2019 (6) TMI 1149 - AT - Money Laundering

Attachment of Bank Accounts - reasonable belief - proceeds of crime - It is alleged on behalf of respondents that despite of several follow-ups, the Respondent received a reply from HDFC Bank after eight months on 06.03.2019 that the release of the properties of the Respondent had been declined based on the directions of the Appellant to not release the attached bank accounts of the Respondent - HELD THAT - No reasonable belief was formed by the Appellant against the Respondent in the Provisional Attachment Order dated 03.01.2018 passed under section 5(1) of the Prevention of Money Laundering Act, 2002 - No criminal liability of the transferor company can be transferred to an entity formed by amalgamation of the transferor and transferee company, by virtue whereof the Respondent was incorporated in the instant matter. There is no force in the contention of the Appellant that the Respondent paid Income Tax on such income to give it corporate colour. It is clarified by the respondents that M/s CHIDCO Limited is a company constituted as a special purpose vehicle for the purpose of completing the project and any amount given to M/s CHIDCO Ltd. was for the purpose of implementing the project. The entire transaction has been declared and the requisite taxes have also been paid as per the case of the respondents. It appears from the impugned order that the Adjudicating Authority has held that no proceeds of crime are available with the Respondents and as such no property of the Respondents is involved in money laundering based on the facts and materials placed before the Adjudicating Authority. It is also held by the Adjudicating Authority that the business transactions were fair, and in the normal course thereof did M/s Dynasty Developers Pvt. Ltd. and M/s Embassy Realtors Pvt. Ltd. had made profits, as is discernible from the above quoted excerpts of the impugned order. The Appellant has failed to establish any nexus whatsoever of the Respondent Company even remotely being linked to the alleged offences, and neither has the Appellant produced even a single document. It is a settled principle of law that upon amalgamation between two Companies the transferor Company dies a civil death which is akin to death of an individual. Where after, the criminal proceedings if any stands abetted - the transferee Company can no longer be prosecuted or cannot be held to be liable for the criminal acts of the transferor company. The Adjudicating Authority has correctly noted that the Appellant did not adduce any reason for attaching the properties of the Respondent, which was admittedly not the recipient of any proceeds of crime whatsoever. For attaching the properties of the Respondents was essential for the Appellant to form and express the reasonable belief as to why the properties of the Respondent herein are being attached as value of the proceeds of crime. No valid reason to belief were recorded by the Joint Director as it was a very casual approach. The said valid opinion has not formed on the basis of settled law by the Supreme Court and various High Court. There is no reasonable belief formed with regard to the separate existence of the entities involved and as to reasons why such individual corporate existence of each of the entities is acknowledged, though the said entities are legally, independent, and separate entities. Without assigning any reason for the attachment of properties of the Respondent, the attachment cannot be permitted mere repetition of language of Section in the last paras after recording the allegation and facts are no valid reason to belief. No separate reason to believe were recorded. Appeal dismissed.

Issues Involved:

1. Legality of the Provisional Attachment Order (PAO) issued by the Enforcement Directorate (ED).
2. Allegations of money laundering and involvement of properties in money laundering.
3. Compliance with the Prevention of Money Laundering Act (PMLA), 2002.
4. Validity of the attachment of properties of the Respondent.
5. Impact of amalgamation on criminal liability.
6. Formation of reasonable belief for attachment under Section 5(1) of PMLA.

Detailed Analysis:

1. Legality of the Provisional Attachment Order (PAO):

The Tribunal found that the Provisional Attachment Order dated 03.01.2018 was illegal and could not be continued. The Adjudicating Authority noted that the PAO for the amount of ?25,05,57,469 and ?19 Crore was not justified and thus vacated the attachment. The Tribunal upheld this decision, emphasizing that the attachment lacked reasonable belief and was not supported by sufficient evidence.

2. Allegations of Money Laundering:

The Tribunal examined the allegations of money laundering against the Respondents. It was argued by the appellant that the respondents were involved in money laundering through various transactions and agreements. However, the Adjudicating Authority found no evidence to support these allegations. The Tribunal concurred, stating that the respondents did not receive any proceeds of crime and that the transactions were legitimate business activities.

3. Compliance with PMLA, 2002:

The Tribunal highlighted that the appellant failed to meet the essential requirements under Section 5(1) of the PMLA. The Adjudicating Authority noted that the appellant did not form a reasonable belief that the properties of the respondents were proceeds of crime. The Tribunal upheld this finding, emphasizing that the attachment order was not based on a valid and reasonable belief.

4. Validity of the Attachment of Properties:

The Tribunal found that the attachment of the respondents' properties was unwarranted. The Adjudicating Authority had concluded that the properties were not involved in money laundering and thus could not be attached. The Tribunal agreed, noting that the appellant failed to provide any evidence linking the respondents' properties to money laundering activities.

5. Impact of Amalgamation on Criminal Liability:

The Tribunal discussed the impact of the amalgamation of ERPL and DDPL into the Respondent Company. It was noted that upon amalgamation, the transferor company dies a civil death, and criminal liability cannot be transferred to the transferee company. The Tribunal upheld the Adjudicating Authority's finding that the Respondent Company could not be held liable for any alleged criminal acts of its predecessors.

6. Formation of Reasonable Belief for Attachment under Section 5(1) of PMLA:

The Tribunal emphasized that the appellant did not form a valid and reasonable belief for attaching the respondents' properties. The Adjudicating Authority had noted that the appellant's belief was not based on any substantial evidence and was formed in a casual manner. The Tribunal upheld this finding, stating that the attachment order was not sustainable in the absence of a valid reason to believe that the properties were proceeds of crime.

Conclusion:

The Tribunal dismissed the appeals, upholding the Adjudicating Authority's decision to vacate the Provisional Attachment Order. It was concluded that the attachment of the respondents' properties was not justified and lacked a reasonable belief. The Tribunal emphasized that the transactions in question were legitimate business activities, and the respondents were not involved in money laundering. The amalgamation of the companies did not transfer any criminal liability to the Respondent Company, and the attachment order was not supported by sufficient evidence.

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