2019 (6) TMI 1151 - AT - Money Laundering

Tribunal overturns Provisional Attachment Order, CEO cleared of money laundering, bank liable

CEO, Karnataka State Board of AUQAF Versus The Deputy Director Directorate of Enforcement, Bangalore

CEO, Karnataka State Board of AUQAF Versus The Deputy Director Directorate of Enforcement, Bangalore - TMI Issues Involved:1. Legality of the Provisional Attachment Order under the Prevention of Money Laundering Act, 2002.2. Allegations and averments against the CEO of the Karnataka State Board of Wakf.3. Responsibility and liability of the bank and its employees in the fraudulent transaction.4. Compliance with RBI guidelines and banking norms.5. Admissibility of evidence and burden of proof regarding the proceeds of crime.Issue-wise Detailed Analysis:1. Legality of the Provisional Attachment Order under the Prevention of Money Laundering Act, 2002:The appellant challenged the order of the Adjudicating Authority under Section 26 of the Prevention of Money Laundering Act, 2002 (PMLA). The CEO of the Wakf Board was served with Provisional Attachment Order No.3/2017 attaching an amount of Rs. 2,72,74,444/- and Rs. 1,10,00,000/- in different accounts. The attachment was based on the belief that these amounts were derived from 'proceeds of crime.' The Tribunal found that the CEO of the Wakf Board had no involvement in the fraudulent transfer of funds and that the attachment was unsustainable. The Tribunal set aside the impugned order dated 20.06.2017 and quashed the Provisional Attachment Order against the appellant.2. Allegations and Averments Against the CEO of the Karnataka State Board of Wakf:The CEO was made Defendant No.8 in the proceedings. The complaint alleged that the CEO had issued cheques for Rs. 2,29,45,465/- and Rs. 1,71,00,000/- for opening Fixed Deposits, which were fraudulently transferred by the bank staff. The Tribunal noted that the CEO had acted in good faith by endorsing the cheques for Fixed Deposits and had no knowledge of the fraudulent activities. The CEO had promptly filed a complaint with the police upon discovering the fraud. The Tribunal concluded that there was no evidence of complicity or involvement of the CEO in the fraud.3. Responsibility and Liability of the Bank and its Employees in the Fraudulent Transaction:The Tribunal found that the bank staff, including the Branch Manager and Assistant Branch Manager of Vijaya Bank, Chintamani Branch, had fraudulently transferred the funds to the account of M/s. Ajay Sharma Trading Corporation. The bank failed to verify the authenticity of the letter purportedly issued by the Chief Accounts Officer and acted against RBI guidelines. The Tribunal held that the bank and its employees were responsible for the fraudulent transaction and not the CEO of the Wakf Board.4. Compliance with RBI Guidelines and Banking Norms:The Tribunal emphasized that the bank acted grossly against RBI guidelines by transferring funds based on an unauthorized letter. The RBI guidelines prohibit crediting proceeds of account payee cheques to third-party accounts without proper mandate. The bank's actions violated these guidelines, and the Tribunal held that the bank was at fault for not following proper procedures.5. Admissibility of Evidence and Burden of Proof Regarding the Proceeds of Crime:The Tribunal noted that the burden of proof lies on the Respondent Authority to establish that the appellant was in possession of proceeds of crime. The Tribunal found no evidence linking the CEO to the proceeds of crime or any scheduled offense under the PMLA. The Tribunal relied on the decision of the Madras High Court in M/s. Indian Bank v. Joint Director of Enforcement, which held that victims of crime should not be penalized under sections 8 and 9 of the PMLA.Conclusion:The Tribunal set aside the impugned order dated 20.06.2017 and quashed the Provisional Attachment Order against the appellant. The Tribunal held that the CEO of the Wakf Board was not involved in money laundering and had acted in good faith. The bank and its employees were found responsible for the fraudulent transaction, and the Tribunal emphasized the importance of adhering to RBI guidelines and banking norms.