Allowed

FPA-PMLA-547/DLI/2013 of Jagati Publications Ltd. v/s Joint Director, Directorate of Enforcement, Delhi

ATFP13 Feb 2018FPA-PMLA-547/DLI/2013

Case brief

AI extract

What is this about?

The Appellate Tribunal set aside the Order of Adjudicating Authority confirming provisional attachment of assets and charged of Pogam Publics Ltd, under PMLA, 2002. The tribunal held that since the alleged cheating acts occurred prior to June 1, 2009, when cheating was added to PMLA's schedule, the Act could not apply to confirm the attachments.

What did the court decide?

Order confirming attachment set aside; provisional attachment order set aside; attachment of amount lifted.

FPA-PMLA-547/DLI/2013 of Jagati Publications Ltd. v/s Joint… — Money Laundering | ATFP (2018)

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APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

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Date of Decision: 13 .02.2018

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MP-PMLA-777/DLI/2014 (Stay)

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FPA-PMLA-547/DLI/2013

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Jagati Publications Ltd. … Appellant/Applicant Versus

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Joint Director, Directorate of Enforcement, Delhi … Respondent

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Advocates/Authorized Representatives who appeared

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For the Appellant : Shri Raghenth Basant, Sr. Advocate For the Respondent : Shri S. A. Saud, Advocate CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN SHRI ANAND KISHORE : MEMBER

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JUDGEMENT

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FPA-PMLA-547/DLI/2013

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The present appeal has been filed against Order dated 04.11.2013 passed by Adjudicating Authority passed in Original Complaint No. 200 of 2013 confirming the attachments made vide Provisional Attachment Order dated 31.05.2013 (PAO) in ECIR/09/HZO/2011. PAO is passed in view of CC No. 9 of 2012 pending before the Special Judge for CBI Cases, Hyderabad (CBI Case).

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The charge sheet alleges criminal conspiracy between Shri Y.S. Jagan Mohan Reddy and Shri Vijay Reddy in luring investors by making falso promises used forged ante dated valuation report of M/s Deloitte Tourche Tohmatsu and trapped the three investors, who finally lost their investment. Charges Sec. 120-B r/w Sec. 420 of IPC are invoked for the said offences.

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FPA-PMLA-547/DLI/2013

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Page 1 of 10

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During the investigation under PMLA, the statement of three investors were recorded whereby they deposed that they invested the amount of face value of Rs. 10 at premium of Rs. 350 per share as the father of Shri Jagan Mohan Reddy who was Chief Minister in 2006-08 asked them to invest the same as his son who wanted to set up a cement factory; therefore they had invested the amount. The amount was invested also due to reason that as Sri Vijay Sai Reddy and Shridhar insisted many times to invest the same and they persuaded by saying that they would get huge benefit out of this investment, but the company has neither given the dividends of any type nor the refund. As per them, the valuation report was antedated as 16.07.2007 which is contrary to the facts. Infact the appellant dishonestly and fraudulently induced many investors, with the sole intention of soliciting huge investments, and thereby caused wrongful gain Rs. 34,65,99,830/- to appellant for the use into the business. It was deposed that the appellant has not fixed any equity base received investments from the individuals with a premium amount of Rs. 350/- per share, though there was no rationale, and no shareholder agreement detailing standard safeguard rights of the investors like anti-dilution protection and pre-emptive rights, dividend policy, exit policy, buy-back or third-party sale. The main intention of appellant was to cheat innocent investors to buy shares at a high premium by concealing material facts and not to pay any dividends or returns on such investments.

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It is admitted by the respondent that all investments were made during the period 2006- March, 09. It is submitted by the appellant that the general provisions of IPC were applicable and not under the PML Act,

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FPA-PMLA-547/DLI/2013

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Page 2 of 10

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2002 as the schedule offence was incorporated in the act, on 1^st June, 2009.

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In nut-shell the main allegations in the present case by the CBI/ ED is that 3 private investors namely T.R Kannan, A.K Dandamudi and Madhav Ramchandran were induced or threatened to make investments in M/s Jagati Publications Ltd on false projection of the company‟s prospects.

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Attachments effected in the O.C. for a sum of Rs. 34.64 Crs in the hands of M/s Jagati Publications Pvt Ltd.

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It is contended by the respondent that M/s Jagati Publications Pvt. Ltd. and Y.S Jagan Mohan Reddy have thereby committed the schedule offence of cheating and the Proceeds of Crime are liable to be proceeded against under PMLA. As far as allegation of CBI with regard to offence under IPC is concerned, we do not wish to decide the said issues on merit. The same is to determined as per law and on the basis of allegations against the appellant. Our only concern at this stage is as whether the attachment order passed under section 5 is sustainable in law and in view of facts of the case.

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Admittedly three parties have made the investment in M/s Jagati

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Publications. The details of the investments made by the three investors

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and allotments in the Appellant company are as follows:

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S.	Name of	Date of	Date of	No. of	Face	Premium	Total
No	the	investment	allotment	shares	Value	(Rs.)	Investment
	Sharehold			allotted	(Rs.)		(Rs.)
	er
1.	Jayalaksh	05.08.2008	21.05.2009	138888	1388880	48610800	49999680

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FPA-PMLA-547/DLI/2013

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Page 3 of 10

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	mi Textiles
	Ltd (T.R.
	Kannan)
2.	A.K.	09.08.2007	15.10.2007	277776	2777760	97221600	99999360
	Dandamud i	10.08.2007
3.	Madhav	09.01.2009	22.11.2009	546110	5461100	191138500	196599600
	Ramchand	03.02.2009
	ran	14.02.2009
		11.03.2009
	Total			962774	9627740	336970900	3465998640

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The present appeal has been filed by the appellant raising many objections with regard to attachment as well as merits of the case. We have heard both parties. In the present appeal already mentioned, we have to examine as to whether the impugned order and the order of PAO is sustainable under any provision of PML Act, 2002 and whether confirmation order has been passed as per law.

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In the present case, admittedly there is no allegation of Quid Pro Quo against the investors or the appellant. No complaints or suit instituted by the three investors. It was simple case where the allegations interalia against the appellant are that it had induced three investors by way threat or had made mis-representation in the prospects while projecting rosy picture of the company. For the said allegations, the appellant is facing trial under provisions of IPC and we should not express any opinion on merit of the case of trial of the matter.

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It is also the admitted position in the matter that the investors are not accused in the charge sheets nor are any attachments effected in their hands. The main reasons for the present attachment is that they

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FPA-PMLA-547/DLI/2013

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Page 4 of 10

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have been cheated into investing in the company. The said allegations have to tried at the time of trial. No civil action is initiated by the investor to recover the amount on account of cheating and mis-representation made by the appellant.

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The allegation by the CBI/ ED are also based on the reason that the share premium invested by the companies in M/s Jagati Publications is nothing but bribe in the garb of investment and the said valuation is inflated to that extent. A total of 60 investors invested into Jagati Publication at Rs. 350 premium per share. While the ED seeks to investigate and find fault with few investors out of 60 investors, counsel for the respondent is unable to give the answer to our query as to why no action was taken against the other investors who had purchased the shares for the same price except vague submission is made that against 3-4 investors, the investigation is still on. But counsel for the respondent is not able to give any satisfactory answer why no action is taken against forty other investors.

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The investments by the three individuals into the Appellant company pertain to the period between 2006 to March, 2009. More than eight years have been passed, none of the three investors have initiated any complaint of cheating nor have filed any suit for recovery of money. It is doubtful whether suit after the trial for recovery would now be maintainable or barred by time under the Limitation Act as the period of last investment was 11^th March, 2009.

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The schedule offence was added in PML Act, 2002 on 1^st June, 2009. There is no evidence and cogent reasons prima facie available on record that value of shares at the time of investment was less than as purchased. There were many other investors, who had purchased the

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FPA-PMLA-547/DLI/2013

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Page 5 of 10

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shares for the same value but no action was taken against them except the statement made by the respondent that the ED may take action against few investors where investigation is on.

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On behalf of M/s. Jagati Publications Ltd., it was submitted that M/s. Jagati Publications was incorporated on 14.11.2006 as private limited company and subsequently became a public limited company from 12.01.2009. All the investments made in Jagati Publications are genuine business transactions by the investors and they hold all rights in such investments being held in form of share.

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The valuation of Jagati Publications‟ shares were arrived after taking the entire enterprise valuation of Sakshi News Paper Project with „size and circulation‟ into effect. Sakshi regional newspaper was launched with a circulation of about 12 lakh copies with 23 printing centers simultaneously in States of Andhra Pradesh, Telangana, New Delhi, Karnataka, Tamil Nadu and Maharashtra.

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The valuation of Jagati Publications‟ shares is based on Discounted Cash Flow Method (DCF, which has been approved by the Reserve Bank of India under Foreign Exchange Management Act Notification number FEMA 205/2010 issued on 07.04.2010) which is a futuristic valuation technique for valuing a company even before the commencement of its operations.

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It was argued that on behalf of the appellant that as the money invested by the investors into M/s Jagati Publications were been utilized by the company itself; provisions of the Prevention of Money Laundering Act, 2002 could not have been invoked in the facts of present case as there was no laundering of the money invested. The issue of inducement,

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FPA-PMLA-547/DLI/2013

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Page 6 of 10

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cheating and pressure to invest the amount is to be decided in the normal course of criminal proceedings.

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Even as per the investors, they had made investments into M/s Jagati Publications on their own sweet-will. Under these facts of the matter, it is difficult to conclude finally in these proceedings that the ingredients of cheating are made out or not. It is the case of appellant that the valuation was based on projected calculations of circulation which was achieved and the aspect of cheating and other offence have to be determined by the Court under the IPC.

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The investor‟s grievance that the company did not perform as well as they anticipated may or may not constitute „cheating‟ and the investment cannot be termed as Proceeds of Crime by any standards. If the answer is yes then the said aspect has to be considered by the Court where the appellant is facing trial.

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From the facts of the present case, at the best if proved, it may be a case of cheating. The suit for recovery of amount has not been filed. Shares are with the investors. They have not filed any criminal complaint against the appellant. The period of purchased of shares and investment prior to 1^st June, 2009. There is no investment after 1^st June, 2009. No case is pending against the investors. Thre is no complaint or civil action initiated by them.

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It is matter of fact that the money was invested by the three investor in the year 2006, 2007, 2008 and upto March, 2009 i.e. prior to 01.06.2009 even as per the allegations in the charge sheet (constituting the basis of the impugned order) the alleged crimes, in respect of which allegations are made against the Appellants have taken place prior to

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FPA-PMLA-547/DLI/2013

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Page 7 of 10

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The penal provisions, which are sought to be pressed against the accused, were not included in the Schedule to the PMLA during the relevant time. They were only included in the Schedule only by way of amendment to PMLA vide Act No. 21 of 2009 w.e.f. 01.06.2009. Here is not a case where it could be said that the investors have taken any advantage from the Government of Andhra Pradesh. The respondent has not denied the said aspect.

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The Provisional attachment order was passed by relying upon the Income Tax Authority assessment order dated 31.12.2010 with respect to the allegations of the share premium and the investments by the companies. Actually investigation done by ED in the same lines of additional facts by the CBI investigation in the PAO. The said order of PAO was confirmed by the Adjudicating Authority.

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Nothing has been discussed in the provisional attachment order about the factual position of the matter as well as by the Adjudicating Authority while issuing the notice under section 8 of the Act. If the contentions of the respondent is accepted in the case like this, there would be flood of litigations under this Act which is not permissible in law. It was a case of either recovery of amount on civil-side and on the allegation of cheating and misrepresentation and criminal complaint on the ground of cheating etc. which is already pending. As far as civil remedy is concerned, no action for recovery of the said amount has been filed.

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Even otherwise, the attachments of M/s Jagati Publications seem to be wholly unnecessary as the High Court passed Orders dated 23.05.2012 restraining the alienation of any assets of the company while taking into account that M/s Jagati Publications is a media house and

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FPA-PMLA-547/DLI/2013

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Page 8 of 10

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many employees are dependent on the functioning of the company. The said interim order is still continuing. Therefore, the provisional attachment in the present case is bad and against the law applicable to the facts of the case.

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It is admitted by the learned counsel for the respondent that the appellant is running the company after receiving the invested amount and the investors have received the shares. We have been informed that the appellant company has a well established business. The investors are holding the shares of the company. The market share price is much more than the date of investment.

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As far as criminality, if committed, by the appellant is concerned, the allegations mentioned in the charge-sheet has to be determined as per its own merit and without any influence of this order.

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After having gone through the charge sheet even if the allegations are taken as correct in the predicate charge, no “schedule offence” was prima facie committed for the purposes of PMLA (as defined thereunder). Thus, the Provisional Attachment Order, and confirmation thereof, is not sustainable in law. The same is set-aside. The attachment order of attaching the amount is lifted forth-with.

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It is clarified that as far as the criminal case of the offences for charges of section 120B and Section 420 IPC is concerned, the same is to be tried by the court concerned as per its own merits and without any influence of this judgement which is being passed on the reasoning that no case of money laundering PMLA is made out against the appellant.

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The appeal is, accordingly, allowed. The impugned order is setaside. Consequently, the provisional attachment order is also set-aside.

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FPA-PMLA-547/DLI/2013

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Page 9 of 10

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30. No costs.

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(Justice Manmohan Singh) Chairman

(Anand Kishore)

Member

New Delhi,

13, February, 2018

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„D‟

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FPA-PMLA-547/DLI/2013

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Page 10 of 10

FPA-PMLA-547/DLI/2013 of Jagati Publications Ltd. v/s Joint Director, Directorate of Enforcement, Delhi

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FPA-PMLA-547/DLI/2013 of Jagati Publications Ltd. v/s Joint Director, Directorate of Enforcement, Delhi

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