2025 (6) TMI 686 - AT - Money Laundering

Money Laundering - Provisional Attachment Order - appeal has been preferred by the appellant company which was not a party defendant before the Adjudicating Authority - opportunity of hearing provided or not - violation of principles of natural justice - HELD THAT - The statements of witnesses were recorded under Section 50 of the Act of 2002 where it is revealed that the offence under Section 3 of the Act of 2002 is made out because the huge amount was siphoned off by the accused having control over the appellant company also and accordingly all the companies belonging to Wadhawans having 100% control over them were made subject matter of attachment of their properties where Wadhawans were given proper opportunity of hearing. Appellant was not given opportunity of hearing by the Adjudicating Authority despite attachment of their bank accounts. It was in contravention of Section 8 of the Act of 2002 and otherwise appeal is maintainable if somebody is aggrieved by the order passed by the Adjudicating Authority. Section 8 of the Act of 2002 mandates an opportunity of hearing which has not been provided. It may be that ultimate control on the Company is of Wadhawans but the matter involves factual issues which could not have been addressed without an opportunity of hearing to the appellant. Conclusion - The impugned attachment order against the appellant company s bank accounts was set aside for non-compliance with Section 8 of the Act of 2002. The impugned order passed by the Adjudicating Authority qua the appellant is set aside with remand of the case from the stage of issuance of notice by the Adjudicating Authority as per Section 8(1) of the Act of 2002 - Appeal disposed off by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the attachment of the appellant company's bank accounts by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 ("the Act of 2002") was valid, given that the appellant was not a party to the original adjudication proceedings and was not afforded an opportunity of hearing prior to attachment.

- Whether the appellant company's bank accounts could be attached solely on the basis that it was a beneficiary entity wholly owned by members of the Wadhawan family, who were alleged to have committed money laundering offences.

- Whether the appellant company's activities and transactions in the attached bank accounts constituted proceeds of crime under the Act of 2002.

- Whether the appellant was entitled to file additional documents along with a rejoinder without leave of the Tribunal, and the propriety of admitting such documents.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of attachment of appellant's bank accounts without opportunity of hearing

Relevant legal framework and precedents: Section 8 of the Prevention of Money Laundering Act, 2002 mandates that before attachment of property, the Adjudicating Authority must provide an opportunity of hearing to the affected party. The principle of audi alteram partem is fundamental to such proceedings. The appellant was not a party defendant before the Adjudicating Authority and was not served notice or afforded hearing prior to attachment.

Court's interpretation and reasoning: The Tribunal observed that the attachment of the appellant's bank accounts without providing opportunity of hearing was in contravention of Section 8 of the Act of 2002. The appellant was aggrieved by the attachment order and was entitled to challenge it. The Tribunal noted that an appeal could have been filed after seeking leave of the Tribunal since the appellant was not a party before the Adjudicating Authority.

Application of law to facts: The Tribunal set aside the impugned order qua the appellant and remanded the matter to the Adjudicating Authority for issuance of notice and providing opportunity of hearing to the appellant as mandated under Section 8(1) of the Act of 2002. The appellant would be entitled to file reply and the proceedings were to be completed within 180 days from the date of service of notice.

Conclusion: Attachment without hearing was illegal; the matter was remanded for compliance with procedural safeguards.

Issue 2: Attachment of appellant's bank accounts based solely on ownership by Wadhawan family

Relevant legal framework and precedents: Under the Act of 2002, attachment is permissible if the property is proceeds of crime or involved in money laundering. Mere ownership or control by an accused does not ipso facto justify attachment unless the property itself is tainted.

Court's interpretation and reasoning: The Tribunal acknowledged that the appellant company was 100% owned by Wadhawan Global Capital Ltd., controlled by the Wadhawan family, who were under investigation for money laundering. However, the Tribunal emphasized that mere ownership is insufficient ground for attachment without establishing that the appellant's bank accounts held proceeds of crime.

Key evidence and findings: The appellant contended that the funds in the attached accounts were from genuine investor money, managed by the appellant company registered with SEBI, and that the amounts included TDS and income tax refunds belonging to investors. No direct transaction linking the appellant's accounts to proceeds of crime was established by the respondents.

Treatment of competing arguments: The respondents argued that the appellant was part of a larger network of entities controlled by the Wadhawans used to siphon off money, justifying attachment. The Tribunal found that factual issues remained unresolved and required adjudication after hearing the appellant.

Conclusion: Attachment solely on the basis of ownership without specific evidence linking the appellant's accounts to proceeds of crime was not justified; factual determination to be made after hearing.

Issue 3: Whether appellant's activities and transactions constituted proceeds of crime

Relevant legal framework and precedents: Section 3 of the Act of 2002 defines proceeds of crime as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity. The burden lies on the investigating agency to establish the connection.

Court's interpretation and reasoning: The investigation revealed that the Wadhawan brothers were involved in diversion and siphoning off of funds sanctioned by Yes Bank Ltd. to various companies, including the appellant's group. However, the appellant company argued that the money in their bank accounts was investor money and legitimate income tax refunds, not proceeds of crime.

Application of law to facts: The Tribunal observed that these were factual issues requiring detailed examination and could not be decided in absence of opportunity of hearing and presentation of evidence by the appellant.

Conclusion: The question whether the appellant's bank accounts contained proceeds of crime was left open for adjudication after due process.

Issue 4: Filing of new documents along with rejoinder without leave of the Tribunal

Relevant legal framework and precedents: The Tribunal referred to established principles from various High Court judgments that a rejoinder is not a pleading to introduce new facts or alter the basis of the original case. Filing of additional documents or new pleas requires prior permission of the court or tribunal and cogent reasons.

Court's interpretation and reasoning: The appellant filed documents along with rejoinder without leave, which was objected to by respondents. The Tribunal held that such filing was not permissible as a matter of right and should have been preceded by an application for leave.

Treatment of competing arguments: The appellant contended that failure of the Adjudicating Authority to provide hearing compelled them to file documents with rejoinder. The Tribunal rejected this justification, stating that proper procedure was to seek leave before filing new documents.

Conclusion: Filing new documents with rejoinder without leave was improper; the Tribunal emphasized adherence to procedural rules.

3. SIGNIFICANT HOLDINGS

"Section 8 of the Act of 2002 mandates an opportunity of hearing which has not been provided. It may be that ultimate control on the Company is of Wadhawans but the matter involves factual issues which could not have been addressed without an opportunity of hearing to the appellant."

"Attachment of the properties of their entities has been made in reference to the serious allegation against Wadhawan family, but the appellant company was not given opportunity of hearing by the Adjudicating Authority despite attachment of their bank accounts. It was in contravention of Section 8 of the Act of 2002."

"In the garb of submitting a rejoinder, a plaintiff cannot be allowed to introduce new pleas in his plaint so as to alter the basis of his plaint. Rejoinder/replication cannot be permitted for introducing pleas which are not consistent with the earlier pleas."

Core principles established:

• Attachment of property under the Prevention of Money Laundering Act must comply with the mandatory procedural safeguard of hearing as prescribed under Section 8.
• Mere ownership or control by accused persons does not justify attachment of property unless it is established to be proceeds of crime.
• Factual issues regarding the tainted nature of property must be adjudicated after giving the affected party a fair opportunity to be heard.
• Filing of new documents or pleas via rejoinder requires prior permission of the court or tribunal and cannot be used to introduce an entirely new case.

Final determinations on each issue:

• The impugned attachment order against the appellant company's bank accounts was set aside for non-compliance with Section 8 of the Act of 2002.
• The matter was remanded to the Adjudicating Authority to issue notice, provide opportunity of hearing, and complete proceedings within 180 days.
• The appellant was permitted to file reply and contest the attachment on merits.
• The appellant's attempt to file new documents with rejoinder without leave was disallowed.