Allowed

FPA-PMLA-295/CHN/2011 of Central Bank of India v. TheDeputy Director, Directorate of Enforcement, Chennai

ATFP9 Apr 2025FPA-PMLA-295/CHN/2011

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed an appeal by Central Bank of India against the confirmation of provisional attachment orders passed by the Adjudicating Authority. The court held that funds recovered by the bank from the defrauding accused did not qualify as untainted proceeds of crime deserving attachment under PMLA, ordering their release to the bank.

What did the court decide?

The appeal allowed; the attached amount of Rs. 1,91,53,701/- to be detached and transferred to the appellant bank; appellant directed to furnish undertaking/indemnity bond to the trial court.

FPA-PMLA-295/CHN/2011 of Central Bank of India Vs. TheDeputy… — Money Laundering | ATFP (2025)

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BEFORE RAJESH MALHOTRA, MEMBER; SINGLE BENCH: APPELLATE TRIBUNAL UNDER SAFEMA;AT NEW DELHI.

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FPA-PMLA/295/CHN/2011

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Central Bank of India

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… Appellant

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Versus

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TheDeputy Director, Directorate of Enforcement, Chennai

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… Respondent

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Advocates/Authorized Representatives who argued:

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For the Appellant : Sh. SL Gupta, Adv. For the Respondent : Sh. Kshitij Agarwal, Adv.

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FINAL ORDER

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09.04.2025

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Present appeal u/s 26(1) of Prevention of Money Laundering Act, 2002is filed by the appellant bank against the impugned order dated 12.09.2011 passed by the Adjudicating Authority in Original Complaint No. 102/2011 vide which the application for review was dismissed, and thereby, the confirmation order dated 27.06.2011 in OC No. 102/2011 was directed to be continued in force. The Respondent ED vide PAO No. 11/2011 dated 15.04.2011 in case filed No. ECIR/07/CZ/PMLA/2009 (SMM) provisionally attached Rs.1,91,53,701/- found in a suspense account maintained in Central Bank of India, Mogappair branch, Chennai under the description “Amount recoverable from Sri T.V. Krishna Rao” .

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As per the facts of the case, anticipated persons Sh. T.V. Krishna Rao and his accomplices in collusion with the officials of Central Bank of India, Mogappair Branch, Chennai siphoned away Rs. 25 crores belonging to M/s Northern Coal Fields Ltd.,Singrauli, Madhya Pradesh, (M/s NCL in short) a subsidiary of M/s Coal India Ltd. a public sector undertaking, inJuly 2009. The CBI filed a charge sheet against Shri T.V. Krishna Rao and others before the Hon'ble court of Principal Special Judge for CBI cases (VIII Court), Chennai (vide Report No.09/2010 dated 26.8.2010) for commission of offences under sections 419, 420, 467, 471

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FPA-PMLA/295/CHN/2011Central Bank of India v. E.D., Chennai

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IPC read with section 120-B of Indian Penal code. CBI has also recommended departmental action against Sh. A. Mitra, the then Chief General Manager (Finance) and Sh. Balram Singh (Finance) of M/s NCL.Money so siphoned was transferred soon after to various accounts of different persons in multiple transactions. Accordingly, under Section 5(1) of PMLA, the Deputy Director has provisionally attached the amounts by way of passing five Provisional Attachment Orders No. 03 to 07/2011 dated 30^th March, 2011 case file No. ECIR/07/CZ/PMLA/2009 (SMM).

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The Deputy Director has described the facts and circumstances relating to the transfer of the money from the bank accounts of M/s NCL Ltd. (A/c No.10773286439 maintained with State Bank of India, Morwa, MP) to Central Bank of India, Mugappair branch, Chennai and its onward transfer to the current account No. 3014563150 of M/s Krishna Builders (Proprietor: T.V. Krishna Rao) held in the same branch. As was ascertained from the CBI, M/s NCL had surplus funds which as per the uniform deposit policy of the said company was to be parked in 19 designated branches of various banks. Mogappair Branch of Central Bank of India in Chennai was not a designated Branch. But it offered a slightly higher rate of interest that is 6.01% per annum for fixed deposits. With the prior approval of the competent authority M/sNCL transferred a sum of Rs. 25 crores from their account No. 10773286439 maintained with State Bank of India, Morwa MP through RTGS Mode (Real Time Gross Settlement) to Mogappiar Branch of Central Bank of India, Chennai showing beneficiary account as "NCL deposits" on 23.07.2009. A fax letter dated 23.7.09 was also was received from Chief

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FPA-PMLA/295/CHN/2011Central Bank of India v. E.D., Chennai

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General Manager (Finance) of M/S NCL instructing the bank to make an FDR of Rs. 25 crores for one year in favour of M/S NCL.

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On the same day, Shri TV Krishna Rao, proprietor of M/s Krishna Builders approached the senior manager of Mogappiar Branch of Central Bank of India Sri S. Sankara Kumar handing over a fax message dated 23.07.2009 purportedly issued by M/s NCL addressed to Central Bank of India, Mogappiar Branch instructing to transfer the funds that is Rs. 25 crores to current account of M/s Krishna Builders as an advance for construction contract allotted to the firm. Krishna Rao also submitted a hand written letter dated 23.07.2009 requesting for such transfer. It was claimed that on the next day that is 24.07.2009 one Suresh Malhotra came to the said branch of Central Bank of India introducing himself as the Assistant Manager (Finance) of M/s NCL and handed over the original of the fax message dated 23.07.2009 brought by T.V. Krishna Rao the preceding day. Sri Sankara Kumar did not verify the contradictory instructions and transferred the money to the account of M/S Krishna Builders. These fax messages and the letter referred to above were no longer available with the bank and are presumably destroyed.

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Sh. T.V. Krishna Rao with the connivance of Shri Shankar Kumar, Senior Manager of the Bank fabricated FD/TDR receipt No. N301436 dated23.07.2009 in favour of M/s NCL by using fake stamps of the bank and forging the signatures of the bank officers and dispatched the same to M/s NCL by speed post to create an impression that indeed fixed deposit was made in favour of M/S NCL.A copy of the fax message sent by M/s NCL by which M/s NCL transferred Rs. 25 crores and requested the Central Bank of India to create fixed deposit for a period of one year was received from the fax machine of Central Bank of India, Annanagar

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Branch. A copy of second fax message dated 23.07.2009 which was fabricated and submitted by TV Krishna Rao to Central Bank of India, Mogappair Branch was also recovered from the office premises of M/s Krishna Builders.

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After the sum of Rs. 25 crores was fraudulently transferred to the account of M/s Krishna Builders the money has been retransferred to different accounts or has been withdrawn. The Deputy Director gave the details at para 8.1 and 8.3 of the complaint. He has taken care to mention the date wise details of amounts transferred, the names of transferees and cheque numbers etc. in a tabular form available at page 17 and 18 of the complaint (para 8.3 of the complaint). The list includes the transfers to the Defendants and the entries are thoughtfully printed in bold letters.

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The Deputy Director has recorded the statements of Shri TV Krishna Rao(Def. No. 6), his wife Smt. TR Ratnakumari (Def. No. 2), his childhood friend M. Kandaswami (Def. No.1), and Ravi Shankar (Def. No.4), Shri K Satyanarayan of the company M/s Swall Computers Pvt. Ltd, besides Shri A. Shankar Kumar the then Senior Manager of Central Bank of India. He has discussed in detail the money trail in paragraph 10.1.1 to para 11.5which shows that the sum of Rs. 25 crores fraudulently siphoned from the account of M/s NCL was the source for money now attached.

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Furthermore, the Deputy Director discussed the trail of the attached money.

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(1) Attachment of Rs.2,22,00,000/lying in the a/c No. 12258620000068 of M. Kandaswamy held in HDFC Bank, 995- C,

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FPA-PMLA/295/CHN/2011Central Bank of India v. E.D., Chennai

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Second Avenue, Anna nagar West, Chennai-40. (vide para 12.6.1 of the complaint). The Deputy Director mentioned that out of the sum of Rs.25 crores siphoned from the Bank Account of M/s NCL certain amounts were transferred to M/s Arvind Traders and M/s Krishna Traders, both belonging to TV Krishnarao. Out of the same Rs. 2.32 crores was withdrawn by Shri Krishnarao and the same was deposited in the Bank of account of Sh. A Kandaswami childhood friend of Sh. TV Krishnarao. On the day of attachment balance lying in Kandaswami's account was Rs. 2.32 crores.

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Mr. M. Kandaswami in his statement had confirmed that money deposited in his account was that of TV Krishnarao (vide para 10.2). He submitted that the attached amount of 2.22 crores was proceeds of crime.

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(ii) Attachment of Rs. 25,00,000/- lying personal Savings Bank account No. 06871930001328 of his wife, Smt. T.R. Ratnakumari maintained with HDFC Bank, Gangwall Mansion, J-14, 3rd Avenue, Anna Nagar, Chennai-102. (vide para 12.6.2 of the complaint).The Deputy Director mentioned that this amount was transferred by Sh. T V Krishnarao to his wife's account (06871930001328) from the current account of his company M/s Krishna Builders.

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(iii) Attachment of Rs.35,30,211/lying in the account No. 06878640000107 of M/s Arvindh Traders, Chennai held in HDFC Bank, Gangwal Mansion, J-14, 3rd Avenue, Anna Nagar, Chennai-102.(vide para 12.6.3 of the complaint).The Deputy Director mentioned that out of the amount of Rs. 25 crores, Rs. 3 crores was transferred to the account of M/s Arvindh Traders. Out of the same Sh. Krishanarao has withdrawn

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FPA-PMLA/295/CHN/2011Central Bank of India v. E.D., Chennai

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various amounts and balance lying in the account that is Rs.35,30,211/was attached.

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(iv) Attachment of Rs. 7,00,000/- lying in account No. 12258620000058 opened by Shri R. Ravi Shankar in the name, T. Suresh, HDFC Bank, No. 995-C, Second Avenue, Anna Nagar, Chennai-40(vide para 12.6.4 of the complaint). The Deputy Director noted that out of the sum of Rs. 25 crores fraudulently siphoned from NCL accounts, Rs.10 lakhs was transferred from M/s Krishna Builders' account to the account of R. Ravi Shankar on 27.07.2009. Sh. Ravi Shankar, an employee of Sh. Krishna Rao, however, transferred the money back to the personal account of Sh. Krishna Rao on latter's instructions. Sh. TV Krishnarao made cash deposits of 7 lakhs in the fictitious name of Sh. T. Suresh. This has been attached. Thus, the source of money attached is traced to the tainted money of Rs. 25 crores.

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(v) Attachment of Rs.5,53,254/lying in the account No. 06878640000011 of M/s Krishna Traders, Chennai held in HDFC Bank, Gangwal Mansion, J-14, 3rd Avenue, Anna Nagar, Chennai. (vide para 12.6.5 of the complaint). The Deputy Director has traced it to the tainted money of Rs. 25 crores. He has pointed out that out of the above tainted money Rs. 3 crores was transferred to M/s Krishna Trader's account in HDFC Bank. As on the date of attachment the available balance was Rs.5,53,254/-.

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After passing the Provisional Attachment Order, ED filed Original Complaint No. 102/2011 before the Adjudicating Authority along with relied upon documents& statements. Ld. Adjudicating Authority being satisfied with the allegations made in the Original Complaint along with

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the relied upon documents issued the show cause notice to the defendants. After receiving the replies and hearing the rival submissions, Adjudicating Authority confirmed the PAO vide its order dated 27.06.2011.

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It is pertinent to mention here that ED attached the movable property vide its order no. 11/2011 dated 15.04.2011 in case filed no. ECIR/07/CZ/PMLA/2009 (SMM) which was later-on confirmed by the Ld. Adjudicating Authority vide the Impugned Order dated 12.09.2011. Aggrieved by the said order, appellant bank filed the present appeal. 3. During the course of hearing, Ld. Counsel for the appellant did not dispute the facts of the case, as mentioned in para no. 2 above, but denied the role of bank officials and management in the commission of the alleged fraud. Before the passing of the order of provisional attachment by the ED, the prosecuting agency, Central Bureau of Investigation (CBI) has already frozen the accounts and the Appellant Bank has already filed the application before the Hon‟ble Court for the release and payment of the said amount to the Appellant Bank to whom the funds actually belong. The investigation agency has also filed its reply to the said application, expressing its no objection to the application of the Appellant Bank. Accordingly, the Trial Court has already passed the Order dated 15.12.2014 of defreezing the accounts for transfer of the amount to the appellant bank. It is nobody‟s case that the funds do not belong to the Appellant Bank, as it has already compensated M/s NCL for sum of Rs. 25 Crores alongwith the interest for the intervening period. In the entire complaint ED also has not said anywhere that the funds actually belong to any the person.

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FPA-PMLA/295/CHN/2011Central Bank of India v. E.D., Chennai

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As per the provisions of Section 5(1)(c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In the present case, in the light of the action already initiated by CBI, there is no such apprehension. Furthermore, the monies lying in the accounts of the Respondent No. 2 & 3 which has been attached by the ED are not the proceeds of crime but are the untainted monies of the Appellant Bank. The untainted funds belonging to a genuine entity does not become proceeds of crime merely because of illegal/fraudulent transfer to the other account.

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Further, Ld. Counsel for the appellant submitted that the appellant bank has only reversed back this amount of Rs. 1,91,53,701/- from the loan accounts of the assailant/accused and hence, this amount is not any laundered money rather it is the amount belonging to the bank against the recovery of Rs. 25 Crores, and after this recovery, the amount due to be recoverable by the bank from the accused is 23,08,46,299/- instead of 25 Crore and for the aforesaid impugned amount in the Account attached by the ED, the appellant bank has already filed a copy of plaint before the Ld. adjudicating authority which clearly establishes that the appellant bank has filed suit in Hon‟ble High Court of Madras vide Civil Suit C.S. No. 356 of 2011 for the recovery of Rs. 23,08,46,299/alongwith interest against the accused Mr. T.V. Krishna Rao, after adjusting the recovery of Rs. 1,91,53,701/- and not for the recovery of Rs. 25 Crores. He submitted further that the statement was filed by the appellant bank of “Amount recoverable from Sh. T.V. Krishna Rao” alongwith Affidavit dated 14.07.2011and the said statement clearly shows the debit balance of Rs. 23,08,46,299/- as on 07.01.2010. Moreover, he contended that the Ld. Adjudicating authority failed to

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appreciate the fact that the word recoverable is used for the balance amount of Rs. 23,08,46,299/- which is yet to be recovered.

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Ld. Counsel for the appellant argued that the subject case is only manipulation of entries and fraud being played within the banking system and the origin of the fund is from a public undertaking. The money received by the Appellant Bank which ought to have been deposited in the account of NCL has landed in the account of Mr. T.V. Krishna Rao on account of commission of fraud by the accused persons. Hence, the appellant bank was duty bound to compensate M/s NCL alongwithinterest, and accordingly, it stepped into the shoes of M/s NCL. The right to confiscate the property is available to the ED only in the cases where there is no actual owner of the same, as in cases of accumulation of proceeds of crime from the commission of offences like extortion, NDPS, illegal arms and ammunition, disproportionate assets to the known sources of income, contract killings, terrorist activities, smuggling etc.. In the present case, since the actual owner of the funds is available, there is no question to confiscate the same by the ED. As far as the bank is concerned, the bank has right to recover the lost property by the application of the concept of doctrine of tracing back. Ld. Counsel for the appellant submitted that the action of the authorities would only result in enlarging the non-performance account of the Bank and would result in great loss for want of liquidity of funds, which cannot be made good. Prayer is accordingly made to allow the present appeal.

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On the other hand, Ld. Counsel for the Respondent ED submitted that action initiated by the Directorate of Enforcement u/s 3 of PMLA is an independent proceeding. Ld. Counsel for the Respondent ED contended that the Department has taken possession of the attached

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amounts as required u/s 8(4) of PMLA, and as ordered by the Ld. Adjudicating Authority (PMLA) and the same were deposited in the form of FDR. Section 8(4) of the PMLA, 2002 stipulates as under: “(4) Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the property attached..”

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Ld. Counsel further argued that Appellant Bank has misconceived the provisions of the PMLA, 2002 and its objectives. They had misunderstood the meaning of the offence of money laundering defined u/s 3 r.w.s. 2(1)(y) of PMLA, 2002, which is punishable u/s 4 of the Act and the provisions of relating to attachment & confiscation of the properties/proceeds of crime involved in the offence of money laundering under the provisions of the said Act.

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Ld. Counsel stated that the attached amounts are involved in the offence of money laundering as they are proceeds of crime being taken out form the account of NCL on the basis of full documents and the same has been amply discussed in the complaint filed by the complainant as well as by the Ld. Adjudicating Authority in its Order. He contended that the Appellant Bank is entitled to claim/recover the attached amounts, the appellant bank, in terms of Sub-section 8 of Section 8 of PMLA, is at liberty to seek legal remedy from the Special Court (PMLA). Furthermore, he submitted that Central Bank of India were not a party/noticee, but obtained a copy of the order later and filed the present appeal. He submitted that as per the direction of this Tribunal, the appellant approached the Ld. Adjudicating Authority by filing Misc. Application. After hearing both the sides, Ld. Adjudicating Authority passed a detailed and well-reasoned order dated 23.06.2016, whereby it was stated that in

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absence of rightful claim to the property by the Appellant Bank, the application was dismissed at that stage, continuing the confirmation order.

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Ld. Counsel for the Respondent submitted that Central Bank of India has no locus standi in the present appeal and do not qualify themselves as Appellant, as they were not party/noticees in the attachment proceedings and submitted that Ld. Adjudicating Authority vide the order dated 23.06.2016 stated that Central Bank of India has no rightful claim to the property in the matter.

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Prayer is accordingly made to dismiss the present appeal, as the Appellant Central Bank of India has no locus standi whatsoever to claim/recover the attached amounts, as the same were tainted money involved in the offence of money laundering.

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After hearing the rival submissions, I have given my thoughtful consideration to the same. In the present case, the appellant bank has contended that a fraud of Rs. 25 Crores has been exercised on it by the assailants in the concerned scheduled offence as is evident from the investigation and chargesheet mentioned in details in para 2 above. The Ld. Counsel for the appellant has also submitted that it has already restored the said amount of Rs. 25 Crore to the NCL on 16.11.2009 alongwith interest from 23.07.2009. He pointed out that the Ld. Sessions Court (Trial court) has also granted relief to the appellant bank by ordering the defreezing and transfer of the eleven bank accounts in the petition filed by the appellant bank before it, vide order dated 15.12.2014, which favours the stance of the appellant bank. Further, the account opened by the appellant bank has no credit balance or funds.

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The amount of Rs.1,91,53.701/- is actually the amount reversed back by the bank from the accounts of the accused in lieu of recovery of the said amount of Rs. 25 Crores, for which the accused defrauded the bank. Further, the appellant bank has also filed the suit for recovery of amount of Rs. 23,08,46,299/- alongwith interest and not for the recovery of Rs. 25 Crores, after adjusting the recovery of Rs. 1,91,53,701/-, which proves its stance that the amount of Rs. 1,91,53.701/- is actually the recovered amount against the Rs. 25 crores fraud committed on the bank. Thus, this impugned amount attached by the ED is not liable to be attached as the same cannot be considered as proceeds of crime, rather it is the amount belonging to the bank against recovery of the said Rs. 25 Crore for which it was defrauded.

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Hence, in lieu of the same, I am of the view that the appeal filed by the appellant bank needs to be allowed in the interest of justice and the amount lying in the bank account attached via PAO No.11/2011 dated 15.04.2011be detached and transferred to the appellant bank.

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In sequel to my discussion in the preceding para, the present appeal is hereby allowed and consequences to follow accordingly. It is made clear that nothing expressed herein will affect the right of any party in the criminal trials. Appellant bank is hereby directed to furnish an undertaking/indemnity bond to the trial court to make the compliance of any order to indemnify any claimant (if any) as per direction of Ld. Special Judge, PMLA Court in due course/conclusion of trial.

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Appeal Allowed.

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Pronounced onthis9^th Day of April, 2025.

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(Rajesh Malhotra)

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Member

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