2018 (10) TMI 38 - HC - Money Laundering

Judgment on Financial Irregularities & Fraud Involving Senior Officers

The judgment in this case addresses allegations of financial irregularities and fraud involving senior officers of State Trading Corporation (STC), Global ... Maintainability of show cause notice - adjudicating authority jurisdiction to issue a show cause notice or list the matter for final hearing - Held that:- The parties agreed that the issue of jurisdiction having been raised by the respondent before the adjudicating authority, the same be decided in the first instance by the adjudicating authority before deciding the penalty on merits. Ordered accordingly. The respondent states that since the respondent had filed the appeal limited to the extent of jurisdiction of the adjudicating authority, the respondent will withdraw its appeal before the Tribunal and urge the jurisdictional issues before the learned adjudicating authority with liberty to challenge the order passed by the adjudicating authority, if need arises and if so advised. Petitioner states that this order of consent, on instructions from the competent authority, may not be treated as a precedent and is on the peculiar facts of this case. It is clarified that since the parties consented to the adjudicating authority hearing the jurisdictional issues in the first instance this Court has not given any finding on merits or the questions raised by the parties in the present appeal or the appeal before the Tribunal. Parties are further directed to appear before the adjudicating authority on 10th September, 2018 who will decide the preliminary issues and the objections qua jurisdiction raised by the respondent in the first instance. Issues:1. Allegations of financial irregularities and fraud against senior officers of State Trading Corporation and other entities.2. Failure of STC officials to follow guidelines in extending financial facilities to Global Steel Philippines Inc.3. Failure of Global Steel Holding Ltd. and Global Steel Philippines Inc. to settle dues with STC.4. Provisional attachment order against immovable assets of Balasore Alloys Ltd. in connection with the case.5. Challenge to the jurisdiction of the adjudicating authority in issuing show cause notice and listing the matter for final hearing.6. Appeal filed by Balasore Alloys Ltd. before the Appellate Tribunal regarding jurisdictional issues.7. Applicability of appeal under Section 26 of the Prevention of Money Laundering Act to the show cause notice and order of the adjudicating authority.8. Agreement between parties to first decide on jurisdictional issues before proceeding with penalty considerations.9. Withdrawal of appeal by Balasore Alloys Ltd. limited to jurisdictional issues, reserving the right to challenge the order.10. Clarification that the consent order is not a precedent and is specific to the current case.11. Directions for parties to appear before the adjudicating authority to address jurisdictional issues and objections.12. Disposal of the appeal and application with the order for physical delivery.Analysis:1. The judgment addresses allegations of financial irregularities and fraud involving senior officers of State Trading Corporation (STC), Global Steel Holding Ltd. (GSHL), and Global Steel Philippines Inc. (GSPI). The case registered by the CBI and Enforcement Directorate pertains to offenses under IPC and the Prevention of Corruption Act, as well as the Prevention of Money Laundering Act.2. It highlights the failure of STC officials to adhere to guidelines in extending financial facilities to GSPI, including not obtaining necessary credit reports and not taking action against defaulters, leading to significant financial risks for STC.3. The judgment discusses the failure of GSHL and GSPI to honor settlement agreements with STC, revealing investments in other companies and the shareholding pattern of Balasore Alloys Ltd., indicating potential fraudulent activities.4. A provisional attachment order against the assets of Balasore Alloys Ltd. is mentioned in connection with the case, raising issues of asset ownership and liability.5. The jurisdictional challenge raised by Balasore Alloys Ltd. regarding the show cause notice and the adjudicating authority's actions is examined, leading to an appeal before the Appellate Tribunal.6. The judgment details the Appellate Tribunal's decision to entertain the appeal and schedule it for a hearing, raising questions about the jurisdiction of the adjudicating authority.7. The applicability of an appeal under Section 26 of the Prevention of Money Laundering Act to the show cause notice and the adjudicating authority's order is debated, citing relevant legal precedents.8. Parties agree to address the jurisdictional issue first before proceeding with penalty considerations, emphasizing the importance of resolving foundational matters.9. Balasore Alloys Ltd. decides to withdraw its appeal limited to jurisdictional issues, reserving the right to challenge the order in the future, indicating a strategic legal maneuver.10. The judgment clarifies that the consent order regarding jurisdiction is specific to this case and should not be considered a legal precedent for future cases.11. Directions are given for the parties to appear before the adjudicating authority to address jurisdictional issues and objections, allowing for additional pleadings or evidence if necessary.12. The appeal and application are disposed of with the order for physical delivery, concluding the legal proceedings in this matter.