Remanded

FPA-PMLA-818/CHN/2015 of M/s Sakthi Aisvarya Spinning Mills Pvt. Ltd. through Shri P. Karuppuswamy, then Managing Director v/s The Deputy Director Directorate of Enforcement, Chennai

ATFP20 Jun 2017FPA-PMLA-818/CHN/2015

Case brief

AI extract

What is this about?

The Tribunal quashed the confirmed provisional attachment of immovable property owned by the appellant. It held that property can be attached under PMLA even if the possessor is not charged with a scheduled offence. The Tribunal directed release of property upon furnishing of an FDR as security, pending the Special Court trial on money laundering charges.

What did the court decide?

Attached immovable property released forthwith upon appellant furnishing a fixed deposit receipt of Rs. 4.67 crores as security within two months.

FPA-PMLA-818/CHN/2015 of M/s Sakthi Aisvarya Spinning Mills Pvt… — Money Laundering | ATFP (2017)

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APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

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Date of Decision: 20.06.2017

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FPA-PMLA-818/CHN/2015

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M/s Sakthi Aisvarya Spinning Mills Pvt. Ltd. through Shri P. Karuppuswamy, then Managing Director … Applicant/Appellant Versus The Deputy Director Directorate of Enforcement, Chennai … Respondent no. 1 Shri G. Srinivasan … Respondent no. 2

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Advocates/Authorized Representatives who appeared

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For the appellant : Shri P.S. Raghunathan, Sr. Advocate For the respondent : Shri N.K. Matta, Advocate CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN SHRI KAUSHAL SRIVASTAVA : MEMBER SHRI ANAND KISHORE : MEMBER JUDGMENT

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FPA-PMLA-818/CHN/2015

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The appellant has filed the above mentioned appeal u/s 26 of the Prevention of Money Laundering Act, 2002 against the impugned order dated 19.01.2005 passed in O.C. 369/2014.

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The brief facts are that the agreement is entered into between appellant and one G. Srinivasan, 2^nd Respondent herein (R2, for short) on 23.02.2007 by which the appellant agreed to transfer 76% of the share holding of the Company Sakthi Aisvarya Spinning Mill Pvt. Ltd. to the 2^nd

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Respondent along with Management of the Company on certain Terms and Conditions for a consideration of Rs. 12.5 Crores less the ascertained liability of the Company. Clause 14 provided for Arbitration in case of any dispute.

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Supplementary Agreement dated 30.12.2007 also entered into between the same parties to extend the time frame to 31.3.2008. This agreement records that the 2^nd Respondent has paid a sum of Rs. 3.36 crores. It also records that the transferors have handed over share certificates and duly executed transfer deeds for a total of 30,000 equity shares.

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The second Supplementary Agreement dated 9^th July, 2008 entered into between the parties to further extend the time to 31.10.2008. This agreement records that the 2^nd respondent has paid a sum of Rs. 4.67 Crores and that share certificates for 8550 equity shares had also been handed over.

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It was admitted on behalf of Shri P. Karuppusamy who was then Managing Director of appellant that he had received payments amounting to Rs. 3.58 crores from the said Shri G. Srinivasan.

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Shri P. Karuppuswamy, (then) Managing Director has received the advance amount from the respondent no. 2 on behalf of the appellant’s company (who would be referred hereinafter as the appellant).

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Since the transaction was not completed by Respondent No. 2 on 05.01.2009 as per agreement, the appellant invoked the arbitration and

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nominated an arbitrator in view arbitration clause in the agreement in case of any disputes.

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The Arbitrator passed an award on 15.07.2009 in favour of the appellant and against the respondent no. 2. With regard to advance amount received by the appellant from the respondent no. 2, in para 13 of the Award, the issue was dealt by the Arbitrator in which it was observed as follows:

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“ Consequent on the abandonment of the contract by the Opposite Party and termination of the contract by the Petitioners, the Opposite Party has no rights to continue in possession of the company or to carry out the day-to-day operations. Hence he is liable to redeliver all the properties he had received from the petitioners. A question may arise whether the Opposite Party is entitled to get the amounts paid by him to the petitioners towards partial consideration. It may be of interest to note that the main agreement Ex. P1 and the subsequent supplementary agreements Ex. P5 and P6 do not contain any default or forfeiture clause in the event of breach of contract by the Opposite Party. There is nothing to hold that the petitioners shall return all the amounts received from the Opposite Party towards partial consideration. However having record to the fact the Opposite Party had the benefit of running the company and carry out the day-today operations, it appears to me that the Opposite Party would have made monetary gains from the business ever since he took possession of the company with all assets. It is for the Opposite Party to prove whether he had made any gains or suffered any loss. In the absence of any details regarding the profit and loss account, I am of the opinion that the Opposite Party cannot ask for repayment of the consideration paid by him in as much as he had the benefit of running the mill and making some gains. Assuming that the Opposite party had not derived any benefit by running the mill, he should have proved this fat and claimed return of the consideration. He has not done so. Hence the consideration paid by the Opposite Party cannot be ordered to be returned to the Opposite Party. It is more so when the agreements are silent on this aspect.”

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The learned arbitrator also after long discussions of the dispute between the appellant and respondent no. 2, in para 17 issued the following directions as follows in the operate part of the award:

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1. The agreements dated 23.2.2007, 30.12.2007 and 9.7.2008 entered into between the petitioners and opposite party shall stand cancelled.

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2. The opposite party shall return possession of the mill with all accessories and machineries to the petitioners. He shall return all the documents and deeds that were given to him as per the agreement dated 23.2.2007. (Description of the mill given in the schedule)

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3. The Opposite Party shall retransfer the equity shares to the respective petitioners.

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4. The Opposite Party is liable to pay the accrued compensation of Rupees eighteen lakhs till 30.06.2009 and thereafter at the rate of Rupees one lakh per mensem till possession of the company is handed over. The Opposite Party is liable to pay interest to the Petitioners at 12% per annum to any delayed payment.

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5. The Opposite Party is liable to pay Arbitratin costs of Rs. 1,35,000/- to the Petitioners.

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6. In the event of non compliance of any of the above directions 1 to 5 in the award, the Petitioners are at liberty to move the Jurisdictional Court at Coimbatore or at Namakkal Court for enforcing the award since the property is situated at Namakkal.

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Separately, pursuant to the written complaint dated 06.10.2010 of Shri B. Surendran Vice President & Branch Head, SBI Global Factors Limited 3^rd Floor, Chamber Towers, 8/732, Avinashi Road. Coimbatore with regard to the fraudulent transactions in the trade finance accounts of M/s Sri Pamba Spinning Mill Private Limited (SPSMPL, in short), situated at 126, Main Building, V.M. Complex Backside, By-pass Road, Udumalpet, Tirupur District and M/s Paranthaman Spinning & Weaving Mills Private Limited (PSWMPL, in short), having factory at SF. No.139, Moolipalli Village, Rayarpalayam Post, Thiruchengode, Namakkal District held with M/s Global Trade Finance Limited (GTFL, in short), Coimbatore Branch, the Central Bureau of Investigation, Bank Securities & Frauds Cell (BS&FC). Bangalore registered FIRs No.RC-6(E)/2010&No.RC7(E)/2010 both dated 07.10.2010 respectively in two criminal cases FPA-PMLA-818/CHN/2015

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against persons/entities alleged therein and accordingly initiated their investigation.

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The CBI, BS&FC, Bangalore, in respect of the case in FIR No. RC6(E)/2010 dated 07.10.2010, filed its Final Report before the Special Judge for CBI cases at Coimbatore under Section 173(2) of the Cr.PC, 1973 in Charge Sheet No.10/2011 dated 28.11.2011 alleging commission of offences punishable under Section 120-B, read with 420, 467. 468 & 471 of I PC 1860 and Sections 7, 12 & 13(2) read with 13(1) (a) & (d) of the Prevention of Corruption Act, 1988 against S/Shri S. Arivarasu, G. Srinivasan, P. Venkatachalapathy. R. Selvakumar, R. Manoharan, R. Velumurugan and M/s Sri Pamba Spinning Mill Private Limited, represented by its Directors.

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The case against the respondent no. 2 i.e. Shri G. Srinivasan was that he in the capacity of the Managing Director of SPSMPL, a company registered under the Companies Act, 1956 had filed an application with GTFL, Coimbatore Branch seeking Trade Finance Limit of Rs.10 crores by furnishing false & fabricated financial statements and other documents. On the basis of the said documents the Trade finance Limit of Rs.10 crores initially sanctioned by GTFL to SPSMPL on 02.06.2007 was subsequently enhanced to Rs.15 crores and Rs.25 crores on 18.10.2007 & on 15.03.2008 respectively. Also, SPSMPL actually had no business transactions with its three debtor firms viz., M/s Sri Sri Agencies, M/s Sri Venkateshwara Cotton and M/s Harsha Cottons but based on false/fake and fabricated sale bills/invoices drawn on nonfunctional. fictitious buyers / debtors, it had, by cheating GTFL, wrongfully obtained funds to the tune of Rs.25 crores through Trade Finance and diverted it for purposes other than intended. Shri G. FPA-PMLA-818/CHN/2015

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Srinivasan and others were thus charged to have caused a wrongful loss of Rs.28.60 crores to GTFL and corresponding wrongful gain for themselves.

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In the meanwhile the said award was challenged by filing of an appeal by the 2^nd respondent under Section 34 of the Arbitration and Conciliation Act, 1996. The said objection/appeal was dismissed by the Principal District Judge, Tirupur on 05.10.2012 in favour of the appellant and against the respondent no. 2. The award becomes rule of the Court and as per settled law, it becomes a decree which is enforceable in law by filing of execution. The respondent no. 2 was also restrained in the interim petition being no. O.P. no. 63/2013 from alienating the movable and immovable properties of the appellant’s company.

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Joint Director, Enforcement Directorate on 22.09.2014 passes an order of provisional attachment of the immovable property viz. the premises of the mill belonging to appellant company which was the subject matter of arbitration proceedings.

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The Adjudicating Authority confirms the Order of Provisional attachment on 19.01.2015 i.e. the impugned order which is subject matter of present appeal which is filed by the appellant on 25.02.2015.

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In the arbitration case, the respondent no. 2 had challenged the said judgment whereby his objections were dismissed on 05.08.2015, the Hon’ble High Court of Madras in CMA 3109 of 2012 rejects the Second Appeal filed under Section 37 of the Arbitration Conciliation Act, 1996.

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The Hon’ble Supreme Court also dismisses SLP 33717 of 2015 on 11^th December, 2015 filed by the respondent no. 2. There is no denial by any party that the award has certain attained finality. No suit for recovery of refund of advance amount had been filed by the respondent no. 2 against the appellant. As mentioned earlier, said amount was adjusted as per finding arrived in para 13 of the Award which has now become final between the parties.

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It is not denied by the respondents that CBI registered the FIR against the respondent no. 2 on 7^th October, 2010 which is subsequent to the date of passing of Award which was confirmed by the Hon’ble Supreme Court.

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As the directions passed by the arbitrator which were confirmed upto the Supreme Court in the award were not complied by the respondent no. 2, the appellant filed the Criminal O.P. 28006 of 2015 for non-compliance of award, the High Court of Madras filed by the appellant passes an order on 29.02.2016 to the Additional Superintendent of Police, CBI to hand over all documents of title in respect of the property which were handed over to the appellant.

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When the appellant challenged the present PMLA proceedings in W.P. No. 25922 of 2016, filed by the appellant, the Hon’ble High Court of Madras by order dated 01.08.2016 directed this Hon’ble Tribunal to dispose of the appeal within a period of 10 weeks from the date of receipt of the Copy of the Order. Therefore, the present appeal was heard by us on urgent basis.

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In Execution Petition filed before the Principal District Judge, Namakkal filed by the appellant in order to enforce the decree on 20^th FPA-PMLA-818/CHN/2015

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September, 2016, an Order is passed directing the 2^nd Respondent G. Srinivasan to deliver the immovable property mentioned in para 3 of the Award viz. Equity share certificates in its original form and in failure to do so, the further directions to the appellant to file petition to arrest the 2^nd Respondent to put into civil prison to realize the above share certificates.

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In the present appeal, no reply has been filed by the respondent no. 2 to the appeal. Counsel for the appellant has made oral submissions. He has also filed list of dates and events and written submissions. The respondent no. 1 has referred various documents, the reply file to the appeal and few decisions in support of its case. He has also filed a written submission of synopsis.

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The contention of the Appellants is that except the amount of Rs. 1,00,000/- received by them on 23.2.2007, no other amount was received by them by means of cash is without any corroboration in as much as the reconciliation of receipts furnished by Appellants was not infallible.

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The case of the respondent no. 1 in its pleading is that the attached immovable property in question which is possessed by the appellant is involved in the offence of money laundering, as the same was purchased out of proceeds of crime committed by the respondent no. 2. The appellant has received the tainted amount from the respondent no. 2. Therefore, it is immaterial if the award is passed in favour of the appellant as the said aspect was never dealt in the award, which is ex-parte award. Even the provision of PMLA, 2002 have overriding effect which would prevail upon to the general law.

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Therefore the respondent no. 1 has rightly attached the property as it existed a case of “money laundering”, investigation was initiated under the provisions of PMLA, 2002 as during the course of investigation, the “proceeds of crime" were identified to have been launched in the form of sale consideration towards the purchase of subject property of the Provisional Attachment Order. As per the provisions of subsection (1) of Section 5 of the PMLA, the property that was derived out of the proceeds of crime and was involved in the offence of money laundering was provisionally attached and the same was confirmed based on the Complaint filed before this Hon’ble Adjudicating Authority as per the provisions of Section 5(5) of PMLA, 2002 and the Provisional Attachment Order and its consequent confirmation are within the provisions of law.

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It is also submitted on behalf of the respondent no. 1 that the terms of the above two Supplementary Agreements that has been framed with mutually agreed upon terms by the parties concerned on their own volition would unambiguously substantiate the fact of receipt of an amount of Rs.3.36 crores as on 30.12.2007 by the appellant who were the transferors and also the fact of subsequent receipt of amount aggregating to Rs.4.67 crores as on 09.07.2008, the respective dates of the Supplementary Agreements. On the other hand, though it has been contended that the Appellant and Shri P. Karuppuswamy, one of the claimant have received a sum of Rs. 2,68,44,403/- and Rs. 90,41,000/respectively totaling to Rs.3,58,85,403/-, the reasons for reciting a confirmation clause in the Supplementary Agreement dated 30.12.2007 with an indication as to have received an amount of Rs.3.36 crores only was left unsubstantiated by them and nor does the break-up narrated by the Appellant in the Memo of Appeal reconcile with the said total.

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In support of his submission, the counsel for the respondent also submitted that the Supplementary Agreement dated 09.07.2008 contains a clause confirming the receipt of an amount of Rs.4.67 crores. The break-up of subsequent receipts furnished in the Memo of Appeal neither specifically indicate the cheques dated 09.07.2008 & 28.07.2008 claimed by the Appellant to have been dishonoured nor does the value of cheques reconcile with the amount specified in the break-up therein.

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It is submitted on behalf of the respondent no. 1 that in the present case, it cannot be denied by the Appellant that the proceeds of crime had been received by them in the form of part sale consideration of the subject property of the Provisional Attachment Order and therefore, the attachment to the extent of the proceeds of crime, that is quantified to be around Rs.5.01 crores is correct in terms of the provisions of PMLA, 2002.

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It is submitted that the crime proceeds in the form of the property could be in the name of any person, who was not involved in a scheduled offence, it is submitted that Shri G.Srinivasan had illegally availed loan facilities by falsification of documents and diverted the loan amounts to other than the intended purposes, invested in the property of the Appellants and subsequently projected the property as untainted one. Therefore, it is evident that the property under the possession of the appellant is nothing but a tainted property embroiled with the proceeds of crime and being projected as untainted property as detailed in the subject Provisional Attachment Order.

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Mr. Matta has referred the decision of Smt. Shobana and others Vs. the Asst. Director of Enforcement, Chennai in W.P. Nos. 14083 to FPA-PMLA-818/CHN/2015

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14085 of 2013, wherein the Hon’ble High Court of Madras has held the Impact of Money Laundering as follows:

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“Impact of Money Laundering:

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49. The Evil act of money-laundering may create a parallel economic system in a particular country controlled by few persons. Undoubtedly, this will result in destabilization and also affect the prevailing economy. The act of ‘moneylaundering’ has three ingredients, (a) In placement, it concerns the division of proceeds into smurfing so as to make movements thereof less suspectable. (b) In layering, the funds introduced in the financial system are rotated, transferred, remixed, and retransferred in a repeated fashion. The purpose of ‘layering’ is to distance the fund from the origin so as to make it difficult to trace the origin difference, (c) In integration stage, the money-laundering is concerned itself with successful merging into the legitimate finance stream.

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It is not out of place for this Court to make a significant mention that money laundering offence primarily springs from ‘Proceeds of Crime’. There is a predicate offence under each activity of money-laundering. Further, the Act speaks of the reporting authority to furnish information of such provided transactions to the Director within the prescribed time. Added further, the Prevention of Money-Laundering Act imposes an obligation on the reporting entity which term covers Banking, Country Financial Institutions, Intermediary and individual carrying on Designated Business or Profession to maintain record of transactions prescribed under the Act. The aforementioned measures are preventive in character with a view to get hold of the ‘Proceeds of Crime’ etc. Money laundering is global phenomenon that affects all countries in various degrees. The presumption can be employed in adjudication proceedings mentioned in Section 8 of the Prevention of Money-Laundering Act as well for the trial of the money-laundering offences. As such, the presumption is attracted in regard to the trial proceedings before the Special Court for an offence under Section 3 of the Act. The Adjudicating Authority or the Court will have to first come to the conclusion that atleast one of the inter-connected transactions is proved by the investigating agency to be involved in money- laundering”.

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It is submitted by Mr. Matta that in order to attach a property involved in an offence of money laundering, by the competent authority in terms of Section 3 & 5 of PMLA, 2002 it is not a necessity that the persons, who possess the property, should have been charged of a scheduled offence as contended by the Appellant. In other words, the

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crime proceeds in the form of the property could be in the name of any person, who was not involved in a scheduled offence.

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It is argued by Mr. Matta that under Section 24 of the PMLA, 2002 the person accused of having committed the offence and in this case, the appellant who are claiming the possession of the attached property, needs to prove with supporting evidence and material that the subject property under attachment is not involved in money laundering activity. Thus, in any proceedings under the PMLA, the burden of proving that the property confirmed for attachment under section 8 of the PMLA is not illegally acquired/possessed property shall be on the person only.

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It is also argued by Mr. Matta that the property, if involved in an offence of money laundering, is liable to be attached by the competent authority even if the person, under whose possession such property is lying, was not charged of having committed a scheduled offence. Therefore, to attach a property involved in an offence of moneylaundering, by the competent authority in terms of Section 3 & 5 of PMLA, 2002 it is not a necessity that the persons, who possess the property, should have been charged of a scheduled offence as contended by the Appellant. In other words, the crime proceeds in the form of the property could be in the name of any person, who was not involved in a scheduled offence. In this case, it is again reiterated that Shri G. Srinivasan had illegally availed loan facilities by falsification of documents and diverted the loan amounts to other than the intended purposes, invested in the property of the Appellants and subsequently projected the property as untainted one. It is evident that the property under the possession of the appellant is nothing but a tainted property

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embroiled with the proceeds of crime and being projected as untainted property as detailed in the subject Provisional Attachment Order.

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It is stated by Mr. Matta that the appellant’s furnishing the expenditure incurred out of the admitted receipts of the part sale proceeds of the subject property of the Provisional Attachment Order is of no consequence and the same would in no way wriggle out the subject receipts from being entangled with the proceeds of crime thereby transforming the very nature of the transaction. On the contrary certain admitted expenses towards ‘Karnataka Bank Ltd. Settlement’, ‘Labour Settlement’, ‘PF Payment’ etc., would clearly exhibit the fact of the consumption of the proceeds of crime towards the management of the subject property.

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It is submitted that there cannot be valid award in respect of an immovable property that is embroiled with the proceeds of crime. As such, the assertions raised herein on behalf of the appellant are not sustainable in law and are liable to be rejected.

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He, in support of his argument has also referred the case of Mr. Radha Mohan Lakhotia & Others Vs Deputy Director, Directorate of Enforcement, Mumbai in Appeal Nos. 527 to 529 of 2010, the Hon’ble Division Bench of High Court of Bombay wherein it is held that the proceeds of crime in the form of any property which involved in money laundering possessed by any person shall be attached under the PMLA, 2002.

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He also referred the case of Shri V.M. Ganesan & Another Vs the Joint Director, Directorate of Enforcement & Others in W.A. Nos. 1625, FPA-PMLA-818/CHN/2015

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1626 of 2014, the Hon’ble Division Bench of High Court of Madras has also confirmed and decided the legality and validity of the Order dated 17.11.2014 passed by the Hon’ble Single Judge of the Hon’ble High Court of Madras that the proceeds of crime, involved in money laundering possessed by any person (need not be an accused in the schedule offence) could be attached under PMLA, 2002.

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In its pleadings, the respondent no. 1 has also referred to the' provisions of Section 23 of PMLA, 2002, wherein “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 purpose of adjudication or confiscation under Section 8 or for the trial of the money laundering offence, it shall unless otherwise proved to be the satisfaction of the adjudicating authority or the Special Court, be presumed that the remaining transactions form part of such inter connected transactions”. It is then submitted that in the instant case it has been established in the investigation that part of the proceeds of crime received by R2 had been paid to the appellants in the form of part sale consideration of the subject property and hence, the attachment of the appellants subject immovable property including plant and machinery to the extent of the proceeds of crime so invested, which as per the departments contention is quantified to be around Rs. 5.01 crores, is correct in terms of the provisions of the PMLA.

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As far as the Arbitration Award in favour of the appellant is concerned, it is submitted by R1 that the award of the arbitrator is an independent proceeding between the appellant and R2 which does not help the case of the appellant as far as the proceedings under the PMLA are concerned. While the Agreements entered into by the appellants with FPA-PMLA-818/CHN/2015

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Shri G. Srinivasan stand nullified by the award of the Arbitration as well as the fact that the amount of part sale consideration received by them is not required to be returned by them to the said Shri G. Srinivasan, these facts do not have any implication with regard to the offence of money laundering. As shown in the investigation and upheld in the impugned order, part of the Proceeds of Crime derived by Shri G. Srinivasan by fraudulently obtaining loan from GTLF admittedly stand invested in the subject property which has been attached provisionally to that extent by the respondent no. 1 herein by issuance of Provisional Attachment Order No. 14/2014 dated 22.09.2014 and subsequently confirmed by the Adjudicating Authority (PMLA), New Delhi.

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It is admitted position in the matter that the appellant is not directly involved in the scheduled offences of money laundering. There is nothing on record to show that there was any relation or connection between the parties prior to the subject agreement and transactions, directly or indirectly. He is also not included in the complaint filed by the respondent-1 under the PMLA.

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It is also undisputed fact that the respondent no. 2 has not filed the suit for recovery of advance payment given to the appellant. It is also a matter that the award was passed in 2009. CBI registered case against the respondent no. 2 in 2010. The first appeal against the arbitration award filed with the Principal District Judge, second appeal before the High Court and Special Leave petition filed by the respondent no. 2 before the Hon’ble Supreme Court were dismissed during the pendency of criminal proceedings and PMLA proceedings. The respondent no. 1 and CBI never appeared or become party before the Court when the

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arbitration dispute was being considered between the appellants and respondent no. 2.

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Admittedly in the Arbitration Proceedings, as affirmed under Section 34 of Arbitration and Conciliation Act (Arbitration Act) and further confirmed under Section 37 of the Arbitration Act and Article 136 of the Constitution, a direction was given that,

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a) The 2nd Respondent cannot ask for repayment on the consideration paid by him.

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b) The agreement between the Appellant and the 2nd respondent is cancelled.

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c) The 2nd respondent shall return the possession of the mills with all accessories and machineries as well as documents and deeds.

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d) The 2nd respondent shall re transfer the equity shares

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e) The 2nd respondent is liable to pay the accrued compensation till 30.06.2009 and further compensation till possession is handed over.

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It is also a matter of fact that the mill was declared as a sick unit by the Hon’ble Board for Industrial and Financial Reconstruction, New Delhi and as per their Order No.21/99dated 11.08.1999, the company should not alienate any of its assets without prior approval of BIFR. In spite of the said specific directions of the BIFR, Shri Karuppusamy, then Managing Director of M/s Sakthi Aiswarya Spinning Mills Pvt. Ltd., had entered into agreement with Shri G. Srinivasan on 23.02.2007 for transferring the said company for a consideration of Rs.12.50 crores.

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During the course of arguments on 1.3.2017, the Learned Counsel for the respondent no. 1 took the stand that the agreement entered into between the Appellant and the 2^nd respondent was in violation of the FPA-PMLA-818/CHN/2015

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Interim Order of BIFR which, vide its order 21/99 dated 11.08.99 order had directed that the company should not alienate any of its assets without prior approval of BIFR and as the appellant had entered into an agreement with R2 for transferring the said company for a consideration of Rs. 12.5 crore and had also received 5.01 crores towards the sale consideration and out of the proceeds of crime, it would amount to violation of the Orders of BIFR.

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On the appellants behalf, it was contended that the execution of agreement to sell the mill was only the first step in an attempt to bring in a new promoter and therefore would not amount to alienation of any of the assets of the Company. Counsel for the appellant has tried to justify his stand by referring to Clause XIII, of the agreement which stipulated as follows:

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“It is agreed that this agreement is subject to the approval of the Draft Rehabilitation Scheme by Board for Industrial and Financial Reconstruction in which the company has been registered as a sick industrial company as case No. 21/1999 under Sick Industrial Companies (Special Provisions) Act, 1985.”

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The said issue for violation of the BIFR order, if any, cannot be an issue in the domain of this Tribunal. In case any party had violated the order of BIFR, the appropriate action if any would have to be taken by the said authority for breach of order.

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The next argument of learned Counsel for respondent no. 1 that the appellant owes money to other Government Departments such as PF, ESI, Commercial Taxes and that the appellant was involved in a theft of power case. In reply, it is alleged by the appellant that apart from settling all secured creditors, he has settled PF dues, Commercial tax dues and a small amount of ESI remains to be paid. With regard to the theft of

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power, the appellant was acquitted in the criminal case which acquittal was upheld by the High Court, Madras in Crl. R.C. No. 691 of 2003 dated 6-4-2004 and upheld by the Hon’ble Supreme Court in Crl. Appeal No. 1962 of 2008 (S.L.P (Crl. No. 3878 of 2004) dated 25.11.2008. In Civil proceedings under the Electricity Act, a fine was levied but that has also been set aside by the Hon’ble High Court of Madras and it is pending in Writ Appeal No. 1705 of 2014 at the instance of Tamil Nadu Electricity Board.

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The Award rendered by the Arbitrator has become final between the parties up to the Supreme Court. There are no allegations on behalf of any of the respondents that the award was obtained by fraud or by making mis-representation. No proceedings of such nature are pending in any court.

¶112

The appellants have argued that the effect of the civil proceedings i.e. the Award is that neither the money paid to the appellant can be treated as proceeds of crime nor the property which is the subject matter of attachment can be treated as acquisition of proceeds of crime. It is contended that the issue concluded between the appellants and the second respondent by way of the Award would be binding on the Enforcement Directorate and on this Tribunal. The appellant has also referred to cited extracts from the the judgment of the Hon’ble Supreme Court in 2002 (8) SCC Page-87 ( K.G. Premshanker Vs. Inspector of Police in Apl Crl 935 of 2002) and in Seth Ramdayal Jat vs. Laxmi Prasad reported in 2009 11 SCC 545 , . The respondents on the other hand have contended that such contention is without merit in as much as the proceeds of crime derived by Shri G. Srinivasn (R2) admittedly stand invested in the subject property attached provisionally by the respondent FPA-PMLA-818/CHN/2015

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by issuance of PAO No. 14/2004 which has been confirmed by the Adjudicating Authority and the same is in accordance with the provisions of the PMLA, 2005.

¶115

It is observed that the Arbitration Award is in relation to the civil dispute between the two parties and gives a remedy for affording relief to the appellant who was affected by breach of the Agreement on part of R2. However, the question whether the transactions between the two parties involved any violation of PMLA was not an aspect which was before the Arbitrator and the concerned courts and the conclusion in the Award do not in any way determine this aspect. It is settled law that in a case involving both civil and criminal aspects, the proceedings relating to the both these aspects go on parallely. We have also gone through the judgments cited by the Learned Advocate of the Appellant but are of the view that the same do not support the arguments sought to be made as mentioned above. The learned counsel for the appellant has also not brought out in what way the cited extract from the judgment support his submission. On going through the said judgments, we find that it rather lays down that the previous judgments which are final can be relied upon only as provided under section 40 to 43 of the Indian Evidence Act. The said Sections are extracted hereunder.

¶116

"40. Previous judgments relevant to bar a second suit or trial.

¶117

The existence of any judgment, order or decree which by law prevents any Courts from taking cognizance of a suit or holding a trial is a relevant fact when the question is whether such Court ought to take cognizance of such suit or to hold such trial."

¶118

"41. Relevancy of certain judgments in probate, etc., jurisdiction

¶119

A final judgment, order or decree of a competent Court, in the exercise of probate, matrimonial, admiralty or insolvency jurisdiction which confers upon or takes away from any person any legal character, or which declares any person to be entitled to any such character, or to be entitled to any specific thing, not as against any specified person but absolutely, is relevant when the existence of any FPA-PMLA-818/CHN/2015

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such legal character, or the title of any such person to any such thing, is relevant.

¶122

"42. Relevancy and effect of judgments, orders or decrees, other than those mentioned in section 41

¶123

Judgments, orders or decrees other than those mentioned in section 41, are relevant if they relate to matters of a public nature relevant to the enquiry, but such judgments, orders or decrees are not conclusive proof of that which they state.

¶124

“43. Judgments, etc., other than those mentioned in sections 40 to 42, when relevant.-

¶125

Judgments, orders or decrees, other than those mentioned in sections 40, 41 and 42, are irrelevant, unless the existence of such judgment, order or decree is a fact in issue, or is relevant under some other provision of this Act.”

¶126

It is quite evident that the present matter would not be covered in either of the sections 40, 41 or 42 of the said Act. As far as section 43 is concerned, the existence of the Award and its finality is not a fact in issue. It is also not brought out by the appellant as to under which provision of an Act, it is relevant to the present matter. On the aspect of affect of civil proceedings on criminal of quasi criminal matters – the proceedings under PMLA being quasi criminal in nature, and in support of the view that has been taken here in above, reference may be had to the following extracts from the said judgment of the Hon’ble Supreme Court in the case of K.G. Premshanker Vs. Inspector of Police , Apl Crl 935 of 2002 reported in 2002 (8) SCC which reads as follows:

¶127

“Learned Additional Solicitor General Shri Altaf Ahmed appearing for the respondents submitted that the observation made by this Court in V.M. Shah's case that "the finding recorded by the criminal Court, stands superseded by the finding recorded by the civil Court and thereby the finding of the civil Court gets precedence over the finding recorded by the criminal Court" is against the law laid down by this Court in various decisions. For this, he rightly referred to the provisions of Sections 41, 42 and 43 of the Evidence Act and submitted that under the Evidence Act to what extent judgments given in the previous proceedings are relevant is provided and therefore it would be against the law if it is held that as soon as the judgment and decree is passed in a civil suit the criminal proceedings are required to be dropped if the suit is decided against the plaintiff who is the complainant in the criminal proceedings.

¶128

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In our view, the submission of learned Addl. Solicitor General requires to be accepted.Sections 40 to 43 of the Evidence Act provide which judgments of Courts of justice are relevant and to what extent.

¶131

Shri Altaf Ahmed, learned Additional Solicitor General, further referred to the full bench decision of Lahore High Court in B.N. Kashyap v. Emperor [AIR 1945 Lahore 23] wherein the Full Bench considered the following question:

¶132

" When there are concurrent proceedings covering the same ground before a criminal Court and a civil Court, the parties being substantially the same, would the judgment of the civil Court, if obtained first, be admissible in evidence before the criminal Court in proof or disproof of the fact on which the prosecution is based?"

¶133

Finally, after considering the various decisions, the Court held thus:

¶134

"There is no reason in my judgment as to why the decision of the civil Court particularly in an action in personam should be allowed to have that sanctity. There appears to be no sound reason for that view. To hold that when a party has been able to satisfy a civil Court as to the justice of his claim and has in the result succeeded in obtaining a decree which is final and binding upon the parties, it would not be open to criminal Courts to go behind the findings of the civil court is to place the latter without any valid reason in a much higher position than what it actually occupies in the system of administration in this country and to make it master not only of cases which it is called upon to adjudicate but also of cases which it is not called upon to determine and over which it has really no control. The fact is that the issues in the two cases although based on the same facts (and strictly speaking even parties in the two proceedings) are not identical and there appears to be no sufficient reason for delaying the proceedings in the criminal Court, which, unhampered by the civil Court, is fully competent to decide the questions that arise before it for its decision and where in the nature of things there must be a speedy disposal."

¶135

In view of the ratio of the above decision, it is difficult to agree to the argument put forth by the appellant that proceedings under the PMLA in respect of the subject property would be barred on account of the arbitration award between the parties and said Award having become final. It is also the admitted position that there are subsequent events after passing the award between the parties have happened. The relevancy of the Award would arise while deciding the amount received by the appellant from R2 in so far as it is relevant to the present matter under consideration and on which there is a dispute between the two sides. This aspect will be reverted to later in the order.

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Admittedly against the respondent no. 2, final report before Hon’ble Court of Special Judge for CBI cases at Coimbatore under Section 173(2) of the Cr. PC, 1973 in Charge Sheet No.9/2011 dated 28.11.2011 was filed by the CBI, BS&FC alleging commission of offences punishable under Section 120-B, read with 420, 467, 468 & 471 of IPC, 1860 and Sections 7 & 13(2) read with 13(1) (a) & (d) of the Prevention of Corruption Act, 1988 against S/Shri S. Arivarasu, R. Selvakumar, G. Srinivasan, P.Venkatachalapathy, R. Manoharan and M/s Paranthaman Spinning & Weaving Mills Private Limited (PSWMPL), represented by its Director which is still pending.

¶139

It was alleged in the said charge sheet that Shri R. Selvakumar in the capacity of the Managing Director of PSWMPL, a company registered under the Companies Act, 1956 had filed an application with GTFL, Coimbatore Branch seeking Trade Finance Limit of Rs.15 crores by furnishing false & fabricated financial statements and other documents. On the basis of the said documents the Trade finance Limit of Rs.10 crores initially sanctioned by GTFL to PSWMPL on 22.01.2008 was later enhanced to Rs. 20 crores. lt was alleged that PSWMPL without any legitimate trade transactions with its fictitiously conceived ten debtor firms viz., M/s Sri Sri Agencies, M/s Sri Venkateshwara Cottons, M/s Harsha Cottons, M/s Sri Sri Agencies India Pvt. Ltd., M/s Sri Venkateshwara Cottons Pvt. Ltd., M/s Harsha Cottons Pvt. Ltd., M/s East West Fabrics, M/s P.V. Enterprises, M/s Mithul Textiles and M/s Milan Tex Fabrics had furnished false/fake and fabricated sale bills/invoices drawn on non-functional, fictitious buyers / debtors to fraudulently obtain funds to the tune of Rs.20 crores through Trade Finance by cheating-GTFL and diverted it for other purposes. S/ShriR.Selvakumar, G.Srinivasan, P.Venkatachalapathy and FPA-PMLA-818/CHN/2015

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R.Manoharan were thus charged to have caused a wrongful loss of Rs. 23.85 crores to GTFL and corresponding wrongful gain for themselves.

¶142

The offences evolved being scheduled offence under the PMLA Law, a case was registered ECIR No. 03/2011 and 04/2011 both dated 03.01.2011 and conducted investigation in the matter under PMLA, 2002. In the investigations conducted, the money trail to the extent of Rs. 5.01 crores from out of the money fraudulently obtained by R2 and others to the appellant in the present case for transfer of the subject property to them has been established - this is set out in Para-8 and 9 of the original complaint filed before the adjudicating authority while seeking confirmation of the related PAO. As the tainted money to the extent of Rs. 5.01 crore is established to have been invested in the subject property, provisional attachment of the same to the extent thereof, and its subsequent confirmation is in accordance with sections 3, 5 and 8 of PMLA/PMLA Law.

¶143

As mentioned earlier, the trial in the matter pertaining to Money Laundering against the respondent no. 2 and others is still pending. It is also a fact that the appellant during the pendency of appeal itself has earlier filed the application to deposit Rs. 3.59 crores with the respondent no. 1 if the property in question is released in order to sell the same to the third party. The said deposit offered by the appellant is without prejudice and subject to the final outcome of appeal. However, later on the application was withdrawn on 16.03.2016 as deal was not struck between the parties. While filing of the application which has also been subsequently withdrawn does not bind the appellant to the prayer made therein, for the reasons discussed in the following paras, we are of the view that such decision is necessary in the facts and circumstances

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of the case and considering that the present appeal is only an intermediate stage and the final decision regarding the confiscation of the attached property vests with the special court trying the money laundering case. Accordingly, this Tribunal is not inclined to order release of the attached property confirmed in adjudication unless it convinced beyond doubt that the case under the PMLA does not stand.

¶147

From the plea raised by the Respondent No. 1 and facts stated, it appears to us that prima facie , the amount paid by the said Shri G. Srinivasan( R2) to the appellant may be proceeds of crime. The said aspect has to be determined at the time of final judgment of the Hon’ble Supreme Court after trial. The appellant’s contention that he received the funds from R2 as a bonafide seller is not entirely free from doubt and is not borne out from the facts on record. The first point in this regard is that in utter disregard to the restraint order of BIFR, the appellant attempted to transfer the subject property. Further, it is an admitted fact that certain payments including the disputed amount of Rs. 50,00,000/- made by Shri G. Srinivasan through cheques drawn on the account of ‘Sri Pamba Spinning Mill Private Ltd’, an entity extraneous to the sale agreement were simply accepted by the Appellants without exercising any reasonable precaution on the legitimacy of the payee or the genuineness of the source of fund. Moreover, on mere payment of a small part of the total consideration, the possession of the entire immovable property in question including the factory was handed over by the appellant to the respondent-2, from which it appears that the appellant was in a clearing hurry to complete the transaction. These points raise doubt about the bonafides of appellant in the matter as regards his contention that he was totally unaware of the tainted nature

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of the amount paid by the respondent as sale consideration of the property in question.

¶151

The property, if involved in an offence of money laundering, is liable to be attached by the competent authority even if the person, under whose possession such property is lying, was not charged of having committed a scheduled offence. The property involved in an offence of money-laundering is liable for attachment by the competent authority in terms of Section 3 & 5 of PMLA, 2002 and it is not a necessity that the persons, who possess the property, should have been charged of a scheduled offence as contended by the Appellant.

¶152

Under these circumstances, it appears to us that there are serious allegations against the respondent no. 2 which was that since June 2007, Shri G. Srinivasan had fraudulently availed loans from GTFL interalia, in the names of SPSMPL and PSWMPL by way of raising bogus bills in the name of fictitious/non-existing firms and out of the amounts so fraudulently obtained, funds to the tune of atleast Rs. 3.59 crores, as admitted by the appellant and Rs. 5.01 crore as contended by R2 and the department, had been paid to the appellant as part sale consideration for transfer of assets of M/s Sakthi Aisvarya Spinning Mills Pvt. Ltd., situated at Pachal, Salem-Namakkal, Road, Near Puduchatthiram, Namakkal District, Tamil Nadu by the said Shri G. Srinivasan. As proceeds of crime were invested in the said immovable property including the factory, the said property held by the said company is embroiled in an offence of money laundering and would become tainted if the charge against the respondent no. 2 proved.

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Coming to the argument of learned counsel for the appellant that his client was not charged with any scheduled offence and for that reason conditionality under para (b) of section 5(1) was not satisfied, this issue is already covered by the pronouncements of Hon'ble Bombay High Court and Andhra Pradesh High Court. In this context we may refer to the following observations of Hon'ble Bombay High Court in the case of Radha Mohan Lakhotia first appeal no. 527 of 2010 judgment dated 05.08.2010, [2010(5)Bom Cr 625] (MANU/MH/1011/2010) with reference to Section 5(1) of PMLA.

¶156

“The Appellants however, have placed emphasis on the expression “such person” used in Clause (b) of Section 5(1) of the Act. According to them, the word “such person” is prefix to the word “person” In Clause (b). That is not superfluous, but to ascribable to the person referred to in Clause (a). Which means that even Clause (a) deals with person who has been charged of having committed a scheduled offence. It is not possible to countenance this submission. We are conscious of the fact that penal provisions should be strictly constituted. At the same time, we cannot overlook the language of Section 5 as applicable at the relevant time. In our opinion, clause (a) refers to “any person” - whether he has been charged of having committed a scheduled offence “or otherwise.”The only requirement is that that person should be in possession of any proceeds of crime. The governing factor is possession of any proceeds of crime by a person. Taking any other view may defeat the legislative intent. In as much as, a person who has been charged of having committed a scheduled offence can successfully defeat the object of the enactment of attachment and confiscation of proceeds of crime by transferring it to some other person who is not so involved with him in commission of stated scheduled offence. In our opinion, on fair reading of section 5(1) read with section 8 of the Act, it postulates two categories of persons against whom action of attachment of property can be proceeded with. The first category is any person who is in possession of any proceeds of crime. A person falling in this category need not be a person, charged of having committed a scheduled offence. The second category is of a person who has been charged of having committed a scheduled offence. Besides, being charged of having committed a scheduled offence, that person is found to be in possession of any proceeds of crime. In either case, it is open to take recourse to section 5 of the Act

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if the specified Authority has reason to believe and reason for such belief is recorded in writing that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime.”

¶160

It is also pertinent to mention that the statement of Shri P. Karuppuswamy under section 50(2) & (3) of PMLA has been recorded, the details of which are mentioned in para 13 of the criminal complaint filed by the respondent no. 1 against R2 and others under the PMLA. While it is true that Shri P. Karuppuswamy has not been arrayed as an accused in the complaint but the reference of the amount he has received from the respondent no. 2 has been mentioned therein. In case the said para 13 of PMLA complaint is read in the meaningful manner, it appears that there are serious allegation against the respondent no. 2 who allegedly diverted part of the money raised as loan fraudulently. As the appellant Shri P. Karuppuswamy has received the amount which is proceeds of crime towards sale of the said property therefore we are of the view that the said amount received by Shri P. Karuppuswamy is required to be secured in the interest of equity and fair play.

¶161

As mentioned above, there is a difference of opinion regarding the amount received by the appellant from R2 towards the sale of the subject property. While the appellant admits to have received a sum of Rs. 3.59 crores from the respondent no. 2, the respondents however contend that the amount is Rs. 5.01 crores. In this connection, it is it was submitted by the learned counsel for the respondent that the endorsement on the petition dated 26.06.2014 filed by the appellant before the Arbitrator clearly evidenced the fact that an amount of Rs. 4.67 Crores had been received by the said Shri P Karuppusamy from R2 as on the date of the second supplementary agreement i.e. 09.07.2008. FPA-PMLA-818/CHN/2015

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Copy of the said petition dated 26.06.2014 with the said endorsement of the Arbitrator is available at Page 286-289 of the Annexure to the complaint filed by the respondent against R2 and others under Section 5(5) of the PMLA before the Ld. Special Judge, Chennai, copy of which has also been filed before this Tribunal. We also find that even in the written submission filed by the learned counsel for the appellant on 28.02.2017, the amount received by the appellant (Para 3 thereof) from R2 is mentioned as Rs. 4.67 Crores.

¶164

Regarding the remaining amount of Rs. 34,49,900/-, it is submitted by the respondent that these amounts were transferred to different bank accounts of SASMPL and/or of Shri P. Karuppusamy after the second supplementary agreement dated 09.07.2008 in the months of July and August 2008. This amount of Rs. 34,49,900/- is also denied to have been received by the appellant.

¶165

In view of the above, we are of the view that as held in the award granted by the Arbitrator between the parties which has become final, the appeals against the same having been rejected upto the stage of the Supreme Court, the amount paid by R2 to the appellant in terms of the agreement between the parties has to be taken as Rs. 4.67 Crores. Consequently, the proceeds of crime that may have been invested in the subject property is also required to be taken as Rs. 4.67 crores. Even otherwise in the written submissions field by the appellant, an admission is made having received the amount of Rs. 4.67 crores.

¶166

Before concluding, we may also refer to the submissions of the learned Advocate for the respondent that in terms of Section 8(5) of the PMLA, the matter of confiscation of the attached property is to be

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decided by the Special Court. He has also referred to the Provisions of the Section 8(8) ibid which provides that where a property stands confiscated the Central Govt u/s 8(5), the Special Court may also direct the central government to restore such confiscated property or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of the money laundering. Further, in terms of the proviso to the said sub-section, such claims shall not be considered unless the Special Court is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of the money laundering. In the light of the said provision, it was submitted that the Impugned Order may kindly be upheld by the Hon’ble Tribunal and it was for the appellant to make an application before the Special Court at the appropriate stage.

¶170

With regard to the above, it is mentioned that in the present appeal, this Tribunal is considering the appellant’s challenge to the impugned order of the passed by the Adjudicating Authority confirming the provisional attachment of the property in question. The confiscation or otherwise of the attached property is within the domain of the Special Court. However, the said provision does not in any way interfere with the power of the Tribunal in terms of section 26 (4) of the act to either uphold, set aside or modify the impugned order of the Adjudicating Authority including the provisional attachment order in question.

¶171

In view of facts and circumstances of the case and the discussion herein above, we modify the Impugned Order passed in O.C. 369 of 2014 dated 19^th January, 2015 passed by the Adjudicating Authority and the PAO No. 4/2014 and direct that as far as the immovable property

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including the factory under attachment is concerned, the same be released from attachment, subject however to the condition that the appellant shall furnish the Fixed Deposit Receipt (FDR) of Rs. 4.67 crores in the name of respondent no. 1 to the Enforcement Directorate within two months of this order as a security amount. The said FDR shall be furnished by the appellant without prejudice. In case the learned Special Court after trial holds that the said amount is not proceeds of crime, the appellant would be entitled to receive back the principal amount of the FDR as well as the interest accrued thereon. In case the finding of the special court is otherwise, the respondent no. 1 shall be entitled to the principal amount of the FDR as well as the interest accrued thereon.

¶175

Once the FDR as above is furnished by the appellant to the satisfaction of the Respondent-1 within two months of this order, the attached immovable property including the mill be released forthwith to the appellant.

¶176