The Allahabad High Court quashed money laundering proceedings against Tulsiani Construction and its directors, holding that civil and commercial disputes cannot be converted into criminal prosecutions under the Prevention of Money Laundering Act. The Court also set aside the ED’s summoning and attachment actions.
The Allahabad High Court (Lucknow Bench) has quashed the money-laundering proceedings and the summoning order issued against Tulsiani Construction and Developers Ltd. along with its directors. The Court held that disputes which are essentially civil and commercial in nature cannot be “turned into” criminal matters under the Prevention of Money Laundering Act, 2002 (PMLA).
Delivering the judgment, Justice Subhash Vidyarthi allowed an application under Section 482 of the Code of Criminal Procedure (Cr.P.C.), finding that the Enforcement Directorate (ED) had misused the criminal process. The Court observed that the ED projected issues arising from settled commercial disputes as allegations of money laundering and also carried out illegal property attachments relating to assets acquired long before the alleged offence. Accordingly, it set aside the order dated January 30, 2026, passed by the Special Judge, Anti-Corruption, CBI West/E.D., Lucknow, which had taken cognizance of offences under Sections 3 and 4 of the PMLA.
Background of the Case
The matter traces its origin to FIR No. 336 of 2022, registered on September 24, 2022, at Police Station Hazratganj, Lucknow, on the basis of a complaint by Punjab National Bank (PNB). The bank alleged that Tulsiani Construction and Developers Ltd. and its directors Mahesh Kumar Tulsiani and Anil Kumar Tulsiani defrauded the bank to the tune of Rs. 4.63 crores.
PNB’s case was that home loans were sanctioned to four flat purchasers Narendra Singh Verma (with Shashi Verma), Baldeep Arora (with Jaya Arora), Hemant Tulsiani (with Manohar Kumar Tulsiani), and Tarun Shekhar Singh (with Sarika Singh) for residential flats in the developers’ project at Sushant Golf City, Lucknow. PNB alleged that the project was not completed within the stipulated timeline and that the flats were not delivered. As a result, borrowers reportedly defaulted on loan repayments.
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PNB further alleged that the builders did not execute the sale deeds or deposit them with the bank as security, and that the loan amounts were diverted for personal benefit.
In March 2023, while refusing a bail application filed by Anil Kumar Tulsiani in the predicate offence, a coordinate Bench of the High Court directed the ED to investigate the money-laundering angle. That direction was challenged before the Supreme Court. The Supreme Court dismissed the Special Leave Petition, directing the ED to consider the material on its own merits, without being influenced by the High Court’s observations. Thereafter, the ED registered ECIR/LKZO/43/2023.
As part of the investigation, the ED merged several other complaints, including FIR No. 595 of 2021 registered by intervener Sanjeev Agarwal concerning a dispute over flats booked in 2012. The ED computed the alleged proceeds of crime as Rs. 9.948 crores and provisionally attached multiple properties. This included a flat belonging to Anil Kumar Tulsiani, purchased through a registered sale deed in March 2012 nearly a decade before the PNB FIR was registered.
Arguments of the Parties
The applicants argued that the entire dispute is purely civil and commercial. They placed material on record to show that out of the four PNB loan accounts mentioned in the FIR:
- One account (relating to Tarun Shekhar Singh and Sarika Singh) was stated to have been fully regular and not declared an NPA.
- Two accounts (Baldeep Arora and Hemant Tulsiani) were stated to have been issued “No Dues Certificates” following successful One-Time Settlements (OTS).
- For the fourth account (Narendra Singh Verma), OTS was allegedly approved on March 20, 2026, and the first installment had been paid.
They contended that since the financial liabilities stood settled, there could be no “proceeds of crime” under Section 2(u) of the PMLA. They also argued that attaching a flat purchased in 2012 was illegal because it lacked any nexus with the alleged 2022 transactions.
The ED, represented through counsel, argued that the applicants diverted the home loan amounts to meet other liabilities (including repayments of loans from SIDBI), rather than completing the particular housing project. The ED maintained that Section 2(u) allows attachment of the “value of such property” where direct proceeds of crime are untraceable. It also claimed that under Section 23 of the PMLA, there is a legal presumption of interconnected transactions.
The intervener, Sanjeev Agarwal, opposed the plea, stating that he was a bona fide claimant with a legitimate interest under Section 8(8) of the PMLA, having suffered measurable losses due to non-delivery of his flats.
Court’s Analysis
The High Court first examined the cognizance order dated January 30, 2026. Justice Subhash Vidyarthi noted that while the trial court had recorded the ED’s allegations and the applicants’ objections, it rejected the objections as “not maintainable” without giving any intelligible reasoning.
Relying on the Supreme Court in S.N. Mukherjee v. Union of India and Kranti Associates (P) Ltd. v. Masood Ahmed Khan, the Court observed:
“the reasons are the soul of any judicial order and a judicial order passed without recording reasons is unsustainable in law”
The Court further emphasized that adherence to the principles of natural justice and the requirement to give reasons becomes even more significant in criminal matters where personal liberty is involved. It also referred to Inox Air Products Ltd. v. State of Andhra Pradesh, stating:
“Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course…”
On merits, the Court considered whether the dispute could legitimately fall within the offences under the PMLA. Justice Subhash Vidyarthi referred to Indian Oil Corpn. v. NEPC India Ltd. and Sarabjeet Kaur v. State of Punjab, noting an “undesirable trend” of transforming civil/commercial breaches into criminal allegations to pressure settlements.
Quoting Indian Oil Corpn., the Court stated:
“Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged.”
The Court also relied on Sarabjeet Kaur, observing:
“A breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction.”
Regarding the attachment of the flat purchased in 2012, the Court held that the ED’s approach was outside the scope permitted by law. Referring to Supreme Court rulings in Vijay Madanlal Choudhary v. Union of India and Pavana Dibbur v. Directorate of Enforcement, the High Court held that property acquired before the commission of the scheduled offence cannot be linked to proceeds of crime.
It also relied on the Punjab & Haryana High Court decision in Seema Garg v. Deputy Director, Directorate of Enforcement, holding that the phrase “value of such property” does not allow attachment of property legitimately acquired when it has no direct or indirect connection to the alleged criminal activity.
On the timing and connection of the asset, the Court held:
“the attachment of the Flat purchased in the year 2012 is absolutely illegal and without jurisdiction.”
The Court also criticized the ED for inflating the proceeds of crime by continuing to include the Rs. 4.63 crore bank loan even after settlement, and by adding amounts from other cases that had already been quashed by competent courts. It noted that the fact multiple buyers and the bank had settled their financial disputes indicated that the controversy was civil in nature, and that the complainants were effectively using criminal law to achieve civil objectives.
Ultimately, the Court concluded:
“the present case is a clear case of the abuse of the PMLA.”
Decision:
Accordingly, the High Court allowed the petition under Section 482 Cr.P.C. and quashed the cognizance and summoning order dated January 30, 2026, passed by the Special Judge, Anti-Corruption, CBI West/E.D., Lucknow. The Court also quashed the entire proceedings in Criminal Misc. Case No. 4851 of 2025 connected with ECIR No. ECIR/LKZO/43/2023, and directed that all necessary legal consequences of this quashing shall follow.
During the hearing, the applicants were represented by Senior Advocate Sri Vaibhav Kalia, assisted by Sri Abhinav Mishra. The State of U.P. was represented by Sri Ganesh Dutt Bhatt, learned A.G.A. The ED was represented by Sri Rohit Tripathi, while Sri Anuuj Tandon appeared for the intervener Sri Sanjeev Agarwal.
Case Title: Tulsiani Construction and Dev. Ltd. Thru its Director Anil Kumar Tulsiani and 2 others Versus State of U.P. Thru. Addl. Chief Secy. Home Deptt. U.P. Lko. and another
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