Properties Acquired Through Legitimate Means, Prior to Crime, Cannot Be Attached as Proceeds of Crime: SAFEMA Appellate Tribunal - 2025-04-14

Delhi Tribunal Upholds Property Rights: Sets Aside Attachment in PMC Bank Fraud Case

New Delhi, March 10, 2025 – In a significant ruling, the Appellate Tribunal under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act (SAFEMA) has overturned an order attaching properties linked to the PMC Bank fraud case. The bench, comprising Justice Munishwar Nath Bhandari (Chairman) and Shri Balesh Kumar (Member), allowed the appeals filed by Ms. Romy Mehra and M/s Libra Hotels Pvt. Ltd., setting aside the Adjudicating Authority's confirmation of property attachment under the Prevention of Money Laundering Act (PMLA).

Case Background: Allegations of Money Laundering

The Directorate of Enforcement (ED) initiated investigations following a massive fraud at the Punjab & Maharashtra Cooperative Bank (PMC Bank). A complaint alleged that key bank officials and promoters of Housing Development Infrastructure Ltd. (HDIL) orchestrated a scheme causing a wrongful loss of ₹4355 crores to the bank. Subsequently, properties belonging to Ms. Mehra and Libra Hotels, including three hotel properties in New Delhi, were provisionally attached by the ED, claiming them to be proceeds of crime derived from the alleged bank fraud.

Arguments Presented: Legitimate Sources vs. Proceeds of Crime

Appellant's Counsel , Mr. Abhimanyu Bhandari and associates, argued that Ms. Mehra and Libra Hotels were not accused in the original FIR and the attached properties had no nexus to the alleged crime. They emphasized that Ms. Mehra acquired full ownership of the properties through legitimate means, primarily from the sale of shares in HDIL, which she received as a gift from her mother in 2007, well before the PMC Bank fraud surfaced in 2019. The consideration for these property acquisitions was demonstrably paid in 2009. It was highlighted that these shares were transferred to both daughters of Ms. Damyanti Wadhawan, but only Ms. Mehra's assets were targeted.

Respondent's Counsel , Shri Priyank Khattar, representing the ED, contended that the property transfers were a ploy by Mr. Rakesh Wadhawan, a key accused in the PMC Bank fraud, to shield his assets from attachment. The ED questioned the absence of a formal gift deed for the HDIL shares and argued that the funds used by Ms. Mehra were essentially Mr. Wadhawan's routed through her. They pointed to outstanding loans from PMC Bank to companies previously linked to the properties.

Tribunal's Reasoning: Focus on Source of Funds and Timeline

The Appellate Tribunal meticulously examined the evidence and arguments. A key aspect of the Tribunal’s finding was the acceptance of Ms. Mehra's claim that the HDIL shares were genuinely gifted by her mother in 2007. The Tribunal noted the ED's failure to explain why the sister of Ms. Mehra, who also received similar shares, was not subjected to similar action.

The Tribunal underscored that the sale of these shares and the subsequent property acquisitions occurred in 2009 and 2015, significantly prior to the registration of the FIR in 2019. The judgment highlights a pivotal excerpt:

> "The facts on record shows that mother Damayanti transferred 11,57,000/- shares of HDIL to the appellant Romy Mehra in the year 2007. It was not that those shares were held by Rakesh Wadhawan but was of her mother... If those shares belonged to accused Rakesh Wadhawan, then why the ED has not attached the shares of other sister could not be clarified."

Furthermore, the Tribunal addressed the ED's argument regarding loans linked to companies previously owning one of the properties. The Tribunal clarified that once the properties were sold through registered deeds for consideration, they ceased to be assets of those companies. Attaching Ms. Mehra’s legitimately acquired properties for the loan defaults of separate corporate entities was deemed legally untenable. The Tribunal stated:

> "Once the property was sold by the Companies, it no more remained in their hands so as to be attached towards the default of the company in repayment of loan amount because the company remains as a separate entity than that of the individual."

Final Order and Implications

Ultimately, the SAFEMA Appellate Tribunal concluded that the attached properties were not "proceeds of crime" under the PMLA as Ms. Mehra had demonstrably shown legitimate sources for their acquisition, predating the alleged criminal activity. The Tribunal set aside both the provisional attachment order and its subsequent confirmation, granting significant relief to the appellants.

This judgment reinforces the principle that properties acquired through legitimate and disclosed sources, especially prior to the alleged commission of a crime, cannot be readily classified as "proceeds of crime" and subjected to attachment under the PMLA. It also underscores the importance of establishing a direct nexus between the property and the alleged criminal activity in order to justify attachment under the Act.