2017 (8) TMI 799 - AT - Money Laundering

Arbitration Award Upheld, Property Return Order Issued

The High Court and Supreme Court upheld the arbitration award in favor of the appellant, directing the respondent to return properties and pay ... Attachment orders - PMLA - Arbitration Award - Held that:- Provisions of the Section 8(8) ibid which provides that where a property stands confiscated the Central Govt u/s 8(5), the Special Court may also direct the central government to restore such confiscated property or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of the money laundering. Further, in terms of the proviso to the said sub-section, such claims shall not be considered unless the Special Court is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of the money laundering. With regard to the above, it is mentioned that in the present appeal, this Tribunal is considering the appellant’s challenge to the impugned order of the passed by the Adjudicating Authority confirming the provisional attachment of the property in question. The confiscation or otherwise of the attached property is within the domain of the Special Court. However, the said provision does not in any way interfere with the power of the Tribunal in terms of section 26 (4) of the act to either uphold, set aside or modify the impugned order of the Adjudicating Authority including the provisional attachment order in question. In view of facts direct that as far as the immovable property including the factory under attachment is concerned, the same be released from attachment, subject however to the condition that the appellant shall furnish the Fixed Deposit Receipt (FDR) of ₹ 4.67 crores in the name of respondent no. 1 to the Enforcement Directorate within two months of this order as a security amount. The said FDR shall be furnished by the appellant without prejudice. In case the learned Special Court after trial holds that the said amount is not proceeds of crime, the appellant would be entitled to receive back the principal amount of the FDR as well as the interest accrued thereon. In case the finding of the special court is otherwise, the respondent no. 1 shall be entitled to the principal amount of the FDR as well as the interest accrued thereon. Once the FDR as above is furnished by the appellant to the satisfaction of the Respondent-1 within two months of this order, the attached immovable property including the mill be released forthwith to the appellant. Issues Involved:1. Validity of the arbitration award and its enforceability.2. Allegations of money laundering and attachment of property under the Prevention of Money Laundering Act (PMLA), 2002.3. Compliance with the Board for Industrial and Financial Reconstruction (BIFR) order.4. Legitimacy of the funds received by the appellant and their relation to proceeds of crime.Issue-wise Detailed Analysis:1. Validity of the Arbitration Award and Its Enforceability:The appellant filed an appeal under Section 26 of the Prevention of Money Laundering Act, 2002, against the impugned order dated 19.01.2005. The arbitration award, passed on 15.07.2009, favored the appellant, stating that the respondent no. 2 (R2) had no rights to continue possession of the company or its operations due to the abandonment of the contract. The award directed R2 to return all properties, documents, and equity shares to the appellant and pay accrued compensation and arbitration costs. The award was challenged by R2 under Section 34 of the Arbitration and Conciliation Act, 1996, but was dismissed by the Principal District Judge, Tirupur, on 05.10.2012. The award was upheld by the High Court of Madras and the Supreme Court, making it final and enforceable. The appellant argued that the award should be binding on the Enforcement Directorate and the Tribunal, asserting that the money received could not be treated as proceeds of crime.2. Allegations of Money Laundering and Attachment of Property:The respondent no. 1 (Enforcement Directorate) argued that the attached immovable property was involved in money laundering, as it was purchased using proceeds of crime committed by R2. The CBI registered FIRs against R2 and others for fraudulent transactions and filed a charge sheet alleging offenses under various sections of IPC and the Prevention of Corruption Act. The investigation revealed that R2 had obtained funds fraudulently and diverted them for purposes other than intended, causing wrongful loss to GTFL and wrongful gain for themselves. The Enforcement Directorate provisionally attached the property under Section 5 of PMLA, 2002, which was confirmed by the Adjudicating Authority. The Tribunal held that the property involved in money laundering is liable for attachment, even if the person in possession was not charged with a scheduled offense.3. Compliance with BIFR Order:The BIFR had declared the mill as a sick unit and directed that the company should not alienate its assets without prior approval. The appellant entered into an agreement with R2 for transferring the company, allegedly violating the BIFR order. The Tribunal noted that any violation of BIFR orders should be addressed by the BIFR itself and not within the Tribunal's domain.4. Legitimacy of Funds and Relation to Proceeds of Crime:The appellant contended that the funds received from R2 were legitimate and part of the sale consideration. However, the Tribunal found that the appellant accepted payments without verifying the legitimacy of the payee or the source of funds, raising doubts about their bona fides. The Tribunal concluded that the amount received by the appellant from R2 was likely proceeds of crime. The Tribunal directed the appellant to furnish a Fixed Deposit Receipt (FDR) of Rs. 4.67 crores as security, subject to the final decision of the Special Court. If the Special Court finds the amount not to be proceeds of crime, the appellant would be entitled to the FDR amount and interest; otherwise, the Enforcement Directorate would be entitled to it.Conclusion:The Tribunal modified the impugned order, directing the release of the attached immovable property upon furnishing the FDR. The appeal and all pending applications were disposed of accordingly, with no costs.