Jella Jagan Mohan Reddy vs Joint Director Directorate Of Enforcement, Hyderabad

FPA-PMLA-1619/HYD/2017

By the impugned order dated November 23, 2016, the PAO dated June 29, 2016 was confirmed by the Adjudicating Authority. The attachment of

the following immovable properties owned by the Appellant:-

(a) property admeasuring 27 acres in Sy. No. 2588, Setti Gunta Village, Kodur Mandal, Kadapa District registered vide Doc. No. 940/ 2007 at Chitvel

S.R.O., Kadapa District with a purported value of INR 15,22,000; and

(b) a residential unit bearing apartment No. 902 comprised in Tower-17LH together in Lanco Hills, Manikonda, Hyderabad and registered vide Sale

Deed No. 5068/2012 and 8096/2012 of Serilingampalli S.R.O, Ranga Reddy District with a purported value of INR 1,30,23,799 (hereinafter referred to

as “Immovable Propertiesâ€​),

The Appellant was not arrayed as an accused in the FIR nor there were any allegations against the Appellant in the ECIR. It is submitted that the

Appellant was arrayed as an accused i.e. as accused no. 4, for the first time in the Charge-sheet No. 15/ 2013 dated September 10, 2013 in PMLA

complaint.

The main allegations in the PAO against the Appellant were that the Appellant is a close associate of Mr Y.S. Jagan Mohan Reddy, and is a

director in the company M/s Bharathi Cement Corporation Private Limited who had received an amount of INR 7,18,95,651/- towards remuneration,

and he filed the application pursuant to which the mining lease dated 29.3.2006 for the limestone area of 2037.52 acres in Kadapa District (hereinafter

referred to as “Mining Leaseâ€) which was allegedly illegally granted in favour of M/s Bharathi Cement Corporation Private Limited ignoring the

rights of M/s Gujarat Ambuja Cement Limited (hereinafter referred to as “Gujarat Ambujaâ€) by the actions of Mr Y.S. Jaganmohan Reddy, in

conspiracy with others, and by influencing public servants and without due procedures being followed under the Mining Rules.

Therefore, the Respondent had passed the PAO attaching, inter alia, the Immovable Properties owned by the Appellant to the extent of the

purported “proceeds of crime†amounting to INR 1,45,45,799, which was confirmed by the impugned order dated November 23, 2016 of the

Adjudicating Authority.

As per material placed, it has come on record that the Appellant has at least 20 years of experience of executing large industrial projects and the

remuneration paid to him is commensurate with the Appellantâ€s capabilities, skill-set, vast and extensive experience spanning more than a decade in

the mining industry, besides his extensive management and corporate experience. The remuneration paid was in accordance with the provisions of the

Companies Act, 1956 and in accordance with valid resolutions passed in meetings of the shareholders and the directors of M/s Bharathi Cement

Corporation Private Limited. The Appellant was working on a full time basis with M/s Bharathi Cement Corporation Private Limited.

The Adjudicating Authority did not consider the facts that (a) that the cement plant of M/s Bharathi Cement Corporation Private Limited was

commissioned on September 28, 2009; and (b) PARFICIM, France acquired majority shareholding of M/s Bharathi Cement Corporation Private

Limited in April 2010. The said facts have bearing on the remuneration being paid to the Appellant as it is only upon commissioning that M/s Bharathi

Cement Corporation Private Limited would start earning money, whereas till then the company was only in the investment stage where every single

penny paid was paid out of the investments made by the shareholders and the loans taken from the banks; PARFICIM, France is a foreign multi-

national and, it is common market practice that upon acquisition by a foreign multinational, salaries are rationalized based on the market. The Appellant

started taking a salary only after commissioning of the plant in the year 2009. The Appellant received remuneration of INR 4,00,000/- per month for

the period after his appointment as whole-time director in M/s Bharathi Cement Corporation Private Limited but prior to investment by PARFICIM,

France in April 2010. The remuneration of INR 12 lakhs paid to the Appellant in the year 2009 after the commissioning of the plant in September 2009

i.e. for 3 months from October 2009 â€" December 2009 is also reflected in OC No. 618 of 2016, net of taxes and other deductions.

In the month of April, 2010, after investment by PARFICIM, France, the Appellantâ€s remuneration was revised to INR 66,00,000/- per annum i.e.

an amount of 5.5 Lacs per month.

It is the case of the appellant that there is nothing illegal about being paid remuneration given that M/s Bharathi Cement Corporation Private Limited

had overcome the investment phase and the plant had got commissioned with the hard work of the Appellant and further because M/s Bharathi

Cement Corporation Private Limited was now a part of a much larger multinational group which had made substantial investments into the company.

As far as filing of application filed by the appellant in the tender process is concerned, it may or may not be conclude at this stage as to whether the

same was filed at the instance of Jagan Mohan Reddy or BCCL. At this stage, the validity of the impugned order to be examined.

It is submitted on behalf of the Appellant that the Adjudicating Authority has wrongly in holding that the Appellant herein did not possess high

technical qualification or capabilities to justify the remuneration paid to him or that the said remuneration was in the nature of proceeds of crime.

Further, the Adjudicating Authorityâ€s findings that the Appellant is not qualified or that he does not have capabilities to be remunerated as a director

of M/s Bharathi Cement Corporation Private Limited, are devoid of any reasons or basis in law or fact, and are patently erroneous.

As per material placed on record, the remuneration paid to the Appellant is also similar to, and at par, with the remuneration paid to other whole-

time Directors of M/s Bharathi Cement Corporation Private Limited. As such, the Respondentâ€s allegation that the remuneration paid to the

Appellant was unnatural and false is misconceived and untenable. [The said materials contain details of remuneration paid to the Appellant as a whole

time director and as also the remuneration paid to other whole time directors of M/s. Bharathi Cement Corporation Private Limited].

There is no denial that the Board of M/s Bharathi Cement Corporation Private Limited is controlled by PARFICIM, France, and accordingly, the

decision making in M/s Bharathi Cement Corporation Private Limited is clearly controlled by them.

It is the admitted position that the Adjudicating Authority accepts that PARFICIM, France, is the majority shareholder of M/s Bharathi Cement

Corporation Private Limited is wrongly held that control still remained with the Jagan group, which is a position clearly untenable in law and fact.

As per facts and law, Mr. Y.S. Jaganmohan Reddy and Smt Bharathi Reddy would constitute only a minority on the board not having the powers to

take or influence decision making, and as such attributing the increase in remuneration to them.

The Appellant is only one of the full time directors of M/s Bharathi Cement Corporation Private Limited. It is a fact that the other full time

directors receive remuneration which is comparable and proximate in number to the remuneration being received by the Appellant. There are no

allegations against the others that the payments so being made to them are “proceeds of crimeâ€. The details of remuneration paid to the Appellant

as a whole time director and as also the remuneration paid to other whole time directors of M/s. Bharathi Cement Corporation Private Limited are

placed on record. There is no allegation or averment that the Appellant is in any manner related either to Mr. Y.S. Jaganmohan Reddy and/or any of

his family members.

The Appellant had paid an amount of INR 2,24,15,189/- towards Income Tax to the tax authorities for income arising out of the remuneration paid

to him in his capacity as full-time Director in M/s Bharathi Cement Corporation Private Limited. The Adjudicating Authority has failed to give due

weightage to the relevant facts.

As regards Apartment no. 902 comprised in Tower-17LH, together with parking space each admeasuring 134.55 Sq. Ft., along with the undivided

share of 515.55 Sq. Ft. in Lanco Hills, Manikonda, Hyderabad, it is submitted that the said immovable property is a residential unit, and a dwelling

house where the Appellant and his family are presently living. The aforesaid residential property owned by the Appellant was purchased by him in the

year 2012 for a total sale consideration of INR 1,16,49,860/-(excluding taxes, registration charges, etc.) [Sale deed is placed on record]. Admittedly,

the Appellant had obtained a Housing Loan of INR 60 Lakhs from ING Vysya Bank (now renamed as Kotak Mahindra Bank) and he continues to

pay the EMI of INR 65,604/- from his Bank Account No. 111020110011233 maintained with Oriental Bank of Commerce, Jubilee Hills, Hyderabad.

The documents are placed on record. Prior to acquiring the aforesaid residential property, the Appellant was residing with his family in rented

accommodation, for which the monthly rent was being paid out of his salary income only.

There is no evidence on record that the sale consideration paid for the purchase of the aforesaid immovable property was obtained from

difference sources. There was no also likelihood of the residential property being concealed, transferred or dealt with in any manner which may result

in frustrating the confiscation proceedings.

The Appellant has also filed an affidavit dated March 06, 2017 providing details of the market value of the aforesaid residential property in terms

of directions of this Tribunal contained in order dated February 21, 2017.

By order dated May 31, 2017, this Tribunal was pleased to pass an order directing that no coercive action will be taken by the Respondent against the

residential immovable property of the Appellant, subject to deposit of an amount of INR 25,000/- per month by the Appellant within the period of two

weeks from May 31, 2017 to be paid from the date of the Impugned Order.

In compliance with the said order, the Appellant continues to deposit the monthly use and occupation charges of an amount of INR 25,000/- with

the Respondent, and the interim order has been extended from time to time.

As regards Vacant Land admeasuring 27 acres in Sy. No. 2588, Setti Gunta Village, Kodur Mandal, Kadapa District, it is submitted that the

vacant land (admeasuring 27 acres in Sy. No. 2588, Setti Gunta Village, Kodur Mandal, Kadapa District registered vide Doc. No. 940/ 2007 at Chitvel

S.R.O., Kadapa District) owned by the Appellant was purchased by him in the year 2007 for a total sale consideration of INR 15,22,000/-. The said

vacant land in District Kadapa was purchased by the Appellant in the year 2007, the allegations of which contained in the PAO itself, is well before

the point of time when any of the amounts in the hands of the Appellant have been questioned. The proof has been placed on record.

There is no evidence on record that the sale consideration paid for the purchase of the aforesaid Immovable Properties was obtained from illegal

sources.

There are no findings against the majority shareholder of M/s Bharathi Cement Corporation Private Limited concerning any apprehended

involvement in any of the alleged illegal activities either in the present proceedings or in the proceedings of the CBI. In fact, in OC No. 276 of 2015, it

is unequivocally stated at Page 85, para 25(1) that there is no illegality on the part of PARFICIM, France and it is an “innocent investor†who

“is not found in any criminal activityâ€​.

The bona fides of the purchase of shares by PARFICIM, France, has not been questioned or challenged either by the CBI in the charge sheet

filed by them or in the PAO itself, and further that there is not even a single averment on the source of the money used by the Appellant to purchase

the shares of M/s Bharathi Cement Corporation Private Limited. In absence of any question on the source of funds used for purchase of the shares

by the Appellant and in absence of any question on the bona fides of the purchase made by PARFICIM, France to whom the Appellant sold his

shares, the money earned by the Appellant cannot be classified as “proceeds of crimeâ€​.

The Appellant had also paid an amount of INR 19,12,586/- towards Capital Gains tax on sale of 10,000 equity shares held in M/s Bharathi Cement

Corporation Private Limited to the tax authorities, which sale was also as per law and in accordance with the provisions of the Articles of Association

of the company.

The Respondent, however has in passing, raised certain allegations as regards the valuation of the shares of M/s Bharathi Cement Corporation Private

Limited, which issue is already the subject matter in a separate OC No. 424 of 2015, out of which an appeal FPA-PMLA-1035/HYD/2015 titled M/s

Bharathi Cement Corporation Private Limited Vs. Joint Director, Directorate of Enforcement has also been filed.

It is stated on behalf of the appellant that the investment made by the various entities/ companies was a bona fide investment in M/s Bharathi

Cement Corporation Private Limited. Upon transfer of the shares of the various companies/ entities to PARFICIM, France, they made a substantial

gain on investment by way of a bona fide, unchallenged and arms†length sale of shares to a third party, viz., PARFICIM, France, against which no

allegations of any nature have been made. There was a substantial profit to each of the investors, which profit was based on a third party purchase.

It is an admitted case that the sale price for each of these investors to an independent third party, against whom no allegations have been made,

was at a price of INR 671.20, which evidently was higher than the average price of investment of any of the investors, resulting in substantial profits

to each of them.

The finding arrived in the impugned order to the extent that in terms of the extant FDI policy, it is legally impermissible for a non-resident to make

an investment at any price less than the fair valuation of shares and were purchased in legal manner by the non-resident to invest at a price higher

than the fair valuation of shares. Therefore, the allegation against PARFICIM, France, due to their investment having been made at a price higher

than the valuation price, is not sustainable. Once the respondent has not charge-sheeted PARFICIM under the PMLA. The said company is also not

charge-sheeted under scheduled offence. Thus salary received by the appellant cannot be treated as proceed of crime.

The Adjudicating Authority did not appreciate that the Respondentâ€s observations that the investment made in M/s Bharathi Cement Corporation

Private Limited by PARFICIM, France, was illogical, or that PARFICIM could not have invested in the company or that the said investment is in

violation of the Companies Act, was misconceived and had no basis in law or fact.

It is submitted that after grant of the Mining Lease in favour of M/s Bharathi Cement Corporation Private Limited, there was no illegality in

execution of the Mining Lease Deed on March 29, 2006.

The Government of Andhra Pradesh had, vide G.O. Ms. No. 648 Revenue (Assn. IV) dated May 14, 2007 constituted a Commission of Inquiry

which was headed by Honâ€ble Mr Justice P. Ramakrishnam Raju, a retired judge of the Honâ€ble High Court of Andhra Pradesh. One of the

matters to be inquired upon by the said Commission was as under:

“Whether issuance of G.O. Ms. No. 95, Industries & Commerce (M.III) Department, dated 27-3-2006 by Government of Andhra Pradesh

granting mining lease to M/s Raghuram Cements Ltd., for establishing their proposed cement factory in Kadapa District was in conformity

with the established norms, procedures and provisions of law.â€​

After a detailed inquiry into the above issue, the Honâ€​ble Commission, vide its report dated August 27, 2007, unequivocally concluded as under:

“…I have no doubt the State Government has followed the procedure indicated above following the Mines and Minerals (Development

and Regulation) Act, 1957 and Mineral Concession Rules, 1960. I have perused the entire procedure followed for the issue of G.O.Ms. No.

95 Industries & Commerce (M.III) Department, Dt.27-3-2006. I do not find any infraction in following the established norms, procedure or

the provisions of law.â€​

Admittedly the said inquiry conducted by a retired High Court Judge has given a conclusive and unequivocal finding about allotment of the Mining

Lease.

The Adjudicating Authority, by dismissing the abovementioned unequivocal finding of a retired High Court Judge, heading a Commission

constituted by the Government of Andhra Pradesh under the Commissions of Inquiry Act, 1952, has reached faulty conclusions as regards the

allotment of the Mining Lease dated March 29, 2006, which is unsupported by any cogent and reliable material on record. The Respondentâ€s stand

that the Honâ€ble Commission only enquired into the legality of grant of mining lease by the Government is against the foundation on which the

Respondentâ€s case rests, i.e. the grant of mining license to the Appellant was illegal and incorrect. The Honâ€ble Commission had categorically

noted, that there had been no infraction in following the established norms, procedure or the provisions of law in granting the mining lease to the

Appellant. The Respondent has not disputed the conduct of this Commission of Inquiry and has also not disputed the statement of the appellant that no

challenge has been filed against the findings of this Commission of Inquiry. There is no submission on behalf of respondent as to whether the said

inquiry report was challenged by anyone.

It is also a matter of fact that despite several changes in political dispensation in the State of Andhra Pradesh, namely on September 03, 2009

(Government of Shri K. Rosaiah), on November 25, 2010 (Government of Shri N. Kiran Kumar Reddy), on March 01, 2014 (Presidentâ€s Rule in the

State), and thereafter on June 08, 2014 (Government of Telugu Desam Party), no attempts have been made either to cancel the Mining lease granted

in favour of the Appellant or to set aside the inquiry report submitted by Honâ€​ble Mr Justice P. Ramakrishnam Raju.

It is also submitted on behalf of the appellant that the present proceedings are in contravention to the amendment made to Section 8(3) of the

Prevention of Money Laundering Act, 2002 as Amendment to the section 8(3) (a) of the PMLA was introduced by the Finance Act, 2018 and came

into force on 19.04.2018. It contemplates two different factual scenarios, namely:

i. When the Respondentâ€​s investigations are still ongoing, and the Respondent has not yet filed a charge-sheet for offences under PMLA; and

ii. When the Respondent has filed its charge-sheet before the Special Court which is designated for trial of offences under PMLA.

In the first scenario, as per the amended Section 8(3), the attachment would continue for a period not exceeding ninety days. However, in the second

scenario as contemplated under 12.1.1 (ii), as per the amended Section 8(3), the attachment would continue for the duration when the proceedings

were pending before the court.

In the present case, few dates are relevant to discuss the issue raised on behalf of appellant:-

i. Adjudicating Authorityâ€​s Order confirming the PAO was passed on 23.11.2016;

ii. Amended sub-section 3 of Section 8 to the PMLA by the Finance Act 2018 came into effect on 19.04.2018;

iii. The Respondent filed the prosecution complaint before the Special Court on 16.07.2018;

iv. The Respondent prosecution complaint was returned by the Special Court citing irregularities/ objections in the documents on 06.09.2018; and

v. The Respondent re-filed the prosecution complaint before the Special Court on 14.12.2018.

As per the Respondentâ€s affidavit filed on 26.11.2018, the Respondentâ€s investigation finally culminated in the filing of the prosecution complaint on

16.07.2018 after a period of almost 25 months from the date of the PAO i.e. 20.06.2016 and 22 months from the date of the Adjudicating

Authorityâ€​s order confirming the PAO.

Even assuming that the amended PMLA provisions will take effect prospectively from 19.04.2018 (i.e., the date when they came into effect), there

has been substantial delay in the Respondentâ€s re-filing of the prosecution complaint. Accordingly, the re-filing of the prosecution complaint on

14.12.2018 after substantial delay, without a condonation of delay application accompanying it, ought to be deemed to be a fresh filing in the eyes of

the law.

The Appellant submits that it is a settled position of law that the time taken for refiling cannot exceed the original statutory limit provided for filing,

for instance, the period of ninety days provided under Section 8(3) of the PMLA The Appellant craves leave to rely upon the case ofB harat Sanchar

Nigam Limited v Haryana Telecom Limited, (2010) 3 Comp 749 (Del), at paragraph 12.

Therefore, it is submitted that the attachment of the Appellantâ€s property has continued for a period in excess of the ninety days contemplated by the

amended section 8(3)(a) of the PMLA.

The Respondentâ€s contention is that the delay in refiling the prosecution complaint be condoned due to various reasons and that the attachment

will continue till such time the Respondentâ€s investigations is complete. The said arguments have no force as the Legislature intended at the time the

amendments were introduced.

As the prosecution complaint is now pending before the Special Act, the appellant is at liberty to move the application for quashing the proceeding

as per law. Prima facie, it appears to this tribunal, the prosecution complaint has to be filed in time and secondly it was the duty of respondent to

remove all the objections within maximum 30 days after the period of ninety days of filing the prosecution complaint. The same is the intent of the law.

Having considered the entire gamut and material on record, it is clear that no case of continuation of attachment of properties of the appellant is

made out.

As far as allegations of CBI are concerned, this tribunal does not wish to express any opinion on merit. The same would be considered by the

Special Court on the basis of materials. Both properties are not acquired from the proceeds of crime, hence, the same are released forthwith by

modifying the impugned order against the appellant.

The appeal is allowed.

No costs.