Mandwa Farms Pvt. Ltd vs Deputy Director, Directorate Of Enforcement, Mumbai

,,

MP-PMLA-3452/MUM/2017 (Stay) in FPA-PMLA-1763/MUM/2017,,

1 The miscellaneous application has been filed seeking stay of the operation of the impugned order dated 22.02.2017 which has been challenged in the,,

main appeal. In the impugned order, passed by the Adjudicating Authority, the provisional attachment order bearing P.A.O.. No. 16/2016 dated",,

03.09.2016 in O.C. No. 639/2016 has been confirmed.,,

The main brief facts leading to the filing of the appeal and the present application have been stated as follows:,,

(i) A complaint dated 27.07.2016 was filed by SBI and Consortium Banks with CBI. Subsequently on the basis of the allegations in the complaint, a",,

regular case was registered by the CBI. The Enforcement Directorate (ED), registered ECIR dated 19.08.2016.",,

(ii) It was mentioned in the complaint dated 27.07.2016 filed by SBI that SBI and other consortium Banks had advanced various credit facilities such,,

as Rupee Term Loan (RTL), Working Capital Finance (WCF), Fund based (Overdraft/C Limit) as well as non fund based (Bank Guarantee, L/C, Bill",,

discounting etc) to KAL around the year 2004 for meeting its operational expenses and working capital requirements. The said loans were rolled over,,

and renewed from time to time, and that, during the year 2009-2010 KAL requested the banks to restructure the existing loans.",,

(iii) It was further alleged in the complaint that as a part of the restructuring exercise, a Master Debt Recast Agreement dated 21.12.10 (MDRA) and",,

other documents were executed by KAL in favour of the consortium banks. The applicant purportedly executed a corporate guarantee dated,,

21.12.2010 in favour of the consortium banks guaranteeing due repayment of the outstanding amounts in respect of the restructured facilities in the,,

event of default in repayment by KAL.,,

(iv) The complaint also stated that KAL did not keep its accounts with Consortium Banks regular, as a result of which the accounts of KAL became",,

NPA in the accounts of various banks. Hence, the consortium banks were, therefore, constrained to recall the credit facilities granted to KAL and",,

also invoke the corporate guarantee of UBHL and personal guarantee of Shri Vijay Mallya.,,

(v) It was alleged that the guarantors viz. UBHL and Shri Vijay Mallya, deliberately and dishonestly did not repay the outstanding amount due and",,

payable by KAL to the consortium banks. The complaint further alleged that there was a conspiracy among KAL, Shri Vijay Mallya and others that",,

they had dishonest intention to cheat the banks, since inception and that KAL, Dr. Vijay Mallya and the Applicant misrepresented to the banks, to",,

cheat the banks and to cause wrongful gain for themselves and to cause wrongful loss to the tune of Rs. 6027.36 cr. (approx) to the lender banks in,,

the matter of loans taken by the KAL.,,

(vi) On the basis of this complaint a regular case was registered by Superintendent of Police, CBI, FS&FC, New Delhi on 12.08.2016 and entrusted to",,

Shri V.K. Shukla Deputy Superintendent of Police, CBI, SC-II/SIT/NEW Delhi for investigation. On the basis of the aforesaid FIR, an ECIR was",,

registered by the ED which noted that the grant of loan to Kingfisher Airlines Ltd. by SBI and consortium of banks constituted proceeds of crime of,,

Rs. 6027.36 cr. approx. and according to ED a prima facie case for offence of money laundering was made out requiring investigation by the ED.,,

It was submitted that from the facts it was clear that the FIR was limited to the loan extended to KAL by SBI and consortium of banks and,,

utilization thereof. However, surprisingly the related P.A.O. dated 03.09.2016 was passed provisionally attaching the property of the",,

applicant/appellant. It was submitted that the applicant/appellant is a separate and distinct legal entity from KAL and has no connection whatsoever to,,

the loan granted by the Bank to KAL. Further, the property sought to be attached was acquired much prior to the grant of the loan to KAL by",,

consortium of banks. Consequently, the properties of the applicant are not proceeds of crime. Furthermore, there is no privity of contract whatsoever",,

or connection between the applicant/appellant and KAL or the Consortium of Banks. Majority and dominant interest in the Applicant ultimately,,

belongs to the children and family members of Dr. Vijay Mallya. There are no allegations whatsoever against them. Consequently, there can be no",,

attachment of the property of the Applicant. The shareholding pattern of the Applicant and its shareholders respectively were also annexed with the,,

application, which clearly show that the majority shareholding in the Applicant is held by the children and family members of Dr. Vijay Mallya,",,

indirectly through Talesi Ventures Private Limited.,,

The appellant/applicant inter-alia has submitted that the properties of the applicant have been attached which have nothing to do with the loan,,

granted by the consortium of banks to Kingfisher Airlines Ltd. (“KALâ€) and that no part of the loan granted to KAL has found its way to the,,

applicant/applicant.,,

In the hearing, Shri Dayan Krishnan, the learned senior Advocate appearing on behalf of the appellant in support of their argument that the",,

applicant/appellant is a separate and distinct legal entity and its property could not be attached on account of alleged defaults by the KAL and Dr.,,

Vijay Mallaya, referred the following decision in the case of Anita Kaur Vs. Universal Weather and Aviation India Pvt. Ltd., 2014 SCC OnLine Del",,

3137 wherein in Para 8 of the judgment it is observed as under:-,,

“8. We remain unimpressed. The First of the aforesaid argument is against the very grain of Company Law. A Company is a distinct legal entity,,

from its shareholder, even if all the shares are held by one person only. Thus, merely because the defendant no. 2 holds 100% of the shareholding of",,

the defendant no. 1 Company, would not make ' the defendant no. 2 liable for the dues and acts of the defendant no. 1. Admittedly both defendant no.",,

1 and defendant no. 2 are separate legal entities. No case for piercing of the corporate veil is made out. The Supreme Court in Vodafone International,,

Holding B.V v. Union of India (2012) 6 SCC 613 (para 101) has held that a Company is a separate legal persona and the fact that all its shares are,,

owned by one person or by the parent Company has nothing to do with its separate legal existence.â€​,,

Further, in the case of Electronic Corporation of India Ltd. & Ors. V.s Secretary, Revenue Department Govt. of Andhra Pradesh & Others.,",,

(1999) 4 Supreme Court Cases 458, in para 15 of the judgment it was observed by the Hon‟ble Supreme Court as under:",,

“15. A clear distinction must be drawn between a company and its shareholder, even though that shareholder may be only one and that the Central",,

or a State Government. In the eye of the law, a company registered under the Companies Act is a distinct legal entity other than the legal entity or",,

entities that hold its shares.,,

After referring the pleadings, documents and the above judgments, it was submitted that the appellant has a good case on merit and an excellent",,

chance to succeed in the appeal and therefore, it was just and proper and in the interest of the justice that the operation of the impugned order is",,

stayed by Tribunal. It was submitted that after filing the appeal, the appellant was in receipt of a notice dated 25th April, 2017 under section 8(4) of",,

the Act from the respondent by which the applicant had been directed to immediately vacate and handover the peaceful possession of the applicant‟s,,

property i.e. the land parcel with built in house (Farm House at Mandwa, Kolegaon Village, Taluka â€" Alibaug, Distt. â€" Raigad) to the respondent",,

within 10 days of the receipt of the notice. The learned Sr. counsel for the appellant argued that the operation of the related notice be stayed pending,,

decision of the appellant‟s appeal.,,

Mr. Rajeev Awasthi, learned counsel for the respondent accepts the notice. He strongly opposed the said prayer and submitted that he will make",,

his submissions without filing a reply by relying upon the impugned order already placed on record. According to him, in the present case, the appellant",,

is not entitled for any relief.,,

The learned Advocate for the respondent argued that the property attached and confirmed in the impugned order is controlled by Shri Vijay Mallya.,,

He further submitted that as of today , Dr. Vijay Mallya is required to pay sum amounting to approximately Rs. 9,000 Crores to be paid to the various",,

financial institutions. He is running away from the law. He has already been declared as absconder. Non-bailable warrants have been issued against,,

him. His passport has been cancelled. He further referred to various statements recorded during the investigation to show that Dr. Vijay Mallaya was,,

actually controlling the appellant/applicant company.,,

We have considered the rival contentions for purposes of disposal of the stay application. The primary ground of the appellant/applicant seeking,,

the interim relief is on account of the appellant‟s legal entity being distinct from that of Dr. Vijay Mallaya and of KAL to whom the loan was,,

sanctioned. As far as the proposition of law is concerned, there is no dispute that in case the present case on facts falls within the four corners of the",,

cases referred on behalf of the appellant, then those are binding in law and the judgment have to be followed by this Tribunal. However, in the present",,

case we have found that material and underlying facts are different.,,

The statement of Shri NR Padmanabhan which was recorded on 26th July, 2016 and who is Director of the company of the appellant at Mandwa",,

Farms Pvt. Ltd in which he has deposed in reply to Q.5 to Q.10 and Q.13 regarding the incorporation of the appellant company, purchase of the",,

attached property and control of the appellant company which are reproduce herein below:-,,

“Q.5 What are the promoters of M/s Mandwa farms Pvt Ltd. an what are the activities involved in the said company?,,

A. I state that M/s Mandwa Farms Pvt Ltd. was incorporated in the year 1988 and “the promoters / shareholders of M/s Mandwa farms pvt ltd.,,

are M/s Blitz Multi Media pvt ltd. who are owning 97% and the rest 3% is owned by M/s VJM investments. I state that the company M/s Mandwa,,

farms Pvt Ltd. is owning a bunglow & some land parcels adjacent to it at Alibaug, District Raigad, which is let out to M/s Unites Breweries Ltd. since",,

last two years and earlier to that period it was given to M/s USL. Copy of the purchase agreement in r/s the immovable properties owned by M/s,,

Mandwa Farms Pvt. Ltd. has been furnished by me vide my letter dated 03.06.2016. On being asked , I state the currently an amount of Rs. 11.50",,

lakhs p.m. (excluding S.T.) is given by M/s UBL for the property let out to them. I am submitting the copy of the extention letter/ renewal agreement,,

with M/s USL and the agreement with M/s UBL under my dated signature.,,

Q. 6 Who are the promoters of M/s Blitz Multimedia Pvt Ltd. What are the activities of the said company and the assets owned by them?,,

A. I state that the promoters/shareholders of M/s blitz Multimedia Pvt Ltd. are M/s Talesi Ventures Pvt Ltd. who are holding 89.93%, M/s Ganpathy",,

Mallya, who are holding 9.08%, M/s UB Distilleries ltd. who are holding 0.908% and the rest are with the trust & individual. I state that M/s Blitz",,

multimedia Pvt Ltd. is involved in the publication of magazines. On being asked, I state that the said company was earlier known as M/s RIFA",,

publication Pvt. Ltd. which was owned by Sh Karanjia. I state that after subsequently renamed to M/s Blitz Multimedia Pvt Ltd. The current,,

shareholders of M/s Blitz multimedia Pvt Ltd. are M/s Talesi Ventures Pvt. ltd. M/s Ganpathi Mallya investment Pvt Ltd, UB Distilleries ltd, Sh. P.A.",,

Murli, Sh. Rami Reddy, Mallay family trust, Sidharth Mallay trust, Leana Mallya trust, Tanya Mallya trust, Sh. anil Pisharody and Mr. P.D. Govindam.",,

The details of their holdings are submitted here with my dated signature. On being asked, I state that I will be furnishing the details of the shareholder",,

of the M/s Blitz Multimedia pvt ltd within 03 days.,,

Q 7 Who are the prompters/Shareholders/owners of M/s Talesi Ventures pvt. Ltd. M/s. Ganpathy mallya and M/s UB Distilleries ltd. etc?,,

A. I state that I am not aware of the promoters of M/s Talesi Ventures pvt ltd. Ganpathy Mallya investments and M/s UB Distilleries ltd. On being,,

asked, I am / also not aware of the trustees of M/s Mallay Family trust, Siddharth mallya trust, Lean a Mallya trust and Tanya Mallaya trust.",,

Q. 8 Who are the promoters of M/s Blitz Publications Pvt Ltd ? What are the activites of the said company and the assets owned by them/,,

A. I state that M/s Biltz Multimedia pvt. ltd is the promoters/ Shareholders of M/s Biltz publications pvt holding 100% shares. I state that earlier they,,

were publishing blitz paper. However, after acquisition in the year 2007, there were no publications and presently there are no activities.",,

Q, 9 As you have stated that there was no activities in M/s Mandwa farms pvt ltd. Please explain as to how you have managed to purchase the",,

property in M/s Mandwa farms pvt. ltd?,,

A I state that initially M/s Herberstone ltd. purchased land adm. 12 acres from one person by name Mr. vital Ramachandra Narayan for Rs. 21 Ics on,,

01.10.84 and by way of Deed of lease dated 29.01.1990, to M/s Mandwa farms pvt ltd for a consideration of Rs. 29 lacs. This amount is reflected in",,

the books of M/s Mandwa farms pvt. ltd. at Rs. 29.50 lacs (Rs. 50,000/- being additional expenses incurred in the purchase). Regarding the second",,

property, by deed of sale dated 26.06.01, M/s Herberstone ltd. purchased land adm. 5 acres from Mrs. Priya Kurulia wife of late Vice Adm. E.C.",,

Kuruvila for Rs. 4 This property was the sold to M/s Mandwa farms for an amount of Rs. 55 lacs. M/s Mandwa farms pvt. ltd was able to purchase,,

this property on the basis of the issue of 680 shares of rS 100 each (ata premi urn of rs. 8000/-) to M/s VJM Media pvt. ltd. I state that M/s VJM,,

Media pvt, was re named as M/s Blitz Multi Media pvt. ltd in the year 2014.",,

Q. 10 Who appointed you as a Director of M/s Mandwa farms pvt ltd, M/s Blitz MMitmedia pvt ltd. and M/s Blitz publication pvt. ltd.? Whether board",,

meetings a re conducted regulary and if so, who prepares the minutes of the board meeting and whether the same are filed with the ROC?",,

A. I state that the then Board of Directors of M/s Mandwa farms pvt ltd. viz. Mr. Cyrus Mistry, Niraj Rawal & Rasik Shroff had appointed me as the",,

Director of M/s Mandwa farms pvt ltd. I state that the board of Directors of M/s Blitz Multimedia pvt ltd & Blitz publication pvt. ltd Mr. Venugopal,,

and S.R. Gupte appointed me as the Director for the said two companies.,,

Q13Who controls M/s Mandwa Farms Pvt. Ltd.,,

A. I state that M/s Mandwa Farms Pvt. Ltd. Is controlled by Shri Vijay Mallaya, may beâ€​",,

(emphasis supplied),,

Name of Share holder,No. of Shares,% to paid- up capital

Talesi Ventures Private Limited,"1,23,800",89.94%

Ganapathy Mallya Investments Private Limited,12.500,9.08

UB Distilleries Limited,1.250,0.90%

Mr. SR Gupte,20,0.01%

Mr. S.D. Lala,10,0.007%

Mr. P.A. Murali,10,0.007%

Mr. M.S. Reddy,10,0.007%

Mr. Anil Pisharody,10,0.007%

Mr. Sammy Dara Lalla, Managing Trustee of Mallya

Family Trust",10,0.007%

Mr. Sammy Dara Lalla, Managing Trustee of Sidhartha

Trust",10,0.007%

Mr. M. Sreenivasulu Reddy, Managing Trustee of Leana

Trust",10,0.007%

Mr. P.A. Murali Managing Trustee of Tanya Trust,10,0.007%

Name of Share holder,No. of Shares,% to paid- up capital

Dr. Vijay Mallya,42.298,99.99%

Dr. Vijay Mallya &Mr.P G Govindan(jointly held),1,0.002%

Dr. Vijay Mallya &Mr. K V Sreenath(jointly held),1,0.002%

acquired from crime and therefore, there is no question of retrospective criminalization, referred to the judgment in the case of State of",,

Bihar V. Deokaran Nenshi and another, reported in (1972) 2 SCC 890 quoted as under:-",,

“A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all.,,

It is one of those offences which arises out of a failure to obey or comply with a rule or its requirement and which involves a penalty, the",,

liability for which continues until the rule or its requirement is obeyed or complied with. On every occasion that such disobedience or non-,,

compliance, occurs and reoccurs, there is the offence committed. The distinction between the two kinds of offences is between an act or",,

omission which constitutes an offence once and for all and an act or omission which continues and therefore, constitutes a fresh offence",,

every time or occasion on which it continues. In the case of a continuing offence, there is thus the ingredient of continuance of the offence",,

which is absent in the case of an offence which takes place when an act or omission is committed once and for all.â€​,,

The Bombay High Court further enumerated several judgments on the issue as under:-,,

“In view of the foregoing, it is not necessary to quote from and discuss the judgments in State of Maharashta v. Krishnarao Dudhappa",,

Shinde, reported in (2009) 4 SCC 219, Sajjan singh v. State of Punjab, reported in AIR 1964 SC 464, The state of Bombay (now",,

Maharashta) v. Vishnu Ramchandra, reported in AIR 1961 SC 307, State of Haryana and others v. Jagdish, reported in (2010) 4 SCC 216,",,

J VinodKumar Sudarshan Kelkar V. Union of India reported in 2004 (4) MAH.L.,J Mohd. Abdul Sufan Laskar and others V. State of",,

Assam, reported in (2008) 9 SCC 333, naresh Kumar V. State of Haryana and another, reported in (2012) 9 SCC 330 and Maru Ram V.",,

Union of India, reported in (1981) 1 SCC 107.â€​",,

The Hon'ble Bombay High Court took a view that in the light of the foregoing discussion about money - laundering being a continuing,,

offence, the dates of amendment to the Schedule and registration of offence are not relevant, at least for the purpose of considering the",,

applicants entitlement to bail, so long as the alleged proceeds of crime are with the applicant, as this would amount to involvement in any",,

process or activity connected with proceeds of crime.,,

CONDUCT OF D-2,,

It is seen that D-2 and D-4 have taken a stand that the guarantee given by D-2 and D-4 were obtained inter alia under coercion before the,,

Bombay High Court. Besides the same the other circumstances are also relevant to gauge the conduct of D- 2. It is pertinent to note that,,

both D-l as well as D-4 have been ordered to be wound up by orders of Hon'ble High Court dated 18.11.2016 and order dated,,

07.02.2D17, both passed by Karnataka High court. This implies that both the companies are unable to pay its debts. Besides the same the",,

principal Director Sh. Vijay Mallaya (D-2) soon after commencement of the investigation by Enforcement Directorate has remained,,

unavailable and is now d uly declared to be proclaimed offender by the Special Sessions Court Mumbai. This shows indifference nee of D-,,

2, to sincerely attend the investigation and follow the due process of law.",,

18 Even otherwise in case the provisions of section 8(4) and 8(5) of the PMLA are read together, it is evident that after the confirmation of the",,

attachment by the Adjudicating Authority, the Enforcement Directorate is required to take the possession of the attached property. While the Tribunal,",,

in exercise of its inherent powers of an appellate court during hearing appeals under the related acts, in suitable cases has granted interim relief",,

including by way of stay of action for taking possession of attached properties confirmed in adjudication subject to such conditions as considered,,

suitable in a particular case, for the reasons as mentioned above we do not consider the present case to be one where such discretion can be",,

exercised.,,

The attached property is a vacant property w.e.f. 31.03.2017 as informed by learned counsel for the appellant. The value of the property as as,,

stated in the statement of Shri N.R Padamnabhan, Director in the appellant company appellant is approximately between Rs. 170-200 crores.",,

Admittedly, Dr. Vijay Mallya has not cleared the loan amounts worth thousand of crores. He is declared as absconder. It is also not his case that he is",,

not capable to pay the amounts due to the banks. The amount due in-fact is public money. There is no assurance on his behalf that in a particular,,

period of time, he would clear the loan amount. He has not shown his willingness to join the proceedings pending against him in Indian courts. It also",,

appears from the material placed on record that he was actively involved in the day to day activities of all the businesses carried out by him directly or,,

indirectly when the loan was sanctioned. Merely by alleging that a particular company is an independent entity would not help the case of the appellant,,

because he was the ring master of entire game. Thus the facts in the present case are peculiar than other cases referred on behalf of the appellant.,,

It is also well settled position in law that the party who is absconding and carrying the public money and evading the process of law would not be,,

entitled for discretionary relief from any court. Accordingly, and in the facts of the present case, we are not inclined to exercise the discretion in",,

favour of the appellant who, prima facie , is controlled by Dr. Vijay Mallya.",,

The application for stay is, therefore, dismissed. The respondent would be entitled to take the possession of the property under section 8(4) of the",,

Act in the manner prescribed under the rules.,,