M/s Flag Industries India Pvt. Ltd. vs The Deputy Director Directorate of Enforcement Mumbai.

Headnote:(A) Prevention of Money Laundering Act, 2002 - Sections 26, 8(1), 50 - Insolvency and Bankruptcy Code, 2016 - Section 14 - IBC moratorium does not bar proceedings under PMLA for attachment of proceeds of crime - Proceeds of crime can be attached even during insolvency resolution process - A person involved in money laundering cannot be allowed to enjoy fruits of proceeds of crime to ward off civil indebtedness. (Paras 22-23)

(B) PMLA - Attachment of property - Loan disbursed from proceeds of crime - Diversion of loan amount to third parties - Even if loan was sanctioned for a project, diversion for other purposes amounts to money laundering - Attachment of equivalent value property justified - Appellant’s own pleading showed loan sanctioned and disbursed on same date as alleged diversion, contrary to argument. (Paras 15-21)

(C) Evidence - Party cannot contradict own pleadings - Argument based on incorrect facts not permissible - Order of Special Court based on mistaken facts and under challenge not binding on Tribunal. (Paras 15-19)

Facts of the case:
An appeal was filed under Section 26 of the Prevention of Money Laundering Act, 2002 challenging an order confirming provisional attachment of shares held by the appellant company. The attachment related to a loan of Rs.678 crores disbursed by a housing finance company to the appellant for a real estate project. Allegations included that the loan was part of proceeds of crime from a larger conspiracy involving a bank and the housing finance company, and that the appellant diverted Rs.115 crores to another company for purchasing shares of the housing finance company to manipulate its stock price. The appellant argued that the loan was disbursed after the alleged diversion, that proceedings under the Insolvency and Bankruptcy Code (IBC) barred PMLA action due to moratorium, and that a Special Court had refused to take cognizance against the appellant.

Findings of Court:
The Tribunal found that the appellant’s own pleadings admitted that the loan was sanctioned and partly disbursed on the same date as the alleged diversion, contradicting its argument. The order of the Special Court was under challenge and based on incorrect facts, hence not binding. The IBC moratorium does not bar PMLA proceedings, as settled by judicial precedents. The diversion of loan funds for purposes other than the sanctioned project constituted money laundering, and attachment of equivalent value property was valid. The appeal was dismissed.

Issues: The main issues were whether the attachment of shares was valid given the timing of loan disbursement and alleged diversion, whether IBC proceedings preclude PMLA attachment, and whether the order of the Special Court estopped the attachment.

Ratio Decidendi: The court ruled that the appellant could not rely on facts contrary to its own pleadings; the IBC does not override PMLA regarding proceeds of crime; attachment of property equivalent to proceeds of crime is permissible even during moratorium; and an order of a Special Court based on incorrect facts and under challenge does not bind the Tribunal. Result : Appeal dismissed.

Legal Category Hierarchy

1. Appeal under Section 26 PMLA challenging confirmation of provisional attachment order. (Para 1 )

2. Appellant disputed temporal link and relied on Special Court order; respondent asserted factual errors and IBC non-bar. (Para 6 , 7 , 8 , 9 , 12 )

3. Appeal dismissed; attachment order confirmed. (Para 24 )

4. Can a temporal discrepancy between loan disbursement and alleged proceeds of crime be used to challenge attachment under PMLA?

No, when the appellant's own pleadings show the disbursement occurred on the same date as the loan sanction, the temporal argument fails. (Para 14 , 15 , 18 , 19 )

5. Is an order of a Special Court refusing cognizance of a scheduled offence binding on the PMLA Tribunal?

No, if the order is under challenge and appears based on incorrect facts, the Tribunal is not bound by it. (Para 21 )

6. Does a moratorium under Section 14 of the Insolvency and Bankruptcy Code bar attachment proceedings under the Prevention of Money Laundering Act?

No, PMLA proceedings are not precluded by IBC moratorium; the two enactments operate in distinct spheres and PMLA takes precedence over proceeds of crime. (Para 22 , 23 )

7. Can property of a company be attached under PMLA for proceeds of crime when the predicate offence involves an individual beneficial owner?

Yes, if the company received and diverted loan proceeds that were part of the money laundering scheme, its property is attachable. (Para 24 )

FINAL ORER

18.08.2025

FPA-PMLA-5775/MUM/2023

By this appeal under Section 26 of the Prevention of Money Laundering Act, 2002 (in short `the Act of 2002’), a challenge has been made to the order dated 27.01.2023 passed by the Adjudicating Authority confirming the Provisional Attachment Order dated 02.08.2022.

2. It is a case where an FIR was registered by the Central Bureau of Investigation (CBI), Economic Offence, New Delhi on 07.03.2020 for the offence under Section 120-B read with Section 420 IPC and Sections 7, 12,13 (2) read with 13(1)(d) of the Prevention of Corruption Act, 1988. It was alleged that Mr. Rana Kapoor, former Promoter Director & CEO of Yes Bank, misused his official position and obtained undue pecuniary advantage in conspiracy with Kapil Wadhawan and Dheeraj Wadhawan of M/s DHFL by investing Rs. 3,700 Crores in short-term debentures of M/s DHFL and Rs.283 Crore in Masala Bonds. Mr. Rana Kapoor received a kickback of Rs. 600 Crores from M/s DHFL in the garb of loan to the company M/s DOIT Urban Ventures (India) Pvt. Ltd. jointly owned by his daughters. M/s DHFL failed to redeem the debentures, rather laundered and siphoned off the money and accordingly the ECIR was recorded by the respondent ED.

3. The allegation is that Mr. Rana Kapoor of Yes Bank diverted public fund into M/s DHFL to the tune of Rs. 3983 Crores. Kapil Wadhawan of M/s DHFL thereupon diverted Rs. 2317 Crores (Rs.1100 Crore+Rs.439 Crore+Rs.678 Crore+Rs.100 Crore) to the entities of which beneficial ownership was with Mr. Sanjay Chhabria. It was in the name of development of project “Avenue-54” at Santacruz.

4. The allegation was further diversion of Rs.678 Crores to M/s Flag Industries India Pvt. Ltd. (appellant herein). It was given for construction of the Club House in 'Avenue-54' Project. The project for which the loan was sanctioned is still incomplete and the account became Non Performing Asset (NPA). Out of the aforesaid fund, an amount Rs. 115 Crores was illegally and fraudulently diverted by Mr. Sanjay Chhabria to M/s Mentor Capital Ltd. of Mr. Sanjay Dangi. The diversion of the aforesaid fund was on the direction of Kapil Wadhawan without any genuine business transaction but to create an impression of genuine business transaction, a sham agreement was executed on 23.10.2018 though the amount of Rs.115 Crores was disbursed on 24.09.2018 itself. The sham agreement was for buying development rights in one property at Bangalore. The amount of Rs. 115 Crores was otherwise diverted by Mr. Sanjay Chhabria to M/s Mentor Capital Ltd. and used by Mr. Sanjay Dangi for buying the shares of M/s DHFL to stop further fall in the share price.

5. It was further alleged that the loan of Rs.678 Crores was not sanctioned in usual course of business and otherwise it was without proper security. Mr. Rajendra Mirashie, President (Project Finance) of M/s DHFL in his statement under Section 50 of the Act of 2002 admitted that loan to the maximum permissible limit of Rs.2000 Crore to Radius Group of Sanjay Chhabria had been sanctioned yet the loan of Rs.678 Crore was sanctioned to the appellant company beneficially owned by Mr. Sanjay Chhabria through his employees Mr. Jayesh Khandelwal & Ms. Tarannum Merchant but was not a part of his Radius Group. The loan of Rs.678 Crores was sanctioned by Kapil Wadhawan without placing it before M/s DHFL’s Project Finance Team or Finance Committee and without any proper security. Therefore, in order to secure the amount of Rs.678 Crores, 2500 shares of M/s United Estate Builders and Developers Ltd. held by the appellant company have been attached for value equivalent to the proceeds.

Arguments of counsel for the appellant:

6. The learned counsel for the appellant has given brief facts pertaining to the incorporation of the appellant company and thereupon shareholding with different persons which includes the Team Merchant Jayesh Khandelwal and also of Sanjay Chhabria. The learned counsel for the appellant submitted that the term lo

Click Here to Read the rest of this document

2025 Supreme(Online)(ATFP) 13287

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
Munishwar Nath Bhandari, Chairman, V. Anandarajan, Member
M/s Flag Industries India Pvt. Ltd. – Appellant
Versus
The Deputy Director Directorate of Enforcement Mumbai. – Respondent
FPA-PMLA-5775/MUM/2023

The Prevention of Money Laundering Act prevails over the Insolvency and Bankruptcy Code regarding attachment of proceeds of crime, and a party cannot rely on facts contrary to its own pleadings.

Legal Category Hierarchy

Table of Contents

4. Can a temporal discrepancy between loan disbursement and alleged proceeds of crime be used to challenge attachment under PMLA?

5. Is an order of a Special Court refusing cognizance of a scheduled offence binding on the PMLA Tribunal?

6. Does a moratorium under Section 14 of the Insolvency and Bankruptcy Code bar attachment proceedings under the Prevention of Money Laundering Act?

7. Can property of a company be attached under PMLA for proceeds of crime when the predicate offence involves an individual beneficial owner?

2025 Supreme(Online)(ATFP) 13287

APPELLATE TRIBUNAL FOR FORFEITED PROPERTYMunishwar Nath Bhandari, Chairman, V. Anandarajan, MemberM/s Flag Industries India Pvt. Ltd. – AppellantVersusThe Deputy Director Directorate of Enforcement Mumbai. – RespondentFPA-PMLA-5775/MUM/2023

The Prevention of Money Laundering Act prevails over the Insolvency and Bankruptcy Code regarding attachment of proceeds of crime, and a party cannot rely on facts contrary to its own pleadings.

Legal Category Hierarchy

Table of Contents

4. Can a temporal discrepancy between loan disbursement and alleged proceeds of crime be used to challenge attachment under PMLA?

5. Is an order of a Special Court refusing cognizance of a scheduled offence binding on the PMLA Tribunal?

6. Does a moratorium under Section 14 of the Insolvency and Bankruptcy Code bar attachment proceedings under the Prevention of Money Laundering Act?

7. Can property of a company be attached under PMLA for proceeds of crime when the predicate offence involves an individual beneficial owner?

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
Munishwar Nath Bhandari, Chairman, V. Anandarajan, Member
M/s Flag Industries India Pvt. Ltd. – Appellant
Versus
The Deputy Director Directorate of Enforcement Mumbai. – Respondent
FPA-PMLA-5775/MUM/2023