Allowed

FPA-PMLA-1626/CHN/2017 of S. Mahesh Pothy v/s The Deputy Director Directorate of Enforcement, Chennai

ATFP11 Jan 2019FPA-PMLA-1626/CHN/2017

Case brief

AI extract

What is this about?

The Tribunal allowed appeals against Provisional Attachment Orders under PMLA. It set aside the attachment of properties purchased by five brothers and a company from the family of a deceased accused. The Tribunal held the appellants were bona fide purchasers with clean funds, noting the ED failed to trace sale proceeds to attach the vendor's accounts instead. Relief was granted by ordering the re

What did the court decide?

Impugned order dated 29.12.2016 setting aside provisional attachment order was set aside qua the appellants; directions given to deposit security amount for release of property.

FPA-PMLA-1626/CHN/2017 of S. Mahesh Pothy v/s The Deputy Director… — Money Laundering | ATFP (2019)

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APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS & PBPT ACT AT NEW DELHI

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Date of Decision: 11.01.2019

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(1) MP-PMLA-3106/CHN/2017 (Misc.) FPA-PMLA-1624/CHN/2017

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S. Ramesh Pothy	…	Appellant/Applicant
Versus
The Deputy Director Directorate of Enforcement, Chennai	…	Respondent
(2) FPA-PMLA-1625/CHN/2017
S. Ashok Pothy	…	Appellant/Applicant
Versus
The Deputy Director
Directorate of Enforcement, Chennai	…	Respondent
(3) FPA-PMLA-1626/CHN/2017
S. Mahesh Pothy	…	Appellant/Applicant
Versus
The Deputy Director
Directorate of Enforcement, Chennai	…	Respondent
(4) FPA-PMLA-1627/CHN/2017
M/s. Pothys Pvt. Ltd.	…	Appellant/Applicant
Versus
The Deputy Director Directorate of Enforcement, Chennai	…	Respondent
(5) FPA-PMLA-1628/CHN/2017
S. Murugesh Pothy	…	Appellant/Applicant
Versus
The Deputy Director
Directorate of Enforcement, Chennai	…	Respondent
(6) FPA-PMLA-1629/CHN/2017
Ashwanth Pothy	…	Appellant/Applicant
Versus
The Deputy Director
Directorate of Enforcement, Chennai	…	Respondent

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FPA-PMLA-1624-1630/MUM/2017

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Page 1 of 34

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(7) FPA-PMLA-1630/CHN/2017 S. Pothiraj … Appellant/Applicant Versus The Deputy Director Directorate of Enforcement, Chennai … Respondent

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Advocates/Authorized Representatives who appeared

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For the Appellant : Mr. Dayan Krishnan, Senior Advocate Mr. E. Omprakash, Senior Advocate Ms. Madhusmita Bora, Advocate Ms. Manvi Priya, Advocate For the Respondent : Mr. Atul Tripathi, Advocate CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN

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JUDGEMENT

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FPA-PMLA-1624-1630/CHN/2017

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The Appeals have been filed by the above mentioned Appellants against the Order dated 29.12.2016 passed by the Adjudicating Authority (under PMLA), New Delhi, in the matter of Original Complaint (O.C.) No. 635 / 2016, dated 15.09.2016, filed by the Deputy Director, Directorate of Enforcement (PMLA), Chennai Zonal Office, under Sec. 5 (5) of Prevention of Money Laundering Act, 2002, for confirmation of the Provisional Attachment Order (PAO) No. 19/16 dated 02.09.2016 in ECIR/CEZO/03/2016 .

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The Appellants are five brothers along with the company, M/s Pothys Private Ltd. (which is a close-knit company) where the only shareholders are the brothers and their father and running an organization in the field of textile business for more than 85 years.

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FPA-PMLA-1624-1630/MUM/2017

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Page 2 of 34

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By this common order, I propose to decide all appeals. The facts which are common in all the appeals are taken from the Appeal no. FPAPMLA-1624/CHN/2017 filed by Shri Ramesh Pothy.

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The subject matter of property purchased by Appellant (jointly being brothers measuring 12,945 sq. feet) which is attached by ED, under PMLA, hereinafter would be referred as Pothys. The subject property is the access to a larger extent of land in the back portion which was purchased for constructing a commercial building.

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The subject property was purchased by the Appellant jointly from one Ms. Dhanalakshmi Sridhar, in and by a Sale Deed dated 29.02.2016, for a consideration of Rs. 5,30,74,500/-. The said Ms. Dhanalakshmi Sridhar is the daughter of one Mr. Sridhar Dhanapal, (who was facing criminal prosecution by the Tamil Nadu Police for alleged offences and shown as accused in the many FIRs registered under provisions of law, including Scheduled offence and under Prevention of Money Laundering Act, 2002). The said accused Sridhar Dhanapalan has now expired during the pendency of appeals. The appellants had no relation with him. They are not arrayed as accused in the FIR, nor any charge-sheet is filed. The property attached was not purchased from accused who had not received any money from the appellants. In the nutshell, no link and nexus established by the respondent against the appellants between the late Sridhar and appellants.

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The background of purchase of the larger extent of land is that on 21.08.2010, the Appellants through mediators purchased property from Mrs. Kumari, registered as Doc. No. 3308 / 2010 on the file of Sub Registrar Office, Kancheepuram for a consideration of Rs. 1,00,00,000/-, FPA-PMLA-1624-1630/MUM/2017 Page 3 of 34

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measuring an extent of 4921 sq. feet. The case of the appellant is that they had ventured for other properties and one such property was a large extent of 78,000 sq. feet of land with an entrance from the main road and owned in portions by various individual owners. Mrs. Kumari is the wife of accused Sridhar who is no more due to his death as he has committed suicide.

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The case of the appellant is that they represented them by the mediators that an extent of 12,945 sq. feet of land can be purchased abutting the road that can be used as passage from the Main Road and the properties to an extent of 65,000 sq. feet which is lying behind the same could be acquired for constructing the showroom bringing the total proposed purchase of land at 78,000 sq. feet and after identifying various properties with different purchasers, the Appellants were left with no other option than to negotiate with Mrs. Kumari for purchase of the subject property. The Appellants gave advance sum to Mrs. Kumari and requested her to execute and convey the subject property to them by executing and registering a Sale Deed in their favour.

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Mrs. Kumari (wife of the accused) had settled the said property in the name of her daughter, Ms. Dhanalakshmi, who had also further purchased another adjoining property to an extent of 4745 sq. feet in her name. As per appellant Ms. Dhanalakshmi became the owner of total extent of 12945 sq. feet. It is stated that the Appellants were thus left with no other option but to purchase the said 12,945 sq. feet from Ms. Dhanalakshmi or give up the whole project.

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The payment was made in four tranches. Details of the payments made are as under:

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FPA-PMLA-1624-1630/MUM/2017

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31.12.2015 An advance payment of Rs. 2 Cr. by way of RTGS transfer from the City Union Bank A/c No. 51202001008681 account of Pothys to Mrs. Kumari‘s HDFC A/c No. HDFC0000879.

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13.01.2016 An advance amount of Rs. 1.65 Cr. through RTGS from the City Union Bank A/c No. 51202001008681 account of Pothys to Mrs. Kumari‘s HDFC A/c No. HDFC0000879.

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23.02.2016 An advance payment of Rs. 1.35 Cr. through RTGS from the City Union Bank A/c No. 51202001008681 account of Pothys to Mrs. Kumari‘s HDFC A/c No. HDFC0000879.

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29.02.2016 A final payment of Rs. 25,43,755/- to Ms. Dhanalakshmi at the time of execution of the Sale Deed was made by way of cash, which is duly reflected in the Sale Deed.

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The source of funds were that they are into retail business and their sources of funds are reflected from the bank details and statements who produced documents such as Bank Statement of account and also individual income tax returns before the Adjudicating Authority to show the means of the funds for purchase of the subject property. The amounts shown as credits in the Bank account filed before the Adjudicating Authority are the credits of short term loans availed by the Appellants‘ Company from City Union Bank Ltd. Further the Appellants being in the retail business, the credits to the Appellants‘ Company Bank account is by transactions reflecting through Credit/Debit cards (referred as POS {point of sale} transactions) and cash deposits of daily collections. Even, it is not the case of respondent that the said amount paid by the appellant was tainted or proceed of crime.

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FPA-PMLA-1624-1630/MUM/2017

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The Appellants have also produced by way of document, the certificate of the Bank for having credited the Short Term Loan to the Bank account and also the regular cash deposits from the sales in the retail outlets. The Appellants have also produced the Auditor certificate to the same effect and certificate from HDFC Bank Ltd., regarding the credit facilities enjoyed by M/s. Pothy‘s Private Ltd.

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i. Certificate dated 01.08.2017, issued by City Union Bank Ltd., Chennai – 600 017,

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ii. Certificate dated 03.08.2017, issued by City Union Bank Ltd., Chennai – 600 017, along with enclosures.

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iii. Certificate dated 05.08.2017 issued by City Union Bank Ltd., Chennai – 600 017.

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iv. Certificate dated 01.08.2017, issued by P.S. Venkatasubramanian & Co., Chartered Accountants.

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v. Certificate issued by HDFC Bank Ltd., Chennai – 600 004, in respect of Credit Limits/Outstanding as on 31.12.2015.

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12. The ECIR/CEZO/03/2016 had been registered by the office of the

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Respondent on the basis of various FIRs stated to have been registered against the said Mr. Sridhar Dhanapalan, in FIR Nos. 522/09, 1456/12 & 117/16 registered by B1 Police Station, Siva Kanchi, Kancheepuram, Tamil Nadu; FIR Nos. 809/09, 1162/09, 149/10, 228/11, 229/11, 319/13 & 278/15, registered by B3 Police Station, Kancheepuram Taluk, Tamil Nadu; FIR Nos. 1736/12, 710/13, 13/14, 80/15 & 1362/15, registered by Vishnu Kanchi, Kancheepuram, Tamil Nadu and FIR No. 4132/12, registered by M4 Police Station, Red Hills, Tamil Nadu.

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FPA-PMLA-1624-1630/MUM/2017

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In the reasons to believe, recorded on 09.03.2016, the respondent

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has recorded the following reasons: -

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Based on the information and the request received from office of the superintendent of police, Kanchipuram district requesting to investigate the properties illegally obtained by fugitive Sridhar Dhanpal, aged 43 years, S/o. Dhanapal, (No. 12-B, Ellappa Nagar, 1^st Street, Sevilimedu, Kanchipuram) from PMLA angle, this office vide letter dated 07.03.2016 has requested for the copies of all the FIRs lodged against Sridhar Dhanpal and other relevant documents for the purpose of investigation under PMLA into the aforesaid illegally obtained properties by Sridhar Dhanpal.

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The above mentioned copies of FIRs lodged against Shri Sridhar Dhanapal were obtained from the office of superintendent of Police, Kanchipuram. It has been found that a large number of complaints were lodged against Sridhar Dhanapal, Male, a notorious criminal for his involvement in 5 murders, 10 attempt to murders, kidnapping for ransom and also many prohibition cases with B1 Police Station at Sivakanchi, B3 Police Station at Kanchi Taluk, B2 Police Station at Vishnu Kanchi and M4 Police Station, Red Hills, Kancheepuram District, Tamil Nadu and 19 FIRs were filed by the respective Police Stations against Shri Sridhar Dhanapal.

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Shri Sridhar Dhanapal has been evading the judicial proceedings in India for past 3 years and a Red Corner Notice No. A-4947/8-2013 was issued against him by Central Bureau of Investigation, National Central BureauIndia Interpol, New Delhi. It is learnt that the above Sridhar Dhanapal has also obtained a residence permit in UAE vide (UID No. 108676751 dated 26.12.2014 in File No. 201/2011/7227961) using his Dubai Passport No. Z2506281. He flew away from India in the year 2013 to evade judicial proceedings.

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He has obtained/purchased several properties in India in his name, in the name of his wife Smt. Kumari and in the name of his daughter Ms. Dhanalakshmi out of the illgotten earnings from the crimes committed by him vide FIR Nos. 522/09, 1456/12 & 117/16 registered by B1 Police Station at Sivakanchi, FIR Nos. 809/09, 1162/09, 149/10, 228/11, 229/11, 319/13 and 278/15 registered B3 Police Station at Kanchi Taluk, FIR Nos. 1736/12, 710/13, 13/14, 80/15 and 1362/15 registered by B2 Police Station at Vishnu Kanchi and FIR No. 4132/12 registered by M4 Police Station, Red Hills, Tamil Nadu, for the commission of offences under Sections 120B, 302, 307, 364, 384, 385 etc., of the Indian Penal Code,1860 and Section 3 read with Section 25 of the Indian Arms Act, 1959. The total value of immovable properties suspected to be acquired through

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FPA-PMLA-1624-1630/MUM/2017

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crimes committed vide FIRs registered in various Police Stations of Kancheepuram Districts is Rs. 13.85 Crores approximately. The value of Movable properties is yet to be ascertained.

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The Offences under Sections 120B, 302, 367, 364, 384 and 385 of the Indian Penal Code, 1860 and Section 3 read Section 25 of the Indian Arms Act, 1959 are Scheduled Offences under Paragraph 1 as well as Paragraph 5 of Part A of the Schedule to the Prevention of Money Laundering Act, 2002.

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On the basis of aforementioned filed during period 2009-2016 by the various Police Stations at Kancheepuram District, Tamilnadu, a prima-facie case for an offence of money laundering (Section 3 of the Prevention of Money Laundering Act, 2002) punishable under Section 4 of the Said Act, appears to have been made out. A draft ECIR has been prepared for undertaking necessary investigation under PMLA and is placed opposite for approval.

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There is no allegation against the appellants nor their names are arrayed for any offence. It appears that all the allegations are mainly against the accused who is now dead. The details of impugned properties purchased by the appellant were not mentioned.

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In order to give evidence under the provisions of section 50(2) and 50(3) of PMLA, 2002, necessary summons were issued to accused, his wife and Shri Ramesh Pothy and statement were recorded except Sridhar who did not appear and the details of the same are as follows:

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Sr. No.	Name of the person summoned	Date of issue of summons	Whether appeared or not
1.	Shri Sridhar	21.03.2016 08.08.2016 16.08.2016	He did not appear for any of the Summons served on him
		22.08.2016
2.	Smt. Kumar, W/o Shri Sridhar	21.03.2016	She did not appear for any of the Summon served on her
		08.08.2016
		16.08.2016
		22.08.2016
3.	Ms. S. Dhanalakshmi, D/o Shri Sridhar	12.03.2016	Appeared on 16.03.2016 rendered her voluntary statement

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FPA-PMLA-1624-1630/MUM/2017

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4.	Sh. D. Senthil, Younger Brother of Sh. Sridhar		Appeared 26.05.2016 his statement.	on rendered voluntary
5.	Sh. Ramesh Pothy Managing Director of M/s Pothys Private Ltd.	04.04.2016	Appeared 12.04.2016 his statement.	on rendered voluntary

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The main findings out of investigation under PMLA, 2002 as per

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the case of the Respondent with regard to the impugned property is that:

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Shri Ramesh Pothy and his 4 brothers of M/s Pothys Private Ltd. , had purchased immovable properties from Smt. Kumari in the year 2010 and from Ms. Dhanalakshmi Sridhar during February 2016, however, the sale consideration was given to Smt. Kumari through her Bank Account. The details of such properties are as detailed below:

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a) Immovable Property in the form of land to the extent of 4921 Sq. Ft., along with a house building in Aadisonpet, Gandhi Road, Kanchipuram, purchased by Shri Ramesh Pothy and his 4 brothers from Smt. S. Kumari, W/o Shri Sridhar registered vide Document No. 3308/2010 with joint IV Sub Registrar, Kanchipuram for a sale consideration of Rs. 1 Crore.

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b) Immovable Property in the form of vacant land to the extent of 12945 Sq. Ft. at Kamarajar Street, 3^rd Division, Kanchipuram Town, Kanchipuram, purchased by Shri Ramesh Pothy and his 4 brothers from Ms. Dhanalakshmi Sridhar, D/o Shri Sridhar, registered vide Document No. 1184/2016 with Joint II Sub Registrar, Kanchipuram for a sale consideration of Rs. 5,30,74,500/-.

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Ms. Dhanalakshmi Sridhar had held in her name, two immovable properties registered with Joint II Sub Registrar, Kanchipuram, vide Document No. 03/2016 valued at Rs. 3,06,57,000/and Document No. 18/2016 valued 2,13,51,500/-. She had sold the said two properties to Shri Ramesh Pothy and to his 4 brothers vide Document No. 1184/2016 for a sale consideration of Rs. 5,30,74,500/- on 29.02.2016.

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The immovable property to the extent of 7664 Sq. ft. valued at Rs. 3,06,57,000/- was acquired by Ms. Dhanalakshmi Sridhar vide Document No. 03/2016 by a Settlement Deed executed by her Smt. S. Kumari on 04.1.2016. Smt. S. Kumarihad acquired the said property for a total consideration of Rs. 3,04,54,000/- in her name from various persons vide Document Nos. 7541/2015, 7542/2015, 7543/2015, 7554/2015, 7555/2015,7581/2015, 7583/2015, 7584/2015 &

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7589/2015, all registered between the dates 28.12.2015 and 30.12.2015 with Joint II Sub Registrar, Kanchipuram. She had immediately settled the entire property to the extent of 7664 Sq. Ft. in the name of her daughter Ms. Dhanalakshmi Sridhar on 04.01.2016, that is within a week’s time.

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Another immovable property to the extent of 4745 Sq. Ft. valued at Rs. 2,13,51,500/- was acquired by Ms. Dhanalakshmi Sridhar vide Document No. 18/2016 by a Sale Deed registered on 04.01.2016.

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Both the immovable properties acquired by Ms. Dhanalakshmi Sridhar for a total consideration of Rs. 5,20,08,500/-, were sold together under the Document No. 1184/2016 to Shri Ramesh Pothy and to his 4 brothers for a sale consideration of Rs. 5,30,74,500/- on 29.02.2016.

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An amount of Rs. 5,00,00,000/- has been credited by M/s Pothys Private Ltd., wherein Shri Ramesh Pothy is the Managing Director, in three tranches (Rs. 2 Crores on 31.12.2015, Rs. 1.65 Crores on 13.01.2016 and Rs. 1.35 Crores on 23.02.2016) into the Bank Account No. 50100001455442 held by Smt. S. Kumari with HDFC Bank as mentioned above, for the purchase of immovable properties from Ms. Dhanalakshmi Sridhar, vide Document No. 1184/2016 registered with Joint II Sub Registrar, Kanchipuram, for a sale consideration of Rs. 5,30,74,500/on 29.2.2016. Out of the balance amount of Rs. 30,74,500/, an amount of Rs. 25,43,755/- was paid by the Shri Ramesh Ptohy and 4 brothers to Ms. Dhanalakshmi Sridhar on the day of Registration and the remaining amount of Rs. 5,30,745/- was deducted being 1% TDS of the sale consideration, which is as per the sale deed document referred to above.

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Ms. Dhanalakshmi Sridhar has acquired the two immovable properties totally valued at Rs. 5,20,08,500/(3,06.5700 + 2,13,51,500) vide Document No. 03/2016 and Document No. 18/2016 respectively, whereas she had sold the said two immovable properties for a very meagre amount as sale consideration of Rs. 5,30,74,500/- to Shri Ramesh Pothy and to his 4 brothers against the payment made from M/s Pothys Pvt. Ltd., that is only for a total profit of Rs. 10,66,000/- although the guideline value of the property is Rs. 6,47,25,000/-

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The payment of Rs. 5 Crores were made by M/s Pothys Pvt. Ltd. on behalf of the buyers, viz., Shri Ramesh Pothy and his 4 brothers, in to the HDFC Bank Account held in the name of Smt. S. Kumari and not to Ms. Dhanalakshmi Sridhar, the seller of the said property.

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It could be noticed that the immovable properties purchased by Shri Ramesh Pothy and his 4 brothers were initially acquired by Smt. S. Kumari and Ms. Dhanalakshmi Sridhar during last week of December 2015 and first week of January, 2016 respectively, that is within duration of a

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FPA-PMLA-1624-1630/MUM/2017

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week’s time. The payments were made by M/s Pothys Private Ltd. into Smt. S. Kumari’s Account in HDFC Bank at Kanchipuram between 31.12.2015 and 23.02.2016.

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It could also be noticed that during the said period, there are 4 FIRs Registered between 26.12.2015 and 31.01.2016, by the Kanchipuram Police, against Shri Sridhar and his associates for the crimes of Man missing and murder, Attempt to Murder and Threatening with Dire Consequences, vide Nos. 1362/2015 dated 26.12.2015, 1364/2015 dated 28.12.2015, 09/2016 dated 04.01.2016 and 117/2016 dated 31.01.2016.

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Shri Sridhar, fearing action being taken by the Police and also to save the proceeds of crime derived by him through various crimes, from the clutches of law, has acquired properties in the name of his wife Smt. S. Kumari and his daughter Ms. Dhanalakshmi Sridhar and transferred all the properties in the name of his daughter Ms. Dhanalakshmi Sridhar and immediately sold the said properties to Shri Ramesh Pothy and to his 4 brothers for a much less profit consideration of Rs. 10 lakhs, for all the immovable properties totally valued at Rs. 5 crores and the above. Hence the transaction involved in this sale is not in the normal course, but in the nature of money laundering and it stands to reason that the immovable property transacted in the Sale Deed vide Document No. 1184/2016 registered with Joint II Sub Regsitrar, Kanchipuram, is involved in money laundering.

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In para 20 of PMLA investigation with regard to attached property

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has come to the following conclusion: -

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“In view of the foregoing and based on the materials available in my possession I have reason to believe, that Shri Sridhar and Shri D. Senthil and their associates, who have committed offences vide various FIRs registered by various Police Stations at Kanchipuram, Tamilnadu have derived proceeds of crime and have laundered the same by buying and selling immovable properties. One such immovable property as detailed below in the Schedule, which was acquired by laundering the said proceeds of crime by Shri Sridhar in the name of his wife, Smt. S. Kumari and immediately the said property was settled/transferred to her daughter Ms. Dhanalakshmi Sridhar and subsequently sold to Shri Ramesh Pothy and his 4 brothers that too below the guideline value prescribed by the Government and instead of making payment to the actual seller viz. Ms. Dhanalakshmi Sridhar, aged 21 years, the sale consideration was paid through the bank account of Smt. S. Kumari only, who is not a seller in the said transaction, by the company M/s Pothys Private Ltd., in the process of laundering the proceeds of crime. The entire

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laundering process was held within a period of 7 days and while purchasing the said property, Shri Ramesh Pothy and his 4 brothers were very well knowing that the investigations against Shri Sridhar and his associates are being carried out Agencies for their criminal activities and the subject property was acquired from the proceeds of crime which involved in money laundering only. The said purchase transaction made by Shri R. Ramesh Pothy and his associates was clearly proved as interconnected activities of money laundering which is very well within the ambit of Section 23 of the PMLA, 2002 and the said transaction reached all stages of money laundering, viz., Placement, Layering and Integration:

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Immovable Property in the Name of Shri Ramesh (Ramesh Pothy), Shri S. Pothiraj, Shri S. Murugesh, Shri S. Mahesh and Shri S. Ashok Represented By Shri Ashwani Pothy (Poah) S/o Shri S. Mahesh:

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Sl. No.	Document No. & Date	Schedule of the property	Value of the Property shown in the document (in Rs.)	Guideline value of property per Registrati Departme of Tamil (Rs.)	the as the on nt Nadu
1	1184/2016	Melandai Vaadai, Kamaraj Street, 3^rd Division Kanchipuram Town, under the jurisdiction of Joint Sub Registrar-II, Registration Sub- District, Kanchipuram Taluk, Kanchipuram-House Plot admeasuring 7664 ¼ sq. ft. and the house built on it, having door Nos. 101A, 101B, 101C, 101E, 101B/2, 101C/2, 102/A in Town Survey Nos. 557/1A1A, 557/IAIB, 557/1B, 557/1A2, 557/1A3, 557/2, 557/3A, 557/3B, 557/3C, 557/4, 557/5, 557/6A, 557/6B, 557/7A & 557/8 and 558/7 Total Extent of Land 12945 sq. ft.	5,30,74,500	6,47,25,00 @ Rs. 50 Sq. Ft.	0/- 00/-

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Total 5,30,74,500/- 6,47,25000/-

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After having perused the documents available on record and taken into consideration the facts and circumstances of the case and evidences available on record, including the above said material available with me, I have reasons to believe that, part of proceeds of the crime involved in the FIRs registered by various Police Stations at Kanchipuram, Tamilnadu as listed above against Shri Sridhar, Shri D. Senthil and their Associates are in the form of the above said immovable property valued at about Rs. 6.47 Crores (approximately) and the said properties are involved in money laundering. In the light of foregoing discussions, I also have reasons to believe, based on the materials available in my possession that if the said proceeds of crime in the form of immovable property involved in money laundering is not attached immediately, under Section 5(1) of PMLA, 2002, the non-attachment of the said properties are likely to frustrate any proceedings under PMLA, 2002. Therefore, I order that the aforesaid property specified at Para 20 above, totally valued at Rs. 6.47 Crores (approximately) are attached provisionally in terms of Section 5(1) of PMLA, 2002, for a period of 180 days (One Hundred and eighty days) and further order that the same shall not be transferred, disposed, removed, parted with or otherwise dealt with, until or unless specifically permitted to do so.

¶93

On 02.09.2016 the Enforcement Directorate issued Provisional Attachment Order. The said order was confirmed by the Adjudicating Authority on 29.12.2016, the appellants have challenged both orders by filing the present appeals.

¶94

It is not denied by the respondent that in the reason of believe, the impugned property was valued at about Rs.6.47 crores. It is also admitted that the property was purchased against the sale deed. ECIR was registered on the basis of FIR registered against Late Sridhar. There were personal allegations against his wife and daughter, except it was stated that he had purchased the properties in his name, wife and daughter‘s name. In the ECIR, it is not mentioned that the appellants FPA-PMLA-1624-1630/MUM/2017 Page 13 of 34

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were aware all these facts or they directly or indirectly involved with any offence.

¶97

During the hearing of appeals, it was enquired from the counsel for the respondent and I.O ( who appeared once ) as to whether any land owner(s) who had sold the respective owners properties Mrs. S. Kumari have filed the FIR or civil suit against the appellants for recovery of repossession or taken away action to the effect that they have sold the land under threat of any kind or pressure, no such reply was given on behalf of the respondent. There is also no material on record to show that any complaint was received from the owners of the property ( who had earlier sold to Mrs. S. Kumar). All the times, it was mentioned that the respondent will verify the same but no document was produced.

¶98

The Respondent despite of having the details of bank account of the sellers in which the money was transferred did not attach the amount and accounts of Mrs. Kumari and Ms. Dhanalakshmi rather attach the subject matter of property. The requisite details of payments made to seller/accused persons including bank account details to which payments were made were given to the Adjudicating Authority, however the respondent had chosen to attach impugned property only in question. The IO and counsel has failed to give any answer as to why despite of having knowledge, why amount received from the appellants by the family members of accused were not traced and attached. The counsel and IO maintained silence on this aspect about the failure of IO.

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21 It is pertinent to mention that after facing many enquiries from this Tribunal (the objection raised by the senior counsel for the FPA-PMLA-1624-1630/MUM/2017 Page 14 of 34

¶100

appellants), the IO has filed an affidavit and it is found that respondent had made many allegations against the appellants who also started taking actions against the family members of late Sridhar. Not only that, the respondent has also filed prosecution complaint against Ramesh Pothy knowingly that his name is neither mentioned in the FIR nor in the charge-sheet and no charges are framed against him under the schedule offence. The respondent has filed large number of documents, however, later on, it was agreed to decide the present appeals as per pleadings which were available before the adjudicating authority on the date of passing the impugned order.

¶101

In the counter affidavit filed by the Respondents, the statement given by Mrs. S. Kumari on 01.12.2016 has been reproduced which clearly indicates that the Appellants have paid the total sale consideration for the subject property and the same was credited in her bank account in HDFC Bank at Kancheepuram. The relevant portion of the statement are reproduced:-

¶102

“….I purchase the said landed property from various owners and got the same registered in my name and also the remaining portion of that property was purchased in the name of my daughter Dhanalakshmi, then transferred the entire landed property in the name of the daughter Dhanalakshmi, who subsequently sold the same under one single document to Shri. Ramesh Pothy. I know that the extent of the land is around 12700 Sq. ft., but I do not know the amount for which the same was sold to Shri. Ramesh Pothys. I know the amount towards the sale of said property was credited into my account in HDFC Bank, Kanchipuram and that no other amount was given other than that”.

¶103

During the hearing of appeals (many time) even once after the reserve of orders some clarifications were sought. Thereafter, after

¶104

FPA-PMLA-1624-1630/MUM/2017

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clarification, the Hon‘ble Member sitting with Chairman, had resigned. The appeals were re-heard and orders were reserved.

¶107

The contention made on behalf of the appellants was that the Appellants did not have any knowledge of any FIR against accused Sridhar (husband of Mrs. S. Kumari) and there is no mechanism to know if any FIR is registered against any vendors, or their family members and other relatives.

¶108

The Appellants‘ case is that they are the bona-fide purchaser of the subject property and has not done anything against law. They are not involved in any crime or money laundering and have always been a law abiding citizen as they belong to a reputed family in the field of textile business for more than 85 years.

¶109

It is argued that the filing of PMLA complaint against Shri Ramesh Pothy is after-thought as the respondent despite of aware that they are victim and innocent parties and IO who was failure to trace out the amount paid to Mrs. Kumari and Ms. Dhanalaxmi daughter of Sridhar in order to cover up its failure, the PMLA complaint against one of the purchaser i.e. Shri Ramesh Pothy is filed which is not maintainable. The appellant say that they have nothing to do with Sridhar, his wife or daughter. They have no relation; link or nexus with the crime if committed by Sridhar. Since main accused is passed away.

¶110

FPA-PMLA-1624-1630/MUM/2017

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¶112

As the respondent failed to trace of any amount from sellers, the Appellants earlier offered to deposit a sum of Rs. 5.35 Crores, being the amount paid towards acquiring the subject property, in a bank deposit to enable the PMLA authorities to attach the said amount in lieu of the properties and seek for permanent release of the subject properties from the attachment under PMLA, 2002, so that the Appellant can put the properties to best use, complete the project and continue to enjoy the properties without any encumbrance. The Appellants have written a letter dated 17.01.2017 to this effect to the Joint Director, Directorate of Enforcement.

¶113

It is submitted that despite establishing his innocence in the matter and demonstrating that they are not involved in any money laundering, the Appellants are put to serious hardship since their project for opening the new showroom is getting stalled and the huge property behind the said attached property is rendered useless and the recent media news referring to the proceeding against the Appellants under PMLA, apart from causing them serious monetary loss, is also causing a dent to their reputation developed over decades of commitment and hard work.

¶114

Under the Transfer of Property Act and the Registration Act, there is no method or process to either find out about the existence of any FIR nor there is any provision to mandatorily disclose the existence of any FIR against the Vendors or their family members.

¶115

The No Encumbrance Certificate which is issued in the state of Tamil Nadu does not have any such clause whereby the FIR against the relatives or family members of vendors are reflected.

¶116

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¶118

The respondent for the first time in the rejoinder, the Enforcement Directorate refers to a newspaper report, in paragraph 7, where it was mentioned that the property was worth Rs. 45 Cr. As per settled law, the rejoinder is not a pleading in law. In the judgment of the Hon‘ble Delhi

¶119

High Court in M/S. Anant Construction (P) Ltd. V. Shri Ram Niwas, 1995 (2) Del ILR 76, paragraphs 8.3 and 24.10.

¶120

There is no cogent and clear material on record on behalf of the respondent even prima facie that the Appellants have any knowledge of any FIR against accused Sridhar (husband of Mrs. S. Kumari). There is no mechanism to know if any FIR is registered against any vendors, or their family members and other relatives:

¶121

i. That due diligence while purchasing the property from any vendor does not lead to knowledge about the registration of FIR against them or their family members and other relatives.

¶122

ii. Under the Transfer of Property Act and the Registration Act there is no method or process to either find out about the existence of any FIR nor there is any provision to mandatorily disclose the existence of any FIR against the Vendors or their family members.

¶123

iii. The No Encumbrance Certificate which is issued in the state of Tamil Nadu does not have any such clause whereby the FIR against the relatives or family members of vendors are reflected.

¶124

Even a newspaper report without further proof cannot be relied upon by a court, tribunal or adjudicating authority to come to a finding

¶125

of fact. Reference may be made to judgment of the Hon‘ble Supreme FPA-PMLA-1624-1630/MUM/2017 Page 18 of 34

¶126

Court in Samant N. Balkrishna v. George Fernandez, (1969) 3 SCC

¶127

238, paragraph 47 wherein it has held as under:

¶128

“A news item without any further proof of what had actually happened through witnesses is of no value. It is at best a second-hand secondary evidence. It is well known that reporters collect information and pass it on to the editor who edits the news item and then publishes it. In this process, the truth might get perverted or garbled. Such news items cannot be said to prove themselves although they may be taken into account with other evidence if the other evidence is forcible.”

¶129

At the interim stage, the offer of the appellant was allowed and during the pendency of appeals they were granted to use the passage. However, the said order was stayed by the Hon‘ble Court. Thereafter the said permissions were withdrawn by the appellants who stated that during the pendency of appeals, they will not use the passage, therefore the interim order was become infructuous and it was agreed by both the parties to argue the main appeals.

¶130

This tribunal on various occasions asked the counsel for the respondent and IO (who once appeared before us) that is there any cogent and clear evidence available in order to show that any of the appellants were aware before the transaction that late Sh. Sridhar and his family members were involved in many serious offences and many FIR‘s are pending. There was no clear answer except it was stated that he was hard-core criminal and they must be aware.

¶131

35. Section 8 (1) of PMLA, states as follows:

¶132

8. Adjudication.—(1) On receipt of a complaint under subsection (5) of section 5, or applications made under sub-

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section (4) of section 17 or under sub-section (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, it may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under subsection (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:

¶136

On being served with the show cause notice, the Appellant produced all records to show the source of income for purchase of the property.

¶137

Section 8(2) of PMLA is as under:-

¶138

― 8(2):- The Adjudicating Authority shall, after—

¶139

(a) considering the reply, if any, to the notice issued under sub- section (1);

¶140

(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and

¶141

(c) taking into account all relevant materials placed on record before him,

¶142

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 .‖

¶143

In these provisions, it is mandated that the party has to satisfy

¶144

how the property was acquired, whether it was acquired from the proceed of crime or not and the Adjudicating Authority shall bound to take into all relevant materials placed on record before him. In the present matters, the appellants had filed detailed reply in order to share that they are bona fide purchasers and the amount paid was not proceed

¶145

of crime. However, in the impugned order, nothing has been discussed. FPA-PMLA-1624-1630/MUM/2017 Page 20 of 34

¶146

The hearing officer of Adjudicating Authority is not the judicial or law member. In his 98 pages order, the main findings are only in last paras 42 to 46 of the order i.e. in one page and two lines.

¶147

The Adjudicating Authority has failed to discuss the points/issues raised by the appellants in their reply. In most of the pages of its order, the pleadings are reproduced which are i.e. upto page nos. 1 to 83. The entire order shows non-application of mind. He failed to understand that these two set allegations, one is against the main accused and other were against the purchaser. He dealt with the matter as the purchasers are accused in the schedule offence and they are charged with the offences which in fact is untrue.

¶148

The officer who has passed the impugned order is neither (judicial member) and (legal expert), he was not even law-graduate. He, without involving legal member in the bench, has passed the order in such complicated matter in a mechanical manner and stereotyped order is passed.

¶149

In the final judgment passed on 22.09.2015 delivered by the Hon‘ble High Court of Sikkim Gangtok in W.P. (Crl) No. 02/2015 in the matter of ‗ EIILM University vs Joint Director ED’ , the Hon‘ble Court by allowing the petition, passed the following directions in para-19 of the Judgement:-

¶150

“(i) The Respondent No. l shall take appropriate steps with the concerned authorities of the Central Government for appointment of the Judicial Member of the Adjudicating Authority urgently within a period of 3 (three) months and not later than that;

¶151

(ii) On appointment of the Judicial Member, the Chairman of the Adjudicating Authority shall constitute the Bench consisting of

¶152

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a Judicial Member keeping in view the observations made above having regard to the nature of the lis and the anxiety expressed by the Petitioner- University.

¶155

(iii) Soon after it is constituted, the Bench shall then issue notice upon the Petitioner-University and the Petitioner- University shall appear before the Bench and place before it all grievances expressed in the Petition; and

¶156

(iv) Since the proceedings before the Adjudicating Authority was stayed by this Court by order dated 02-04-2015, the period of attachment prescribed under Sub-Section (1) of Section 5 shall exclude the period spent during the pendency of the case before this Court”.

¶157

In Tamil Nadu Generation and Distribution Corporation Limited (supra) in which reliance was placed upon Kihoto Hollohan VS. Zachillhu and Others I 1992 Supp (2) see 651, it has been held as under:-

¶158

“59. In view of the aforesaid categorical statement of law, we would accept the submission of Mr Nariman that the tribunal such as the State Commission in deciding a lis, between the appellant and the respondent discharges judicial functions and exercises judicial power to the State. It exercises judicial functions of far-reaching effect. Therefore, in our opinion, Mr Nariman is correct in his submission that it must have essential trapping of the court. This can only be achieved by the presence of one or more judicial members in the State Commission which is called upon to decide complicated contractual or civil issues which would normally have been decided by a civil court. Not only the decisions of the State Commission have far reaching consequences, they are final and binding between the parties, subject, of course, to judicial review."

¶159

42. In L. Chandra Kumar (supra), it has been held that —

¶160

“95................................... It must be remembered that the setting up of these Tribunals is founded on the premise that specialist bodies comprising both trained administrators and those with judicial experience would, by virtue of their specialised knowledge, be better equipped to dispense speedy and efficient justice. It was expected that a judicious mix of Judicial Members and those with grassroot experience would

¶161

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best serve this purpose. To hold that the Tribunal should consist only of Judicial Members would attack the primary basis of the theory pursuant to which they have been constituted. Since the Selection Committee is now headed by a Judge of the Supreme Court, nominated by the Chief Justice of India, we have reason to believe that the Committee would take care to ensure that Administrative Members are chosen from amongst those who have some background to deal With such cases.”

¶164

In the present appeals, the appellants have produced documents such as Bank Statement of account and also individual income tax returns before the Adjudicating Authority to show the means of the funds for purchase of the subject property.

¶165

The amounts shown as credits in the Bank account filed before the Learned Adjudicating Authority are the credits of short term loans availed by the Appellants‘ Company from City Union Bank Ltd. Further the Appellants being in the retail business, the credits to the Appellants‘ Company Bank account is by transactions reflecting through Credit/Debit cards (referred as POS {point of sale} transactions) and cash deposits of daily collections. The certificate of the Bank for having credited the Short Term Loan to the Bank account and also the regular cash deposits from the sales in the retail outlets. However, there is no finding after discussions of these documents. Only the vague findings are given.

¶166

The Adjudicating Authority in its finding has concluded that the market value of the property is over Rs. 25 Cr. The said findings are not supporting with evidence. In the reason to believe, the value of property not mentioned. Even nothing is disclosed about the purchase of property by the Pothy although ED was aware about the said property. In the PMLA investigation, ED was concluded and specifically admitted that the

¶167

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¶169

total value of the property is Rs. 6,47,25000/- as guideline value. Now the ED has entirely changed its stand which is not permissible in law. The said finding at later stage, particularly after-thought, cannot be accepted.

¶170

On the other hand, the Appellant that the appellants paid fair market value as established from the following.

¶171

(i) The Guideline Value from 01.4.2012 for Kamarjar Street was Rs. 5000/Sq ft. For the entire piece of land, therefore, it would be Rs. 6,47,25,000/-.

¶172

(ii) Revised guideline value with effect from 09.6.2017 for Kamarjar Street Rs. 3350/Sq ft. Therefore, for the entire piece of land it would be Rs. 4,33,65,750/-.

¶173

(iii) Valuation of the property, conducted in September, 2017 by ITCOT Consultancy and Services Limited, a joint venture of ICICI, SIDBI, IFCI, SIPCOT, TIIC, SIDCO and Banks, found the fair market value of the vacant land to be Rs. 6,21,36,000/-.

¶174

The actual position is as under:

¶175

i. Sum paid by the Appellants Rs. 5,30,74,500/ii. Sum in accordance with the relevant Guideline Value Rs. 6,47,25,000/iii. Sum according to revised Guideline Value Rs. 4,33,65,750/iv. ITCOT Valuation as fair market value Rs. 6,21,36,000/-

¶176

The appellant has also produced the sale deed of the same street and executed around the same time, that is in early 2016 may be

¶177

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compared to come to a finding that the Appellants paid a fair market value.

¶180

i. Document No. 303/2016 dated 18.01.2016 - Door No. 91, 91/1, Kamarjar Street, total area 1041 Sq. ft, consideration paid, Rs. 52,20,000/-. (@ Rs.5000/- per Sq. Feet) [p. 40 at 42, Additional Documents filed by the Appellants on 07.09.2017]

¶181

ii. Document No. 1977/2016 dated 11.04.2016 - Door No. 112, 112A, Kamarjar Street, total area 1453 Sq. ft, consideration paid, Rs. 67,37,100/-. (@ Rs. 4000/- per Sq. Feet) [p. 67 at 69, Additional Documents filed by the Appellants on 07.09.2017]

¶182

In light of the prevalent Guideline Value at the time of the sale, comparative sale deeds of the time, as well as revision of the Guideline Value as per Appellants, they have paid fair market value from their legitimate sources of income.

¶183

The Adjudicating Authority have miserably failed to consider since the subject property was purchased bona-fidely by the Appellants with legal sale consideration. Therefore, the said property losses the character of proceeds of crime and the sale proceeds in the hands of vendor only could have been attached. The counsel for the respondent does not dispute that the appellants have made the untainted amount to the sellers i.e. the wife and daughter of Late Sridhar. Nor it is the case of respondent (even there are no proceedings of respondent ) that the original vendors who had sold the property to the family member of Late Sridhar were originally purchased by them from proceed of crime. In fact, it appears prima facie that they have sold their own properties which were purchased by themselves. There is no material on record to

¶184

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¶186

show that any action is brought by any of them, except allegations mentioned in the FIR and in the pleadings of ED. No doubt, the said allegations are of serious nature against Late Sridhar but ED cannot equate the case of Sridhar with the appellants against whom no FIR is pending. They are simply businessmen and bona fide purchasers of the property.

¶187

This Tribunal in the case of IPRS in appeal no. FPA-PMLA1302/MUM/2016 decided on 22.06.2017 had dealt with the similar issue as to whether the innocent party whose immovable properties are attached by the ED can approach the Adjudicating Authority for release of the same in para no. 55 to 60 the same read as under:-

¶188

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

¶189

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.

¶190

“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 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.

¶191

(2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing

¶192

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¶194

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"

¶195

56. 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 case of Sushil Kumar

¶196

Katiyar (Appellants) Vs UOI and Ors. (Respondents)

¶197

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 mensrea 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:-

¶198

“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 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 Money-Laundering 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.”

¶199

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.

¶200

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¶202

57. 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.

¶203

58. 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 observed as under:-

¶204

“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.-

¶205

“(i) Firstly, if he-

¶206

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

¶207

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

¶208

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

¶209

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

¶210

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

¶211

“A. RE: DIRECT OR INDIRECT ATTEMPT:

¶212

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

¶213

“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."

¶214

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.

¶215

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¶217

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

¶218

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

¶219

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

¶220

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.

¶221

C. Actually involved:

¶222

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,

¶223

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."

¶224

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."

¶225

59. These are four ingredients which are determinative factors on the basis 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 any property of any person in money laundering. This is due to the reason 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

¶226

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¶228

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 mensreaor knowledge is missing.

¶229

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

¶230

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

¶231

“23. Presumption in inter-connected transactions Where moneylaundering 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 moneylaundering 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.

¶232

24. Burden of proof

¶233

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

¶234

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

¶235

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

¶236

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

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FPA-PMLA-1624-1630/MUM/2017

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¶239

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.

¶240

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

¶241

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. Srinivasanand 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.

¶242

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.

¶243

„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

¶244

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

¶245

22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide heavily relied on the judgment of the Bombay High

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FPA-PMLA-1624-1630/MUM/2017

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¶248

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.

¶249

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 though scheduled offence could be subject matter of provisional attachment order.

¶250

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."

¶251

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

¶252

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.

¶253

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 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."

¶254

As mentioned earlier, the Appellants are bona-fide purchasers and they have not done anything against law. Furthermore, the Appellants are not involved in any crime or money laundering and the Appellants are law abiding citizens running an organization in the field of textile

¶255

FPA-PMLA-1624-1630/MUM/2017

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¶257

business, with the family business being there for more than 85 years. No case of money laundering against the appellants is made out. The prosecution complaint under PML Act, 2002 was filed by the respondent against Ramesh Pothy with mala-fide intention and after thought on the date of passing the provisional attachment order.

¶258

I am of the opinion that complaint filed against Ramesh Pothy is not sustainable and is filed after-thought as the IO has failed to trace the amount paid by the appellant to the family members of Late Sridhar. In order to save its skin, the complaint against the Ramesh Pothy has been filed. This is because of the reasons that the appellants are not directly or indirectly involved in the money laundering. They have no direct link or nexus with deceased who has now passed away.

¶259

The appellants have no objection if criminal proceedings already pending against accused parties may continue as per law.

¶260

The appellants despite of above are agreeable to deposit a sum of Rs. 6,47,25,000/- as value assessed by the ED in the Investigation Report with the respondent (without prejudice) in order to secure the entire value of the property filed by the ED in the reason to believe. The figure mentioned by the hearing officer in the impugned order is fanciful and accepted as per the case of ED in subsequent pleadings. The real figures are mentioned in the reason-to-believe on the basis of which the provisional attachment order was passed. The said figures could not have been changed.

¶261

FPA-PMLA-1624-1630/MUM/2017

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¶263

55 The appellant is directed to deposit a sum of Rs.6,47,25,000/- with the respondent without prejudice within the period of six weeks from today as security amount. In case the final orders are passed against the accused, the said amount shall be kept by the ED. In case, the prosecution complaint filed by the ED under PMLAS is dismissed, the entire amount shall be returned to the appellant with interest accrued thereon.

¶264

Once the said amount is deposited, the property shall be released forthwith.

¶265

In the light of above, all the appeals filed by the Appellants are allowed and the impugned order dated 29.12.2016 is set aside qua against the Appellants so as the provisional attachment order. All MPs are also disposed of.

¶266

(Justice Manmohan Singh) Chairman

¶267

New Delhi, 11^th January, 2019

¶268

‗skb‘

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FPA-PMLA-1624-1630/MUM/2017

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FPA-PMLA-1626/CHN/2017 of S. Mahesh Pothy v/s The Deputy Director Directorate of Enforcement, Chennai

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FPA-PMLA-1626/CHN/2017 of S. Mahesh Pothy v/s The Deputy Director Directorate of Enforcement, Chennai

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