The Calcutta High Court affirms that property used to secure fraudulent credit facilities and later subjected to cash‐based share transfers violating tax laws remains “proceeds of crime,” upholding the Enforcement Directorate’s jurisdiction. This decision reaffirms existing PMLA principles governing corporate façade transactions and serves as binding authority in ED investigations.
Summary
| Category | Data |
|---|---|
| Case Name | CRA (DB)/395/2024 of M/S RUPDARSHI TEXTILES PVT. LTD. AND ANOTHER Vs DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT AND OTHERS |
| CNR | WBCHCA0611292024 |
| Date of Registration | 21-12-2024 |
| Decision Date | 29-08-2025 |
| Disposal Nature | DISMISSED |
| Judgment Author | Hon’ble Justice Debangsu Basak |
| Concurring or Dissenting Judges | Hon’ble Justice Md. Shabbar Rashidi (concurring) |
| Court | Calcutta High Court |
| Bench | Division Bench of Justice Debangsu Basak and Justice Md. Shabbar Rashidi |
| Ratio Decidendi |
The Court concluded that the immovable property mortgaged by the company to secure credit facilities—later found unpaid due to alleged shareholder fraud—qualifies as proceeds of crime under the PMLA. The subsequent transfer of majority shareholding from the Baid family to appellant 2 via large cash payments violating the Income Tax Act amounted to a money‐laundering process. The appellants’ failure to comply with court‐ordered document production reinforced the inference of façade transactions designed to extract the property from ED proceedings. Consequently, the property remained subject to ED investigation and the appeal was dismissed. |
| Facts as Summarised by the Court |
The company purchased an immovable property in 2009, mortgaged it to a bank for loans obtained by the then Baid‐family shareholders who later defaulted. In January 2012, those shareholders transferred their majority stake to appellant 2 through substantial cash payments that violated tax provisions. The Enforcement Directorate initiated a PMLA investigation, and the appellants failed to furnish documents despite court directives. The High Court found these transactions a scheme to launder the property and dismissed the appeal. |
What’s New / What Lawyers Should Note
- Share transfers effected through large cash payments in violation of the Income Tax Act, combined with an unrepaid mortgage used to commit fraud, constitute a money‐laundering process under the PMLA.
- An immovable property mortgaged to obtain credit facilities that remain unpaid continues to be “proceeds of crime” and cannot be released from ED proceedings despite subsequent changes in shareholding.
- Non-compliance with court orders to produce original documents supports an inference of façade transactions aimed at evading PMLA investigations.
- Significant revaluation of the same property between acquisition and mortgage does not alter its character as proceeds of crime when used in furtherance of alleged financial fraud.
Summary of Legal Reasoning
- The Court examined the mortgage transaction: the property was mortgaged by original shareholders to secure loans subsequently defaulted on, evidencing alleged fraud.
- It analysed the share transfer: a January 2012 transaction transferring Baid‐family shares to appellant 2 by cash payments exceeding permissible limits under the Income Tax Act.
- Upon directing document production, the Court noted the appellants’ failure to comply with orders dated August 13, 2025 and August 14, 2025, undermining their defence.
- Applying PMLA principles, the Court held that both the fraudulent loan and the cash‐based share transfer constitute parts of a money‐laundering scheme and affirm the property as proceeds of crime.
- In the absence of any material to disentangle the property from the alleged laundering process, the appeal and connected applications were dismissed.
Arguments by the Parties
Petitioner (Appellants)
- The appellants are neither connected with nor concerned by the alleged bank fraud committed by the erstwhile shareholders.
- They did not receive any proceeds of the alleged crime.
- The immovable property owned by the company cannot be treated as proceeds of crime, and all proceedings against them and the property should be dropped.
Respondent (Enforcement Directorate)
- The property was mortgaged by former shareholders to secure credit facilities that were never repaid, constituting fraud on the bank.
- The cash‐based share transfer violating tax laws forms part of a money‐laundering process under the PMLA.
- Materials on record, including affidavits, justify continued investigation of the appellants and the property.
Factual Background
- In 2009, the appellant company acquired an immovable property and mortgaged it to a bank to secure credit facilities obtained by then shareholders from the Baid family.
- Those shareholders allegedly defrauded the bank and defaulted on repayment.
- In January 2012, the Baids sold their majority shareholding to appellant 2 through substantial cash payments violating the Income Tax Act.
- The Enforcement Directorate, treating the property as proceeds of crime under the PMLA, initiated proceedings against the appellants and directed document production.
- The appellants failed to produce the original documents, and the High Court held the property and share transfer constituted money laundering, dismissing their appeal.
Statutory Analysis
- The share transaction in cash violated provisions of the Income Tax Act, indicating tax evasion.
- Under the PMLA framework applied by the Enforcement Directorate, property used to secure fraudulent bank loans and subsequent façade transactions in share transfer qualify as proceeds of crime subject to investigation.
Dissenting / Concurring Opinion Summary
Justice Md. Shabbar Rashidi concurred without additional observations, agreeing with the findings and order of Justice Debangsu Basak.
Alert Indicators
- ✔ Precedent Followed – The decision reaffirms established PMLA principles regarding proceeds of crime and façade corporate transactions.