Mukesh Doshi & Anr Vs Deputy Director, ED

1. These appeals have been preferred to challenge the order dated 28.12.2021 passed by the Adjudicating Authority confirming the Provisional Attachment order.

2. The learned counsel for the appellants submits that without an FIR or ECIR against the appellants for commission of predicate offence or an offence under the Prevention of Money laundering Act, 2002 (in short, the Act of 2002), their properties have been attached. It is more so when the movable and immovable properties so attached were not the proceeds of crime and even for value thereof. Therefore, entire action of the respondent to attach the movable and immovable property was illegal yet Adjudicating Authority confirmed the order of the attachment, ignoring the factual and legal issues raised by the respondent

3. Brief facts of the case has been given by the appellant in para 4 of the appeal. The relevant part is reproduced hereunder:-

That the relevant facts and circumstances, which have led to the filing of the present Appeal are as under: -

i. A company known as M/s. Mack Star Marketing Pvt. Ltd. (“MackStar”) came to be incorporated. This entity was a joint venture between a company known as M/s Ocean Deity Investment Holdings Ltd., PCC (the“Investor”) and certain privately held Indian companies owned and controlled by Sarang Wadhawan and Rakesh Wadhawan,the promoters of Housing Development and Infrastructure Ltd (HDIL) (collectively, the “Wadhawans”).

ii. That on 13.01.2016, the aforesaid Indian Promoters of Mack Star (part of the Wadhawan Group) through one Mr. Jayesh Thar misrepresented to the Appellants that they were entitled to enter into two parallel transactions effectively in the nature of a barter:

STAGE I:

a. The Wadha wans would transfer 7 commercial premises in ‘Kaledonia’ building owned by Respondent No. 5 to Appellant No. 2 for a total sale consideration of INR 77,65,00,000;

b. Simultaneously,two of AppellantNo.2’saffiliates,namelyHarsh Propcon Private Limited and Capetown Exports Private Limited (collectively, the Sunlight Affiliates), would issue 5,43,55,000 and 6,21,20,000 preference shares (collectively, the Preference Shares) to two companies of theWadhawan Group, namely Bidco Studs Private Limited and Awas Developers and Constructions Private Limited (collectively, the HDIL Affiliates), on receipt of INR 38,04,85,000 and INR38,82,50,000as part payment towards subscription to the Preference Shares.

STAGE II:

Once the HDIL Affiliates pay the balance amount of INR 16,30,65,000 and INR 23,29,50,000, respectively, to the Sunlight Affiliates to fully-pay up the Preference Shares, the Sunlight Affiliates would acquire 1,90,000 sq. ft. in an ongoing realestate project of another affiliate and group company of the Appellant No.1,namely Sterling Buildcon Private Limited’s SRA projectin Chembur (Project) FSI in the Project

iii. The balance amounts of INR 16,30,65,000 and INR 23,29,50,000, respectively, were never paid, and consequently, are still owed by the HDIL Affiliates to Appellant No. 2’s Affiliates towards the Preference Shares becoming fully paid-up, and hence Stage II of the transaction was delayed due to these verefinancial stressbeing faced by the Wadhawans as has been noted in the PAO itself.

iv. That on 23.09.2020,the Anticorruption Bureau of the Central Bureau of Investigation (CBI) registered FIR No. RC0262020A0012 with respect to certain loans advanced by Yes Bank Limited to Mack Star, which loans do not bear any connection with the Appellants whatsoever. Pertinently, the said FIR was registered based on allegations that the Indian promoters of Mack Star, which included Sarang Wadhawan and Rakesh Wadhawan had, by abusing their control over Mack Star, fraudulently taken loans from Yes Bank interalia for the renovation of a structure known as “Kaledonia”, which were thereafter diverted back into Yes Bank, for the purpose of settling dues owed by companies owned by the Wadhawans, which included HDIL, so as to prevent Yes Bank’s loans to these companies from being declared as NPAs.

v. Mack Star and its Investor filed Commercial Suit (L) No. 370/2020 before this Hon'ble High Court of Bombay against the Appellants and the Wadhawans, interalia, seeking for a declaration that the sale deeds dated13.01.2016,13.01.2016and02.03.2016werenullandvoidabinitio. That it is on account of the aforesaid proceedings that the Appellants, for the first time on 05.03.2016 came to learn that the Wadhawans had fraudulently mislead them into executing the sale deeds.

vi. Given that the Appellants had executed the sale deeds dated 13.01.2016, 13.01.2016 and 02.03.2016 on account of the false representation made by the Wadhawans, that they were duly authorised to transfer the said properties, the Appellants and Mack Star decided to settle the proceedings amicable. Accordingly, Mack Star and the Appellants entered into consent terms, whereby the Appellants acknowledged, accepted and agreed that the sale deeds dated 13.01.2016, 13.01.2016 and 02.03.2016 were void abinitio and hence undertook to cancel and terminate the same with immediate effect. That on account of further sale of 2 units (i.e., Unit Nos. 101 and 102), to a company known as Acropolis Foundation Pvt. Ltd (which has no affiliation to the Appellants), the Appellants agreed to pay a sum of Rs. 16,00,00,000/-to Mack Star as cash settlement amount.

vii. That on 16.03.2021, the aforesaid consent terms dated 11.03.2021 were taken on record in Commercial Suit (L) No. 370/2020 and the suit was decreed on the said consent terms as to the Appellants herein.

viii. That on 18.03.2021, Appellant No. 2 apprised Respondent No. 1 about the Decree of the Hon’ble Court by its letter dated 18 March 2021.

ix. Thato n 22.03.2021, Mack Star addresseda letter to the Respondent No. 1 informing him of the consent decree dated 16.03.2021. Pertinently, Mack Star categorically stated therein that it did not have any subsisting civil dispute or criminal complaint whatsoever against the Appellants:

“7.Indis charge of the undertaking of Ocean Deity and Mack Star contained in paragraph 7 of the Consent Terms, which are undertakings given to the Hon’ble High Court as per paragraph3 of the Order, kindly note that Ocean Deity and Mack Star unequivocally and categorically state and submit that they do not have any subsisting civil dispute or criminal complaint whats ever against Sun light, and/or i t saffiliates, and/or their Promoters/Directors and the same standamicably settled in terms of the Consent Terms.”

x. That on 22.03.2021,the Respondent conducted a search at the residential premises of the Appellant No.1 & Respondent No.4. During the search, representativesofRespondentfoundINR1.40croresofcashandseized the same under Section 17(1) of the PMLA, on the pretext that the Appellant No. 1 and Respondent No. 4 were unable to “satisfactorily’’ explain the presence of the cash.

[N.B.-The said monies were from various companies/firms belonging to the Appellant No.1 & Respondent No.5, and the same is evident from the audited balance sheets of the Crystal group of companies.]

xi. That on 23.03.2021, the aforesaid monies recovered from the Appellant’s premises were deposited by the Respondent in a PD account of the Joint Director, Enforcement Directorate, Mumbai Zonal Office-I maintained with SBI Bank, Church gate Branch, Mumbai vide Challan No. 06/2020-21 dated 23.03.2021.

xii. That on 09.04.2021, though the monies were seized in exercise of powers under Sec. 17(1) of the PMLA, the Respondent then proceeded to provisionally attach the very same monies in exercise of power sunder Sec. 5(1) of the PMLA read with the second proviso to Sec. 5(1). Pertinently, the reason provided for the attachment of the said property wasto“prevent it from being transferred, concealedor otherwise which may result in frustrating proceedings in the present case.” However, there is no reference to the cash being “proceeds of crime”,which is an essential ingredient for attachment under Sec. 5 PMLA.

xiii. That on 27.04.2021, aggrieved by aforesaid PAO, the Appellant No. 1 and Respondent No. 4 preferred a writ petition being WP (L) No. 10807/2021, interalia on the ground that though details for the cash on hand had been provided, the same had not been considered by the Respondent ED, and hence the same did not qualify as “proceeds of crime” as defined under Sec. 2(1)(u) PMLA.

4. It is submitted that the respondent so also the Adjudicating Authority mixed two different incidences having no correlation with each other. For the purchase of seven commercial premises in “Kaledonia” by M/s Sunlight and the appellant, no FIR was ever registered so also the ECIR. Rather, the case was settled by  parties in a commercial suit preferred by M/s Mack Star Marketing Pvt. Ltd.

5. The FIR was registered by the CBI for certain loans advanced by Yes Bank Ltd to M/s Mack StarMarketing Pvt. Ltd. while it was managed by Sarang Wadhawan and Rakesh Kumar Wadhawan. It was alleged that Indian promoters of M/s Mack Star, which includes Sarang and Rakesh Wadhawan, abusing their control over M/s Mack Star Marketing Pvt. Ltd. had fraudulently taken loan from Yes Bank for renovation of structure known as “Kaledonia” and diverted it for settlement of dues of their own companies.

6. The allegation for commission of crime was made by M/s Mack Star Marketing Pvt. Ltd. when its management was taken over by M/s Ocean Deity Investment Holding Ltd., a joint venture Company of M/s Mack Star with Indian promoters. It could not know about commission of offence by Sarang Wadhawan and Rakesh Kumar Wadhawan, the promoters of Housing Development and Infrastructure Limited (HDIL) when management was taken over by it. The appellant had nothing to do with the loan advanced by Yes Bank and in fact, no allegation for it has been levelled against them. They have not been named in the FIR. The attachment order of two flats and cash amount of Rs. 1, 40,00,000/- (one crore forty lakh) has been made by ignoring the allegation in the FIR and even the settlement arrived between the parties in a commercial suit decreed by the Bombay High Court.

7. It is submitted that seven commercial premises in “Kaledonia” were purchased by M/s Sunlight Housing Development Pvt. Ltd. However, finding involvement of the Wadhawans, the promoters of Housing Development and Infrastructure Ltd (HDIL) in sale of seven commercial premises of “Kaledonia”, the appellants  decided to return five commercial premises and accordingly sale deed was nullified in a decree passed by the High Court on a mutual settlement between the appellantsand M/s Mack Star Marketing Pvt. Ltd. when it was managed by the foreign entity with M/s Ocean Deity Investment Holding Ltd. The two commercial premises were sold by M/s SunlightHousingDevelopmentPvt.Ltd., thus appellants had agreed to pay full consideration to M/s Mack Star MarketingPvt.Ltd. for the aforesaid and accordingly a settlement was entered between M/s Mack Star Marketing Pvt. Ltd and the appellant. Thus, no dispute remained between them.

8. In view of the above, M/s Mack Star Marketing Pvt. Ltd. had sent a letter to the Directorate of Enforcement to inform that they have no grievance or issue with the appellant rather the matter has been settled by them. The respondents still invoked section 17 (1) of the Act of 2002 and made search at the residence of the appellant where the cash of Rs. 1,40,00,000/- (One Crore and Forty Lakh) was found. The source of the cash was disclosed. It was yet seized and has been kept in the bank account.The attachment order was thereafter issued for the said amount apart from the two flats, different from the seven commercial premises purchased by the appellant and for which settlement had been entered with M/s Mack Star Marketing Pvt. Ltd.

9. In the light of the settlement between the parties, a letter was sent by M/sMack StarMarketingPvt.Ltd informing the Enforcement Directorate about the settlement with the appellant. In a commercial suit, where Wadhawans” were also the parties, the sale of five commercial premises got nullified while for two premises, settlement was entered on the payment of consideration. The sale of seven commercial premises has no relation with the fraud, said to have been committed by Wadhawans” (HDIL) for loan advances in connivance with the Yes Bank. Rather, for the aforesaid, the respondent number 1 should have secured the amount of loan by attaching the property of those who were involved in the crime.

10. It is submitted that ignoring the fact of the case, the Adjudicating Authority had relied on the provisional attachment order where two different incidences were mixed up and erroneously confirmed the order of provisional attachment. It is by ignoring the fact that registration of case by M/s Mack Star Marketing Pvt. Ltd. for commission of offence for loan advanced by Yes Bank and used by Wadhawans and their entities to clear their own loan amount on the same day had no co-relation with the purchase of seven commercial premises by the appellant and M/s Sunlight Housing Development Pvt. Ltd.

11. In view of the above, impugned order of the Adjudicating Authority, so also the order of provisional attachment order deserves to be set aside.

12. The counsel appearing for M/s Mack Star Marketing Pvt. Ltd. has supported the case of the appellant. It is submitted that respondent no. 1 has unnecessarily mixed two different incidences. The FIR has nothing to do with the appellant yet appellant”s property along with the property of M/s Mack Star has been attached. The properties so attached are not the proceeds of crime.

13. The appeal has been contested by the counsel for the respondent No. 1. It is submitted that the appeal has been preferred by individuals while the properties in question belongs to the Company, M/s Crystal Pride Developers and Mrs. Dhwani Doshi apart from one of the appellant before the Tribunal. The appeal has not  been preferred by the three partners of the property, i.e M/s Crystal Pride Developers, Mrs. Dhwani Doshi along with the present appellant. Thus, challenge to the attachment of the flats bearing number 1001 and 1002 on 10th floor of Atlantis building at Oshiwara, Andheri Mumbai is not sustainable.

14. The contest was made even on the facts. It is submitted that Sarang Wadhawan and Rakesh Kumar Wadhawan, while managing the affairs of M/s Mack Star Marketing Pvt. Ltd had taken loan from Yes Bank for renovation of structure of “Kaledonia” though it was a newly constructed building. The loan was used by them for clearing the dues of their own Company, i.e. Housing Development and Infrastructure Ltd (HDIL), whose account was declared NPA.

Thus, amount of loan was not used for the purpose, it was taken by Wadhawans while holding the management of M/s Mack Star MarketingPvt. Ltd. but used to clear theloan amount of Housing Development and Infrastructure Ltd (HDIL) and its entities. The FIR may be in relation to the fraud committed by the Wadhawans and Yes Bank for advancement of loan amount of around 200 crores, but while making investigation, it was  noticed that seven commercial premises of “Kaledonia” were sold to the appellant in a fraudulent manner. Though, no FIR for it was registered. However, it was made subject matter of investigation in the FIR for advancement of loan and thereby two flats of M/s Crystal Pride Developers and Ms. Dhwani Doshi and one appellant were attached. It was also submitted that cash of Rs. 1,40,00,000/- (one crore and forty lakh) was recovered at the time of search for which no explanation was given by the appellant to disclose its sources.

15. Thus, an offence under section 3 of the Act of 2002 was made out. The prayer is accordingly to dismiss the appeal.

16. The other respondents are said to be proforma respondents, thus at the request of the appellant, notices were not issued to them. In fact, no relief against them has been sought.

17. We have considered the rival submission and perused the record. It is a fact that M/sMack StarMarketingPvt.Ltd was a joint venture of M/s Ocean Deity Investment Holding Ltd. and the Indian Companies owned and controlled by Sarang Wadhawan and Rakesh Wadhawan, the promoters of HDIL. An FIR was registered by CBI in respect of certain loan advanced by Yes Bank Ltd. to M/sMack Star Marketing Pvt. Ltd. The allegation therein was made by  M/s Mack Star Marketing Pvt. Ltd against Sarang Wadhawan and Rakesh Kumar Wadhawan for taking loan from Yes Bank fraudulently for renovation of structure known as “Kaledonia”. No renovation was required for a newly constructed building. The loan amount was diverted back to Yes Bank for settling dues of the company owned and controlled by Wadhawans which includes HDIL. In the FIR, no reference of the sale of seven commercial premises were made. In fact, the M/s Mack Star Marketing Pvt. Ltd had not registered a criminal case against the appellant in reference to seven commercial premises in “Kaledonia”. They rather filed a commercial suit to challenge the sale of seven  commercial premises in “Kaledonia” to the appellant holding M/s Sunlight Housing Development Pvt. Ltd. The said commercial suit was decreed on a settlement between the appellant and M/s Mack Star Marketing Pvt. Ltd. The appellant transferred back five commercial premises and for remaining two commercial premises, the consideration was paid. No grievance remain with the M/s Mack Star Marketing Pvt.Ltd. and has been admitted by counsel who appeared for them. They rather submitted that attachment of the properties of the appellant and also of M/s Mack Star Marketing Pvt. Ltd. is illegal.

18. In view of above, no grievance was left with the M/s Mack Star Marketing Pvt. Ltd and is reflected from the fact that they sent a letter to the respondent No. 1on 22.03.2021 informing about the consent decree dated 16.03.2021 and thereby no issue left against the appellant.

19. The relevant para 07 of the letter is referred hereunder:

“7.In discharge of the undertaking of Ocean Deityand Mack Star contained in paragraph 7of the Consent Terms, which are undertakings given to the Hon’ble High Court as per paragraph 3 of the Order, kindly note that Ocean Deity and Mack Star unequivocally and categorically state and submit that they do not have any subsisting civil dispute or criminal complaint what so ever against Sunlight, and/or it saff iliates, and/or their Promoters/Directors and the same standami cably settled in terms of the Consent Terms.”

20. Despite of the aforesaid letter, respondent made a search on the residential premises of the appellants, Mukesh Doshi and Kaushal Doshi where Rs. 1,40,00,000/- (One crore and forty lakh) was found in cash and accordingly seized by the respondent no. 1. A Panchnama was also prepared. The source of the amount has been furnished and is as under:-

21. Even on recovery of the cash, no separate FIR was lodged or shown to be out of any predicate offence. The movable or immovable property could have been termed to be the proceeds of crime, if it would have been out of the crime committed by the appellant or even by others, thus can be attached or it can be the property of equivalent value to the proceeds of crime, if proceeds are not available. To be the proceeds of crime, there remains necessity of the commission of crime either by the appellant or by others and proceeds to be out of it. In this case, the respondent could not clarify as to how attached property is a proceeds of crime or is for the equivalent value when no FIR or ECIR has been registered for sale of seven commercial premises.

22. In the FIR for commission of fraud by Yes Bank and Wadhawans, promoters of HDIL, no reference of the sale of seven commercial properties of “Kaledonia” has been given. It could not be clarified by the counsel for the respondent No. 1 as to how two flats attached along with cash can be termed to be the proceeds of crime or for value thereof when no predicate offence exists in relation to the sale of seven commercial premises. The learned counsel for the respondent No. 1 has made a reference of the fraud made by the Yes Bank and Wadhawans in obtaining the loan of Two hundred Crores but could not show any relation of the said fraud with  the sale of seven commercial premises of “Kaledonia” to M/s Sunlight Housing Development Pvt. Ltd. and to the appellant. It is more so when the FIR was registered the the CBI when the M/s Mack Star Marketing Pvt. Ltd was taken over by the foreign entity M/s Ocean Deity Investment Holding Ltd. and found that the Wadhawans, while managing the affairs of M/s Mack Star Marketing Pvt. Ltd. had committed a fraud along with the Yes Bank in securing the loan in the name of the M/s Mack Star Marketing Pvt. Ltd. for renovation of “Kaledonia”.

23. The M/s Mack Star Marketing Pvt. Ltd has never made any allegation against the appellant for commission of offence. Rather, they filed a suit for cancellation of sale deed of seven commercial premises of “Kaledonia”. The matter was finally settled between the appellants and the M/s Mack Star Marketing Pvt. Ltd it self.

24. Thus, we are unable to satisfy ourselves on the argument of the respondent to endorse the orders under challenge. Rather, we find that no predicate offence has been alleged against the appellants or others for purchase of seven commercial premises of “Kaledonia” and accordingly there is no ECIR. All these aspects have been ignored by the Adjudicating Authority while quoting the reply to the show cause notice of the appellant and rejoinder of the respondent number 1. The confirmation of attachment has been made without proper consideration and discussions of the issues raised by the appellants.

25. So for the cash of Rs. 1,40,00,000/- (One crore and forty lakh) found at the time of search, the position of the fact remains the same. The respondent no. 1 could not relate the aforesaid amount with the FIR registered by the CBI in regard to fraud of the loan amount of 200 crores by the Yes Bank.

25. In the light of the aforesaid, what we find is that attachment of movable or immovable property of the appellants has been made without having reasons to believe and a predicate offence in reference to the appellant for purchase of seven commercial properties of “Kaledonia”.

26. The detail was furnished by the appellants to show from where cash was received and has been quoted in the order. In any case, no material exist to show it to be proceeds of crime.

27. The appeal has been filed by the party against whom show cause notice was issued by the Adjudicating Authority. It was not against the M/s Crystal Pride Developers and Mrs. Dhwani Doshi. In fact without a notice to them, the proceeding itself could not have been taken for attachment of the property. It is by issuing notice to the appellant only. The argument of the respondent no. 1 in regard to challenge of the order only by one partner can not be accepted when others were not given the notice for attachment of the property.

28. In the light of the aforesaid, we find reasons to cause interference in the impugned orders and accordingly, order of the Adjudicating Authority so also the order of the provisional attachment are set aside.

29. The appeals are allowed with the aforesaid.