2018 (5) TMI 993 - AT - Money Laundering

Tribunal quashes attachment order, releases property, pending appeals unaffected.

The Tribunal allowed the appeal, set aside the impugned order, and quashed the provisional attachment order. The property was ordered to be released ... Offense under PMLA - attachment orders - no notice before passing the attachment order or statement recorded - Held that:- The Adjudicating Authority upon receipt of a complaint under section 5(5) of Act; under section 8 (1) of the Act is bound to peruse the same and upon perusal of such a complaint if it has reason to believe that any person has committed an offence under section 3 of the Act or is in possession of proceeds of crime may serve a notice on such person calling upon them to indicate the means by which he has acquired the property attached under section 5(1) of the Act. There are no valid reasons to believe in order to pass the order of provisional attachment. Actually, the provisional attachment is just repetition of the allegation made in the complaint. Such allegations are treated as gospel truth. The appellant was not issued any notice before passing the attachment order. No statement of her was recorded in order to verify the position. The Complainant before attaching the property owned by the Appellant herein described at Sl. No. 29 in Para-2 of the Complaint. No copy of reason to believe was served before passing the provisional attachment order. The provisional order passed by the respondent is violative of principles of natural justice and violates the rights of this Appellant enshrined in Art. 14 and 21 of the Constitution of India. The notice issued by the Adjudicating Authority under Section 8 of the Act, is issued in gross violation of Article 14 of the Constitution of India and is against principles of natural justice. No case was brought out against the appellant either in the charge-sheet filed by the Lokayuktha Police Wing or the complaint filed by the Complainant and as such Section 2(u) of PMLA does not come into operation and as a consequence of the same Section 5 of PMLA. Thus the present appeal is allowed with regard to the property owned by the appellant. The impugned order is set-aside. Consequently, the provisional attachment order pertaining to the appellant in relation to the property in question is quashed. Property is released forthwith. Issues Involved:1. Prosecution and charges against the Appellant's son.2. Attachment of the Appellant's property by the Enforcement Directorate.3. Source of funds for the purchase of the attached property.4. Compliance with procedural requirements under the Prevention of Money Laundering Act (PMLA).5. Violation of principles of natural justice.Detailed Analysis:Prosecution and Charges Against the Appellant's Son:The Karnataka Lokayukta Police filed a charge-sheet on 07.07.2011 against several individuals, including the Appellant's son, Mr. S.V. Srinivas, under various sections of the Prevention of Corruption Act, 1988, and the Indian Penal Code (IPC). The Appellant's son was accused in SPL CC 135/2011, which was later quashed by the High Court of Karnataka. However, the state filed an appeal in the Supreme Court, which is pending. Additionally, Mr. S.V. Srinivas is accused in SPL CC 124/2014, filed under Section 45 of the PMLA, which is also under challenge and stayed by the High Court of Karnataka.Attachment of the Appellant's Property:The Joint Director of the Enforcement Directorate, based on the charge-sheet filed by the Karnataka Lokayukta Police, passed a provisional order of attachment on 25.09.2012. The attached property is a flat in Bangalore owned by the Appellant. The complaint under Section 5(5) of the PMLA was filed by the Joint Director before the Adjudicating Authority, which confirmed the provisional attachment on 21.02.2013.Source of Funds for the Purchase of the Attached Property:The Appellant contended that the funds for the purchase of the attached property were provided by her husband, not her son. The sale deed for the flat indicated that the consideration was paid by M/s Magarath Property Development, and the Appellant's husband reimbursed this amount. The Appellant's husband issued cheques totaling Rs. 72 lakhs from his account to cover the purchase and construction costs. The cheques initially issued by the Appellant's son were dishonored, and no payment was made by him for the property.Compliance with Procedural Requirements Under PMLA:The Adjudicating Authority confirmed the attachment order based on the apprehension that the funds might have been proceeds of crime. However, the Appellant's husband provided evidence of payments from his account. The Tribunal noted that the Adjudicating Authority did not appreciate that the payments were made by the Appellant's husband and not her son. The Tribunal found that the requirements of Section 5(1) of the PMLA were not satisfied as the Appellant was not in possession of proceeds of crime.Violation of Principles of Natural Justice:The Tribunal observed that the provisional attachment order was passed without issuing a notice to the Appellant or recording her statement. The order violated principles of natural justice and the Appellant's rights under Articles 14 and 21 of the Constitution of India. The Tribunal emphasized that proper investigation is mandatory before attaching a third party's property.Conclusion:The Tribunal allowed the appeal, set aside the impugned order, and quashed the provisional attachment order. The property was ordered to be released forthwith. This order does not affect other pending appeals before the Tribunal, which will be decided on their own merits. No costs were awarded.