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Judgment
MP-PMLA-4913/CHN/2018(Misc), MP-PMLA-4901/CHN/2018(Misc), MP-PMLA-4890/CHN/2018(Misc), MP-PMLA-
4855/CHN/2018(Stay) &FPA-PMLA-2498/CHN/2018
By this Order, I propose to decide all the pending interim applications nos. 4855/2018, 4901/2018, 4890/2018 and particularly misc. application no.
4913/2018 which has been filed by the appellant offering alternative property in place of property already attached. The replies to the applications
have been filed by the respondent.
The brief facts (in order to decide the above mentioned applications) as per appellant’s pleadings, are as under:-
i) On the basis of information received by the Central Bureau of Investigation (hereinafter referred to as “CBIâ€), Anti-Corruption
Branch (hereinafter referred to as “ACBâ€) Chennai, an FIR being FIR No. RC MA1 2016 A0050 (hereinafter referred to as “CBI
FIRâ€) was registered by the CBI. The allegation was broadly, that wrongful gain to the Appellant and wrongful loss to the Government of
India of Rs. 115 Crores has been caused, by sale of the property admeasuring about 10.46 Acres in Guindy Village, Chennai (hereinafter
referred to as the “the said propertyâ€) at a sale price of Rs. 272 Crores whereas the Guidelines value for the same was Rs. 387 Crores
(and hence the loss). The same is merely a notional gain and notional loss. It was alleged that the sale was wrongly done by private treaty
instead of by public auction and that sufficient time, paper publication and other guidelines for private treaty sale were not followed. It was
alleged that this was done by collusion and connivance of the officials of State Bank of India (hereinafter referred to as “SBIâ€),
Egmore, Chennai branch (SBI being the lead bank in the consortium of Banks that had financed HTL) with officers of M/s Hindustan
Teleprinters Ltd. (hereinafter referred to as “HTLâ€) (HTL being the debtor) and the Appellant Company (being the successful bidder
and Vendee of the said property).
ii) A Petition being Criminal OP No. 21905 of 2017 to quash the CBI FIR had been filed by the Petitioner before the Hon’ble High
Court of Judicature at Madras. The same was rejected by the Hon’ble High Court vide its order dated 05.12.2017, mainly on the
ground that since the investigation is under way, it would be improper to quash the FIR at that stage.
iii) In response to the Criminal OP No. 21905 of 2017, the CBI had filed a counter affidavit wherein it stated that a mistake had been made
in the FIR inasmuch as since HTL was not a government company (the Government having sold 74% out of its 100% shareholding to M/s
Himachal Futuristic in the year 2001), there was no loss of Rs. 115 Crores to the Government of India. It was stated that rather, the loss was
caused to SBI, due to wrongful waiver of interest by SBI, amounting to Rs. 53.50 Crores.
iv) As some of the offences mentioned in the CBI FIR were scheduled offences under the PMLA, an ECIR No. ECIR/CEZO/01/2017 dated
6.1.2017 was registered under the PMLA.
v) The Directorate of Enforcement (hereinafter referred to as “EDâ€) passed Provisional Attachment Order (hereinafter referred to as
“PAOâ€) no. 02/2018 dated 13.02.2018, attaching the said property. Complaint being OC NO. 897 of 2018 was then registered and the
Appellant was issued a Show Cause Notice dated 28.03.2018, on the Complaint filed by ED. The Show Cause Notice called upon the
Appellant to show cause as to why the PAO should not be confirmed.
After passing the confirmation order dated 27.07.2018, the present appeal under Section 26 of the PMLA has been filed. The appeal is listed on
9.10.2018. In the meanwhile, 3rdmisc. application no. 4913/2018 has been filed for immediate relief.
It is submitted on behalf of the appellant that in view of the said attachment of the flats of 461 customers/buyers, they have become
angry/frustrated & irritate and are disturbed in view of attachment and unreasonable and groundless threat of taking the possession of all flats by the
respondent no. 1. It is stated that the customers have spent their savings for purchase of flats in the building. They want to see some progress of the
construction of the building as they have invested their hard earned money. In case the attachment will continue, the respondent no. 1 will not allow
the appellant to carry out further construction in the building. The customers are victim and innocent parties and are not ready to pay the remaining
amount as per agreement if there is no progress of construction. They are admittedly not involved in any offence either under the scheduled offence
or under the PMLA. The plot was purchased after taking the loan from financial institutions who are the secured creditors. The question of proceed
of crime for purchasing the plot does not arise with most of the buyers agreements and sale-deeds have been executed.
It is also stated by the learned counsel appearing on behalf of the appellant that the amount of hundreds crores of rupees have been involved by
purchasing the land and construction carried out on the flats. The amount was disbursed by the financial institutions(who are the secured creditors). It
is a home-loan and in case the customers will stop paying the remaining amount, the entire project would be collapsed. The property has already been
mortgaged with the banks to the appellant, therefore, the present application has been filed without prejudice in order to cover the alleged loss of
Rs.115 crores being the initial figure quoted by the CBI as being the difference between the sale price of the attached property and the prevailing
circle rate.
It is stated by Mr. Nikhil Rohatgi that value of the alternative property being offered is approx. Rs.119 crores as per prevailing circle rate of the
area.
Mr. Mohammad Faraz has referred the reply to the application and has submitted that there is no provision under the PMLA for substitution of the
property attached by ED and thereafter confirmed by the adjudicating authority, therefore, the prayer should not be allowed.
On 24.9.2018, the appellants have also filed an additional affidavit of Mr. S. Solomon Rajesh. Para-5 and Para-6 of said affidavit is reproduced
below:-
“5. I say that the Appellant states that the out of the 10.20 acres of land at Sekkadu Village, Avadi Taluk, Tiruvallur District â€
I. A total of 2 acres and 09 cents is possessed and owned by M/s. K.N. Chari Rubber and Plastics Pvt. Ltd;
II. A total of 5 acres and 88 cents is owned and possessed by D.N. Devadoss; and
III. A total of 2 acres and 18 cents is owned and possessed by the M/s. VGN Enterprises Pvt. Ltd
The said owners have given a No-Objection to the aforesaid portions of land being given as alternative security and the same is annexed
hereto and marked as Annexure A/1 (Colly). Further, a true copy of the Title Documents in favour of the aforesaid three owners is annexed
hereto and marked as Annexure A/2 (Colly). Further, a true copy of the said land is annexed hereto and marked as Annexure A/3.â€
“6. I say that as on date there is no encumbrance on the said land and a Certificate of Encumbrance on Property dated 22.09.2018
issued by the Registration Department of Government of Tamil Nadu certifying the same is annexed hereto and marked as Annexure A/4.
Further, the loan amount of Rs.18 crores availed by the Appellant has also been paid back and a No Dues Certificate has also been issued
by Edelweiss Finance Limited. A True Copy of the No Dues Certificate and a Receipt issued by Edelweiss Finance Ltd. In respect of loan of
Rs.18 Crores availed by the Appellant is annexed hereto and marked as Annexure A/5 (Colly).â€
Along with affidavit, all the relevant documents referred in the affidavit are affixed.
With regard to the objection raised by Mr. Mohammad Faraz, Advocate, Section 35(1) of the PMLA reads as under:
“35. Procedure and powers of Appellate Tribunal â€" (1) The Appellate Tribunal shall not be bound by the procedure laid down by the
Code of Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural justice and, subject to the other provisions of this
Act, the Appellate Tribunal shall have powers to regulate its own procedure.â€
Mr. Nikhil Rohtagi, Advocate in support of his arguments has referred the decision of the Supreme Court with regard to the power of the Tribunal
to regulate its own procedure in the case of ‘Union of India Vs. Paras Laminates (P) Ltd.’
Paras 7 and 8 of the judgement are reproduced hereunder:-
“7. Sub-section (6) Section 129C says that the Tribunal shall have the power to regulate its own procedure. It reads:
(6) Subject to the provisions of this Act, the Appellate Tribunal shall have power to regulate its own procedure and the procedure of the Benches
thereof in all matters arising out of the exercise of its powers or the discharge of its functions, including the places at which the Benches shall hold
their sitting.
Sub-sections (7) and (8) of this Section provide that the Tribunal shall, for certain specific purposes, be deemed to be a civil court.â€
“8. There is no doubt that the Tribunal functions as a court within the limits of its jurisdiction. It has all the powers conferred expressly by
the statute. Furthermore, being a judicial body, it has all those incidental and ancillary powers which are necessary to make fully effective
and express grant of statutory powers. Certain powers are recognized as incidental and ancillary, not because its jurisdiction is plenary, but
because it is the legislative intent that the power which is expressly granted in the assigned field or jurisdiction is efficaciously and
meaningfully exercised, the powers of the Tribunal are no doubt limited. It area of jurisdiction is clearly defined, but within the bounds of its
jurisdiction. It has all the powers expressly and impliedly granted. The implied grant is, of course, limited by the express grant and,
therefore, it can only be such powers as are truly incidental and ancillary for doing all such acts or employing all such means as are
reasonably necessary to make the grant effective. As stated in Maxwell on Interpretation of Statutes, (eleventh edition) “where an Act
confers a jurisdiction, it impliedly also grants the power of doing all such acts, or employing such means, as are essentially necessary to its
execution.â€
In view of above referred to facts and circumstances,I find force in the submission of Mr. Rohtagi that this Tribunal has the powers to regulate its
own procedure.
It is true that there is no specific provision under PMLA for substitution of property provisionally attached by the ED (and thereafter confirmed by
the Adjudicating Authority),but there is also no provision that the said power cannot be exercised by this Tribunal under Section 35(1) of the Act. In
case the matter is considered as a whole, it has come on record that the plot of land has not been purchased from proceed of crime. It is also not the
case of CBI or ED that the loan given by the financial institutions were tainted or unclean money, any such allegation against the purchasers of the
flats, otherwise the position would have been different.
The entire case of CBI is that the plot was not purchased as per circle rate and the appellant has saved Rs.105 crores while purchasing the same.
At the best if it proved or ED would satisfy the tribunal about the condition of second proviso of section 5(1), the said amount may be treated as
proceed of crime which is allegedly saved by the appellant and prima facie I am of the view that at the best, the impugned property could have been
attached as value thereof for sum of Rs.105 crores.
It is also the case of the appellant that even otherwise more than sufficient to cover the alleged loss by the waiver of interest of approx. Rs.53.50
crores to and by State Bank of India. Evendespite of that, the appellant is offering alternative property value of which is approx. Rs.119 crores as per
the prevailing circle rate of area in order to secure the amount without prejudice and have no objection that the proceedings of complaint under the
schedule offence and PMLA, 2002 may continue as per law and the appellant would defend the same as per law.
It is also a matter of fact that the construction was being carried out when the ED had attached the property in which the stake of 461 customers
are involved who have paid part of the amount to the appellant and the remaining amount is to be paid by them as per progress of construction of the
building. It is not disputed that these 461 customers have invested their earned money in the said flats. In case the customers will not pay the amount
to the appellant who may not be able to pay the said loan amount to the financial institutions(who are the secured creditors) and under those
circumstances, the entire project would almost be stalled and the buyers/customers will also suffer and will not get the possession of the flats till the
trial is complete which may take number of years.
The appeals on behalf of secured creditors are also pending before this Tribunal wherein it was alleged that the attachment was bad as both
authorities have ignored the judgements of Supreme Court, High Courts and this Tribunal have been ignored despite of the issue of secured creditors
are decided in many cases. The prayer of present application is not opposed on behalf of creditors.
The most important and vital issue is also involved in the present case which is to be determined while deciding the appeal is as to whether the ED
(Respondent no. 1) has complied the second mandatory proviso of Section 5(1) the Act while passing the provisional attachment order.
Both the learned counsels appearing have not denied that the provisional attachment order was passed without filing the report under Section 173
of the Cr. P.C. against the appellant. The respondent no. 1/ ED has attached the property by invoking the 2nd proviso of Section 5(1) of the Act
where wide power is given to attach the property on the basis of material without filing the charge sheet or report under section 173 of Cr. PC / or a
complaint.
In order to appreciate the same, Section 5(1) reads as under:-
Attachment of property involved in money-laundering â€" (1) Where the Director or any other officer not below the rank of Deputy
Director authorized by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in
writing), on the basis of material in his possession that â€
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be considered, transferred or
dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this
Chapter,
he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the
order, in such manner as may be prescribed:
Provided that no such order of attachment shall be made unless, it relation to the scheduled offences, a report has been forwarded to a
Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to
investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case
may be, or a similar report or complaint has been made or filed under the corresponding law of any other country.
Provided further that, notwithstanding anything contained in (first proviso), any property of any person may be attached under this section if
the Director or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section has reason to
believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in
money laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceedings
under this Act.)
The first proviso stipulates that no order of attachment shall be made unless a report has been forwarded to a Magistrate under Section 173 of the
Code of Criminal Procedure 1973 or a complaint has been filed or the court takes cognizance.It is a mandatory provision. It has to be compiled strictly
being a Special Act.No different meaning can be given.
In the present case it is informed by both parties that on the date of passing the provisional attachment order no such report was filed and even no
cognizance is taken by the Magistrate.
The main purpose of incorporating the first proviso was that at least proper independent investigation other than the allegations made in the FIR
must be conducted after registering the ECR and its report under Section 173 of Cr. P.C. is to be filed in order to avoid misuse of wide power
assigned to the Authority before passing the provisional attachment order being of draconian law (whereby the movable and immovable properties )
are attached without giving any opportunity for reply and chances of cross-examination of witnesses and hearing to the party concerned whose
properties are attached ex-parte. There cannot be dispute the owner of the properties have valuable rights in the properties. The allegations mentioned
in the FIR and material available are yet to be examined by the Special Court after filing the charge-sheet and at the time of framing of charge.
As informed that in the present case at the time of passing the provisional attachment order, no report under Section 173 of Cr. P.C. was filed
before the Magistrate. Even otherwise as per settled law, it was the duty of ED to pass the independent orders for recording the reasons to believe in
writing on the basis of material. The said mandatory condition cannot be ignored before passing the Provisional Attachment order and not merely
mentioning the reasons for attachment in the provisional attachment order.
The departure of first proviso (rightly so) the second proviso of Section 5(1) has been added in the Stature by way amendment in the Finance Act
(20 of 2015) w.e.f. (14th May 2015). The same read as under:
“Provided further that, notwithstanding anything contained in (first proviso), any property of any person may be attached under this
section if the Director or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section has
reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property
involved in money laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any
proceedings under this Act.)â€
It is stipulated that notwithstanding anything in the first proviso the properties can be attached without filing the report to the Magistrate or the
complaint is filed.
Meaning thereby that the properties may be attached by ED merely on the basis of allegations and material but subject to the following mandatory
conditions. The same are;
a. If such property is involved in money laundering is not attached immediately,non attachment is likely to frustrate proceedings under this Act.
b. But it is recorded in an independently in the reason to believe in writing on the basis of material,the expression “immediately “ shall play vital
role and reasons to be assigned in the order of reason to believe.
The second proviso is also conditional one and mandatory. From reading both the provisos, the ED must pass the specific order of reason to
believe as stated in last para of my order strictly as mandated, otherwise the provisional attachment order is to be quashed.
Meaning thereby non compliance of mandatory provision as per law at the risk of ED who has chosen to attach the property merely on the basis of
allegations in the FIR and material available on record. From the language of the second proviso, it appears that only in particular types of cases, such
power can be exercised as stated in the proviso itself otherwise in remaining/routine matters, the power should be exercised under first proviso. The
second proviso should be invoked very carefully only in those cases where it shows that (if not invoked), the attachment proceedings would likely to
frustrate the proceedings under this act.
Thus, the due compliance has to be made by ED who only can attach the property once full satisfaction of circumstances of second proviso are
available. The said proviso can be invoked in case of urgent matters and immediately. Otherwise, in normal cases, the ED should wait till the report
under Section 173 of Cr. P.C. is filed before the Magistrate.
Prima facie, in the facts of the present case, the question of urgency did not arise on the date of passing the provisional attachment order as the
property in question is under construction where the stakes of hundreds flat owners are involved and after taking the possession, they would reside
there and it is a mortgaged property. The financial institutions are secured creditors.
The 2nd proviso mandates that in case the property is not attached immediately, the non-attachment of the property is likely to frustrate any
proceeding under this Act. Prima facie, such situation is not available as per material placed on record nor it is mentioned in the impugned order.
At the time of hearing of appeal, this tribunal will re-examine as to whether the mandatory compliance has been made in the present case or not
and if the compliance of second proviso has been made on the date of passing the provisional attachment order (which the relevant date), then the
objection may be over-ruled.If not, then the provisional attachment ordercould not have been passed as per law. Even the confirmation order ipso
facto would also be set aside.
I have enquired from the learned counsel for respondent no. 1 to produce the copy of the reasons to believe which is mandatory under 2nd proviso
of Section 5(1) of the Act. He submits that the copy of reasons to believe is not available with him. It must have been sent to the Adjudicating
Authority. He is also not aware the language of the reasons to believe if passed under the 2nd proviso of the Act.
In the meanwhile, the Appellate Authority is directed to produce the trial record along with the copy of the reasons to believe in the sealed cover
on the next date of hearing. Registry will take necessary steps to call for the record from Adjudicating Authority through the messenger who along
with also send the copy of reasons to believe lying in sealed envelope.
In the interest of justice, the equity in favour of the appellant who are offering the alternative property which is approx. Rs.119 crores as per the
prevailing circle rate of area. The respondent no. 1 is always at liberty to point out if the said alternative is not free from any incumbrances.
In the light of above, the prayer made in MP no. 4913/2018, the prayer is allowed. I direct respondent no. 1 to accept the alternative land at
Sekkadu Village, Avadi Taluk, Tiruvallur District ad-measuring 10.21 acres in place of the property attached. Direction is passed to release the
property forthwith which was attached under the provisional attachment order admeasuring about 10.46 acres in Guindy Village, Chennai at VGN
Fairmont, Thiru Vi Ka Industrial Estate, Guindy, Chennai-32, while exercising my discretion available under Section 35(1) of the Act as prima facie it
is found that the property was not purchased from the money of proceed of crime.
The provisional attachment order and impugned order till the final decision of the appeal is modified to the extent. All the 3 applications are
accordingly disposed of. Both the parties will file the written synopsis on or before 9th October, 2018 so that the appeal may be disposed by the next
date.
Copies of Order be given ‘Dasti’ to both the parties.