Calcutta HC Upholds ED Probe on Immovable Property Mortgaged against More than 1 Cr share Transaction as amounts to crime of Money Laundering Offence [Read Order]

In a recent case, the Calcutta High Court upheld the Investigation of Enforcement Directorate (ED) on immovable property mortgaged for repayment of more than 1 crore share transaction. It was viewed that the transaction of transfer of shares in the appellant no.1 is a process in the money laundering. The property cannot come out from the process of the investigations of the Enforcement Directorate.

Rupdarshi Textiles Pvt. Ltd. & Anr’s appeal is at the behest of a company and one of its shareholders. Appellant no.2 claims himself to the majority shareholder and Director of the appellant no.1. The Appeal is directed against the order dated November 20, 2024 passed in FEO Case No.1 of 2023.

Senior Advocate appearing for the appellants submitted that, appellant no.1 is the owner of an immovable property. Such property was purchased in the year 2009. Property was subsequently mortgaged with the bank. Apparently, the erstwhile shareholders of the appellant no.1 committed alleged fraud on the bank. The respondent is seeking to proceed against those individuals. Appellants are neither connected nor concerned with such fraud allegedly committed by the erstwhile shareholders with the bank. Appellants are not recipient of a proceed of crime.

The immovable property owned by the appellant no.1 cannot be treated as proceeds of the crime. Consequently, all proceedings as against the appellants and the property should be dropped.

Appellant no.1 owns the immovable property. Such immovable property was mortgaged with a bank for the purpose of obtaining loan. Shareholders of the appellant no.1 at that point of time when the loan transaction took place consisted of the family of Baid. Appellant no.2 claims to purchase the majority shareholding in the appellant no.1 from Prem Prakash Baid, father of the accused in the investigations. The share transactions between the Baids and the present shareholder took place allegedly in January 2012.

The appellant no.1 owns an immovable property was mortgaged for the purpose of repayment of the credit facilities obtained by the then shareholders and Directors of the appellant no.1.

There is no material to suggest that the entirety of the claim of that bank or the financial institution in respect of the credit facilities extended stands satisfied. The documents transpired that, shares belonging to the Baids are shown to be transferred to the present shareholders in respect of the appellant no.1, on the basis of cash transaction. The quantum of consideration in cash shown for the share transfer were allegedly paid in cash. The quantum of cash payment are such that it violates the provisions of Income Tax Act.

It was found that the immovable property which the appellant no.1 owns, was initially valued at Rs. 9 Lakh and odd. It was subsequently revalued in excess of Rs.1 Crore while mortgaging it with the bank. Subsequent to the mortgage, the shares of the company is sought to be transferred to others, for few lakhs. In fact, the entire consideration, if added, is unlikely to exceed Rs. 15 lakhs.

There are sufficient materials on record to place the appellants under investigations. Materials suggest that, under the facade of the appellant no.1, the actual persons are manipulating the process for the purpose of extracting an immovable property from out of the proceedings of the Enforcement Directorate. The immovable property concerned is no doubt, a proceeds of a crime as it was utilized for the purpose of committing the crime.

A division bench of Justice Debangsu Basak and Justice Md. Shabbar Rashidi observed that the immovable property was mortgaged to obtain credit facilities which were never repaid. Accused is still absconding India. Yet such accused transferred the majority shareholding to the appellant no.2.

It was viewed that the transaction of transfer of shares in the appellant no.1 is a process in the money laundering involved. The property cannot come out from the process of the investigations of the Enforcement Directorate.

Further held that the original documents, which were directed to be kept with the learned advocate on record for the appellants are permitted to be returned to the appellants.

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