Allowed

FPA-PMLA-1302/MUM/2016 of Indian Performing Right Society Ltd. v/s The Deputy Director Directorate of Enforcement, Mumbai

ATFP22 Jun 2017FPA-PMLA-1302/MUM/2016

Case brief

AI extract

What is this about?

Appellate Tribunal examined an appeal against confirmation of provisional attachment of IPRS investment portfolios. The court held that accumulated royalties pending distribution, attributable to member formalities and legal disputes, did not constitute proceeds of crime. The appeal was allowed, and the impugned order was set aside.

What did the court decide?

Impugned order dated 23.03.2016 confirming provisional attachment order dated 20.10.2015 set aside; appeal allowed.

FPA-PMLA-1302/MUM/2016 of Indian Performing Right Society Ltd… — Money Laundering | ATFP (2017)

¶1

APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

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Date of Decision: 22.06.2017

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MP-PMLA-2604/MUM/2016 (Stay) FPA-PMLA-1302/MUM/2016

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Indian Performing Right Society 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 appeared

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For the appellant	: Shri Saurabh Kirpal, Advocate Shri Pragyan Pradeep Sharma, Advocate & Ms. Anandini Kumari Rathore, Advocate Shri Sanjay Chadha, Advocate
For the respondent	: Shri Nitesh Rana, Advocate
CORAM
JUSTICE MANMOHAN SINGH	: CHAIRMAN
SHRI ANAND KISHORE	: MEMBER

¶11

JUDGEMENT

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FPA-PMLA-1302/MUM/2016

¶13

The appellant has filed the present appeal under section 26 of the Prevention of Money Laundering Act, 2002 against the order dated 23.03.2016 passed by the Adjudicating Authority in the Original Complaint No. 532 of 2015.

¶14

The brief facts are that the appellant is a company incorporated under the Companies Act, 1956 on 27^th August, 1969 and has been carrying out the business of licensing of the musical and literacy works since 1969. (Herein after referred as IPRS).

¶15

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¶16

One Mr. Surender Sathi becomes a member of IPRS, with membership no. N/FA/SO19 CAI no. 254.2452.82 in 1994 who is a lyric writer.

¶17

Mr. Surendra Sathi from the year 1995 to 2004 has been receiving the royalty from the appellant regularly on 25.09.95, 02.09.96, 29.09.1997, 24.03.2000, 10.07.2000, 21.09.2000, 20.09.2001, 23.03.2000, 25.03.2000, 18.03.2002, 25.06.2002, 19.09.2002, 15.03.2003, 22.09.2003, 23.09.2003, 12.04.2004, 29.09.2004.

¶18

In pursuance of the amendments to the copyright Act, 1957 made in 1994, it has been additionally recognized as a registered Copyright Society in 1996.

¶19

In view of amendment, the IPRS addresses letter dated 29.08.2005 to Mr. Surendra Sathi, in order to undertake verification of the register of owners in furtherance of the Rule 14I of the Copyright Rules, for verification and attestation of the Agreements entered into between Mr. Sathi and IPRS in order to remove ownership issues. Copy of letter is already placed on record at page no. 655.

¶20

Despite of the said letter Mr. Surrender Sathi did not respond.

¶21

On 9.11.2009 IPRS sent another letter to Surender Sathi to sign Assignment deeds for continuance of membership. Vide the said letter, IPRS clearly conveys that if there is no response from Mr. Sathi in seven days, his membership with IPRS would stand cancelled. The contents of the said letter is re-produced hereunder:-

¶22

“ The India Performing Right Society Limited Regd Office: 208, Golden chambers, 2^nd Floor, New Andher Link Road, Andhari (W), Mumbai -400053 Tel: (022) 26733748/49/50/6616, Fax : (022) 2673 6658 Fax No. (022) 2673 6658

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FPA-PMLA-1302/MUM/2016 Page 2 of 42

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E-mail –[email protected] Visit us at : www.iprs. Org.

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Ref: IPRS:RK:PK: 1118:2009 9^th November, 2019

¶26

SURENDER SAATHI

¶27

Sub:- Assignment Deed not signed

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Dear Member,

¶29

This is in reference to the above subject matter.

¶30

While going through our records we have noticed that you have not yet signed the Assignment Deed which is long pending and the Governing Council has asked that the Assignment Deed needs to be signed by every member for continuance of membership which is required for effective governance under the law.

¶31

Hence we request you to kindly visit our office and sign the Assignment deeds to enable us to distribute the royalties to you.

¶32

If we do not hear from you within 7 days from the receipt of this letter than your membership with IPRS will stand CANCELLED.

¶33

Hence we request you to kindly do the needful at the earliest.

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Thanking you with Musical regards

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Yours sincerely,

¶36

For the Indian Performing Right Society Limited.

¶37

Pravin Kapoor

¶38

Asst. Manger – Membership

¶39

Even, he did not reply to the said letter and consequently his membership was treated as terminated. The termination order had never been challenged by him in any court of law. Rather on 29/05/2014 the Complaint lodged by Surender Sathi against IPRS, Hasan Kamal, Om Prakash Sonik wherein it was alleged that the management of IPRS, Mr. Hasan Kamal and Mr. Omprakash Sonik were guilty of non-payment of royalties to Mr.Sathi from the year 2000 onwards despite him having been a member of IPRS since 1994. The Complaint further alleged that after years of

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non-payment of royalties thereafter, on enquiry with the officers of IPRS found that his name was deleted from the register of members and hence alleged that IPRS was guilty of having committed the offences under section 406,420,468,471 and 506 read with section 34 and120 B of the Indian Penal Code („IPC‟).

¶42

On 2^nd June, 2014, the Sadar Police Station, Agra registered FIR 455 of 2014 under section 420, 406, 468, 471, 506 and section 120 B or /w 34 of the IPC against Om Prakash Sonik and Hasan Kamal, the directors of IPRS on the basis of a complaint made by Shri Surender Sathi.

¶43

In a petition seeking quashing of the FIR, the Hon‟ble Allahabad High Court grants interim relief to the Appellants. The issue of territorial jurisdiction is also raised in the said petition. Copy of the order dated 25.8.2014 reproduced below.

¶44

Court NO.-29 Case :- Criminal Misc. Writ Petition No. 14342 of 2014 Petitioner:- Hasan Kamal

¶45

Respondent :- State of U.P. and 2 Others

¶46

Counsel for Petitioner:- Manu Khare

¶47

Counsel for the Respondent:- Govt. Advocate, Manish Tiwari Hon‟ble V.K. Shukla J.

¶48

Hon‟ble Shashi Kant,J.

¶49

Learned A.G.A. has accepted notice on behalf of the opposite party nos. 1 and 2. Sri S.M.A. Qazmi, Senior Advocate assisted by Sri Manish Tiwari has entered appearance on behalf of opposite party no. 3.

¶50

Each one of the respondent is accorded six weeks time to file counter affidavit. Rejoinder affidavit may also be filed within two weeks thereafter. List after eight weeks.

¶51

It has been sought to be contended that in the case in hand criminal forum is being misused and his submission is that in case any royalty is due to be paid to opposite party no. 3, he should pursue the civil forum which is available to him and invoking of criminal forum, in the facts of the case, cannot be said to be justifiable. Petitioner submits that as far as membership of the petitioner in the institution is concerned, the same has been cancelled, in such a situation and in this background if he has any grievance to be redressed on the said score also then he should avail the proper forum. Petitioners have submitted that IPRS is a Company incorporated under Indian Companies Act,

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and Companies Act in itself is self contained Act, but the petitioner has chosen to ledge F.I.R at a convenient Police Station whereas no offence worth name has been committed within the territorial limits of Agra.

¶54

Prima facie argument advanced appears to have some substance and requires consideration by this court as such pursuant to impugned F.I.R. dated 02.06.2014 registered as Case Crime No. 455 of 2014 under section 420, 406, 468, 471, 506, 120-B and 34 I.P.C., S.S. Sadar, District Agra, petitioner may not be arrested till submission of police report under section 173(2) Cr.P.C. and the petitioner shall extend full cooperation in the investigation and shall not interfere with the ongoing investigation. Order dated:- 25.8.2014 YK

¶55

Despite of order passed in favour of appellant its advocates of the appellants address a letter dated 4.02.2015 to Mr. Sathi stating that they were always ready and willing to pay royalties but the same could not be paid because he had not completed the requisite formalities.

¶56

On the basis of aforesaid allegations of the Complainant thereafter, the Directorate of Enforcement, Mumbai Zonal Office on 31.3.2015 registered a case bearing no. ECIR MBZO 05/15 (ECIR) dated 31.03.2015 against IPRS, Hasan Kamal, Omprakash Sonik and other unknown persons for offence under section 471 and 420 of the IPC read with section 120 B of the IPC which fall within the scheduled offence under Part A, Schedule I of the Prevention of Money Laundering Act.

¶57

On 23.05.2015, the charge sheet was filed by the police authorities on completion of investigations before by the Chief Judicial Magistrate, Agra. It is pertinent to note that the charge sheet fails to mention appellants, Kumar Taurani and Ganeshmal Jain. The Charge-Sheet did not elaborate as to the role of the directors, Om Prakash Sonik, Hasan Kamal and Rakesh Nigam in the commission of t he alleged offence.

¶58

In an application filed on 4.8.2015 under section 482 Cr.P.C. seeking quashing of the proceedings, the Hon‟ble Allahabad High Court stays further FPA-PMLA-1302/MUM/2016 Page 5 of 42

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proceedings in the case. This stay subsists till in operative copy of the order

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is re-produced hereunder:-

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Court no. 49 Case no:- Application u/s 482 no. 22187 of 2015 Applicant :- Hasan Kamal Opposite Party :- State of U.P. & 2 others Counsel for applicant :- Manu Khare, A.K.Awasthi, Prazan Sharma Counsel for Opposite Party:- Govt. Advocate, Manish Tiwary With Case no:- Application u/s 482 no. 22189 of 2015 Applicant :- Om Prakash Sonik Opposite Party :- State of U.P. & 2 others Counsel for applicant :- Manu Khare, A.K.Awasthi, Prazan Sharma Counsel for Opposite Party:- Govt. Advocate, Manish Tiwary With Case no:- Application u/s 482 no. 22189 of 2015 Applicant :- Rakesh Radheyshyam Nigam Opposite Party :- State of U.P. & 2 others Counsel for applicant :- Manu Khare, A.K.Awasthi, Prazan Sharma Counsel for Opposite Party:- Govt. Advocate, Manish Tiwary Hon‟ble Pankaj Naqvi. J. Heard Sri G.S. Chaturvedi, learned Senior Counsel, assited by Sri Manu Khare/Sri Pragyan Sharma, for the applicants in all the three connected applications, Sri Imran Ibrahim, holding brief of Sri Manish Tiwari, learned counsel for O.P. No. 3 and the learned A.G.A. All the three applications under section 482 Cr.P.C. have been filed for quashing the proceedings of case crime no. 455/2014, under sections 420/406/468/471/506/120- B/34 IPC, P.S. Sadar, Agra, pending in the court of C.J.M., Agra. The contention urged is that the allegations made in the FIR dated 2.6.2014 and the charge-sheet dated 4.5.2015 with accompanying materials, only alleges non-payment of agreed royalty, which in any view, would not attract criminal liability under section 406 IPC and the remedy, if any, for the applications, is to initiate proceedings for recovery of royalty before the appropriate forum, thus the present proceedings being an abuse of the process of the Court are liable to be quashed. Sri Ibrahim, learned counsel appearing for O.P. NO. 3 has vehemently opposed the contention. Notice need not be issued to O.P. No. 3 as he stands represented. Counter affidavit may be filed within a month. Rejoinder, if any, may be filed, within two weeks thereafter. List in the week commencing 26.10.2015 before the appropriate court. Assignment, if any, stands discharged.

¶62

Till the next date of listing, further proceedings of case crime No. 455/2014, under Sections 420/406/468/471/506/120-B/34 IPC, P.S. Sadar, Agra, pending in the court of C.J.M., Agra, shall remain stayed in respect of the applicants in all the three connected cases. Order dated :- 4.8.2015 Chandra

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¶64

In the meanwhile during the period of 15.05.2015, 14.05.2015, 28.05.2015, 30.07.2015, 10.08.2015, 12.08.2015, the statement of Hasan Kamal, OP Sonik, Raja B Singh, Rakesh Nigam, Kumar Taurani, Ganeshmal Jain recorded by Directorate of Enforcement pursuant to registrar of ECIR.

¶65

On 20.10.2015, the provisional attachment order („PAO‟) is issued by the Directorate of Enforcement holding that the royalties which were invested in various mutual funds amounts to Rs. 70, 17,00,483/- by IPRS are “proceeds of crime” generated through criminal activity related to the scheduled offences which was layered by IPRS through an investment in the mutual funds of financial institutions with sole intention to conceal its tainted origin.

¶66

The respondent filed Original Complaint No. 532 of 2015 (OC) on 18.11.2015 against the Appellants under section 5(5) of the PMLA Act on the basis of the FIR 455 of 2014.

¶67

The Adjudicating Authority issued showcause notice to the appellant on 23.11.2015 to disclose the source of income or earning of the property attached vide the PAO and show cause as to why the said properties should not be declared to be properties involved in money laundering under the PMLA.

¶68

That the Appellant filed its reply to the OC, taking inter alia the following objections:

¶69

i. The Hon‟ble High Court of Judicature at Allahabad stayed the arrest of Om Prakash Sonik, Hasan Kamal and Rakesh Nigam till a report under section 173 of the CrPC is FPA-PMLA-1302/MUM/2016 Page 7 of 42

¶70

submitted vide order dated 25.08.2014 and 22.09.2014 in CrlMsc. 16675 of 2014.

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ii. The present case was tried before the Hon‟ble Adjudicating Authority despite the fact that the FIR was registered in Agra and hence the Directorate of Enforcement, Mumbai Zonal Office had no territorial jurisdiction.

¶72

iii. There is no specific royalty mentioned at any place in the whole body of the FIR made by Surender Sathi.

¶73

iv. Even assuming that Mr. Surender Sathi were entitled to a royalty of Rs. 47,000/- during the period of 2007 to 2015, there is no justification for attachment of Rs. 70 crores.

¶74

v. That the royalties collected by IPRS from various persons do not amount to „proceeds of crime‟

¶75

vi. The accumulation of the royalty collected and delay in its distribution was on account of non-furnishing of the required information by the members, non-submission of the requisite mandate by the members and non-continuing of the membership by the members.

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vii. The appellant has been unable to disburse royalties to its overseas copyright societies and other members of the appellant no. 1 on account of the PAO.

¶77

viii. That Mr. Surender Sathi wrongfully stated that he was not receiving royalties from IPRS after the year 2000.

¶78

ix. The Defendant no. 1 kept a buffer of Rs. 32 crore as claims towards refund of royalties in the event that of refund of entire licensing fees.

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x. The present amounts are not representative of the royalties to be paid as it comprises of the incremental and dividend being reinvested and reshuffled. The said documents

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evidencing the same have been concealed by the respondent.

¶82

xi. The operations of the Appellant are lawful and legitimate as has been reiterated by the Bombay High Court in notice of Motion (L) no. 3620 of 2015 in Suit (L) no. 1345 of 2015.

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xii. No personal investments or siphoning has been done by any of the appellants nos. 2 to 6.

¶84

xiii. Documentary evidence was produced to show that Mr. Surender Sathi was not a member of IPRS during the relevant period under which the Mr. Sathi is claiming royalty.

¶85

The Adjudicating Authority on 23.3.2016 passed the impugned order confirmed the PAO mainly on the reasons holding the Prima facie it appears that the properties are involved in money laundering and the appellants were in possession of the „proceeds of crime‟. The appellants had committed the scheduled offences, generated proceeds of crime and laundered them.

¶86

The Adjudicating Authority thereby confirmed the PAO issued by the Directorate of Enforcement, PMLA till the pendency of proceedings before the Competent Court as under section 8 (3)(a) of the PMLA.

¶87

The entire case put up by the respondent in its pleading is under:-

¶88

Investigations under PMLA, 2002 had revealed that in the Balance Sheet of IPRS for the financial year 2013-14 under the category „Royalty to members (Current Liability)‟ had specified the amount of Rs. 85.82 crore. Also in the Balance Sheet for the year 2013-14 of IPRS the amount invested by them in the Current and Non-current Investment were specified. Further IPRS had not submitted the member-wise breakup of the amount ofRs. 85.82 crore which was reflected in the Balance Sheet for the Financial Year 2013-14 FPA-PMLA-1302/MUM/2016 Page 9 of 42

¶89

under the category of „Current Liabilities‟ and under the head „Royalties to Members‟ which was not submitted by them either during the course of the investigations or during the proceedings of the Adjudication of the subject PAO.

¶90

21.1. IPRS had not specified the reasons for retaining the royalty with them together with the non-mentioning of the source of the funds for the „Investment in the current and non-current investment‟ in the balance sheet/directors report. Thus it appears that IPRS had projected the investments in „current and non-current asset‟ as untainted.

¶91

21.2. The appellant though had accepted that they had retained the royalty due to their members on the ground of non-fulfilment of formalities by the members, but they had not provided the list of such members to whom the royalty of Rs. 85.82 crore was not distributed by them.

¶92

21.3. Accordingly IPRS collected the royalty from the organization/person etc. in respect of the public performances on behalf of their members which is also not disputed by the appellant. Therefore IPRS after collection of the royalty (on behalf of its members) from the persons/organization on account of public performance retained the royalty to the tune of Rs. 85.82 crore as on 31.03.2014 which was due to their members.

¶93

Mr. Nitesh Rana, learned counsel appearing on behalf of the respondent has admitted that Rs. 47,000/-were due addressed the royalty of Shri Surendra Sathi who is the complainant however the IPRS is not disputed the royalty of the other member thus the said Act of the IPRS is a case of criminal act of cheating. He further submits that the IPRS cannot dispute the admitted amount attached by the respondent towards the royalty payable to the various members therefore as per international standard the amount of FPA-PMLA-1302/MUM/2016 Page 10 of 42

¶94

royalty collected and pending distribution could in royalty collected as to its constituted as proceeds of crime under 2(1)(u) of the PMLA Act. He submitted that another complainant filed by Shobha Mudgal is also pending investigation wherein she alleged that no royalty due to has been paid by the appellant.

¶95

In nutshell, from the entire case against the appellant by the Respondent was by alleging that the Appellants have unlawfully deprived the Complaint among others of their rightful share of royalties and misappropriated and laundered the said amounts.

¶96

In reply to the said PAO, it was specially mentioned by the appellant that the movable property being the amounts to the tune of Rs. 70,17,00,483/- which had been mentioned in the said Original Complaint by the Complaint himself as the “investment made by M/s. Indian Performing Rights Society Ltd. [IPRS.] as on 30.06.2015 in the mutual funds of the financial institutions have been provisionally attached under section 5(1) of the PMLS, 2002.

¶97

The details of the said investments which have been provisionally attached in this case are as under:

¶98

Sr. No	Name of the Financial Institution	Folio Number	Amount of Investment
1.	Birla Sun Life Asset Management C Ltd	1014364096	15000000
	ompany .	1014364097	186687013
		Total	20,16,87,013
	Franklin Asset Management (India)	7029903807626	20000000
2.	Pvt. Ltd.	4009903807626	48500000
		1049903807626	57500000
		Total	12,60,00,000
3.	HDFC Asset Management Company Ltd.	103546/53	3,00,00,000
	ICICI Prudential Asset Management	6073554/12	146013469

¶99

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¶100

Company Ltd. 5597091/09 19927212
5815691/26 10072789
Total 17,60,13,470
7500000
1386414/21
1386415/18 25000000
5. Kotak Mahindra Mutual Fund
Total 3,25,00,000
6. Reliance Capital Asset Management 49040703976 43000000
Ltd.
40000000
404136109594
TOTAL 8,30,00,000
IDFC Asset Management Company 33569/76 5,25,00,000
7. Limited.
Total 70,17,00,483

¶101

The Adjudicating Authority has issue Notice to show cause dated 23.11.2015 under section 8 of the PMLA, 2002 in the said O.C. 532 of 2015 calling upon the appellant to reply the following:-

¶102

i. indicate the source of its income, earning or assets out of which or by means of which it has acquired the property attached under section 5(1) of the PMLA, 2002;

¶103

ii. Submit evidence and other relevant information and particulars on which it intends to rely;

¶104

iii. Show cause as to why all or nay such property should not be declared to be the properties involved in moneylaundering and d

¶105

iv. As to why consequently, the attachment order in respect of the properties should not be confirmed as representing proceeds of crime being value f properties involved in money-laundering;

¶106

The appellant no. 1 before submitting the grounds for prayer for quashing of the provisional attachment order and dismissal of the original complaint craves leave to draw attention of the Hon‟ble Adj. Auth. towards

¶107

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¶108

the basic facts and circumstances which have been interalia stated by the Complainant in the said O.C. 532 of 2015 as under:

¶109

i. That Sadar Police Station, Agra registered a FIR 455/2014 dated 02.06.2014 invoking section 420,406,468,471,506,120-B r/w 34 of IPC against Defendant no. 2 & 3, both Directors of Defendant no. 1 and others.

¶110

ii. That Directorate of Enforcement, Mumbai Zonal Office registered the case no. ECIR/MBZO/05/2015 dated 31.03.2015 against Defendant nos. 2 and 3 and others

¶111

iii. That the Police Authorities on completion of investigation filed Charge Sheet bearing number 30586/2015 before the Hon‟ble C.J.M., Agra on 23.05.2015.

¶112

In FIR 455/2014 and charge Sheet no. 30586/2015 revealed the following:

¶113

i. The Indian Performing Rights Society (IPRS) is a registered society under section 33 of the Copy Rights Act, 1933 which collects royalties from the consumers like restaurants, radio stations, T.V. Channels etc. and distributes such royalties among Author (Lyricists). Composer (Music Directors) and the Publisher (Music Companies)

¶114

ii. the persons who had written lyric/composed music became members of IPRS on the assurance and mutual understanding that whenever their work was commercially exploited, IPRS will understand the responsibility of collecting the royalties and hand over the requisite share to them. However, over the passage of time and even though members of IPRS had demanded their requisite share of royalty, IPRS failed to pay the requisite share to their members. This was resulted in heating to its member by

¶115

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¶116

IPRs and therefore was charged under section 120-B, 406, 420, 468, 471, 506 and 34 of the IPC.

¶117

In Para -6.1 to 6.3 of the reply to PAO; the same are read as under:-

¶118

“6.1 During the scrutiny of documents in 2009 it was noticed that numerous members including Mr. Sathi had not executed the assignment deed as passed by the Governing Council, the members requested to sign the assignment deed within seven days of receipt of the letter else the membership would stand terminated.

¶119

6.2 Having not heard from him, the membership of Mr. Sathi was treated as terminated including other members who did not revert and no correspondence was received from him by IPRS and no royalty was paid post such termination as Mr. Sathi was no longer a member of IPRS.

¶120

6.3 The complaint of Mr. Sathi is at best civil in nature as he is not the owner of the songs written by him as per 1977 Supreme Court Judgment nor has he claimed ownership. So at best he can claim for royalty post 2012 that too against the owner publisher and not IPRS as he is not a member of IPRS. Even the Hon‟ble HC order dated 25.08.2014 also held the similar view.”

¶121

In Para reply to PAO, the averment was also made by the appellant the

¶122

same are reproduced as under:

¶123

That prior to June, 2012 amendment to the Copyright Act, 1957, IPRS was collecting and distributing royalty as per then prevalent law and under the 1993 MOU to the Owners/Authors and Composers for encouragement to creators in spite of the fact that the Authors did not have a statutory right to royalty under the said Act. As such, royalty collection till June, 2012 were distributed to such Authors & Composers who complied with terms as approved by the Owners and not to Authors/Composers who disputed or did not comply with the terms.

¶124

The royalty for period prior to June, 2012 to such disputing Authors/Composers is still lying with the IPRS subject to the completion of the documentation as sought by the Owners and its appropriation can be done only after the same . The Defendant craves leave to refer to few sample letters (signed) by members.

¶125

The Defendant No. 1 has distributed royalties collected for the Post Amendment period i.e. June, 2012 onwards to all Authors/Composers and Owners including the disputing members without any conditions as per the amended provisions of the Copyright Act 1957 for royalty to Authors/Composers. The Defendant craves leave to refer to the copies of the Statement

¶126

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¶127

showing the details of Royalty to Members of Defendant No. 1 relating to the financial year 2014-15.

¶128

In this regard it is further submitted that the royalty due to members is a concurrent and running account and the same stood at Rs. 6,974.55 lacs as on 31.03.2015. The said outstanding amount was lower than the amount of royalty transferred/paid during the last two financial years which stood at Rs. 3,967.43 lacs in 2013-14 & Rs. 3,344.39 lacs in 2014-15.

¶129

It is further submitted that Defendant No. 1 is in the business of collecting licensing fees/royalties and amounts collected during the year are usually distributed in the following years as per the international practice and the processing and distribution of royalty gets delayed on account of delay or non-receipt of logs (i.e. songs played/performed) from users like Radio, TV and web-sites. The royalty distribution on an average throughout the world is around 24 months of revenue.

¶130

In one of the Radio litigation matter, as directed by the Court, the Defendant No. 1 had to refund the entire Licensing fees/Royalties to the tune of Rs. 2,44,36,944 in compliance of the order dated 25^th April, 2013 passed by the Delhi High Court in the IPRS Vs. Mr. S. Keerthivasan & Anr. (HT Media) . The Defendant craves leave to refer to the said order dated 25^th April, 2013 passed by the Delhi High Court during the course of personal hearing.

¶131

Hence keeping in mind the above refund litigation and major other litigations that the Defendant No. 1 had with FM Broadcaster, the Governing Committee Meetings in 2011 approved as under:

¶132

„Keeping in mind the investments and disbursements, that the Company shall disburse royalties keeping aside an amount of Rs. 32 crores as buffer for claims towards refund of royalties paid earlier to the Company.‟

¶133

The same was also duly reflected by Defendant No. 1 in its Annual Report of 2013-14 in Note 21 – Contingent Liabilities. Hence the royalty distribution got slowed down to take care of such contingency of refund. The Defendant No. 1 craves leave to refer to the Annual Report 2013-14 during the personal hearing.

¶134

As per Para 8 (vi) of the O.C. of the following data is available:

¶135

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 all figures in lacs (Rs.)

¶136

Amount of Royalty collected 1494.54 2210.96 2241.74 3668.89 4009.12 3710.1 3827.93 3967.43 25130.71 Amount Disbursed 448.13 1886.09 1313.14 2622.86 2211.74 3937.56 2848.65 1310.07 16581.33 Amount Pending distribution 1046.41 324.87 925.6 1046.03 1797.38 -227.55 979.28 2657.36 8549.38

¶137

34.01965%

¶138

That from the data as submitted before the Hon‟ble Adjudicating Authority, it is very clear that the amount which had accumulated over the FPA-PMLA-1302/MUM/2016 Page 15 of 42

¶139

period on account of non-distribution of royalty to the members during the period 2006-2014 is merely 34.02%.

¶140

The complainant had submitted the details of these figures for the Financial Year 2014-2015 too by the appellant as per detailed mentioned in Annexure-H to its letter dated 13.08.2015. The same was not disclosed by the complainant that it had referred to the same during the course of personal hearing but nothing has been discussed in the impugned order.

¶141

On addition, the data which was hitherto available with the Complainant as per the above table, the amount of un-distributed royalty reduces to mere 25% of the total amount of royalty collected by Defendant No. 1 as under:

¶142

Total	2006-07 to 2013-2014	2014-2015 All figures in lacs (Rs.)
Amount of royalty
Collected 28475.09	25130.71	3344.38
Amount of royalty
Disbursed 21261.9	16581.33	4680.57
Amount of royalty
Pending distribution 7213.19	8549.38	-1336.1
% of amount remaining Undisbursed	34.01965%	25.33158%

¶143

Thus as per above factual figures, appellant has in fact distributed the royalty collected by it to the extent of 74.67% to its members and that the amount which could not be disbursed is on account of non-completion of the formalities by various members.

¶144

The contention of the appellant from the very beginning is that the royalty collected cannot be said to be proceeds of crime as per section 2(1)(u) of the PMLA.

¶145

FPA-PMLA-1302/MUM/2016 Page 16 of 42

¶146

The provisions of Money Laundering Act, 2002 after it came into force, enacts a distinct offence of money laundering which is provided under Section 3, reproduced below:-

¶147

“3. Offence of money-Laundering.-Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering”

¶148

Punishment of the said offence is also provided distinctly under the provisions of Section 4 of the Act, reproduced below:-

¶149

“4. Punishment for money-Laundering.-Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine: Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words “which may extend to seven years”, the words “which may extend to ten years” had been substituted.”

¶150

For the purposes of exercise of powers of provisional attachment, it is no longer necessary that a person who is in possession of proceeds of crime has also been charged with the scheduled offence. The Scheme of Money Laundering Act, as it exists as on date, can include within its ambit the persons against whom the investigation is pending with respect to scheduled offences and even the persons who are only the participants with knowledge or are dealing with the proceeds of the crime. This can be seen by looking into the definition of an offence of money laundering as provided u/S 3 which

¶151

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¶152

state that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering. Therefore, the wordings of definition of “money laundering” which are of widest amplitude clearly covers within its sweep not merely the person who is charged with or guilty of an offence which is provided in the schedule of Money Laundering Act, but also the persons who are involved with knowledge or actually involved in the activities related to proceeds of crime are also covered.

¶153

The said aspect can also be seen by reading the provisions of attachment of property u/S 5 of the Act wherein the second proviso to Section 5(1) of Prevention of Money Laundering Act, 2002 as amended in 2013 which reads as under:-

¶154

“Provided further that, notwithstanding anything contained in clause (b), any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the nonattachment of the property is likely to frustrate any proceeding under this Act”

¶155

Therefore, the consequence of combined reading of the offence of money laundering as provided u/S 3 along with second proviso to Section 5 makes it clear that not merely the definition of money laundering covers the other persons than that of persons charged with the scheduled crime but if the

¶156

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¶157

properties of those persons dealing with the proceeds of crime can also be attached and that can be any person.

¶158

Under section 2(1) of the Act, „proceeds of crime‟ is defined as „any property derived or obtained directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property is „proceeds of crime‟

¶159

If after seeing the material on record the Adjudicating Authority or the Appellate Tribunal comes to the conclusion of formation of opinion as to reason to believe for attachment of property of any person are not satisfying the second proviso to Section 5(1), then the Adjudicating Authority can proceed to release the said property on the basis of lack of any reasonable grounds provided by the Deputy Director prior to second proviso to Section 5(1) of the Act. This can be seen by reading section 8 along with section 5 of the Act. These are the considerations which operate / govern before the Adjudicating Authority or before the Appellate Tribunal prior to affirming /confirming or setting aside of provisional attachment.

¶160

The ECIR filed by the Directorate of Enforcement specifically refers to the FIR filed by Mr. Sathi and states that the scheduled offences are section 420 and 471 read with section 120B of the Indian Penal Code, 1860.

¶161

It is apparent that the assets attached have been generated from legal activities – namely licensing of copyrighted material. They have not been generated from any criminal activity. Therefore, they cannot be proceeds of crime with the meaning of the Act. Any other interpretation would make the Act completely unworkable. If mere wrongful retention of money owed to FPA-PMLA-1302/MUM/2016 Page 19 of 42

¶162

another person was to be considered as proceeds of crime, every recovery suit, cheque bouncing case etc would fall within purview of the Act. The Enforcement Directorate must disclose in how many cheque bouncing cases, nearly all of which involve section 420 IPC, have they registered an ECIR.

¶163

There is no whisper in the FIR or the ECIR as to which documents has been forged. Even as regards cheating, the only allegation is qua Mr. Sathi whose alleged dues have not been quantified. At best, the dues of Mr. Sathi would be around Rs. 47,000/-.

¶164

The order of provisional attachment would indicate that without any supporting evidence, the Respondent concluded Appellants were in possession of „Proceeds of crime‟ and attached amounts of Rs. 70,17,00,483/alleging that the same were obtained from commission of the scheduled offences, without providing any determination or calculation for the same.

¶165

The Adjudicating Authority further failed to observe that the appellant has been following international standards and norms of collection and distribution of royalty and the pending distributions could in no manner be construed as cheating.

¶166

The Respondent have failed to consider and appreciate the legal position concerning ownership of copyright in musical and literary works prior to the amendment of the Copyright Act, 1957 as detailed below;

¶167

i. Under the unamended Copy Act, 1957, Section 17 of the Act provided that the author shall be the first owner of the Copyright. On the basis of the said provision, authors and copyright societies including the Appellant herein supported the position that he composers and authors were the first owners of the

¶168

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¶169

¶170

ii. However, in the year 1977, in Indian Performing Rights Society Limited vs. Eastern India Motion Pictures Assocation, AIR 1977 SC 1443, the Supreme Court held that authors and composers of musical works incorporated into cinematograph films, the said authors and composers were not owners of the said works. It is the producers fo the said cinematograph films that help the ownership fo the copyright that was as a matter of industry practice transferred to the music production companies.

¶171

iii. Prior to 1993, Music Companies were predominantly members of the organization named Indian Phonographic Industry (hereinafter referred to as „IPI‟) and another company named Phonographic Performance Ltd. (hereinafter referred to as „PPL‟). With the objective of acquired right to license for playing of musical and literary works and collect royalties for such usage, the then management of IPRS which was then only under control of authors and composers took a decision to enter into a Memorandum of Understanding with IPL and PPL. Accordingly, Memorandum of Understanding dated 13-11-1993 came to be executed between IPRS, IPI and PPL, (hereinafter referred to as the „MOU‟) under which IPRS inter alia agreed to admit the members of IPI as members of IPRS. The said MOU incorporated a specific statement to the effect that „IPRS‟ confirms that the record companies are owners of musical works as Publishers.

¶172

iv. By virtue of the said MOU, the music companies agreed to share 50% of royalties collected by IPRS with author/composer members and hence in accordance with the said MOU, IPRS started licensing usage of music and collecting royalties from

¶173

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¶174

1993 onwards and also distributed the royalties amongst its members without and dispute till 2004.

¶175

v. Such owner members exercised complete control over the affairs of IPRS under section 35 of the Act. However, IPRS, with the help of the 1993 MOU endeavored to ensure that author /composer members received 50% royalties on the strength of their membership with IPRS. This 1993 MOU also ensured that the Author/Composer members also got representation on the Governing Council of IPRS though the entire control of IPRS was exercised by owner members.

¶176

vi. That dispute began to form between the music publisher companies and authors, wherein the music companies where facing claims as to ownership of musical and literary works from authors and composers. As admittedly, the Appellant is a society representing the interests of the authors, composers and music production companies.

¶177

vii. In light of the dispute around ownership, the Board of UPRs tool a decision in its GC meeting held on 8^th August, 2005 to sent letters to members calling them upon a provide documents establishing their ownership of copyrights in musical and literary works created/owned by them. However, none of the author/composer members did submit such documents establishing or claiming ownership of copyrights.

¶178

viii. As a result of this, the Board of IPRS took a decision in its GC meeting dated 27^th March, 2008 that IPRS as a Copyright Society should not violate the provisions of the Copyright Act, 1957 namely 33, 34 & 35A conjoint reading of Section 34 (3) (iii) and section 35(2) of the Act read with Rule 14i (4) demonstrates that fess collected will be disbursed only amongst the owners of copyright whose names are on its register of members.

¶179

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¶180

ix. IPRS as a copyright society had a uphold the interests of the owners and distribute royalties as per 34(3)(iii) and 35 to owners or obtain their approval to distribute royalty to non-owners viz. authors/ composers. Considering the same, the GC decided to call upon the non-owner members to sign and submit letter confirming the terms of MoU dated 12.11.1993 acknowledging the ownership of copyrights in musical and literary works by the music companies or that the author/composer could claim ownership by submitting documents proving copyright retained by them.

¶181

As a matter of fact, the Adjudicating Authority has come to the conclusion that the attached assets involved in money laundering are „proceeds of crime‟ under the PMLA without considering the submission of the appellant and the Impugned order is liable to be set aside on this ground.

¶182

In Ramani Mistry Vs Deputy Director, PMLA, FPA-

¶183

PMLA/296/KOL/2015, (At paragraphs 22 to 27 ) upon dealing with a case of attachment of properties disproportionate to the crime committed by the appellant, the Hon‟ble Tribunal held that the term „reason to believe‟ is not same as suspicion or doubt and that when it is said that a person has reason to believe a thing, it means that the circumstances and facts known to him are such that a reasonable man, by probable reasoning, can conclude or infer regarding the nature of the thing concerned.

¶184

It appears from the order of provisional attachment order as well as from the impugned order that nothing has been discussed and only the pleadings are referred and the only reason recorded before the Adjudicating Authority is that the Appellants are in possession of „proceeds of crime‟ must

¶185

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¶186

have a rational nexus to the formation of the belief and the materials placed before the Adjudicating Authority.

¶187

In the present case, there were no materials before the Adjudicating Authority to adjudge that Rs. 70,17,00,483/- invested in various mutual funds amounted to proceeds of crime. It is stated that the Respondent has not explained the attachment of the aforesaid amounts in its complaint, hence there was no basis or reason to believe for attaching the amounts mentioned vide the PAO and Impugned Order.

¶188

During the course of hearing, as Mr. Nitesh Rana, learned counsel has disputed the issue of disbursement of Royalties to the artists, an affidavit of Shri Rakesh Nigam, Chief Executive Officer, M/s Indian Performing Right Society Ltd., Mumbai, Indian, aged 52 yrs., having office at 208, Golden chambers, 2^nd floor, New Andheri Link Road, Andheri (West) Mumbai-400053 was filed with an advance copy to Mr. Nitesh Rana. In the said affidavit, it was disclosed that as on 31.03.2017, the status of the royalty of Rs. 85,82,29,782/- which was pending distribution as on 31.03.2014, is as under:

¶189

“i) Total royalty pending distribution as : Rs. 85,82,29,782/on 31.03.2014 ii) Distributed out of (i) above a. In F.Y. 2014-2015 : Rs.46,87,99,952/b. In F.Y. 2015-2015 : Rs. 3,19,02,952/c. In F.Y. 2016-2017 : Rs.3,00,99,329/iii) Cheques issued, not presented for payment by Members: a. As on 31.13.2014 : 1,18,00,000/b. (Less) Reissue of Rs. 95,06,537/c. Pending as on 31.03.2017 iv) Benevolent Fund : Rs. 22,93,462/FPA-PMLA-1302/MUM/2016 Page 24 of 42

¶190

v) Amount Pending due to unidentified works/song etc. : Rs.1,61,16,144/-

¶191

vi) Transfer to fund for exceptional Legal : Rs. 2,97,55,756/Expenses (stated in 2014-15 Annual accounts in Note 5 of „Royalties of Members‟

¶192

vii) “Royalty as on 31-3-2014” pending Distribution after : Rs. 26,83,24,932/

¶193

Disbursement & Adjustments as at (ii) to (iv) above

¶194

viii) “Royalty a on 31-3-2014” which could not be distributed as detailed at (a) to (c) below

¶195

a) Due to members on account of : Rs. 16,53,62,345/Disputing & Non-fulfillment of Conditions as approved in the governing Council/Board & Annual General Meeting by the Owners for the period prior to June, 2012.

¶196

b) Due to members on account of : Rs. 1,21,94,504/Disputing & Non-fulfillment of Conditions as approved in the governing Council/Board & Annual General Meeting by the Owners for the period prior to June, 2012

¶197

c) Royalty pending due to Member deceased – No legal Heir, Members not traceable, : Rs. 5,23,13,807/Statutory Compliance Legal Disputes. Etc. 1. As pm 31.03.2014 : Rs. 5,34,98,874/2. (less) distributed till 31.03.2017 Rs. 11,85,067/-

¶198

Mr. Nitesh Rana, Advocate time and again in order to stress his arguments and submitted that the appellant has not paid the royalty to Ms. Shubha Mudgal who is well-known artist and her compliant is also pending. Counsel for the appellant has filed letter dated 29.05.2017 issued by her. Copy of the same was handed over by Mr. Nitesh Rana, Advocate. The contexts of the letter reads as under:-

¶199

“ The Spcial Commissioner of Police (Crime)

¶200

Police Headquarters Delhi Police

¶201

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¶202

New Delhi-110001.

¶203

Ref: My complaint dated 12^th May, 2016 filed with the Delhi EOW by the undersigned

¶204

Respected Sir,

¶205

I, the undersigned had lodged the above referred to complaint with the EOW of Delhi Police. The Complaint adverted against the Indian Performing Right Society Limited (IPRS) and its Music Company members, Officers and Directors of IPRS and Phonographic Performance Limited ("PPL") on various grounds and various other issues including non-payment of royalties and other acts perceived as being criminal offences.

¶206

Pursuant to my complaint, F.I.R. No. 167 dated 26^th October, 2016 was registered at PS: EOW (“F .I .R.” and the same is currently pending investigation.

¶207

In view of IPRS addressing the concerns of authors and composers to their satisfaction and in their welfare, I have issued the present letter for withdrawing the F.I.R. Some of the prominent steps undertaken by IPRS for the welfare of the Author/ Music Composer Community are enumerated as under:

¶208

1. IPRS's Board has approved amendments to its Articles of Association to bring them in line with the Copyright Act 1957 as amended in 2012 and the Copyright Rules, 2013, a copy of which approved by the Authors and Composers, has been made available to me;

¶209

2. All current Music Company Owner Publisher Members of IPRS have withdrawn all the Cases against IPRS including those against any author/ composer members in reference to complaints against IPRS;

¶210

3. IPRS has held a proper AGM and after causing necessary amendments in the Articles of Association in the AGM;

¶211

4. IPRS has also conducted an extraordinary general body meeting was held to conduct free & fair elections to the entire Governing Council / Board by virtue of which authors and composers have equally participated along with the owners in the governance of the Society. I am aware a truly representative Governing Council has now been elected during the EGM;

¶212

5. IPRS has assured that royalties will be paid to the authors and composer members as per the Copyright Act, 1957(as amended);

¶213

6. IPRS has assured that it shall continue to work in the interest of Author/ Music Composer members.

¶214

FPA-PMLA-1302/MUM/2016 Page 26 of 42

¶215

Accordingly, I hereby agree to extend necessary support for Quashing of the F.I.R. No. 167 dated 26^th October, 2016 by signing the documents required as per law.

¶216

I have signed the present letter out of my own freewill and without any force, coercion or threat.

¶217

Yours Sincerely,

¶218

Sd/- Subha Mudgal

¶219

Cc: Mr. Satya Prakash (Investigating Officer)

¶220

”

¶221

It is also pertinent to mention here that during hearing Mr. Pragyan Sharma leaned counsel for appellant has informed us that the complainant Mr. Surender Sathi has agreed to settle the disputes and to give his cooperation to quash the F.I.R. and he would file the confirmation letter within one week. On 2^nd June, 2017 the copy of the letter dated 29.05.2017 has been filed.

¶222

It is also pertinent to mention here that during hearing, Mr. Pragyan Sharma learned counsel for appellant has informed us that the complainant Mr. Surendra Sathi has agreed to settled the disputes and to give his cooperation to quash the FIR and he would file the confirmation letter within one week. On 2^nd June, 2017 the copy of the letter dated 29.05.2017 has been filed. The same is reproduced as under:-

¶223

“The Senior Superintendent of Police Agra Uttar Pradesh

¶224

Ref: My Complaint filed before the Office of the SSP, Agra, Uttar Pradesh

¶225

Respected Sir,

¶226

I, understand had lodged the above referred to complaint with the office of the SSP, Agra, U.P. The Complaint adverted against the Indian Performing Right Society Limited (IPRS) and its Music Company members, Officers and Directors of IPRS and Phonographic Performance Limited (“PPL”) on various grounds and various other issues including non-payment of royalties and other acts perceived as being criminal offences.

¶227

FPA-PMLA-1302/MUM/2016 Page 27 of 42

¶228

Pursuant to my complaint, F.I.R. No. 455 of 2014 was registered at PS: Sadar Bazar, Agra (“ F.I.R. ”) and chargesheet has been filed in the said F.I.R.

¶229

¶230

1. IPRS‟s Board has approved amendments to its Articles of Association to bring them in line with the Copyright Act 1957 as amended in 2012 and the Copyright Rules, 2013, a copy of which approved by the Authors and Composers, has been made available to me;

¶231

2. All current Music Company Owner Publisher Members of IPRS have withdrawn all the Cases against IPRS including those against any author/composer members in reference to complaints against IPRS;

¶232

3. IPRS has held a proper AGM and after causing necessary amendments in the Articles of Association in the AGM;

¶233

4. IPRS has also conducted an extraordinary general body meeting was held to conduct free & fair elections to the entire Governing Council/Board by virtue of which authors and composers have equally participated along with the owners in the governance of the Society. I am aware a truly representative Governing Council has now been elected during the EGM;

¶234

5. IPRS has assured that royalties will be paid to the authors and composer members as per the Copyright Act, 1957 (as amended);

¶235

6. IPRS has assured that it shall continue to work in the interest of Author /Music Composer members.

¶236

Accordingly, I hereby agree to extend necessary support for Quashing of the F.I.R. No. 455 of 2014 by signing the documents required as per law.

¶237

I have signed the present letter out of my own freewill and without any force, coercion or threat.

¶238

Yours Sincerely,

¶239

Surendra Saathi Complainant and First Informant

¶240

Cc: Investigating Officer, PS: Sadar Bazar, Agra

¶241

In the present case, the appellant has admitted that in its letter dated 9.11.2015, the appellant herein had inter alia made the submission

¶242

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¶243

with regard to the provisional Attachment order no. 20 of 2015 dated 2010-2015 as under:

¶244

“For justice at your hands it is most humbly submitted for your kind consideration that the above cited PAO No. 20 of 2015 dated 20-10-2015 issued by the Directorate of Enforcement, Mumbai Zonal Office in the ECIR 05/MZO/2015, against us is issued mala fide without jurisdiction at Mumbai on the basis of a frivolous FIR no. 455 of 2014 dated 02.06.2014 registered by the Sadar Police Station, at a for place in Agra, Uttar Pradesh wherein the said plice Authorities filed a perfunctory Charges Sheet no. 30526/2015 on 23.05.2015 before the Hon‟ble Chief Judicial Magistrate, Agra in Derogation of the order of the High Court which on finding the allegations misconceived and untenable stayed the Charge Sheet and all proceedings in the criminal proceedings.

¶245

Sir, passing of a PAO is not a routine matter but a serious exercise and cannot be passed when the very basis of it is under scrutiny of Court and that too with a stay to allegations and proceedings. This PAO is mala fide passed to over reach the order of the Hon‟ble High court of the Allahabad dated 04.08.2015 in Writ Petitions. No. 22187-88-89 of 2015 filed under section 482 of Cr.P.C. staying the whole criminal proceedings to the knowledge of the authority issuing the said provisional attachment order. This stay order of the Hon‟ble High Court of Allahabad does not find even mention in the said Provisional Attachment Order.

¶246

In the absence of any subsisting Scheduled Offence, there is no scope to issue the Provisional Attachment Order against the company and its director more so when the property attached has no nexus whatsoever with the allegations in the FIR.

¶247

We are shocked to find that PMLA authorities at a different corner of the Country have to proceed under

¶248

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¶249

PMLA in petty private disputes of civil nature, contrary to the very object and purpose of PMLA and in the process stall and harass law abiding citizens.

¶250

Regrettably, the PMLA authority in the utter disregard of law, regulations and territorial jurisdiction passed the said PAO Order while suppressing most relevant material and documents.

¶251

The PMLA authority is likely to approach you with a complaint for notice for confirmation of the said PAO passed illegally and utter disregard of law and Rule of Law, hence this petition to you to kindly go through the material and call for the records and refuse to entertain the complaint on such PAO without a Scheduled Offence. We Shall be ready to tender any clarification and documents to prevent injustice to us”

¶252

The said submissions of the appellant were disregarded to the principles of natural justice as without any reference in respect of receipt of the above said letter dated 9.11.2015, the Adjudicating Authority issued the notice to Show Cause dated 23.11.2015 to the appellant.

¶253

It is also a matter of fact that in the written replies filed by the appellant during the course of adjudication proceedings, while furnishing information and details in respect of issues as in the above the said notice to show cause, the attention of the Hon‟ble Adjudicating Authority was drawn towards various misrepresentations, distortion, withholding and concealment of facts and documents in the O.C. 532 of 2015 made by the complainant in order to prejudice the mind of the said Authority against the appellant. In the sub-para 9.1 to 9.21 of para 9 of the written replies dated 11.01.2016 filed by appellant all such instances had been detailed for the perusal and consideration of Adjudicating Authority.

¶254

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¶255

The Adjudicating Authority did not discuss the various reply filed by the appellant. In the entire impugned order, the submissions of the parties were recorded and conclusion given. There is no discussion about the point raised by the appellant about the non-legal issues.

¶256

From the case of the appellant, it is evident that the appellant had not committed any offence in collection and distribution of royalties and that the balance of the such amount pending distribution was on account of non-fulfillment of the formalities by the members for which all due efforts had been made by the appellant. The plea raised were not considered and no reason to that effect is given in the entire impugned order dated 23.03.2016.

¶257

Whether innocent party whose properties i.e. movable or immovable are attached can approach the Adjudicating Authority for release of attached property.

¶258

The Scheme of Prevention of Money Laundering Act clearly provides the mechanism whereby the innocent parties can approach the Adjudicating Authority for the purposes of release of properties which have been attached in terms of the provisions of Section 5 of the Act. This can be seen by reading Section 8(1) and the proviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all or any of the properties referred to in the notice are involved in money laundering or not.

¶259

“8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under subsection (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of

¶260

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¶261

his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.

¶262

(2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and (c)taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach"

¶263

There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for release of property by showing their bonafides in their dealings with the property. In the

¶264

case of Sushil Kumar Katiyar (Appellants) Vs UOI and Ors. (Respondents) MANU/UP/0777/2016 decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single Judge after noticing the judgment of Karnataka High Court that the element of knowingly or mens rea have been provided under the Act so that the aspect of implicating any innocent person can be ruled out. Relevant para 26 of judgment is reproduced below :-

¶265

“26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in the Money Laundering Act

¶266

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¶267

was not held unconstitutional and ultra virus, but it was observed by the Karnataka High Court that the property of a person can be attached without there being any prosecution for the offence of Money Laundering, but so far as the prosecution of a person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of the Act for the offence of MoneyLaundering would also come to an end. It has also been kept open by the Karnataka High Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of money-laundering, he can show before the court that he is innocent and has not received any proceeds of crime.”

¶268

It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his innocence that he has not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the plea of innocence raised by any person and also the fact as to whether the property which has been attached has any nexus whatsoever with that of money laundering or not if the person before the Tribunal/ Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has attempted to indulge nor with knowledge or ever assisted any process or activity in connection with proceeds or crime and the question of his involvement does not arise as he is third party, then the Tribunal/ Adjudicating Authority can consider the said plea depending upon whether there exist bona fide in the said plea or not and proceed to adjudicate the plea of innocence of the said party.

¶269

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¶270

This is due to the reason that Section 8 allows the Adjudicating Authority to only retain the properties which are involved in money laundering which means as to whether properties attached are involved in money laundering or not is a pre-condition prior to confirming or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to release the said property out of the properties by holding that the said property is not involved in money laundering.

¶271

For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge of Gujarat High Court in the case of Jafar Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017 wherein Ld Single Judge has

¶272

observed as under:-

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“37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses conjunctive 'and', makes it luminous that any persons concerned in any process or activity connected with such "proceeds of crime" relating to a "scheduled offence" including its concealment, possession, acquisition or use can be guilty of money laundering, only if both of the two prerequisites are satisfied i.e.-

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“(i) Firstly, if he-

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(a) directly or indirectly 'attempts' to indulge,

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(b) „knowingly‟ either assists or is a party, or

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(c) is „actually involved‟ in such activity; and

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(ii) Secondly, if he also projects or claims it as untainted property;"

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38. The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients-

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“A. RE: DIRECT OR INDIRECT ATTEMPT:

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In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Hon'ble Supreme Court observed that-

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“13. Well then, what is an “attempt”? ...In sum, a person commits the offence of "attempt to commit a particular offence" when (i) he intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit the offence, does an act towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be an act during the course of committing that offence."

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Thus, an “attempt to indulge” would necessarily require not only a positive "intention" to commit the offence, but also preparation for the same coupled with doing of an act towards commission of such offence with such intention to commit the offence. Respondent failed to produce any material or circumstantial evidence whatsoever, oral or documentary, to show any such 'intention' and 'attempt' on the part of any of the petitioners.

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B. RE: KNOWINGLY ASSISTS OR KNOWINGLY IS A PARTY:

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In JotiParshad v. State of Haryana, MANU/SC/0161/1993 : 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows-

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“5. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of "intention" or "knowledge" or "reason to believe". We are now concerned with the expressions "knowledge" and "reason to believe". "Knowledge" is an awareness on the part of the person concerned indicating his state of mind. “Reason to believe” is another facet of the state of mind. "Reason to believe" is not the same thing as “suspicion” or “doubt” and mere seeing also cannot be equated to believing. “Reason to believe” is a higher level of state of mind. Likewise “knowledge” will be slightly on a higher plane than “reason to believe”. A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a

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reason to believe if he has sufficient cause to believe the same.”

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The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence.

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C. Actually involved:

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Actually involved would mean actually involved into any process or activity connected with the proceeds of crime and thus scheduled offence, including its concealment, possession, acquisition or use. There is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to substantiate any such allegation qua the petitioners,

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D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indian Penal Code for direct or indirect involvement, abetment, conspiracy or common intention, nor is any such case made out even on prima facie basis against any of them."

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39. The second of the two pre-requisite to attract Section 3 of PMLA would be satisfied only if the person also projects or claims proceeds of crime as untainted property. For making such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e. the property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, would be utmost necessary, which however is lacking in the instant case."

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These are four ingredients which are determinative factors on the basis

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of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of

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any property of any person in money laundering. This is due to the reason FPA-PMLA-1302/MUM/2016 Page 36 of 42

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that if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds of the crime nor being the participant in the said transaction ever, cannot be penalized for no fault of his. Therefore, it cannot be the Scheme of the Act whereby bona fide person without having any direct/ indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of mens rea or knowledge is missing.

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Similar principle has been laid down by Chennai High Court in the case of C. Chellamuthu (Appellants) Vs The Deputy Director, Prevention of Money Laundering Act, Directorate of Enforcement (Respondent)

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MANU/TN/4087/2015 decided on 14.10.2015, relevant portion of which are reproduced below:-

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“ 20. The said sections read as follows:--

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“23. Presumption in inter-connected transactions Where money-laundering involves two or more interconnected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court), be presumed that the remaining transactions form part of such inter-connected transaction.

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24. Burden of proof

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In any proceeding relating to proceeds of crime under this Act,

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(a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in moneylaundering; and

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(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.

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21. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of Rs. 15,00,00,000/- by producing bogus and fabricated documents. From and out of the said amount, the property in question was purchased by him in the names of his Benamies. One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime.

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22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that they sold their lands and borrowed monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements. Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent does not allege that

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Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor.

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23. Considering the materials on record and judgments reported in MANU/MH/1011/2010: 2010 (5) Bom CR 625 [supra] and : [2011] 164 Comp Cas 146 (AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The respondent failed to prove any nexus or link of Appellants with G. Srinivasan and his benamies. Once a person proves that his purchase is genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge.

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24. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties. Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation.

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„21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants, particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants without having any knowledge, whatsoever, that these properties were derived or obtained through criminal activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale consideration

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and the money paid to the seller is also well explained.

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22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that

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the deals are bona fide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that the same is tainted could be subjected to Provisional Attachment Order.

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23. In the instant case the only point to be decided is whether the properties bought by any person against clean money and without any knowledge that properties have been acquired directly or indirectly through scheduled offence could be subject matter of provisional attachment order.

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24. It is an admitted position that the Defendants (D-2 to D-8) had no knowledge that the properties in the hands of the vendor was proceeds of crime. They have also verified the papers relating to these properties before the deal. No point has been raised with regard to the financial capability of these Defendants to buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA."

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Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case.

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25. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. Radha Mohan Lokatia's case, Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence. All the persons involved in that case were close relatives.

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26. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced

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before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank."

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The Adjudicating Authority did not mention any reason as to why while passing the impugned order dated 23.03.2016, selective approach was adopted in considering and discussing the grounds submitted by the appellant in its written reply dated 11.01.2016 and on what basis the 14 ground. The said biased approach has caused severe prejudice and resulted in miscarriage of justice.

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The Adjudicating Authority despite submissions of documentary evidence by the appellant that the respondent had misrepresented the facts and had distorted the same in the Original Complaint for prejudicing the mind of the Adj. Authority accepted the same distorted version as the “Facts & circumstance of the case” in the impugned order.

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It is evident from the record that the appellant had been following the international standards and norms of collection and distribution of royalty. The amounts of the royalty collected and pending distribution could in no manner be construed as proceeds of cheating. The appellant had been filing all the statutory returns under the Income Tax Act and the Companies Act on time and never ever an iota of suspicion has ever been raised by any of the Statutory Authority in respect of the working of the Appellant or with regard to its financial statements and returns.

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The balance amount of royalty lying in the investment portfolios in the name of Appellant can in no way be construed as „proceeds of crime‟ and can be liable for provisional attachment or for any other purpose FPA-PMLA-1302/MUM/2016 Page 41 of 42

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under the provisions of PMLA, 2002. If for the sake of arguments if it was assumed that that royalty collected was „proceeds of crime‟ then the amount which has been distributed also will amount to proceeds of crime and all those who have received the same will have to be booked for offence for money laundering along with the persons from whom the said sums of royalty had been collected. That the contention of the respondent that the royalties so collected in legal and lawful manner were „proceeds of crime‟ was grossly wrong, baseless and without any logic.

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The Adjudicating Authority failed to appreciate the order of the Hon‟ble Bombay High Court dated 22.12.2015 passed in the Notice of Motion (L) no. 3620 of 2015 in SUIT (L) no. 1345 of 2015 wherein it had been held that the operations of the appellant are lawful and legitimate.

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Accordingly, the impugned order dated 23.03.2016 passed by Adjudicating Authority in confirmation of the PAO no. 20 of 2015 dated 20.10.2015 passed in O.C. No. 532 of 2015 being not sustainable, is liable to be set-aside as the same was passed contrary to facts and against the law. We may clarify here that during the course of the hearing, the learned counsel for the appellant has confirmed to us to pay the Royalty to the unpaid Artist without any condition as per law. Under these circumstances, we are of the view that unpaid artists will also be entitled to claim the interest on the amount of Royalty.

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