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The Welspun group’s successful ₹790-crore bid to take over auctioned assets of ABG Shipyard was challenged by the Enforcement Directorate under the Prevention of Money Laundering Act (PMLA).
There has always been a tussle for supremacy between the PMLA and the Insolvency and Bankruptcy Code. In this case, it was well after Welspun paid the consideration that the ED acted, based on a complaint by State Bank of India. Welspun had bought the assets by means of a ₹400-crore loan from IndusInd Bank, with the assets as security.
The ED attached those very assets.
It is an established position that to attach assets under PMLA, the ED must have ‘reason to believe’ that the assets involved ‘proceeds of crime’. The ‘reason to believe’ is a necessary condition but cannot be based on gossip or rumour.
Hearing a petition from Welspun Steel Resources Pvt Ltd, Justice Biren Vaishnav of the High Court of Gujarat, Ahmedabad, observed: “Sine qua non to arrive at a determination that the assets are proceeds of crime, the foremost requirement is that the author has to have ‘reason to believe’ on the basis of material in his possession. ‘Reason to believe’ cannot arise from mere suspicion, gossip or rumour.
“Merely because the impugned order records alleged fraudulent transactions and diversion of funds, it cannot automatically lead to a conclusion that the properties acquired by the petitioners are proceeds of crime. In order to arrive at a conclusion that ‘reason to believe’ exists, there must be some material to suggest such formation of opinion.”
In this case, the judge was satisfied that there was no strong ‘reason to believe’ that the assets were acquired by ABG Shipyard using ‘proceeds of crime’.
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