SAFEMA Tribunal Upholds PMLA Attachment of Ahmedabad Bungalow Bought in Bank Auction

The Appellate Tribunal under SAFEMA, New Delhi, has dismissed the appeal of Alive Hospitality & Foods Pvt. Ltd. against the confirmation of attachment of "Jay Bungalow", a residential property at Ishavashyam Society, Vastrapur, Ahmedabad. The company had acquired the bungalow for Rs. 2.15 crores in a bank auction. The decision deals with several recurring questions under the Prevention of Money Laundering Act, 2002 (PMLA): what amounts to "reason to believe", whether an offence that became a scheduled offence only later can support an attachment, how a money trail is tested at the attachment stage, and when possession may be taken of an attached property.

Background of the case

The matter began with a charge sheet (No. 13 dated 26.11.2009) filed by the Bank Security and Fraud Cell of the CBI, Mumbai, in FIR No. RC 1(E)2008/CBI/BS&FC/Mumbai dated 31.01.2008. It named M/s Vishal Exports Overseas Ltd. (VEOL), its then Managing Director Sh. Pradeep S. Mehta, its Joint Managing Director Sh. Deepak Mehta and others. The charge sheet alleged that VEOL had misused credit facilities from Punjab National Bank (corporate loan, packing credit, ad-hoc packing credit, short-term corporate loan and foreign bill discounting) and, with forged and fabricated documents, caused a loss of Rs. 106 crores to that bank. Four banks in all (Andhra Bank, Punjab National Bank, Vijaya Bank and UCO Bank), along with NAFED, were said to have been defrauded. The offences cited were under Section 120B read with Sections 420, 467 and 471 of the IPC and Section 13 of the Prevention of Corruption Act, 1988.

When the loans were not repaid, the banks took over mortgaged properties under the SARFAESI Act, and a consortium led by the State Bank of India auctioned them. Two buyers emerged: M/s JMD Media (P) Ltd. and the present appellant, which bought Jay Bungalow for Rs. 2.15 crores. The Directorate of Enforcement (ED) case was that both buyers were front companies of Pradeep Mehta and his associates and paid for the properties with money drawn from the banks by fraud. The appellant maintained that it was a bona fide third-party purchaser using its own clean funds.

What the ED found on its investigation

According to the ED's complaint, as recorded by the Tribunal: