TaxTMI 
TaxTMI 
2017 (8) TMI 1076
X X X X Extracts X X X X
X X X X Extracts X X X X
....r. Surendra Sathi from the year 1995 to 2004 has been receiving the royalty from the appellant regularly on 25.09.95, 02.09.96, 29.09.1997, 24.03.2000, 10.07.2000, 21.09.2000, 20.09.2001, 23.03.2000, 25.03.2000, 18.03.2002, 25.06.2002, 19.09.2002, 15.03.2003, 22.09.2003, 23.09.2003, 12.04.2004, 29.09.2004. 5. In pursuance of the amendments to the copyright Act, 1957 made in 1994, it has been additionally recognized as a registered Copyright Society in 1996. 6. In view of amendment, the IPRS addresses letter dated 29.08.2005 to Mr. Surendra Sathi, in order to undertake verification of the register of owners in furtherance of the Rule 14I of the Copyright Rules, for verification and attestation of the Agreements entered into between Mr. Sathi and IPRS in order to remove ownership issues. Copy of letter is already placed on record at page no. 655. Despite of the said letter Mr. Surrender Sathi did not respond. 7. On 9.11.2009 IPRS sent another letter to Surender Sathi to sign Assignment deeds for continuance of membership. Vide the said letter, IPRS clearly conveys that if there is no response from Mr. Sathi in seven days, his membership with IPRS would stand cancelled. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 420, 406, 468, 471, 506 and section 120 B or/w 34 of the IPC against Om Prakash Sonik and Hasan Kamal, the directors of IPRS on the basis of a complaint made by Shri Surender Sathi. 10. In a petition seeking quashing of the FIR, the Hon'ble Allahabad High Court grants interim relief to the Appellants. The issue of territorial jurisdiction is also raised in the said petition. Copy of the order dated 25.8.2014 reproduced below. Court NO.-29 Case :- Criminal Misc. Writ Petition No. 14342 of 2014 Petitioner:- Hasan Kamal Respondent :- State of U.P. and 2 Others Counsel for Petitioner:- Manu Khare Counsel for the Respondent:- Govt. Advocate, Manish Tiwari Hon'ble V.K. Shukla J. Hon'ble Shashi Kant,J. Learned A.G.A. has accepted notice on behalf of the opposite party nos. 1 and 2. Sri S.M.A. Qazmi, Senior Advocate assisted by Sri Manish Tiwari has entered appearance on behalf of opposite party no. 3. Each one of the respondent is accorded six weeks time to file counter affidavit. Rejoinder affidavit may also be filed within two weeks thereafter. List after eight weeks. It has been ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ge sheet fails to mention appellants, Kumar Taurani and Ganeshmal Jain. The Charge-Sheet did not elaborate as to the role of the directors, Om Prakash Sonik, Hasan Kamal and Rakesh Nigam in the commission of t he alleged offence. 14. In an application filed on 4.8.2015 under section 482 Cr.P.C. seeking quashing of the proceedings, the Hon'ble Allahabad High Court stays further proceedings in the case. This stay subsists till in operative copy of the order is re-produced hereunder:- Court no. 49 Case no:- Application u/s 482 no. 22187 of 2015 Applicant :- Hasan Kamal Opposite Party :- State of U.P. & 2 others Counsel for applicant :- Manu Khare, A.K.Awasthi, Prazan Sharma Counsel for Opposite Party:- Govt. Advocate, Manish Tiwary With Case no:- Application u/s 482 no. 22189 of 2015 Applicant :- Om Prakash Sonik Opposite Party :- State of U.P. & 2 others Counsel for applicant :- Manu Khare, A.K.Awasthi, Prazan Sharma Counsel for Opposite Party:- Govt. Advocate, Manish Tiwary With Case no:- Application u/s 482 no. 22189 of 2015 Applicant :- Rakesh R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ties which were invested in various mutual funds amounts to Rs. 70, 17,00,483/- by IPRS are "proceeds of crime" generated through criminal activity related to the scheduled offences which was layered by IPRS through an investment in the mutual funds of financial institutions with sole intention to conceal its tainted origin. 17. The respondent filed Original Complaint No. 532 of 2015 (OC) on 18.11.2015 against the Appellants under section 5(5) of the PMLA Act on the basis of the FIR 455 of 2014. 18. The Adjudicating Authority issued showcause notice to the appellant on 23.11.2015 to disclose the source of income or earning of the property attached vide the PAO and show cause as to why the said properties should not be declared to be properties involved in money laundering under the PMLA. 19. That the Appellant filed its reply to the OC, taking inter alia the following objections: i. The Hon'ble High Court of Judicature at Allahabad stayed the arrest of Om Prakash Sonik, Hasan Kamal and Rakesh Nigam till a report under section 173 of the CrPC is submitted vide order dated 25.08.2014 and 22.09.2014 in CrlMsc. 16675 of 2014. ii. The present case was tried be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The Adjudicating Authority thereby confirmed the PAO issued by the Directorate of Enforcement, PMLA till the pendency of proceedings before the Competent Court as under section 8 (3)(a) of the PMLA. 21. The entire case put up by the respondent in its pleading is under:- Investigations under PMLA, 2002 had revealed that in the Balance Sheet of IPRS for the financial year 2013-14 under the category 'Royalty to members (Current Liability)' had specified the amount of Rs. 85.82 crore. Also in the Balance Sheet for the year 2013-14 of IPRS the amount invested by them in the Current and Non-current Investment were specified. Further IPRS had not submitted the member-wise breakup of the amount ofRs. 85.82 crore which was reflected in the Balance Sheet for the Financial Year 2013-14 under the category of 'Current Liabilities' and under the head 'Royalties to Members' which was not submitted by them either during the course of the investigations or during the proceedings of the Adjudication of the subject PAO. 21.1. IPRS had not specified the reasons for retaining the royalty with them together with the non-mentioning of the source of the funds for the 'Investment in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er section 5(1) of the PMLS, 2002. 25. The details of the said investments which have been provisionally attached in this case are as under: Sr. No Name of the Financial Institution Folio Number Amount of Investment 1. Birla Sun Life Asset Management Company Ltd. 1014364096 15000000 1014364097 186687013 Total 20,16,87,013 2. Franklin Asset Management (India) Pvt. Ltd. 7029903807626 20000000 4009903807626 48500000 1049903807626 57500000 Total 12,60,00,000 3. HDFC Asset Management Company Ltd. 103546/53 3,00,00,000 ICICI Prudential Asset Management 6073554/12 146013469 4. Company Ltd. 5597091/09 19927212 5815691/26 10072789 Total 17,60,13,470 5. Kotak Mahindra Mutual Fund 1386414/21 7500000 1386415/18 25000000 Total 3,25,00,000 6. Reliance Capital Asset Management Ltd. 49040703976 43000000 404136109594 40000000 TOTAL 8,30,00,000 7. IDFC Asset Management Company Limited. 33569/76 5,25,00,000 Total 70,17,00,483 26. The Adjudicating Authority has issue Notice to show cause dated 23.11.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....RS had demanded their requisite share of royalty, IPRS failed to pay the requisite share to their members. This was resulted in heating to its member by IPRs and therefore was charged under section 120-B, 406, 420, 468, 471, 506 and 34 of the IPC. 28. In Para -6.1 to 6.3 of the reply to PAO; the same are read as under:- "6.1 During the scrutiny of documents in 2009 it was noticed that numerous members including Mr. Sathi had not executed the assignment deed as passed by the Governing Council, the members requested to sign the assignment deed within seven days of receipt of the letter else the membership would stand terminated. 6.2 Having not heard from him, the membership of Mr. Sathi was treated as terminated including other members who did not revert and no correspondence was received from him by IPRS and no royalty was paid post such termination as Mr. Sathi was no longer a member of IPRS. 6.3 The complaint of Mr. Sathi is at best civil in nature as he is not the owner of the songs written by him as per 1977 Supreme Court Judgment nor has he claimed ownership. So at best he can claim for royalty post 2012 that too against the owner publisher and not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onths of revenue. In one of the Radio litigation matter, as directed by the Court, the Defendant No. 1 had to refund the entire Licensing fees/Royalties to the tune of Rs. 2,44,36,944 in compliance of the order dated 25^th April, 2013 passed by the Delhi High Court in the IPRS Vs. Mr. S. Keerthivasan & Anr. (HT Media). The Defendant craves leave to refer to the said order dated 25^th April, 2013 passed by the Delhi High Court during the course of personal hearing. Hence keeping in mind the above refund litigation and major other litigations that the Defendant No. 1 had with FM Broadcaster, the Governing Committee Meetings in 2011 approved as under: 'Keeping in mind the investments and disbursements, that the Company shall disburse royalties keeping aside an amount of Rs. 32 crores as buffer for claims towards refund of royalties paid earlier to the Company.' The same was also duly reflected by Defendant No. 1 in its Annual Report of 2013-14 in Note 21 - Contingent Liabilities. Hence the royalty distribution got slowed down to take care of such contingency of refund. The Defendant No. 1 craves leave to refer to the Annual Report 2013-14 during the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w:- "4. Punishment for money-Laundering.-Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine: Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words "which may extend to seven years", the words "which may extend to ten years" had been substituted." 34. For the purposes of exercise of powers of provisional attachment, it is no longer necessary that a person who is in possession of proceeds of crime has also been charged with the scheduled offence. The Scheme of Money Laundering Act, as it exists as on date, can include within its ambit the persons against whom the investigation is pending with respect to scheduled offences and even the persons who are only the participants with knowledge or are dealing with the proceeds of the crime. This can be seen by looking into the definition of an offence of money laundering as provided u/S 3 which state that w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment of property of any person are not satisfying the second proviso to Section 5(1), then the Adjudicating Authority can proceed to release the said property on the basis of lack of any reasonable grounds provided by the Deputy Director prior to second proviso to Section 5(1) of the Act. This can be seen by reading section 8 along with section 5 of the Act. These are the considerations which operate/govern before the Adjudicating Authority or before the Appellate Tribunal prior to affirming/confirming or setting aside of provisional attachment. 39. The ECIR filed by the Directorate of Enforcement specifically refers to the FIR filed by Mr. Sathi and states that the scheduled offences are section 420 and 471 read with section 120B of the Indian Penal Code, 1860. 40. It is apparent that the assets attached have been generated from legal activities - namely licensing of copyrighted material. They have not been generated from any criminal activity. Therefore, they cannot be proceeds of crime with the meaning of the Act. Any other interpretation would make the Act completely unworkable. If mere wrongful retention of money owed to another person was to be considered as proceeds of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....med Phonographic Performance Ltd. (hereinafter referred to as 'PPL'). With the objective of acquired right to license for playing of musical and literary works and collect royalties for such usage, the then management of IPRS which was then only under control of authors and composers took a decision to enter into a Memorandum of Understanding with IPL and PPL. Accordingly, Memorandum of Understanding dated 13-11-1993 came to be executed between IPRS, IPI and PPL, (hereinafter referred to as the 'MOU') under which IPRS inter alia agreed to admit the members of IPI as members of IPRS. The said MOU incorporated a specific statement to the effect that 'IPRS' confirms that the record companies are owners of musical works as Publishers. iv. By virtue of the said MOU, the music companies agreed to share 50% of royalties collected by IPRS with author/composer members and hence in accordance with the said MOU, IPRS started licensing usage of music and collecting royalties from 1993 onwards and also distributed the royalties amongst its members without and dispute till 2004. v. Such owner members exercised complete control over the affairs of IPRS under section 35 of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et aside on this ground. 44. In Ramani Mistry Vs Deputy Director, PMLA, FPA-PMLA/296/KOL/2015, (At paragraphs 22 to 27) upon dealing with a case of attachment of properties disproportionate to the crime committed by the appellant, the Hon'ble Tribunal held that the term 'reason to believe' is not same as suspicion or doubt and that when it is said that a person has reason to believe a thing, it means that the circumstances and facts known to him are such that a reasonable man, by probable reasoning, can conclude or infer regarding the nature of the thing concerned. 45. It appears from the order of provisional attachment order as well as from the impugned order that nothing has been discussed and only the pleadings are referred and the only reason recorded before the Adjudicating Authority is that the Appellants are in possession of 'proceeds of crime' must have a rational nexus to the formation of the belief and the materials placed before the Adjudicating Authority. 46. In the present case, there were no materials before the Adjudicating Authority to adjudge that Rs. 70,17,00,483/- invested in various mutual funds amounted to proceeds of crime. It is stated that the Respo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 5,34,98,874/- 2. (less) distributed till 31.03.2017 Rs. 11,85,067/- 48. Mr. Nitesh Rana, Advocate time and again in order to stress his arguments and submitted that the appellant has not paid the royalty to Ms. Shubha Mudgal who is well-known artist and her compliant is also pending. Counsel for the appellant has filed letter dated 29.05.2017 issued by her. Copy of the same was handed over by Mr. Nitesh Rana, Advocate. The contexts of the letter reads as under:- " The Spcial Commissioner of Police (Crime) Police Headquarters Delhi Police New Delhi-110001. Ref: My complaint dated 12^th May, 2016 filed with the Delhi EOW by the undersigned Respected Sir, I, the undersigned had lodged the above referred to complaint with the EOW of Delhi Police. The Complaint adverted against the Indian Performing Right Society Limited (IPRS) and its Music Company members, Officers and Directors of IPRS and Phonographic Performance Limited ("PPL") on various grounds and various other issues including non-payment of royalties and other acts perceived as being criminal offences. Pursuant to my complaint, F.I.R. No. 167 dated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso pertinent to mention here that during hearing, Mr. Pragyan Sharma learned counsel for appellant has informed us that the complainant Mr. Surendra Sathi has agreed to settled the disputes and to give his cooperation to quash the FIR and he would file the confirmation letter within one week. On 2^nd June, 2017 the copy of the letter dated 29.05.2017 has been filed. The same is reproduced as under:- "The Senior Superintendent of Police Agra Uttar Pradesh Ref: My Complaint filed before the Office of the SSP, Agra, Uttar Pradesh Respected Sir, I, understand had lodged the above referred to complaint with the office of the SSP, Agra, U.P. The Complaint adverted against the Indian Performing Right Society Limited (IPRS) and its Music Company members, Officers and Directors of IPRS and Phonographic Performance Limited ("PPL") on various grounds and various other issues including non-payment of royalties and other acts perceived as being criminal offences. Pursuant to my complaint, F.I.R. No. 455 of 2014 was registered at PS: Sadar Bazar, Agra ("F.I.R.") and chargesheet has been filed in the said F.I.R. In view of IPRS addressing the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....diction at Mumbai on the basis of a frivolous FIR no. 455 of 2014 dated 02.06.2014 registered by the Sadar Police Station, at a for place in Agra, Uttar Pradesh wherein the said plice Authorities filed a perfunctory Charges Sheet no. 30526/2015 on 23.05.2015 before the Hon'ble Chief Judicial Magistrate, Agra in Derogation of the order of the High Court which on finding the allegations misconceived and untenable stayed the Charge Sheet and all proceedings in the criminal proceedings. Sir, passing of a PAO is not a routine matter but a serious exercise and cannot be passed when the very basis of it is under scrutiny of Court and that too with a stay to allegations and proceedings. This PAO is mala fide passed to over reach the order of the Hon'ble High court of the Allahabad dated 04.08.2015 in Writ Petitions. No. 22187-88-89 of 2015 filed under section 482 of Cr.P.C. staying the whole criminal proceedings to the knowledge of the authority issuing the said provisional attachment order. This stay order of the Hon'ble High Court of Allahabad does not find even mention in the said Provisional Attachment Order. In the absence of any subsisting Scheduled Offence, there i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant, it is evident that the appellant had not committed any offence in collection and distribution of royalties and that the balance of the such amount pending distribution was on account of non-fulfillment of the formalities by the members for which all due efforts had been made by the appellant. The plea raised were not considered and no reason to that effect is given in the entire impugned order dated 23.03.2016. 55. Whether innocent party whose properties i.e. movable or immovable are attached can approach the Adjudicating Authority for release of attached property. The Scheme of Prevention of Money Laundering Act clearly provides the mechanism whereby the innocent parties can approach the Adjudicating Authority for the purposes of release of properties which have been attached in terms of the provisions of Section 5 of the Act. This can be seen by reading Section 8(1) and the proviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all or any of the properties referred to in the notice are involved in money laundering or not. "8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ataka High Court that the element of knowingly or mens rea have been provided under the Act so that the aspect of implicating any innocent person can be ruled out. Relevant para 26 of judgment is reproduced below:- "26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in the Money Laundering Act was not held unconstitutional and ultra virus, but it was observed by the Karnataka High Court that the property of a person can be attached without there being any prosecution for the offence of Money Laundering, but so far as the prosecution of a person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Gujarat High Court in the case of Jafar Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017 wherein Ld Single Judge has observed as under:- "37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses conjunctive 'and', makes it luminous that any persons concerned in any process or activity connected with such "proceeds of crime" relating to a "scheduled offence" including its concealment, possession, acquisition or use can be guilty of money laundering, only if both of the two prerequisites are satisfied i.e.- "(i) Firstly, if he- (a) directly or indirectly 'attempts' to indulge, (b) 'knowingly' either assists or is a party, or (c) is 'actually involved' in such activity; and (ii) Secondly, if he also projects or claims it as untainted property;" 38. The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients- "A. RE: DIRECT OR INDIRECT ATTEMPT: In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nnected with the proceeds of crime and thus scheduled offence, including its concealment, possession, acquisition or use. There is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to substantiate any such allegation qua the petitioners, D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indian Penal Code for direct or indirect involvement, abetment, conspiracy or common intention, nor is any such case made out even on prima facie basis against any of them." 39. The second of the two pre-requisite to attract Section 3 of PMLA would be satisfied only if the person also projects or claims proceeds of crime as untainted property. For making such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e. the property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, would be utmost necessary, which however is lacking in the instant case." 59. These are four ingredients which are determinative factors on the basis of which it can be said that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ney-laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and (b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering. 21. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of Rs. 15,00,00,000/- by producing bogus and fabricated documents. From and out of the said amount, the property in question was purchased by him in the names of his Benamies. One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said G....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties. Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation. '21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants, particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Radha Mohan Lokatia's case, Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence. All the persons involved in that case were close relatives. 26. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the Additional documents, the appella....