2025 (8) TMI 1297 - AT - Money Laundering

Appeal dismissed; PMLA attachment of Rs 678 crore upheld for alleged money laundering via DHFL share diversion

M/s Flag Industries India Pvt. Ltd. Versus The Deputy Director, Directorate of Enforcement, Mumbai

The AT dismissed the appeal and upheld the Special Court, PMLA's provisional attachment: funds of Rs. 678 crore sanctioned for a construction project were ... Money Laundering - provisional attachment order - scheduled offence - diversion of funds - misuse of official position and obtaining undue pecuniary advantage in conspiracy - initiation of proceedings of attachment during the pendency of the proceedings before the NCLT against M/s DHFL - HELD THAT:- The order of the Special Court, PMLA, Bombay is under challenge thus it has not attained finality and otherwise it is based on incorrect facts, thus under challenge. This Tribunal cannot pass an order going contrary to the pleading of the appeal and records available before us. It may be that the Special Court, PMLA, Bombay was misled in reference to the subsequent loan of Rs. 750 Crores sanctioned in favour of M/s Belief Realtors Pvt. Ltd. beneficially owned by Wadhawans. It has nothing to do with the loan of Rs. 678 Crores to the appellant company for the project “Avenue 54”. In any case, there are no substance in the argument of appellant that Rs. 115 Crores transferred to M/s Mentor Capital Ltd. was not out of the loan amount of Rs. 678 Crores sanctioned by M/s DHFL for the project “Avenue-54” - it is found a case of money laundering in view of the diversion of fund out of the proceeds generated by scheduled offence. The issue now remains in reference to the proceedings before the NCLT where the matter has been taken against Sanjay Chhabria in reference to the litigation initiated by Beacon Trusteeship Ltd. A reference of the order dated 13.05.2022 of the NCLT has been given for initiation of Insolvency Resolution Process against Sanjay Chhabria where Mr. Pratul Thadi was appointed as Insolvency Resolution Professional for personal assets and business of Sanjay Chhabria and accordingly the shareholding of Sanjay Chhabria is presently covered by the Insolvency Resolution Process of IBC. It is with a further statement that Sanjay Chhabria was arrested by the CBI on 28.04.2022 and remained in judicial custody. The charge sheet was thereupon filed on 26.07.2022. The Enforcement Directorate also filed prosecution complaint on 04.08.2022. However, in the light of the appointment of Insolvency Resolution Professional, the proceedings under the PMLA would not sustain. It is unable to accept the argument aforesaid. It is not only in the light of the fact that merely initiation of the proceedings before the NCLT, the respondents were not precluded to proceed in pursuance to the ECIR but to pass an order for attachment of property to protect the proceeds of crime. The law has been settled by the Delhi High Court even in reference to Section 14 of the IBC to hold that proceedings under the Act of 2002 are not precluded even if the moratorium has been issued. The amount of Rs. 678 Crores was sanctioned by M/s DHFL to the appellant company for construction of the project “Avenue- 54” but the amount aforesaid was diverted for different purpose which includes Rs. 115 Crores transferred to M/s Mentor Capital Ltd. not as in the course of business but with the object to purchase shares of M/s DHFL to stop its price to go further down. In the light of the aforesaid, when the appellant company was assigned the project of “Avenue-54” with sanction of the loan, it was not authorized to divert the loan amount which ultimately remained unpaid and, therefore, the attachment of the property of equivalent amount cannot be said to be illegal. There are no substance in any of the arguments raised by the appellant. Appeal accordingly fails and is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether provisional attachment of specific shares for an amount equivalent to diverted loan proceeds is sustainable under the Prevention of Money Laundering Act, 2002 when the loan disbursement and subsequent outward transfers are alleged to be proceeds of specified offences. 2. Whether the temporal sequence of disbursement (i.e., dates when portions of the sanctioned loan were actually received and when an alleged onward transfer occurred) negates the finding that the particular transferred amount constituted proceeds of crime. 3. Whether proceedings for attachment under the Act of 2002 can be continued against corporate assets where parallel insolvency proceedings or a moratorium under Section 14, Insolvency and Bankruptcy Code, 2016 have been initiated in respect of an individual associated with the corporate borrower. 4. Whether an order of a Special Court refusing cognizance against the corporate borrower (based on perceived factual chronology) binds this Tribunal when that order is under challenge and appears to conflict with the appellate record and pleadings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of provisional attachment of corporate shares as equivalent value of proceeds of crime Legal framework: Provisions of the Prevention of Money Laundering Act, 2002 permitting provisional attachment of property comprising proceeds of crime and the power of the Adjudicating Authority to confirm such attachment following show-cause proceedings; concept of 'proceeds of crime' derived from underlying scheduled offences (IPC and Prevention of Corruption Act). Precedent treatment: The Tribunal relied on established PMLA principles that property derived from or involved in money-laundering (including diverted loan proceeds traceable to scheduled offences) may be provisionally attached to prevent dissipation. Interpretation and reasoning: The Tribunal examined documentary pleadings (grant/sanction letters and detailed disbursement table) and the admitted pleadings of the appellant showing sanction on a specific date with disbursements on that same date, including the amount alleged to have been diverted. Finding that pleadings and record admitted both sanction and immediate disbursement of the contested tranche, the Tribunal concluded the appellant's contention that the tranche could not have funded the earlier transfer was contradicted by the appellant's own pleadings. The Tribunal also found evidence of diversion of sanctioned loan proceeds away from the sanctioned project and into third-party entities, a sham agreement executed to cover up the transfer, and use of funds to influence share prices - conduct consistent with laundering of proceeds stemming from the scheduled offences alleged against bank and finance company officers. Ratio vs. Obiter: Ratio - Where records and admissions demonstrate that a sanctioned loan tranche was disbursed on the same date as the contested onward transfer, and where diversion of the sanctioned funds for non-project purposes is established, provisional attachment of corporate shares for an equivalent value is sustainable under the PMLA. Obiter - Observations on the mechanics of sham agreements and motivations to prop up market prices. Conclusion: The provisional attachment of 2,500 shares for value equivalent to the diverted amount was upheld as lawful; the appeal failed on this ground. Issue 2 - Effect of competing factual chronology (dates of receipt and transfer) on characterization as proceeds of crime Legal framework: Requirement under PMLA to establish that property is proceeds of crime by reference to the underlying scheduled offence and transactional tracing; role of pleadings and documentary record in establishing chronology of debits/credits. Precedent treatment: The Tribunal treated pleadings and record as determinative of the factual chronology when not contradicted by admissible evidence; an order of another court based on contrary factual findings does not displace the admitted record before the Tribunal. Interpretation and reasoning: The appellant relied on an external court order that interpreted the chronology differently; the Tribunal compared that order against the appellant's own pleadings and documents on record and found the appellant's position internally inconsistent. Given the appellant's admission that specific amounts were disbursed on the date in question, the Tribunal rejected the contention that the particular transfer could not have come from the sanctioned loan. The Tribunal also noted the Special Court's order was under challenge and possibly premised on incorrect facts, diminishing its persuasive value. Ratio vs. Obiter: Ratio - An appellant cannot rely on an external contradictory finding when its own pleadings and the record before the adjudicating authority admit the disbursement chronology that supports attachment. Obiter - Caution against relying on interlocutory or non-final orders that conflict with the record in the present proceedings. Conclusion: The temporal argument that the challenged transfer predated receipt of loan funds was rejected; the Tribunal found the transfer could be and was funded from the sanctioned loan tranche reflected in the record. Issue 3 - Interaction between PMLA attachment proceedings and insolvency moratorium under IBC Section 14 Legal framework: PMLA provisions enabling attachment to protect proceeds of crime; Section 14 IBC creating a moratorium in insolvency proceedings; doctrine regarding interplay and potential conflict between special statutes addressing different objects (asset confiscation/prevention of laundering vs. resolution of insolvency). Precedent treatment: Tribunal relied on binding precedent indicating PMLA proceedings and attachment are not necessarily barred by an IBC moratorium unless a resolution plan is approved; prior appellate and High Court authority have held that PMLA's object to prevent enjoyment of tainted proceeds gives it primacy in its sphere and does not automatically yield to IBC moratorium. Interpretation and reasoning: The Tribunal observed that initiation of insolvency proceedings against an individual associated with the corporate borrower (and appointment of an insolvency professional over personal assets) did not, of itself, preclude enforcement proceedings or attachment under PMLA against corporate property, especially where there was no approved resolution plan affecting the property in question. The Tribunal emphasized that the two enactments operate in distinct spheres - PMLA for confiscation/prevention of money-laundering, and IBC for creditor resolution - and that PMLA's purpose of denying the benefit of proceeds of crime may take precedence to prevent thwarting criminal and asset recovery objectives. Ratio vs. Obiter: Ratio - Attachment under PMLA can proceed notwithstanding initiation of separate insolvency processes against related individuals, in the absence of an approved resolution plan or final insolvency disposition which would otherwise conclusively dispose of the assets. Obiter - Comparative policy observations on the differing objectives of the two enactments. Conclusion: The Tribunal rejected the contention that insolvency proceedings or an interim moratorium automatically barred PMLA attachment; attachment proceedings could validly continue. Issue 4 - Weight to be accorded to a Special Court order refusing cognizance when that order is under challenge and conflicts with record/pleadings Legal framework: Principle that judicial decisions carry weight but are not binding if they are non-final, under challenge, or premised on incorrect facts; appellate tribunals must decide appeals on the record before them. Precedent treatment: The Tribunal noted that an interlocutory or non-final order of another court which is being contested cannot conclusively govern the outcome of the present appeal, particularly where the order appears to rest on factual findings inconsistent with admissions or pleadings in the present record. Interpretation and reasoning: The Tribunal examined the Special Court's refusal to take cognizance in light of the pleadings and documentary record before the Adjudicating Authority and this Tribunal. Finding the Special Court's factual analysis contrary to admissions in the appeal and to a pending challenge (revision petition), the Tribunal declined to follow that order. The Tribunal held it could not base its decision on an external order when the internal record and pleadings demonstrably supported the attachment. Ratio vs. Obiter: Ratio - A non-final order of another court that conflicts with the appellant's own pleadings and the record before the adjudicating forum does not preclude confirmation of provisional attachment under PMLA. Obiter - Remarks about the risk of being misled by orders based on incorrect or incomplete fact-finding. Conclusion: The Special Court's order refusing cognizance did not preclude the Tribunal from confirming the attachment; the Tribunal gave precedence to the contemporaneous pleadings and record and dismissed the appeal.