in 2015.The respondents contended that the shares belonged to accused Rakesh Kumar Wadhawan and that the transaction was a device to shield properties from attachment. They also challenged the absence of a gift deed for the shares of HDIL and alleged that the sale proceeds were held on behalf of Rakesh Wadhawan.The Court analyzed the evidence and found that the shares were transferred by the mother to both daughters in 2007 and 2008, with no challenge to this transfer. The sale of shares by Ms. Romy Mehra in 2009 and the receipt of consideration were undisputed. The Court held that the appellants had disclosed the source of acquisition and that the source was legitimate and untainted by the alleged crime.Issue 3: Nexus of attached properties with the scheduled offences and FIR allegationsThe properties attached were:Property at A-20, Kailash Colony, New Delhi (Conclave Boutique)Property at D-150, East of Kailash, New Delhi (Conclave Comfort)Property at C-22, Kalkaji, New Delhi (Conclave Executive)The Court considered the ownership and acquisition history of each property:Property at A-20, Kailash Colony: Purchased by Libra Realtors and Dewan Realtors in 1995, with commercial structures built thereafter. The appellants acquired the property in 2015 via registered sale deed on payment of Rs. 2.13 crores in 2009, well before the FIR in 2019. The respondents argued that the property was owned by HDIL group based on an affidavit filed in PIL proceedings, but the Court held that an affidavit cannot alter ownership established by registered deeds and government records.The Court further noted that the property was not mortgaged to PMC Bank at the time of sale to the appellants and that the companies remained defaulters on loans, but the property had been sold for consideration and thus could not be attached as proceeds of crime. The Court emphasized that the property in the hands of the appellants, acquired from disclosed sources, could not be treated as proceeds of crime.Property at D-150, East of Kailash: Purchased jointly by Rakesh Wadhawan and Ms. Romy Mehra in 1999 with half share each. The share held by Rakesh Wadhawan was transferred to Ms. Romy Mehra upon receipt of consideration. The Court found that the appellant had a legitimate share from the beginning and the consideration was paid from disclosed sources, negating the claim that the property was proceeds of crime.Property at C-22, Kalkaji: Purchased jointly by Rakesh Wadhawan, Ms. Romy Mehra, and Libra Hotels Pvt. Ltd. in 2001. The share of Rakesh Wadhawan was transferred to Ms. Romy Mehra's husband in 2015 for consideration. The Court held that the property was acquired long before the alleged offences and FIR registration, and the appellant's shareholding in Libra Hotels was legitimate and disclosed.Issue 4: Validity of family settlement and transfer of shares and propertiesThe appellants contended that the shares and properties were transferred pursuant to a family settlement and sale transactions with proper consideration paid from legitimate sources. The respondents challenged the absence of a gift deed for HDIL shares and alleged that the transfers were attempts to shield properties from attachment.The Court observed that the transfer of shares by the mother in 2007 was not disputed and could be oral family settlement, which is valid in law. The sale of shares in 2009 and payment of consideration were undisputed. The Court rejected the contention that absence of a gift deed for HDIL shares invalidated the transfer, recognizing that family arrangements can be oral and that the shares were transferred well before the alleged offences.Issue 5: Double attachment and attachment of company properties versus individual propertiesThe respondents argued that the companies owning the properties had taken loans from PMC Bank which remained unpaid, justifying attachment of the properties. The appellants contended that the properties were sold by those companies to them for consideration prior to the FIR, and thus the properties were no longer owned by the companies but by the appellants individually.The Court noted that the properties were not mortgaged at the time of sale and that the companies remained defaulters on loans. The Court held that attachment of the properties in the hands of the appellants, acquired through registered sale deeds and disclosed sources, was impermissible. It emphasized that if the companies were defaulters, the properties owned by them should have been attached first, and the consideration received by those companies could be attached if required, but not the properties already sold to third parties. The Court found that attachment of both company properties and properties sold to appellants would amount to double attachment, which is not permissible in law.3. SIGNIFICANT HOLDINGS'The property in the hands of the individual secured by the disclosed source cannot be taken for any purpose of the company even if the individual remained a part of the company as director. It is unlike the liability of partners in the partnership firm.''An affidavit filed by one party claiming property of HDIL cannot change the ownership rather it would be based on the deed and the Government record.''The transfer of shares by the mother in 2007 was not disputed and can be oral family settlement, which is valid in law.''Once the property in question was sold by M/s Libra Realtors and M/s Dewan Realtors on consideration of Rs. 2,13,13,468/- and if those companies remain defaulter in making payment of loan amount, the respondent could have attached the consideration received by those companies but not the property sold by M/s Libra Realtors and M/s Dewan Realtors, much prior to the commission of crime.''The provisional attachment order has been issued presupposing transfer of 11 lakh shares to appellant Romy Mehra by her mother Damayanti in the year 2007 to be nothing but holding of those shares of Rakesh Wadhawan by appellant Romy Mehra. The respondents even failed to clarify that if at all Romy Mehra was holding 11 lakh of Rakesh Wadhawan and therefore justification of attachment then why the shares transferred to her sister Anjana by the mother in the year 2007 have not been attached despite the fact that she is holding it till date.''The consideration received by appellant Romy Mehra was of Rs. 18.87 crores in the same year and is also not in dispute.''The appellants have disclosed the source to acquire the property and it is not the proceeds of crime.''Attachment of the properties is therefore without consideration of the relevant facts.'Final determinations:The appellants have successfully demonstrated that the shares and properties were acquired from legitimate and disclosed sources prior to the commission of the alleged offences and FIR registration.The properties attached do not constitute proceeds of crime under the PMLA.The attachment of properties in the hands of the appellants is not justified and amounts to double attachment if the properties of the companies owning them are also attached.The provisional attachment orders and their confirmation are set aside, and the appeals are allowed.