2025 (6) TMI 1362 - AT - Money Laundering

Money Laundering - Provisional attachment order - proceeds of crime - loan was taken by the parent company and was diverted - allegation made by the respondent is that the amount transferred by ESL is nothing but diversion of the funds and its use for the purpose other than for which it was granted - HELD THAT - The amount could not be repaid to the financial institutions on diversion of the funds and therefore properties have been attached. A reference of Corporate Debt Restructuring (CDR) was given but no reliance is placed on it thus we are not making reference of those proceedings. The only argument raised by the appellant to question the PAO is that the properties were purchased even prior to commission of crime. There are no substance in the argument for the reasons that properties were purchased out of the funds sanctioned by the Bank to ESL. It was then diverted and has been admitted even by the appellant company that the funds were used for purchase of properties and was rented out to the appellant M/s Chennai City Property Developers Pvt. Ltd.. The loan amount remained unpaid to the financial institutions. The appellant has failed to disclose the source to purchase the properties or to contest the appeal on the ground that it is not involved in proceeds of crime. It is necessary to clarify that the appellant got involved in use of proceeds of crime with purchase of properties out of the funds diverted by its parent company. The appellant company had no independent source to purchase the properties rather purchased by utilizing the bank loan to ESL and remained unpaid. Thus the properties attached by the respondent are involved in the case of money- laundering and the proceeds of crime. The issue has been dealt by this Tribunal in Sadananda Nayak Versus The Deputy Director Directorate of Enforcement Bhubaneswar 2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI where the judgment of various High Courts were considered holding that the property acquired even prior to commission of crime can be attached for value thereof. It would be only when the proceeds out of crime is not available in the hands of the accused or others which is acquired directly or indirectly out of the schedule offence. In case of non-availability of the direct proceeds the property of equivalent value can be attached. In the light of order of this Tribunal there are no illegality in attachment of the properties acquired by the appellant out of the loan amount secured by its parent company which remained defaulter in repayment of the loan amount. The criminal case is still pending against the Company though a reference of the interim order of the High Court has been given but that would not absolve the appellant rather it would depend on the final outcome of the pending case before the High Court. Conclusion - i) The Provisional Attachment Order dated 28.03.2022 confirmed by the Adjudicating Authority was upheld. ii) The appeals challenging the attachment of properties and rental proceeds were dismissed. There is a prima facie case against the appellant and therefore would not cause interference in the impugned order. The appeals accordingly fail and are dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Provisional Attachment Order (PAO) dated 28.03.2022, confirmed by the Adjudicating Authority, attaching immovable properties purchased by the appellant company is legally sustainable as "proceeds of crime" under the Prevention of Money Laundering Act (PMLA) given that the loan was taken by the parent company and diverted?

- Whether properties purchased by the appellant company prior to the commission of the alleged offence can be attached as proceeds of crime or for an equivalent value under the PMLA?

- Whether the appellant company had independent sources to purchase the properties or the properties were acquired out of diverted loan funds which were defaulted by the parent company?

- Whether the pendency of writ petitions challenging the FIR/ECIR and interim orders passed by the High Court affect the validity of the PAO and attachment of properties?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Provisional Attachment Order (PAO) attaching properties as proceeds of crime when loan was taken by parent company and diverted to appellant

Relevant legal framework and precedents: The Prevention of Money Laundering Act, 2002 (PMLA) empowers attachment of properties which are "proceeds of crime" as defined under the Act. Proceeds of crime include property derived or obtained, directly or indirectly, by any person as a result of criminal activity. The power to provisionally attach such properties is to prevent their alienation or dissipation pending investigation or trial.

Court's interpretation and reasoning: The Tribunal noted that the loan was obtained by the parent company, M/s Educomp Solutions Ltd. (ESL), and subsequently diverted to the appellant company, M/s Educomp Professional Education Ltd., which is a 100% subsidiary of ESL. The funds were used by the appellant to purchase immovable properties. The Tribunal found that the loan amount remained unpaid, and the diversion of funds constituted the offence. The appellant admitted utilization of diverted funds for purchase of properties and rental income generation.

Key evidence and findings: The FIR registered by the CBI alleged criminal conspiracy and cheating involving diversion of bank loans sanctioned for digital education content development. The loan amount of approximately Rs. 1955.36 crores was sanctioned to ESL and ESPL but was diverted to the appellant company for purchase of properties. The appellant company received Rs. 90.31 crores as purported equity investment but which was actually diverted loan funds. The properties purchased were in a prohibited area and rented out to a third party, generating rental income which was also attached.

Application of law to facts: The Tribunal applied the definition of "proceeds of crime" to include properties acquired out of diverted loan amounts obtained by the parent company. The appellant's claim of not taking the loan directly was rejected since the diverted funds were used for purchase of the properties. The attachment was held justified as the properties were derived from the proceeds of the criminal activity of diversion and non-repayment of loan funds.

Treatment of competing arguments: The appellant argued that the loan was not taken by it, properties were purchased prior to the crime period, and that the properties were not proceeds of crime. The Tribunal rejected these arguments, emphasizing that the source of funds was diverted loan amounts and the appellant company failed to demonstrate independent legitimate sources for acquisition.

Conclusions: The PAO attaching properties purchased by the appellant company out of diverted loan funds obtained by its parent company is legally sustainable as attachment of proceeds of crime under the PMLA.

Issue 2: Attachment of properties purchased prior to commission of crime or for equivalent value

Relevant legal framework and precedents: The Tribunal referred to its earlier order dated 14.10.2024 in a similar matter where it was held that properties acquired even prior to the commission of crime can be attached for an equivalent value if direct proceeds of crime are not available. This principle is consistent with judicial precedents allowing attachment of properties representing the value of proceeds of crime to prevent dissipation of illicit assets.

Court's interpretation and reasoning: The Tribunal observed that the appellant's argument that properties were purchased prior to the crime period was factually incorrect. Even if properties were purchased before the crime, attachment for equivalent value is permissible under the law. The Tribunal emphasized that the appellant's properties were acquired out of diverted loan funds and thus fall within the ambit of proceeds of crime.

Key evidence and findings: The appellant failed to prove the properties were purchased from legitimate sources prior to the crime. The admitted use of diverted loan funds to acquire the properties and the failure to repay the loans established the nexus with proceeds of crime.

Application of law to facts: The Tribunal applied the principle that attachment can extend to properties representing value of proceeds of crime, irrespective of timing of acquisition, to prevent the appellant from benefiting from illicit gains.

Treatment of competing arguments: The appellant's reliance on timing of purchase was rejected as irrelevant in light of admitted diversion of loan funds and failure to repay.

Conclusions: Attachment of properties purchased prior to commission of crime or for equivalent value is permissible and justified in this case.

Issue 3: Whether appellant had independent sources to purchase properties

Relevant legal framework and precedents: Under PMLA, the burden is on the accused to demonstrate legitimate sources of acquisition when properties are alleged to be proceeds of crime.

Court's interpretation and reasoning: The Tribunal found that the appellant failed to disclose or prove any independent legitimate source for purchase of the properties. The admitted receipt of diverted loan funds from ESL for purchase of properties and the failure to repay loans indicated the properties were acquired from proceeds of crime.

Key evidence and findings: The appellant's own admission of receipt of Rs. 90.31 crores as equity investment from ESL, which was diverted loan money, and use of these funds to purchase properties.

Application of law to facts: The Tribunal held that absence of independent sources and admitted diversion of loan funds justified attachment as proceeds of crime.

Treatment of competing arguments: The appellant did not produce evidence of independent sources and restricted arguments to timing and FIR challenges.

Conclusions: The appellant had no independent sources to purchase properties; acquisition was out of proceeds of crime.

Issue 4: Impact of pending writ petitions and interim orders challenging FIR/ECIR on attachment order

Relevant legal framework and precedents: The pendency of writ petitions or interim orders challenging FIR or investigation does not automatically invalidate attachment orders under PMLA, which can be independently examined on merits.

Court's interpretation and reasoning: The Tribunal noted that the criminal case was pending and interim orders of the High Court were in place but held that such interim relief does not absolve the appellant from attachment of proceeds of crime. The final outcome of the criminal case would determine ultimate liability but does not preclude provisional attachment.

Key evidence and findings: Reference was made to pending High Court proceedings and interim orders but no stay or quashing of attachment was granted by the High Court.

Application of law to facts: The Tribunal held that attachment is a preventive measure and is not negated by pendency of writ petitions or interim relief.

Treatment of competing arguments: The appellant's reliance on pendency of writ petitions was rejected as insufficient to interfere with the PAO.

Conclusions: Pending writ petitions and interim orders do not affect the validity of the PAO and attachment of properties.

3. SIGNIFICANT HOLDINGS

"The appellant company had no independent source to purchase the properties, rather, purchased by utilizing the bank loan to ESL and remained unpaid. Thus, we find that the properties attached by the respondent are involved in the case of money-laundering and the proceeds of crime."

"Even properties purchased prior to commission of crime can be attached in a given case to secure proceeds of crime for confiscation... In case of non-availability of the direct proceeds, the property of equivalent value can be attached."

"The criminal case is still pending against the Company... it would depend on the final outcome of the pending case before the High Court. We, otherwise, find a prima facie case against the appellant and therefore would not cause interference in the impugned order."

Core principles established:

• Provisional attachment under PMLA can be sustained against properties acquired out of diverted loan funds even if the loan was taken by a related company.
• Properties purchased prior to commission of crime may be attached for an equivalent value to prevent dissipation of proceeds of crime.
• The burden lies on the accused/appellant to demonstrate legitimate independent sources of acquisition to rebut attachment.
• Pendency of writ petitions or interim orders challenging FIR/ECIR does not preclude provisional attachment under PMLA.

Final determinations:

• The Provisional Attachment Order dated 28.03.2022 confirmed by the Adjudicating Authority was upheld.
• The appeals challenging the attachment of properties and rental proceeds were dismissed.