2025 (9) TMI 483 - HC - Money Laundering

Company allowed withdrawal of Rs 52,01,42,105 from deposited sale proceeds subject to nationalized bank guarantee until first appeal disposed

Aditya Birla Capital Limited Versus Directorate of Enforcement

HC permitted the applicant company to withdraw Rs. 52,01,42,105 plus accrued interest from court-deposited sale proceeds of mortgaged property, subject to ... Money Laundering - proceeds of crime - retention of Sale Proceeds from the sale of the Property subject to the outcome of the captioned Appeal - it is submitted that the Applicant/ Appellant, is not a fly by night operator and is a company with substantial assets - HELD THAT:- It is not in dispute that the Kalyanamandapam Property was mortgaged with the Applicant/ Appellant and which has thereafter been sold under the provisions of SARFAESI Act. It is also not in dispute that sale proceeds thereof have been deposited in this Court. Rather than this amount lying in this Court, the Applicant/ Appellant, being a Non Banking Finance Company, ought to be allowed to withdraw this money subject to the terms and conditions, it is proposed to impose in this order. This is said for the simple reason that neither party would benefit if the money is simply deposited in this Court and earning interest. The Applicant/ Appellant is permitted to withdraw the sum of Rs. 52,01,42,105/- together with accrued interest, on the Applicant/ Appellant furnishing a bank guarantee of a Nationalized Bank to the Registrar, Appellate Side, High Court, Bombay which shall be kept alive till the disposal of the above First Appeal - In the event the bank guarantee is not renewed, the Registrar shall invoke the bank guarantee and bring the sale proceeds back to this Court. The interim application is disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a respondent, whose mortgaged property was sold under the SARFAESI Act and sale proceeds deposited in Court pending an appeal from confirmation of provisional attachment under the PMLA, 2002, may be permitted to withdraw the deposited sale proceeds before final disposal of the appeal. 2. If withdrawal is permissible, what interim safeguards and conditions are appropriate to ensure the corpus remains available if the attachment/adjudication is ultimately upheld (i.e., adequacy and nature of security, undertakings, and mechanisms for enforcement)? 3. The legal effect, if any, of concurrent factual findings by the Adjudicating Authority and the Appellate Authority under the PMLA, 2002 on interim relief sought in the appellate proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Permissibility of withdrawal of court-deposited sale proceeds pending appeal Legal framework: The Court considered the interplay between proceeds from a sale conducted under the SARFAESI Act, deposit of such proceeds in Court in the course of appellate proceedings under the PMLA, and the inherent powers of the appellate Court to regulate interim relief pending determination of the appeal. Precedent treatment: No specific precedent was relied upon or overruled in the judgment; the Court proceeded on principles of interim relief, balance of convenience, and protection of parties' rights pending appeal. Interpretation and reasoning: The Court acknowledged that the mortgaged property had been sold under the SARFAESI regime and that the sale proceeds had been deposited in Court as per earlier directions. The Court weighed the competing considerations: (a) concurrent findings below that the properties were 'proceeds of crime' and hence subject to attachment under the PMLA; (b) the fact that the deposited funds, by remaining idle in court fixed deposits, do not benefit either party; and (c) the applicant's status as a substantial regulated financial entity with significant assets and profitability. The Court concluded that allowing withdrawal, subject to strict safeguards, would be appropriate because it would not prejudice the enforcement of an adverse appellate outcome and would prevent needless immobilization of funds. Ratio vs. Obiter: Ratio - The Court's decision that the deposited sale proceeds may be released to the applicant subject to adequate security and enforceable undertakings is a binding holding for the facts before it. Obiter - Observations about the applicant's financial strength and profitability as supportive facts are explanatory, not foundational legal principles applicable without regard to the security conditions imposed. Conclusions: The Court permitted withdrawal of the deposited sale proceeds by the applicant pending disposal of the appeal, subject to the strict conditions set out (bank guarantee, undertaking), thereby establishing that deposit in Court is not an absolute bar to use of funds where adequate protective measures are imposed. Issue 2 - Appropriate interim safeguards to preserve availability of funds if appeal fails Legal framework: The Court exercised its discretionary power to impose terms ensuring that the amount withdrawn remains recoverable if the appellant fails in the appeal. The measures chosen were within the Court's supervisory authority over funds deposited in Court and interlocutory relief in appellate proceedings. Precedent treatment: The judgment did not cite authority prescribing specific forms of security; instead, it adopted pragmatic, enforceable mechanisms tailored to the circumstances. Interpretation and reasoning: The Court required (i) a bank guarantee from a Nationalized Bank to be furnished to the Registrar, to be kept alive until disposal of the appeal, with direct right of invocation by the Registrar if not renewed; and (ii) a written corporate undertaking (backed by a Board Resolution) that the applicant will restore the amount along with interest at a rate to be determined by the Court if the appeal fails. The choice of a bank guarantee from a Nationalized Bank addresses liquidity and enforceability concerns; the undertaking ensures corporate responsibility and permits assessment of interest liability at final disposal. The Court emphasized the Registrar's power to invoke the guarantee if renewal lapses, providing a clear mechanism to bring funds back into Court without further interventional proceedings. Ratio vs. Obiter: Ratio - Imposition of a bank guarantee kept alive till disposal and a Board-approved written undertaking to repay with interest are necessary and sufficient interim conditions in these circumstances. Obiter - Comments that neither party benefits from funds lying in Court and that operational banks are acceptable security are explanatory rationales supporting the chosen conditions. Conclusions: Adequate safeguards were identified and imposed: a live bank guarantee from a Nationalized Bank and a Board-authorised undertaking to repay principal plus interest. Non-renewal of the guarantee authorizes immediate invocation and return of funds to Court, thereby securing the government's interest pending final adjudication. Issue 3 - Effect of concurrent factual findings under the PMLA on interim relief Legal framework: Findings of fact by the Adjudicating Authority and the Appellate Authority under the PMLA constituted concurrent determinations that the properties were proceeds of crime; ordinarily such findings carry weight, but an appellate Court retains discretion to grant interim relief when adequate security is provided. Precedent treatment: The Court noted the existence of concurrent findings but did not treat those findings as an absolute bar to interlocutory relief; no attempt was made to distinguish or overrule prior authorities on the weight accorded to concurrent findings. Interpretation and reasoning: The Court acknowledged the Enforcement Directorate's contention that concurrent findings strengthen the case against release of funds. However, it observed that such findings are matters to be adjudicated on the merits in the pending appeal and that interim relief may yet be justified when countervailing protections exist (bank guarantee and undertaking). The Court avoided prejudging the merits, making clear that permitting withdrawal on security does not amount to deciding the appeal in favour of the applicant. Ratio vs. Obiter: Ratio - Concurrent findings of fact under PMLA do not ipso facto preclude interim release of deposited sale proceeds where adequate enforceable security is furnished; the appellate Court may allow release subject to conditions. Obiter - The observation that allowing withdrawal would 'virtually be allowing the Appeal at this stage' was rejected as a conclusive submission by the Enforcement Directorate; the Court's requirement of security addresses that concern. Conclusions: While concurrent findings favoring attachment are material, they do not automatically deny interim access to funds if the Court is satisfied that suitable mechanisms exist to secure repayment and interest in the event of an adverse final decision. Ancillary procedural and consequential observations 1. The Court emphasized enforceability and administrative practicability: registrar-level invocation of a bank guarantee on non-renewal was directed to avoid delay in restoring funds to Court. 2. The Court imposed no order as to costs and reserved final determination on interest rate to be paid on restoration, to be fixed at the hearing and final disposal of the appeal. 3. The Court noted the possibility of disposing of the appeals at the admission stage, thereby signalling expedition but without altering the interim security regime imposed.