PMLA Tribunal Upholds Freezing of Ex-HUF India MD's Assets, Says Money Trail Establishes Alleged Fraud

The Appellate Tribunal under the Prevention of Money Laundering Act (PMLA) on 7 May upheld the freezing of bank accounts and other movable assets of former HUF India Pvt. Ltd. Managing Director Sunil Kumar Garg and associated entities, holding that the money trail traced by the Enforcement Directorate (ED) sufficiently established allegations of siphoning and routing of funds in an alleged Rs. 139 crore fraud involving the company.

A Bench of Chairman Justice Munishwar Nath Bhandari dismissed a batch of appeals filed by Garg, his son Pratik Garg, and associated entities challenging a February 2025 order confirming retention of seized movable properties, including bank accounts, mutual funds, fixed deposits, DEMAT accounts, and shares.

It held that the “money trail brought by the respondent is sufficient to prove the serious allegation against the appellant.”

The dispute arose from a March 2022 FIR registered on a complaint filed by HUF India Pvt. Ltd., a subsidiary of German company HUF Hülsbeck & Fürst GmbH & Co. KG and a manufacturer of electronic control systems for automobiles.

The company alleged that its former employees, including ex-Managing Director Sunil Kumar Garg and other officials, diverted around Rs. 139 crore between 2010 and 2020 by creating fictitious vendors and generating fake invoices and Goods Receipt Notes (GRNs) for goods and services never received by the company.

According to the ED, funds released to fictitious vendors were later routed to the accused persons, their family members, and entities controlled by them in the guise of consultancy fees, salaries, and rent. The entities allegedly involved included Deendayal Associates, Star Jones, and Sunil Garg HUF. Based on the scheduled offences disclosed during the police investigation, the ED initiated a PMLA probe, traced the alleged proceeds of crime to the appellants, and froze their assets.

The appellants challenged the adjudicating authority's order retaining the assets, contending that the frozen properties were acquired through legitimate sources such as salary, consultancy income, rental income, and investments. They argued that no nexus existed between the seized accounts and the alleged proceeds of crime and claimed that the vendors were independent clients availing genuine consultancy services. Deendayal Associates further argued that its transactions with vendors were independent consultancy dealings unrelated to HUF India.

The ED countered that the money trail clearly showed siphoned company funds reaching the appellants' accounts and submitted that the movable properties had been acquired directly from illicit kickbacks.

Rejecting the appellants' defence, the Tribunal noted that no material had been placed on record to establish that any actual consultancy services were rendered. It observed that the appellants failed to produce engagement letters or consultancy agreements specifying the nature of services or payment structures.

It further found the appellants' statements vague, observing that they failed to explain the nature of consultancy services allegedly provided and noting that it could not be a coincidence that consultancy services were claimed to have been rendered specifically to the same vendors involved in the alleged fraud. It held:

“Thus, income from the consultancy remains for the sake of it. It is nothing but the routing of the funds from the accounts of M/s HUF India Pvt. Ltd. to the accounts of vendors and thereupon to the accounts of the appellant or their entities.”

The Bench further held that the appellants failed to substantiate the claimed sources of funds used to acquire the movable properties. It observed:

“The value of the movable properties under seizure or frozen is not of a few lakhs but by running in crores, of which the appellant failed to disclose the source with proof so as to justify the acquisition of the movable properties. The appellant has not even put a rent note on record or any other document to prove the source of income.”

It concluded that the ED had successfully established a money trail showing movement of funds from HUF India to vendors and thereafter to the appellants, and held that the seized movable properties constituted proceeds of crime.

Accordingly, the Tribunal found no ground to interfere with the February 2025 order, dismissed the appeals, and upheld the continued seizure and freezing of the assets, subject to the outcome of the trial.

For the Appellant(s): Ms. Ridhi Kapoor, Advocate; Ms. Shivranjani, Advocate

For the Respondent: Ms. Nattasha Garg, Advocate