Shobha Karandlaje vs Deputy Director Directorate Of Enforcement, Bangalore

FPA-PMLA-2127/BNG/2017

By this order, we propose to decide the above-mentioned appeal which is filed against the order dated 28.09.2017.

This Tribunal after hearing of earlier appeal No. 588/2015 and 636/2014 passed the common order dt: 22/06/2017 remanded the matters back to the

Adjudicating Authority with the following direction:

“11. Therefore it is felt by this Tribunal that this case is a fit case to be remanded back to the adjudicating authority with direction to

specifically give a clear finding as to “whether Rs. 70 lakhs is the money out of the 19 crores, claimed to be legitimate money in the

account of M/s Indu Builders or from Rs. 85,28,68,700/- crores alleged to be proceeds of crime in the account of M/s Indu Builders out of

the total amount of Rs. 104,18,55,950/- crore. The Adjudicating Authority shall also decide all other pleas raised by the appellant in her

pleadings.

In the light of the above, the impugned order is set aside and the matter is remanded back to the Adjudicating Authority for deciding the

matter afresh by way of a speaking order which shall disclose findings on all the issues raised by the appellant including the one mentioned

in para above. Parties to appear before the Adjudicating Authority on 28.07.2017 who shall deliver the order within 3-4 months from date

of our order after hearing the parties. In view of serious issues involved, we direct that the bench of Adjudicating Authority shall consist of

Chairman and two Members including Member (Legal).

As far as appeal no. FPA-PMLA-588/BNG/2014, wherein it was challenged the issue of notice without assigning any reason, the

appellant is allowed to raise the said issue also before the Adjudicating Authority which shall be considered on merit.â€​

The facts are recorded in para-3A(i) to (x) in our order dated 22.06.2017, the same are reproduced hereunder:-

(i) That, the Appellant herein was the erstwhile Director of one company called M/s Kapila Manjushri Apparels Pvt. Ltd, which is dealing in

trading of readymade garments of Lee and Wrangler brands of M/s Arvind Fashions Pvt. Ltd;

(ii) That, the appellant’s company was short of Rs. 70 lakhs to acquire Franchise outlet from Ms. Arvind Mills at Indiranagar, so she

was making the enquiry with her colleagues and friends to arrange the aforesaid amount and at that point of time Sri Katta Subramanya

Naidu (K.S. Naidu) offered and handed over her a cheque of Rs. 70 lakh drawn from the account of M/s Indu Builders in Karnataka Bank,

Indira Nagar Branch, Bangalore stating that the same was issued from his son Katta Jagdish company’s account;

(iii) That the said cheque was enchased on 01.06.2007. Out of the aforesaid amount of Rs. 70 lakh, a sum of Rs. 64,56,000/- was paid to

Ms. Arvind Fashions on behalf of her company on 04.06.2007 and a sum of Rs. 5 lakh was advanced to her company on 07.06.2007. In the

meantime, the company of the appellant had applied to the State Bank of India, Indiranagar branch, Bangalore for working capital loan of

Rs. 80 lakh which was sanctioned on 16.07.2007 through an over draft account. The said company of appellant repaid a sum of Rs. 70

lakh to the appellant on 01.08.2007 which was transferred to her Federal Bank account on 02.08.2007;

(iv) That, at a later date the appellant returned the amount of Rs. 70 lakh, borrowed from Sri K.S. Naidu, by depositing the said amount in

favour of M/s G.V. Infrastructure as per the instruction of Sri K.S. Naidu.

(v) That, the Appellant was summoned by the Deputy Director of Enforcement Directorate and her statement was recorded under section 50

of the PMLA Act, 2002. Thereafter, provisional attachment order was passed on 24.01.2014 under section 5(1) of PMLA.

(vi) That, in the appeal memo, the appellant has described the facts stated by the complainant in the provisional attachment order and

original complaint regarding the report under section 173 of CrPC filed by the Police Wing of the Karnataka Lokayuktha, Bangalore.

(vii) That, the appellant had challenged the order dt. 24.02.2014 passed by the Adjudicating Authority before the Hon’ble High Court

of Karnataka bearing Writ Petition no. 19369/2014. That the Hon’ble High Court vide its order dated 04.06.2014 directed this Tribunal

for expeditious disposal of appeal if the appellant prefers an appeal challenging the show cause notice and order dated 24.02.2014.

(viii) That, the appellant had filed her reply before the Adjudicating Authority and argued the matter both on merit of the case as well as on

the show cause notice issued by the Adjudicating Authority.

(ix) That, the appellant has also preferred an appeal bearing no. 588/2014 before this Tribunal challenging the order dated 24.02.2014 as

well as the show cause notice issued to her and the same is pending.

(x) That, in the meantime Adjudicating Authority pronounced the order in OC No. 263 Of 2014 on 31.07.2014 confirming the PAO bearing

no. 1 of 2014 attaching Rs. 70 lakh in the account of appellant in Federal Bank, RT Nagar Branch, Bangalore, which is impugned, in the

present appeal.

The main grounds taken in the said appeal no. 588/2015 in para â€" 3B(i)(viii), the same are reproduced hereunder:-

(i) that the Adjudicating Authority has not complied with the requirement of section 8(1) of the PMLA and there is gross violation of Article

14 of the constitution and the principal of natural justice.

(ii) That, this case does not come within the schedule offence in regard to section 2(y)(ii) of the said Act.

(iii) That, PAO does not satisfy the requirements of section 5(1) of the said Act.

(iv) That, Rs. 70 lakh has been received from clear and legitimate source and not from Rs. 85,28,63,700 crore allegedly classified as

proceeds of crime and as defined under section 2(Y) of the said Act.

(v) That, the appellant is not an accused in special case no. 135/2011 filed before the special judge by the police wing of Karnataka

Lokayuktha.

(vi) That, the Adjudicating Authority has not given any reasons as to how it arrived at the conclusion that Rs. 70 lakhs has not come from

clean and legitimate source and has come from proceeds of crime of Rs. 85,28,63,700/-crore.

(vii) That, the Adjudicating Authority has failed to appreciate the fact that Sh. B.L. Venkataiah @ Venkaiah in his statement dated

09.06.2012 has stated that Rs. 70 lakh went to the appellant from Rs. 104,18,55,950 crore in the account of M/s Indu Builders. As per the

complainant’s own averments approximately 19 crore in the account of M/s Indu Builders is clean and legitimate.

(viii) That the Adjudicating Authority has not furnished any reasons as to why it came to conclusion that Rs. 70 lakh received by the

appellant from the account of M/s Indu Builders is proceeds of crime.

After remand, the matter was re-heard by the Adjudicating Authority who still confirmed the provisional attachment order. The following conclusion

was given in para-43 of the impugned order. The same read as under:-

“43. Conclusion:

On a thorough perusal of the PAO, Complaint, relied upon documents, the investigations conducted by the ED and the statements recorded

us 50 of the PMLA and on careful consideration of the arguments advanced on behalf of the Complainant and Defendant undersigned

coms to the prima facie conclusion that the defendant have committed the Scheduled Offences, generated proceeds of crime or value thereof

and are involved in money laundering. Undersigned therefore orders confirmation of the above Provisional Attachment Order. This order

shall continue during the pendency of the proceedings relating to any offence under this Act before court or under the corresponding law

of any other country, before the competent court of criminal jurisdiction outside India as the case may be and become final after an order

of confiscation is passed under sub-section 5(5) to sub-section (7) of section 8 or section 58 B or sub section 2A or section 60.â€​

We have heard learned counsel for both parties.

The appellant name was not arrayed in the FIR nor any chargesheet is filed against her under the scheduled offence.

The alleged Accused No. 1 and Accused No. 8 in FIR 57/2010 resulting in the charge sheet numbered as SPL CC 135/2011, i.e. Mr. Katta

Subramanaya Naidu and M. Gopi who challenged FIR 57/2010resulting in charge sheet numbered as SPL CC 135/2011 before the Hon’ble High

Court of Karnataka in Criminal RP 432/2013 and CrIP 2313/2016 respectively. The Hon’ble High Court of Karnataka by a common order dt.

03.11.2016 allowed Criminal RP 432/2013 and CrlP 2313/2016 and quashed FIR 57/2010 resulting in charge sheet numbered as SPL CC 135/2011, as

against Mr. Katta Subramanaya Naidu and M. Gopi. The prosecution has challenged the order of the Hon’ble Court of Karnataka in Criminal RP

432/2013 and CrlP 2313/2016 before the Hon’ble Supreme Court in SLP (Crl) 1192- 1193/2017. Notice is ordered in the said matters. She is not

or party in the said proceedings.

Admittedly in paragraph 3.4 and 4 of the impugned order the Adjudicating Authority has recorded that as per the complaint filed by the Respondent

herein only an amount of Rs. 85,28,68,700/- withdrawn from the account of M/s Indu Builders in the name of land lords through bearer cheques and

directly is classified as proceeds of crime along with an amount of Rs. 70,54,51,178/- and 39,03,50,000/- respectively withdrawn from the account of

M/s Itasca in the name of land lords through bearer cheques and directly is classified as proceeds of crime by the Respondent herein.

In paragraph 9.5 of the impugned order it is also accepted by the Adjudicating Authority that the Appellant herein received Rs. 70 lakhs from the

account of M/s Indu Builders in Karnataka Bank on 31/05/2007.

In paragraph 9.5 and 17 also specifically mentioned in the impugned order, the Adjudicating Authority has accepted the fact that as on 31.05.2007,

the credits in the account of M/s Indu Builders came only from M/s UTL Ltd. amounting to Rs. 37 crores and Rs. 91 lakhs from M/s JS Software.

The appellant submits that the observation were made in the impugned order without assigning any reason the Adjudicating Authority has

traversed beyond the complaint to classify the amounts from M/s UTL Ltd. amounting to Rs. 37 crore and Rs. 91 lakhs from M/s JS Software without

assigning any reason and for the same the impugned order. It is stated on behalf of the appellant that the said order is bad in law and opposed to the

direction given by this Tribunal.

It is submitted on behalf of the appellant that the order dt: 24/02/2014 produced at the Annexure ‘A-9’ and the notice dt: 24/02/2014

produced at Annexure ‘A-3’ issued by the Adjudicating Authority under Section 8 of the Act is issued in gross violation of Article 14 of the

Constitution of India is against principles of natural justice. The Adjudicating Authority is bound to record and furnish reasons in support of its

conclusion to issue a notice under section 8(1) of the Act to any person pursuant to receipt of a complaint under section 5(5) of the Act. It is urged by

the appellant that order dt: 24/02/2014 produced at ANNEXURE ‘A-9’ and the notice produced at ANNEXURE ‘A-3’ issued by the

Adjudicating Authority to the Appellant does not disclose any reasons nor does it called upon the Appellant to disclose the source of income from out

of which the Appellant has acquired the property attached under section 5(1) of the Act.

It is alleged that the order dt. 24/02/2014 produced issued by the Adjudicating Authority has given a complete go bye to the procedure as

contemplated under the Act and for the same is highly illegal without authority of law and is liable to be set-aside.

It is submitted that the language of the order dt: 24/02/2014 produced at ANNEXURE ‘A-9’ and the notice produced at ANNEXURE

‘A-3’ issued by the Adjudicating Authority is not in confirmity with the requirement stipulated under section 8(1) of the Act and pre-suppose the

guilt of the Appellant. The Adjudicating Authority has refused to furnish reasons, even after the Appellant conformed to the Adjudicating

Authority’s authority by appearing before it and requesting it for providing reasons for issuance of the notice under section 8 (1), demonstrates the

lack of judicial accountability by the Adjudicating Authority and is against the principles of audi alteram partem.

Before passing the provisional attachment orders on 11.11.2013, the appellant statement under Section 50(2) of PMLA was recorded, the same

are reproduced below:-

3.5.4. Defendant Smt. Shobha Karandlaje in her statement dated 11.11.2013 recorded under the provisions of Section 50(2) of PMLA,

à Confirmed the receipt of the above referred amount of Rs. 70 lakhs from M/s Indu Builders and Developers Account by stating that she

was one of the Directors of the firm M/s Kapila Manjushri Apparels Pvt. Ltd.

à she was on the look-out for funds for the proposed acquisition of franchisee outlet at Indiranagar from M/s Aravind Mills in the name

of her said firm.

à At the same time Shri Katta Subramanya Naidu, who is her friend and Minister of Industries in Govt .of Karnataka personally handed

over cheque no. 448981 dated 29.05.2007 of Karnataka Bank, Indiranagar Branch for Rs. 70 Lakhs issued in her name.

à It was realized in her account of the Federal Bank Limited, RT Nagar Branch (Account No. 14720100008074) on 01.06.2007, and

à Out of the Rs. 70,00,000/- so received Rs. 64,56,000-00 was utilized for making payments to M/s Aravind Fashions on 04.06.2007

through 03 nos. of cheques and Rs. 5,00,000-00 to her firm named M/s Kapila Manjushri Apparels Pvt. Ltd.

3.5.5. Smt. Shobha Karandlaje further stated that

à a few months after the said amount was received from the account of M/s Indu Builders through Sri Katta Subramanya Naidu, she got a

loan sanctioned from SBI, Indiranagar Branch.

à Out of the said loan amount, she offered Shri Katta Subramanya Naidu re-payment of the amount received from him

à As per his indication, the said amount was paid back to him through a cheque bearing No. 517923 from her account of The Federal

Bank, RT Nagar Branch issued in the name of M/s G.V. Infrastructure, and

à the same was debited in her account on 02.08.2007.

In her statement even prima facie, no link and nexus with the accused whatsoever directly or indirectly has been established. It is not even prima

has come out from her statement or from the reasons to believe that she is knowingly received the loan amount and actually involved in any process or

activity connected with the proceed of crime. All the said mandatory elements are missing in the matter as far as present appellant is concerned.

In the present case, as per pleadings of the appellant, the facts are that the Appellant’s company required funds for acquisition of franchisee

outlet from M/s Arvind Mills at Indiranagar, Bangalore for a price of approximately Rs 3.70 Crore and the Appellant’s Company was short of Rs

70 lakhs and was trying to arrange funds for the same.

The Appellant was also trying to arrange for funds for her company and in that regards she was making enquiries with her colleagues and friends.

At that point of time Sri. Katta Subramanya Naidu, who was acquainted with the Appellant offered to help the Appellant and handed over to the

Appellant a cheque for Rs 70 lakhs dt: 31/05/2007 drawn from the account of M/s Indu Builders in Karnataka Bank, Indiranagar, Branch, Bangalore.

The said cheque was given by Sri Katta Subramanya Naidu stating that the same was issued from his son Katta Jagadish company’s account.

The said cheque was enchased by the Appellant into her account in Federal Bank, RT Nagar Branch, Bangalore bearing No. 14720100008074 on

01/06/2007. Subsequent to the encashment of the said cheque the Appellant paid a sum of Rs 64,56,000/- to M/s Aravind Fashions on behalf of her

company on 04/06/2007 and advanced a sum of Rs 5,00,000/- to her company on 07/06/2007.

In the meantime M/s Kapila Manjushri Apparels Pvt Ltd had applied to SBI, Indiranagar branch, Bangalore for working capital loan to a tune of

Rs 80 lakhs and an overdraft account was sanctioned by SBI on 16/07/2007 with a limit of Rs 80 lakhs. Pursuant to sanction of the overdraft loan

account M/s Kapila Manjushri Apparels Pvt Ltd repaid a sum of Rs. 70 lakhs to the Appellant on 01/08/2007 which was realised in the

Appellant’s Federal Bank account, RT Nagar Branch on 02/08/2007.

Subsequently on 02.08.2007 the Appellant wanted to return the sum of Rs 70 lakhs borrowed from Sri. Katta Subramanya Naidu and as per Sri.

Katta Subramanya Naidu’s instructions she repaid the said sum borrowed from him in favour of M/s GV Infrastructure.

The Appellant was summoned by the Deputy Director of Enforcement Directorate on 24/10/2013 and was enquired about the above said

transaction by him and her statement was recorded under section 50 of the Act regarding the same by him.

Later on the Joint Director passed an order of provisional attachment bearing No. 1/2014 (ECIR/07/BZ/2011-DD-SD) dt: 24/01/2014 in terms of

sub-section 1 of section 5 of the Act provisionally attaching a sum of Rs 70 lakhs in the account of the Appellant in Federal Bank, RT Nagar Branch,

Bangalore bearing No. 14720100008074.

No doubt that the first requirement of Section 5(1) is that the person should be in possession of proceeds of crime. In the complainant, it was not

disclosed the fact that the total amount which has come into the account of M/s Indu Builders over a period from 02/05/2007 to 14/10/2010 is a sum of

Rs. 104,18,55,950/- crore.

As per the complaint, it is only an amount of Rs 85.28 crore in the account of M/s Indu Builders which constitute proceeds of crime as on

01/12/2010 which is the date of registration of the FIR for the schedule offence. In other words even according to the allegations in the complaint a

sum of approximately 19 crore in the account of M/s Indu Builders would constitute clean and legitimate money.

The complainant has not produced the entire account statement of M/s Indu Builders as to whether the sum of Rs 70 lakhs received by the

Appellant from the account of M/s Indu Builders as loan from Sri Katta Subramanya Naidu has come from clean source or not case of the appellant

is that the same was part of any proceeds of crime as per section 2(u) of the Act.

The respondent in order to establish that the appellant has received proceeds of crime, the Complainant has relied upon the statement of Mr. B.L

Venkataiah, partner of M/s Indu Builders dt: 09/06/2012. The adjudicating authority has failed to appreciate the fact that Sri. B.L Venkataiah @

Venkaiah’s in his statement dt: 09/06/2014 has stated that RS 70 lakhs went to the Appellant from Rs. 104,18,55,950/- crore in the account of M/s

Indu Builders and even according to the allegations in the complaint a sum of approximately 19 crore in the account of M/s Indu Builders would

constitute clean money.

The adjudicating authority has not given any reasons as to how it arrived at the conclusion that Rs. 70 lakhs received by the Appellant herein from

the account of M/s Indu Builders as loan from Sri. Katta Subramanya Naidu has not come from clean and legitimate source and has come from Rs

85,28,63,700/- classified as proceeds of crime in para 6(c) of the complaint.

There is no clear and cogent evidence is available on record even prima facie about the allegations against the Appellant of receiving proceeds of

crime is not made out and requirement of section 5(1) of PMLA was not satisfied. (I) The first requirement of the section 5(1) is regarding being in

possession of proceeds of crime on the date of the provisional attachment, i.e. 24/01/2014.

As already mentioned, the appellant is not arrayed as an accused in FIR, no criminal complaint against her for schedule offence is pending against

her. She is arrayed as accused no.-24 in the prosecution complaint which was filed on 24.03.2014.

Even prima facie, there is no allegation against the appellant that she has knowingly received the proceeds of crime and there is any link and nexus

with any accused party directly or indirectly. She is admittedly was in business at that point of time, even main provisions of schedule offence were

added on 01.06.2009 much subsequent to the said transaction. Thus on the face of record, she is not involved in the proceed of crime inter-alia on the

following reasons:-

(i) firstly she was not aware of the fact that it was part of proceeds of crime and the question of projecting it as untainted money does not arise;

(ii) secondly the Appellant herein paid the said money to M/s Aravind Fashions and M/s Kapila Manjushri Apparels Pvt Ltd and thus as on the date of

the order of provisional attachment she was not in possession of any proceeds of crime;

(iii) thirdly the money was repaid by the Appellant to Sri. Katta Subramanya Naidu as per his instructions to M/s GV Infrastructure came from the

clean and legitimate source of loan account sanctioned by SBI, to M/s Kapila Manjushri Apparels Pvt Ltd and;

(iv) fourthly the Appellant as on the date of repayment of loan to Sri. Katta Subramanya Naidu or on the date of provisional attachment was not in

possession of any proceeds of crime and for the same the provisional order of attachment is bad in law and is liable to be set-aside.

Even otherwise admittedly by order dated 22nd June, 2017 this Tribunal has remanded back the matter to the Adjudicating Authority to give a

clear finding. The details are mentioned below:-

“11. Therefore it is felt by this Tribunal that this case is a fit case to be remanded back to the adjudicating authority with direction to

specifically give a clear finding as to “whether Rs. 70 lakhs is the money out of the 19 crores, claimed to be legitimate money in the

account of M/s Indu Builders or from Rs. 85,28,68,700/- crores alleged to be proceeds of crime in the account of M/s Indu Builders out of

the total amount of Rs. 104,18,55,950/- crore. The Adjudicating Authority shall also decide all other pleas raised by the appellant in her

pleadings.

However, in the impugned order there is no finding at all as to whether Rs. 70 lakhs which was received by the appellant was from alleged tainted

amount is received from Rs. 85 crores or from Rs. 19 crores which is claim to the untainted money. In the impugned order, there is no specific finding

after going through the record to establish as whether Rs. 70 lakh loan which was given to the appellant from Rs. 85 crores and part of Rs. 19 crores

(which was admitted untainted amount as per the case of the respondent no. 1).

In case provisional attachment order and prosecution complaint are read together, merely a general reasons are given that the amount received by

her was generated from the proceed of crime and if amounts to money laundering. There are no reasons or findings that on the date of receipt of loan

amount, she was aware that if any, it was proceed of crime. No such question was put when her statement u/s 50(2) of PML Act was recorded.

In the light of the above said reasons, we allow the appeal. The impugned order 28.09.2017 passed against the appellant is set-aside.

Consequently, provisional attachment order is also quashed.

No costs.