2019 (9) TMI 424 - AT - Money Laundering

Tribunal Partially Allows Appeals, Requires INR 111 Crores Indemnity Bond

Omar Ali ObaidBalsharaf, Abdullah Ali Balsharaf Versus The Deputy Director Directorate of Enforcement, Delhi

The Tribunal partially allowed the appeals, requiring the appellants to furnish an indemnity bond of INR 111 crores as surety for the shares to be ... Money laundering - proceeds of crime - Retention of continuation of order of freezing / Panchnamma issued under section 17(1A) of PMLA - case of the respondent in the reason to believe as well as in the application filed under Section 17(4) was that it was a tainted amount and it amounts to money laundering - whether 1,43,38,330 shares subscribed in 2003 by foreign remittances through State Bank of India are ‘proceeds of crime” under section 2(1)(u) (notified on 1.7.2005)? HELD THAT:- Tribunal is of the view that at the best, ED might be frozen the amount at the hand of the appellant if any case is made out against the appellant. It is rightly observed by the Hon’ble Court. In the present case, the ED has sought to attach the assets of the Appellants by making out a case of equivalent in value thereof. The same is endorsed by the Adjudicating Authority. For making out such a case, the ED, first of all, has to prime facie establish that the appellants have committed the offences and they have a nexus or a link in relation to criminal activities which is constituting proceeds of crime and the property constituting the value of any such property. The attached property being ‘value of such property’, has to have a link or nexus with the actual property derived from criminal activity and it cannot merely be a ‘property equivalent in value’, attachment of which is only permissible if the proceeds of crime is taken or held outside India. Such conditions are missing from the facts of the present case, nor it is the case of respondent as nothing has been even prima facie established that the appellants are involved in the money laundering. When the case of the ED falls under equivalent in ‘value of any such property’, it cannot take any unrelated property which has no nexus or link with the actual proceeds of crime and attach the same as ‘property equivalent in value’ in the absence of evidence. In the present case, such property means the shares, in question, which were admittedly acquired in the year 2003. The relevant period of bribes was from 2008 onwards and secondary in the year 2003, PMLA was in existence. It is also a matter of fact that Mr. D.P. Singh, advocate for the respondent, has conceded before the Hon’ble Delhi High Court that the shares were not acquired from proceeds of crime.Thus the question of freezing the shares even equivalent in value does not arise.Even there is no material or evidence available prima facie as of today about the involvement of appellants. It is very clear from sub-section(4) of Section 26 that this Tribunal is given power to confirm or modify or setting aside the impugned order. No power is given to pass a decree for recovery of amount. The recovery of amount, interest and to receive the compensation and damages lies with the civil court. There is no evidence available on record against the appellants. They are not charge-sheeted. No prosecution complaint is pending, however, in the interest of justice, equity and fair play and to strike the balance in the present circumstances and the nature of case and in view of investigation is sub-judice by the police under schedule offence against other parties - All the four appeals are partly allowed by modifying the impugned orders, on the compliance is made as per terms mentioned in the preceding paras within the period of one month. Issues Involved:1. Freezing of shares under Section 17(1A) of PMLA.2. Legality of the Enforcement Directorate's (ED) actions in directing BSE to remit funds.3. Applicability of the Prevention of Money Laundering Act (PMLA) to shares acquired before its enactment.4. Retrospective application of the amendment to Section 2(1)(u) of PMLA.5. Jurisdiction of the Appellate Tribunal to pass a decree for monetary compensation.Detailed Analysis:Freezing of Shares under Section 17(1A) of PMLA:The Tribunal addressed the freezing of 78,38,330 shares on 22.03.2018 and 65,00,000 shares sold through BSE on 12.02.2018. The Directorate of Enforcement (ED) froze these shares and the sale proceeds, alleging them to be proceeds of crime under PMLA. The shares were originally subscribed in 2003, prior to the enactment of PMLA in 2005. The Tribunal noted that the ED's actions were based on an assumption that the shares were acquired through money laundering, which was found to be erroneous. The High Court had already determined that the shares were acquired in 2003, well before any alleged criminal activity, and thus could not be considered proceeds of crime.Legality of ED's Actions in Directing BSE to Remit Funds:The Tribunal scrutinized the ED's instructions to BSE to withhold and later remit INR 386,10,00,261/- to Pabrai Investment Fund, USA. The High Court had criticized this action, stating that the Deputy Director of ED had no authority to freeze shares that were part of a concluded transaction. The Tribunal agreed, noting that the ED's actions were illegal and beyond its jurisdiction, as the sale transaction was complete and the funds rightfully belonged to the appellants.Applicability of PMLA to Shares Acquired Before Its Enactment:The Tribunal examined whether PMLA could apply to shares acquired in 2003, before the Act's notification in 2005. It was concluded that the shares could not be considered proceeds of crime as they were acquired before any alleged criminal activity. The High Court had also noted that the assumption that the shares were acquired through money laundering was perverse and without application of mind.Retrospective Application of the Amendment to Section 2(1)(u) of PMLA:The Tribunal addressed the amendment to Section 2(1)(u) of PMLA, which introduced the concept of property equivalent in value to proceeds of crime held outside the country. The Tribunal held that this amendment, effective from 14.05.2015, could not be applied retrospectively to shares acquired in 2003. It emphasized that laws affecting substantive rights are presumed to be prospective unless explicitly stated otherwise.Jurisdiction of the Appellate Tribunal to Pass a Decree for Monetary Compensation:The appellants sought a decree for INR 386,10,00,261/- with interest, arguing that the ED and BSE acted in bad faith. The Tribunal acknowledged the appellants' entitlement to the funds but clarified that it lacked jurisdiction to pass a monetary decree. It suggested that the appellants could pursue compensation through civil courts if they could demonstrate bad faith and malafide actions by the authorities.Conclusion:The Tribunal partly allowed the appeals, directing the appellants to execute an indemnity bond of INR 111 crores as a surety. Upon compliance, the shares would be de-frozen. The Tribunal emphasized that the shares were not acquired from proceeds of crime and criticized the ED's actions as illegal and beyond its authority. All pending applications were disposed of, and no costs were awarded.