Allowed

FPA-PMLA-2948/MUM/2019 of Alchemist Asset Reconstruction Co. Ltd. v. The Deputy Director Directorate of Enforcement, Mumbai

ATFP19 May 2025FPA-PMLA-2948/MUM/2019

Case brief

AI extract

What is this about?

In this PMLA appeal, the appellant assignee challenged the attachment of mortgaged properties assigned to it. The Appellate Tribunal held the Ed should track the siphoned funds first but permitted the appellant to stake a claim before the Special Judge for auction sale of the property as a secured creditor, with excess proceeds deposited in FDR.

What did the court decide?

Liberty granted to stake claim before Special Judge for auction sale of mortgaged immovable property as secured creditor; excess proceeds to be deposited as FDRs.

FPA-PMLA-2948/MUM/2019 of Alchemist Asset Reconstruction Co. Ltd… — Money Laundering | ATFP (2025)

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APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

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FPA-PMLA-2948/MUM/2019

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Alchemist Asset Reconstruction Co. Ltd.

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… Appellant

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Versus

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The Deputy Director Directorate of Enforcement, Mumbai

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… Respondent

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Advocates/Authorized Representatives who argued

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For the Appellant: Ms. Varsha Banerjee, Adv. Ms. Mahima Ahuja, Adv. For the Respondent: Mr. Pankaj Pandey, Adv.

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CORAM

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SHRI G.C. MISHRA : MEMBER SHRI RAJESH MALHOTRA : MEMBER

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FINAL ORDER 19.05.2025

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Dictated by: Rajesh Malhotra

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Present appeal under Section 26 of Prevention of Money Laundering

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Act, 2002 (PMLA) is filed by the Appellant Alchemist Asset Reconstruction Company Ltd. against the Order dated 04.01.2019 passed by the Adjudicating Authority in Original Complaint No. 1008/2018 (OC), whereby the properties of the accused persons including the mortgaged properties assigned to the present Appellant (vide Assignment Deed dated 12.01.2016) were confirmed for attachment. The details of the said mortgaged property is

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as under:

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Sr.	Description of property	Sub-Description	Valued as on	Extent of
No.		of Property	27.03.2014. (₹.)	Proceeds ofCrime
1.	Land & Building of Plant of M/s NCS Sugars Ltd. situated at Village: Lachhayapat, BobbiliMandal, District- Vizianagaram, Andhra Pradesh	i) Land ii) Building	31,92,80,000 22,58,33,194	47,30,00,000/-
		Total	54,51,31,194	47,30,00,000/-

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As per the facts of the case, on complaint from an investor, MRA Marg Police Station, Mumbai registered an FIR No. 216/13 dated 30.09.2013 for commission of offences Section 120-B IPC r/w 409, 465, 467, 468, 471, 474, 477-A of IPC and substantive offences thereunder. After transfer of investigation to EOW, Mumbai Police, the said FIR has been renumbered as CR No. 89 of 2013. The complainant stated that he had been induced into

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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making investments by false representations and assurances given by the promoters and senior management of National Stock Exchange Limited (NSEL) with a deliberate intention to dishonestly misappropriate his funds and had been cheated by NSEL with practically little hope for recovery of the amounts on the contracts. He was cheated by NSEL by creating a false impression of being a proper Spot Exchange with correct risk management systems in order to induce him to trade and deliberately mislead that their trades were backed by genuine ware house receipts. The sellers desirous to sell/buy through NSEL have to compulsorily deliver the commodity in the NSEL designated warehouse of a particular location specified in the Exchange Circular. However, it was ascertained that the certified warehouses of NSEL lacked capacity and some of them had no stocks. Thus, the genuine investors were defrauded of their investments by way of serious misappropriation from the fact that NSEL allowed trading on commodities by sellers, without ensuring goods of appropriate quantity and quality stored in the exchange-controlled warehouses, which resulted in thousands of investors trading in non-existent goods.

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The said FIR was filed against Directors and Key Management persons of NSEL, M/s Financial Technologies India Ltd. (FTIL – now known as M/s 63 Moon Technologies Ltd.), 25 borrowers/trading members of NSEL including M/s NCS Sugars Ltd. & its directors.

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Accordingly, the Directorate of Enforcement, Mumbai Zonal Office recorded ECIR/MZO/14/2013 dated 14.10.2013 for initiating investigation for the offence of money laundering under the provisions of the Prevention of Money Laundering Act, against accused persons including the entity i.e. M/s NCS Sugars Ltd.

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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On enquiry, it was gathered that NSEL was incorporated in 2005. The controlling shareholder of NSEL is M/s Financial Technologies (India) Ltd. (FTIL) holding 99.99% of the shareholding of NSEL. The exchange offered an electronic platform for compulsory delivery-based spot contracts in various agricultural and non-agricultural commodities. The basic idea was to provide a place where farmers, traders, corporate, processors, planters, manufacturers and importers can sell and buy their commodities at the best possible and competitive rates. NSEL undertook to provide services like quality certification, storage of goods, and other customized value-added services. NSEL allowed trades by various contracts and with settlement cycle ranging from T+0 to T+36 days. Contracts were settled by delivery and payment after trade date referred herein above as “T”. There were some contracts of the same commodity wherein members enter into a buy contract in T+1, T+2, T+3 and simultaneously enter into reverse contract in T+25 or T+34 or T+36. The Plant owner who needed funds against their stock inventory used to sell it on exchange platform on short duration contracts.

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The trades on NSEL platform were stopped on 31.07.2013 and the outstanding amount to be settled as on that day the exchange was to the tune of Rs. 5600 Crores. These funds included the NSEL charges of warehousing, financial charges, interests etc. The net funds outstanding on account of bogus trades affected on NSEL platform amounted to approx. Rs. 5600 Crores.

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Investigation revealed that funds were diverted from the settlement and client accounts by the defaulters to their company/firm accounts from where they were channeled to scores of other accounts including group company accounts, personal accounts, third party accounts, traders accounts, and accounts of fictitious companies/firms/persons. The funds

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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were then laundered either by way of merging it in their regular business activities or placing it in movable and immovable properties/assets.

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During the investigation in the matter, it was found that NSEL, it promoters, the senior management of NSEL and the 25 defaulters indulged in criminal conspiracy, cheating and collusion wherein NSEL allowed trading on commodities by sellers, without ensuring goods of appropriate quantity and quality stored in the exchange controlled warehouses which resulted in thousands of investors trading in non-existent goods and thereby genuine investors were defrauded of their investments by way of serious misappropriation.

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The investigation conducted in the matter under PMLA, 2002 has revealed that NSEL was acting as a platform for these defaulters and NSEL was earning in the process by levying various fees, charges & penalties viz. Application Processing Fees, Annual Subscription Fees, Delivery Fees Warehouse receipt transfer Charges, Procurement commission, Penalties on shortages, Penalty for trade cancellation, Loading and Unloading Charges, Penalty on UCC code change, Penalty on withheld demat units, Recurring Charges etc. and the gross income earned by NSEL from such paper transactions was Rs. 1112.03 Crores from 2008-09 to 2013-14. The trades executed by NSEL’s portal were rarely backed by the equivalent quantity of goods which was in knowledge of the NSEL executives. The said income earned by NSEL has been already attached by Directorate.

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Further investigation carried out by the Directorate of Enforcement, Mumbai Zonal Office in respect of one of the defaulters viz. M/s NCS Sugars Ltd. revealed that-

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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a) The funds were received in the settlement account no. 00990680024800 maintained with HDFC Bank of M/s NCS Sugars Ltd, Hyderabad from NSEL purportedly on account of sale of sugar through T+2 contracts; that the said funds were transferred to the client account no. 00210340005886 maintained with HDFC Bank of M/s NCS Sugars Ltd.; thereafter the said funds were transferred to the other bank accounts of M/s NCS Sugars Ltd. and also to the bank account of group companies of M/s NCS Sugars Ltd.; the funds so received from NSEL were utilized mainly towards repayment of bank loans obtained by M/s NCS Sugars Ltd. and its group companies, purchase of raw materials and working capital requirement of the plant of M/s NCS Sugars by way of transfers, NEFT/RTGS payments/ pay order.

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b) On Scrutiny of the documents submitted by NSEL, it is noticed that NSEL had paid Rs. 188.06 Crores to M/s NCS Sugars Ltd. during the period from 31.03.2012 to 31.07.2013 into their settlement account no. 00990680024800 maintained with HDFC Bank against their commodity i.e. Sugar sold through exchange in T+2 contracts whereas, M/s NCS Sugars Ltd. had paid Rs. 133.15 Crores to NSEL into their settlement account against the sugar bought through exchange in corresponding T+25 contracts. Thus, as on 31.08.2013, the net liability of M/s NCS Sugars towards NSEL was Rs. 54.91 Crores. As per NSEL, the total outstanding liability of M/s NCS Sugars Ltd. is Rs. 58.85 Crores towards NSEL on account of settlement of their T+25 contracts.

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c) Shri N. Nageswara Rao, Managing Director of M/s NCS Sugars Ltd. has in his statement dated 14.05.2015 and 19.05.2015 recorded u/s

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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50(2) & (3) of the PMLA, 2002 stated that M/s NCS Sugars Ltd. had sold sugar through contracts launched on the NSEL platform without having corresponding physical stock of the same; the said sale transactions were only paper transactions; the funds received from NSEL through such bogus sale transactions were diverted towards business needs, including purchase of raw material, payment of bank loans & interest, capital expenditure required for the plant, payment of taxes, etc.

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d) As per the report provided by Income tax authorities regarding verification of warehouses of M/s NCS Sugars Ltd,- “Discrepancies have been observed in the amount of stock as per NSEL data and that available physically in the warehouse. The quantity of stock (sugar, variety M-30) as per NSEL data (as on 6^th August, 2013) is 17.055 MT valued at Rs. 56,69,25,000/-. But the actual physical stock of sugar available in the warehouse situated at Sreethangaram Mandal, Vizinagaram District is only 18 quintals.” This fact substantiates the charge of EOW, Mumbi Police vide their abovementioned FIR that the defaulting members were fabricating the warehousing receipts.

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e) As on 31.08.2013, the gross liability of M/s NCS Sugars Ltd. and its group entities towards NSEL was to the tune of Rs. 58.85 crores. In view of the above, this entire amount of Rs. 58.85 crore appears to be proceeds of crime since the same has been obtained against the bogus sale transactions effected through NSEL in connivance with NSEL management and employees, thereby committing the scheduled offence i.e. criminal conspiracy and using bogus documents as genuine. Out of the said proceeds of crime, M/s NCS Sugars has returned 11.55 Crores to NSEL/Competent Authority under

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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NSEL/MPID till date. Thus, the gross liability of M/s NCS Sugars Ltd. towards NSEL is Rs. 47.30 Crores.

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The Above findings led to the fact that out of the proceeds of crime received by M/s NCS Sugars, a total amount of Rs. 26,56,32,188 (17,00,00,000 + 9,56,32,188) was utilized by M/s NCS Sugars for the purpose of settling loan availed earlier from various banks. Further, it was also found that proceeds of crime to the tune of Rs. 20,07,00,000 has been utilized by M/s NCS Sugars Ltd. for the purpose of making payment to cane farmers allegedly against supply of cane. Further, an amount of Rs. 47,48,800/- was utilized towards purchase of coal by M/s NCS Sugars Ltd. Remaining proceeds of crime obtained by M/s NCS Sugars Ltd. has been utilized for various business purposes of the company. Therefore, proceeds of crime to the tune of Rs. 47,10,80,988/- acquired by M/s NCS Sugars Ltd. from NSEL were utilized towards payment of loan of group companies, payment to cane farmers and payment for coal purchases.

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On the basis of the above FIR, ED recorded ECIR/MZO/14/2013 dated 14.10.2013 as the aforesaid offences/predicate offences as per schedule to the PMLA. Thereafter, ED initiated the investigation for the offence of money laundering and to trace out the proceeds of crime. During investigation ED recorded statements of various suspects/accused persons & others and also collected the documents from the various sources and search conducted at various premises. Investigation revealed the trail of proceeds of crime and it was found that the funds so received from NSEL were utilized mainly toward repayment of bank loans obtained by M/s NCS Sugars Ltd. and its group companies, purchase of raw materials and working capital requirement of the plant of M/s NCS Sugars Ltd. by way of transfers, NEFT/RTGS payments/pay orders.

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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A Prosecution Complaint No. 04/2015 has been filed by the Directorate against NSEL & 67 others before the Competent Special Court, PMLA, Mumbai on 30.03.2016 agaisnt NSEL, their Officials/Directors, 14 defaulter groups companies/entities and their directors/controllers. Further, another Prosecution Complaint bearing no. 04/2016 was also filed on 21.11.2016 against one of the defaulters i.e. M/s ARK Imports Pvt. Ltd. & Ors. Further, two more Prosecution Complaints have been filed in the matter before the Hon’ble Special Court against Financial Technologies India Ltd., parent company of NSEL, and Shree Radhey Trading Co. & Ors. which are also pending trial.

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On the basis of above incriminating material, statements on record collected during investigation, ED passed the PAO No. 11/2018 dated 13.07.2018 wherein the above-mentioned properties of the accused persons/ company were provisionally attached and thereafter filed the Original Complaint No. 1008/2018 dated 10.08.2018 before the Adjudicating Authority for confirmation of the said properties.

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The Adjudicating Authority being satisfied with the allegations made in the OC coupled with the statements recorded under Section 50 of PMLA and the relied upon documents, formed the reasonable belief and thereby issued the Show Cause Notice to all the defendants. After receiving the respective replies and hearing the rival submissions, the Adjudicating Authority confirmed the PAO vide its order dated 04.01.2019. Being aggrieved by the said order, appellant AARC filed the present appeal.

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During the arguments Ld. Counsel for the appellant AARC submitted that the Respondent No. 2 i.e. NCS Sugars Ltd. availed term loan from Andhra Bank in the year 2003, which was secured in favour of Andhra Bank since its inception. The said loans were sanctioned in favour of M/s NCS

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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Sugars Ltd. from consortium of banks, which included Andhra Bank & Global Trust Bank (merged with OBC). Later-on, Indian Overseas Bank was also included in the consortium. Furthermore, the credit facilities provided to the M/s NCS Sugars were enhanced from time to time. The same were secured in terms of the documents executed by M/s NCS Sugars Ltd. and its Guarantors mentioned in table at page no. 26 to 30. The said loan turned into NPA, an Assignment Deed dated 12.01.2016 was executed between Andhra Bank and the Appellant i.e. Alchemist Asset Reconstruction Company (AARC), in terms of which the loan of Andhra Bank was transferred to the Appellant ARC. In terms of the agreement, the appellant AARC acquired a prior charge over the assets mentioned at para no. 1 above, thereby, appellant have an outstanding claim to the tune of Rs. 242,15,36,599.15 against M/s NCS Sugars Ltd.

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Ld. Counsel for the appellant ARC submitted that the mortgaged property with the appellant ARC is not created by siphoning of the bank’s fund and the same needs to be appropriated towards the dues of the appellant AARC. Ld. Counsel for the appellant AARC submitted that the respondent ED has wrongly attached the aforesaid mortgaged & assigned property by giving it a color of tainted money or proceeds of crime by claiming that the aforesaid property mortgaged by the borrower M/s NCS Sugars Ltd. was obtained from the proceeds of crime. Respondent ED, however, has not provided any details or evidence regarding the aforementioned claim that the said properties have been purchased from the proceeds of crime/siphoned. In-fact, the aforementioned properties have been purchased much prior to the registration of the FIR and commission of schedule. Ld. Counsel for the appellant ARC contended that SARFAESI provisions will get precedence over provisions of PMLA.

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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Prayer is accordingly made to allow the present appeal and release the aforementioned mortgaged property assigned to the appellant AARC as mentioned at para no. 1 above.

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On the other hand, Ld. Counsel for the Respondent ED strongly opposed the contention of the Ld. Counsel for the appellant ARC and submitted that the properties were mortgaged during the period of commission of offence and the Respondent ED is entitled to attach the same. Ld. Counsel for the respondent ED submitted that the FIR was registered in the year 2013, and the sanctioned loan pertain to the period of 2003 onwards. Ld. Counsel for the respondent submitted that the contention of the appellant AARC that SARFAESI provisions get precedence over provisions of PMLA is not correct, as PMLA is a special Act and proceedings under PMLA get precedence over other Acts in terms of Section 71 of the Act.

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He further stressed that only Ld. Special Judge, PMLA Court can order for the disposal of the mortgaged properties at the time the conclusion of the trial, as per law. Prayer is accordingly made to dismiss the present appeal being devoid of any merits.

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We have considered the rival submissions and we have given our thoughtful consideration to the same. Respondent ED instead of tracking the trail of siphoned loan, and thereafter, seizing/attaching the same has adopted the strategy to attach the already mortgaged immovable property without making any other effort. Therefore, being a assignee of the secured creditor/mortgagee of the aforementioned attached immovable properties, the appellant AARC is at liberty to stake its claim before learned Special Judge, PMLA Court, even before the conclusion of trial under section 8 (7) of PMLA, 2002, for auction sale of the mortgaged immovable property, being a secured creditor, alongwith an affidavit/ undertaking that in case of excess

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FPA-PMLA-2948/MUM/2019 Alchemist Asset Reconstruction Co. Ltd. v. E.D., Mumbai

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amount realised during the auction sale, the same will be deposited with ED by way of FDRs. Before permitting auction sale Ld. Special Judge, PMLA Court, may invite the objection of the other interested parties, if so required. The said FDRs be disposed of as per law amongst the other claimants, after conclusion of trial.

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In sequel to our discussion in the preceding para, the present appeal is hereby disposed of, with liberty as aforesaid. It is made clear that nothing expressed herein will affect the right of either party in the criminal trials.

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Appeal Disposed of with liberty.

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Pronounced on this 19^th Day of May, 2025.

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(Rajesh Malhotra) (G.C. Mishra) Member Member ‘AB’

FPA-PMLA-2948/MUM/2019 of Alchemist Asset Reconstruction Co. Ltd. v. The Deputy Director Directorate of Enforcement, Mumbai

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FPA-PMLA-2948/MUM/2019 of Alchemist Asset Reconstruction Co. Ltd. v. The Deputy Director Directorate of Enforcement, Mumbai

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