No Proof Of Proceeds Of Crime, PMLA Appellate Tribunal Sets Aside ED Attachment Based On Common Directorship

The PMLA Appellate Tribunal (Appellate Tribunal under SAFEMA) recently set aside the provisional attachment of six immovable properties valued at Rs 23.85 crore belonging to multiple third-party entities, holding that the Enforcement Directorate cannot sustain attachment in the absence of any proven flow of “proceeds of crime” and that mere common directorship or shareholding is insufficient to establish such a nexus.

A coram comprising Member V. Anandarajan allowed appeals filed by Suncity Projects Pvt Ltd along with four other entities against the order of the Adjudicating Authority, which had confirmed the provisional attachment of the appellants' properties under the Prevention of Money Laundering Act, 2002.

The Tribunal observed:

“While a relationship based on the existence of common directors/shareholders has been established, the respondents have failed to establish a flow of proceeds of crime (or, for that matter, any funds whatsoever) from the tainted entities that derived or obtained proceeds of crime from a scheduled offence to the so-called 'related' companies. Hence, these so-called 'related companies', themselves not having received any tainted funds from the accused companies, could not have passed on the same to the appellant companies. Accordingly, no case for attachment of the properties of the appellants herein, either as proceeds of crime or as 'value' thereof can arise"

The case arose from an FIR registered by the Central Bureau of Investigation on March 30, 2022 against Allied Strips Ltd, its directors, and related entities. It was alleged that the company siphoned and diverted funds, causing wrongful loss of about ₹1392.86 crore to a consortium of banks led by Canara Bank.

As the FIR involved scheduled offences under the PMLA, the Enforcement Directorate registered an ECIR and issued a Provisional Attachment Order attaching properties worth about Rs 44 crore, including six properties of the present appellants valued at about ₹23.85 crore, treating them as the value of proceeds of crime.

The appellants contended that the PMLA proceedings against them were an abuse of process and argued that they had no transactions with the accused company or any person named in the FIR. They also submitted that the ED relied on the FIR against Allied Strips Ltd even though the appellants had no connection with the alleged offence.

According to the ED, Mercury Digital Services Pvt Ltd, Maa Durga Steel Works Pvt Ltd, and Prudential Metallics Pvt Ltd were related to the accused company because of common directors or shareholding and had routed funds to Suncity Projects Pvt Ltd through inter-corporate deposits and investments.

On that basis, the ED treated an alleged outstanding amount of ₹23.85 crore as the value of proceeds of crime and attached the properties of the appellants.

The appellants argued that the amounts had already been repaid and that no outstanding liability existed, making the attachment unsustainable.

The Tribunal held that treating companies as related merely on the basis of common directors or shareholders is not sufficient to establish a link with proceeds of crime. It noted that there was no material showing any flow of tainted funds from the accused entities to the alleged related companies or from those companies to the appellants.

The Tribunal further held:

“For the same reason, even assuming that tainted funds had in fact flowed to Suncity Projects Pvt. Ltd. from the accused entities, the same would not have been sufficient to attach properties of the other appellants herein, without any finding of flow of funds from Suncity Projects Pvt. Ltd. to them. Needless to say, in the present case, there is no evidence of flow of funds from the accused entities either to Suncity or any of the other appellant companies.”

Holding that attachment under the PMLA requires material to show that the property represents proceeds of crime or its value, the tribunal found the attachment unsustainable, set aside the Adjudicating Authority's order, and allowed the appeals