2023 (12) TMI 1388 - AT - Money Laundering

Money Laundering - provisional attachment of properties - proceeds of crime - nexus between the alleged schedule offences and the attached property - reasons to believe - complainants availed loans through various instant loan apps that have been charging exorbitant interest rates along with high processing fee and GST charges - HELD THAT - The contention of the learned counsel for the appellants that M/s Sarvottam Fincap Ltd. was the only NBFC against which there are no allegations regarding involvement of any Fintech Company is devoid of merit as it took ICD of Rs. 4.52 crores on 14.01.2020 from its newly incorporated sister company M/s VPoint IT Solutions Pvt. Ltd. and the new company received loan from foreign/overseas companies in the month of February to May 2020. This proves that M/s VPoint IT Solutions Pvt. Ltd. was incorporated by M/s Sarvottam Fincap Ltd. for the purpose of receiving overseas loan from Foreign Fintech Companies. The conspiracy between both the appellants and the overseas investor is apparent on the face of record. The fact that no sanction or adverse order is passed by the RBI against the appellant companies till date is also no ground to allow the present appeals being a separate prerogative of the RBI as a Regulatory Authority. The fact that appellant M/s Sarvottam Fincap Ltd. after taking ICD of Rs. 4.52 crores from appellant M/s VPoint IT Solutions Pvt. Ltd. disbursed the small loans on high rate of interest and processing fee shows that huge amount was rotated again and again to earn high profits in a very short span by exercising coercive re- payment techniques as mentioned above. Respondent ED in its written submissions pointed out that appellant M/s Sarvottam Fincap Ltd. through their APP Paisa Finch has disbursed a loan amount of Rs. 90, 49, 91, 734 out of which a whopping amount of Rs. 17, 27, 97, 774 was deducted upfront in the name of processing fees. M/s Sarvottam has also received an amount of Rs. 79, 60, 938 as interest/penalty. Thus the total proceeds of crime are much more than the total attached amount of Rs. 5, 03, 85, 408 Rs. 59, 416 in the accounts of the appellants respectively. The contention of appellants that the reasons to believe recorded in the ShCN of the Ld. Adjudicating Authority are merely copy paste of the allegations made by ED in their original complaint is also devoid of merit. The ECIR was registered on the basis of FIR lodged against the appellants and the allegations made in the said FIRs is sufficient to form basis for reason to believe by the ED as well as by Ld. Adjudicating Authority and accordingly recorded. The said reason to believe is not going to change its colour or form a divergent/contradictory view after perusal of material on record by Ld. Adjudicating Authority. Conclusion - The provisional attachment of properties as justified under PMLA due to the appellants involvement in money laundering activities - Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the provisional attachment of properties under the Prevention of Money Laundering Act (PMLA) was justified given the alleged involvement of the appellants in money laundering activities.
Whether there is a sufficient nexus between the alleged scheduled offences and the attached properties to warrant the confirmation of the attachment order.
Whether the appellants, Sarvottam Fincap Limited and M/s VPoint IT Solutions Pvt. Ltd., were involved in money laundering activities through the misuse of borrower data and coercive loan recovery practices.
Whether the appellants' operations were in violation of the Reserve Bank of India (RBI) guidelines and involved proceeds of crime as defined under PMLA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Provisional Attachment under PMLA

Relevant Legal Framework and Precedents: The PMLA provides for the attachment of properties involved in money laundering. Section 5(1) of PMLA allows for provisional attachment if there is a reason to believe that the property is involved in money laundering.
Court's Interpretation and Reasoning: The court found that the provisional attachment was justified as there was sufficient evidence of proceeds of crime being generated through the appellants' operations.
Key Evidence and Findings: The investigation revealed that the appellants were involved in sanctioning loans through mobile apps, charging exorbitant interest rates, and using coercive recovery methods.
Application of Law to Facts: The court applied the provisions of PMLA to the facts, concluding that the appellants' operations involved proceeds of crime.
Treatment of Competing Arguments: The appellants argued that there was no nexus between the alleged offences and the attached properties, but the court found this argument unconvincing.
Conclusions: The court upheld the provisional attachment as the appellants' activities were found to be linked to money laundering.

Issue 2: Nexus Between Scheduled Offences and Attached Properties

Relevant Legal Framework and Precedents: Under PMLA, a direct link between the scheduled offence and the property is necessary for attachment.
Court's Interpretation and Reasoning: The court found that there was a clear link between the scheduled offences and the attached properties, as the properties were acquired through proceeds of crime.
Key Evidence and Findings: The investigation showed that the appellants used funds from foreign sources to finance their lending operations, which involved coercive recovery practices.
Application of Law to Facts: The court determined that the funds used in the appellants' operations were proceeds of crime, thus justifying the attachment.
Treatment of Competing Arguments: The appellants claimed that there was no evidence of scheduled offences, but the court found that the ongoing investigations and FIRs provided sufficient grounds.
Conclusions: The court concluded that the nexus was established, and the attachment was valid.

Issue 3: Involvement in Money Laundering Activities

Relevant Legal Framework and Precedents: Money laundering involves the concealment of proceeds of crime. The PMLA targets such activities.
Court's Interpretation and Reasoning: The court interpreted the appellants' activities as constituting money laundering due to their use of coercive methods and misuse of borrower data.
Key Evidence and Findings: Evidence showed that the appellants deducted high processing fees and charged exorbitant interest rates, using borrower data for coercion.
Application of Law to Facts: The court applied the definition of money laundering to the appellants' practices, concluding that they were involved in such activities.
Treatment of Competing Arguments: The appellants argued that their operations were legitimate, but the court found that their methods were unlawful and constituted money laundering.
Conclusions: The court held that the appellants were involved in money laundering through their lending operations.

Issue 4: Violation of RBI Guidelines and Involvement of Proceeds of Crime

Relevant Legal Framework and Precedents: RBI guidelines regulate NBFC operations, and violations can indicate unlawful activities.
Court's Interpretation and Reasoning: The court found that the appellants violated RBI guidelines by accepting deposits beyond prescribed limits and engaging in coercive recovery practices.
Key Evidence and Findings: The appellants' operations involved unauthorized deposits and coercive recovery methods, indicating proceeds of crime.
Application of Law to Facts: The court applied RBI guidelines and PMLA provisions to the appellants' operations, concluding that they involved proceeds of crime.
Treatment of Competing Arguments: The appellants argued that there was no RBI action against them, but the court found that their activities violated guidelines and involved proceeds of crime.
Conclusions: The court concluded that the appellants' operations violated RBI guidelines and involved proceeds of crime.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The modus operandi of this fraud reflects that about 365 mobile applications are involved in sanctioning instant micro loans and then its recovery via tele-callers."
Core Principles Established: The judgment reinforces the principle that operations involving coercive recovery methods and misuse of borrower data constitute money laundering under PMLA.
Final Determinations on Each Issue: The court dismissed the appeals, upholding the provisional attachment of properties as justified under PMLA due to the appellants' involvement in money laundering activities.

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