TaxTMI 
TaxTMI 
2019 (1) TMI 515
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....ion in the Demat Accounts (Account Nos. 1201910103642803 and 1201910103642797) maintained by the petitioners with respondent no.3 (hereafter 'SMC'). The aforementioned Demat Accounts are maintained in the name of petitioner nos. 1 and 2 respectively and they hold 78,38,330 equity shares of M/s. Khushi Ram Behari Lal Ltd. (hereafter 'KRBL Ltd.') in those Demat Accounts. Whilst the impugned order dated 22.03.2018 - a copy of which was handed over by learned counsel of the Enforcement Directorate during the course of hearing - indicates that 35,88,330 equity shares are held by petitioner no.1 and 42,50,000 equity shares are held in the Demat Account in the name of petitioner no.2; the petitioners state that 42,50,000 equity shares are held by petitioner no.1 and 35,88,330 equity shares are held by petitioner no.2. 2. In addition to the 78,38,330 equity shares of KRBL Ltd. held by the petitioners in the aforementioned Demat Accounts (Account Nos. 1201910103642803 and 1201910103642797 maintained with SMC), the petitioners also held certain further shares in KRBL Ltd., which were sold in January and February 2018. These included 65,00,000 equity shares of KRBL Ltd. that were sold ....
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....r Demat Accounts with SMC. He submitted that the said shares were purchased in the year 2003, which was prior to the PMLA coming into force and, therefore, the provisions of the PMLA are inapplicable to the said shares. He submitted that, therefore, the action of attaching/seizing the said shares is without jurisdiction. Mr. Bhattacharya also clarified that the petitioners had already filed appeals under Section 26 of the PMLA in respect of orders passed regarding freezing of the said shares. He had, accordingly, limited the challenge to the attachment of the said shares only on the aforesaid grounds relating to the jurisdiction of the Enforcement Directorate to pass the orders and issue instructions impugned in this petition. Factual Context 6. The petitioners are foreign nationals and reside overseas. They claim to be engaged in the business of trading goods including rice. They state that they have been importing rice from India for more than three decades. It is further claimed that during the said period, the imports of rice from India were of a value exceeding US $ 2 Billion. 7. The petitioners claim that due to their business interest in import of rice, they decided to ma....
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....in January 2018 and there is no controversy with regard to the said sale. 14. On 12.02.2018, each of the petitioners sold further 32,50,000 equity shares of KRBL Ltd. The bulk of the shares were sold at a gross rate of Rs.594 per share; 84 shares held by petitioner no.1 and 25 shares held by petitioner no.2 were sold at a gross rate of Rs.594.10 per share; and 5000 shares held by petitioner no.1 were sold at a gross rate of Rs.594.05/-. The contract notes annexed to the present petition indicates that the gross amount of Rs.1,93,05,00,258.40/- was payable to petitioner no.1 and Rs.1,93,05,00,002.5 was payable to petitioner no.2 as sale consideration for the said shares. After deducting the brokerage, transaction charges, stamp duty and taxes, a net amount of Rs.1,92,72,34,289.08 was payable to petitioner no.1 and Rs.1,92,72,34,033.37 was payable to petitioner no.2. 15. Admittedly, pursuant to the said transaction, SMC debited the Demat account of the petitioners by issuing the quantity of shares sold by the petitioners. The said shares were delivered to BSE for clearing. Similarly, the purchasers of the said shares (counter parties) also remitted the purchase consideration ....
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.... to the aforesaid request, the Enforcement Directorate, by an email dated 15.02.2018, advised the BSE that in respect of three counter parties who had purchased an aggregate 5109 equity shares of KRBL Ltd. and had further sold the same, no action was required to be taken against them. 22. On 15.02.2018, BSE sent an email informing Enforcement Directorate that it had withheld funds to the extent of Rs.3,86,10,00,261.00 payable to the petitioners and 64,94,891 equity shares of KRBL Ltd., which were to be delivered to "The Pabrai Investment Fund II LP". 23. On 23.02.2018, M/s Pabrai Investment Fund sent a letter confirming that it had purchased shares of KRBL Ltd. on the floor of the exchange through their broker M/s Kotak Securities. The said entity lodged its protest for not receiving the shares purchased by it and also being deprived access to its assets. M/s Pabrai Investment Fund had pointed out that it was registered as Foreign Portfolio Investor and the funds invested by it belonged to over three hundred and fifty individuals/institutions across the globe. 24. Almost a month thereafter, that is, on 23.03.2018, the Assistant Director of the Enforcement Directorate sent a lett....
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....dering relating to the kickbacks alleged to have been received by certain parties in connection with the purchase of VVIP Helicopters by the Indian Air Force (IAF) from M/s AgustaWestland, UK (AugustaWestland). 32. In the Counter Affidavit filed by the Enforcement Directorate, it is stated that CBI has registered a case for commission of offences punishable under Section 120B read with Section 420 of the Indian Penal Code, 1860 (IPC) and certain provisions of the Prevention of Corruption Act, 1988 against Sh. S.P. Tyagi, Former Air Chief Marshall in respect of a transaction relating to procurement of twelve Helicopters for VVIPs. 33. It is stated that Sh. S.P. Tyagi had joined as the Chief of Air Staff on 01.01.2005 and remained in office till his retirement on 31.03.2007. It is stated that during his tenure as Chief of Air Staff, IAF had considered reducing the Service Ceiling for the VVIP Helicopters to 4500. It is further alleged that cousins of Sh. S.P. Tyagi (the Tyagi Brothers) had connived with one Mr Guido Haschke and Mr Carlo Gerosa and they had received huge payments from AgustaWestland, which were camouflaged as consultancy fee. It is also alleged that Sh. S.P. Tyagi h....
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....trol of the petitioners outside India. 38. In compliance with the aforesaid order, the Enforcement Directorate filed an additional affidavit indicating money trail of the alleged proceeds of crime received overseas. It is affirmed in the said affidavit that AgustaWestland transferred Euro 24.37 million to M/s IDS Tunisia during the years 2008 to 2013. M/s IDS Tunisia in turn transferred Euro 12.4 million to the accounts of Interstellar Technologies Limited, Mauritius between the years 2009 to 2012 and Interstellar Technologies Limited transferred USD 2,749,948 to RAKGT between 11.10.08 to 27.01.2010. 39. It is affirmed that Interstellar Technologies Limited also transferred Euro 1 million and USD 1 million to M/s. Windsor Group Holding Limited during the years 2009 to 2012. Out of the aforesaid amount, USD 830,000 were transferred to RAKGT during the period 03.02.2010 to 13.02.2010. Similarly, Interstellar Technologies Limited transferred USD 10,000 to the accounts of one M/s. Carisma Investment Limited in the year 2010 and that company transferred USD 419,980 to RAKGT between 18.04.2009 to 27.02.2010. Further, Interstellar Technologies Limited also transferred USD 200,000 to the....
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....next question to be addressed would be whether officers of the Enforcement Directorate have acted in conformity of the said provisions. 44. According to the Enforcement Directorate, the provisions of Cr.P.C. are incorporated in the PMLA by virtue of Section 65 of the PMLA. Thus, the provisions of Section 102 of Cr.P.C, that empower any police officer to seize a property, which is suspected to have been stolen or which creates suspicion of commission of any offence, is also available to officers of the Enforcement Directorate. 45. The PMLA is a Special Act, which is enacted for prevention of money laundering and other connected activities. The statement of objects and reasons indicates that the Prevention of Money-Laundering Bill, 1998 was introduced "in the view of an urgent need for the enactment of a comprehensive legislation inter alia, for preventing money laundering and connected activities, confiscation of proceeds of crime, setting up of agencies and mechanisms for co-ordinating measures for combating money-laundering etc.". 46. Chapter III of the PMLA contains extensive provisions with regard to attachment and seizure of property perceived as proceeds of crime. Section 5....
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....t or complaint has been made or filed under the corresponding law of any other country: Provided further that, notwithstanding anything contained in first proviso, any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act: [Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted] (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referr....
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....mine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act: Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973, (2 of 1974) or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorised by the Central Government, by notification, for this purpose. (lA) Where it is not practicable to seize such record or property, the officer authorised under sub-section (1), may make an ....
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....a person is in possession of proceeds of crime and such proceeds of crime are likely to be concealed or tampered with or dealt with in any manner, which may result in frustrating any proceedings relating to confiscation of such proceeds of crime. 51. Similarly, an officer can seize any property or pass an order for freezing such property provided that he has, on the basis of information in his possession, reason to believe that any person has committed an act of money laundering; or is in possession of the proceeds of crime involved in money laundering; or is in possession of any records related to money laundering; or is in possession of property related to crime. It is material to note that the reasons to so believe are to be recorded in writing. 52. It is also relevant to note that in either case - the order of provisional attachment of any property under section 5(1) of the PMLA or an order of seizure of any property - has a limited life. The order of provisional attachment cannot extend beyond the period of one hundred and eighty days. Further, in terms of Section 5(5) of the PMLA, a Director or any officer who provisionally attaches a property is required to make a complain....
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.... such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering. (3) Where the Adjudicating Authority decides under subsection (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of Section 5 or retention of property or record seized or frozen under Section 17 or Section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall- (a) continue during investigation for a period not exceeding ninety days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and (b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58-B or sub-section (2-A) of section 60 by the Special Court. (4) Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3),....
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....laimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed. 54. In terms of Section 8(1) of the PMLA, the Adjudicating Authority is required to examine the complaint filed under Section 5(5) of the PMLA or an application made under Section 17(4) of the PMLA. If on receipt of such complaint or application, the adjudicating authority has reason to believe that a person has committed an offence of money laundering or is in possession of the proceeds of crime, he is required to serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets or the means with which he has acquired the property which is provisionally attached under Section 5(1) of the Act or seized or frozen under Section 17 of the PMLA. 55. In either case, the Adjudicating Authority is required to pass an order within a period of one hundred and eighty days from the date of the order of provisional attachment under Section 5(1) or from the date of order of seizure/freezing passed under Section 17 of the PMLA. This is explicitly clear by the plain language of Section 5(1) of the PMLA. In....
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....) Where an order releasing the property has been made by the Special Court under sub-section (6) of section 8 or by the Adjudicating Authority under section 58B or sub-section (2A) of section 60, the Director or any officer authorised by him in this behalf may withhold the release of any such property for a period of ninety days from the date of receipt of such order, if he is of the opinion that such property is relevant for the appeal proceedings under this Act." 56. It is clear from the aforesaid scheme of the PMLA that any property can be provisionally attached under Section 5 or be seized under Section 17 or be frozen under Section 17(1A) of the PMLA. However, any such order can be passed only if the necessary checks and balances are complied with; namely, that the seizure or attachment is preceded by the concerned authority having reason to believe that such properties are proceeds of crime or are otherwise related to crime. Further, such reasons to believe must be formed on the basis of material in possession of the concerned officer and must be recorded in writing. In addition, such orders cannot be extended beyond the period of one hundred and eighty days, within which th....
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....Cr.P.C. that any police officer may seize the property, which may be alleged or suspected to have been stolen or which is found in circumstances which create suspicion of the commission of any offence. However, the said order of seizure is only a temporary order and in terms of subsection (3) of Section 102 of Cr.P.C., the police officer seizing any property on the grounds of suspicion of an offence is required to forthwith report the seizure to the Magistrate having jurisdiction. 62. The said property seized is required to be produced before a Court and/or reported to a Magistrate. In such cases, the court would have the power to pass necessary orders with regard to the said property. In terms of Section 457 of the Cr.P.C., whenever a property is seized by any police officer and is reported to the Magistrate, the Magistrate is empowered to make such orders as he thinks fit in respect of disposal of the property or the delivery of such property to the person entitled to the possession thereof. In cases where such person cannot be ascertained, the Magistrate can pass orders in respect of the custody and production of such property. 63. It is at once clear that scheme of seizure, i....
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....the PMLA does not contain any provision regarding seizure on mere suspicion, therefore the power to make such seizure can be drawn from Section 102 of Cr.P.C. He contended that the provisions of Section 102(1) of Cr.P.C. are, therefore, not inconsistent with the provisions of the PMLA with regard to seizure of property. The said contention is unmerited. The question whether an enactment is repugnant to another is not determined on whether two provisions can be simultaneously obeyed but is determined in the context of the scheme of the legislative enactment. The question to be asked is whether the schemes of the two enactments can subsist and be implemented simultaneously. It is apparent that the scheme of effecting provisional attachment and seizure of property under the PMLA is wholly inconsistent with the one as enacted under the Cr.P.C. 68. In Innoventive Industries Ltd. v. ICICI Bank and Anr.: (2018) 1 SCC 407, the Supreme Court had examined the question of repugnancy between two enactments, namely, the Maharashtra Relief Undertakings (Special Provisions Act), 1958 and the Insolvency and Bankruptcy Code, 2016 in the perspective of the Constitution of India. The Supreme Court h....
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.... are proceeds of crime or are related to a crime. 70. If the contention as advanced on behalf of the Enforcement Directorate is accepted, it would mean that whereas the property cannot be provisionally attached under Section 5(1) of the PMLA and/or seized or frozen under Section 17 of the PMLA without (a) the Director having a reason to believe, on the basis of material available with him, that the properties are proceeds of crime and (b) recording such reasons in writing; the same officer can on mere suspicion pass orders for freezing the properties without recording reasons. Further, there are strict timelines provided under the PMLA. The orders of provisional attachment and/or seizure and/or freezing cannot extend beyond the period of 180 days. The Director of the Enforcement Directorate (or the officer authorized by him) is required to file a complaint by seeking extension of the period of retention from the adjudicating authority within a period of thirty days from passing such order. However, this safeguard would also be rendered meaningless if the Enforcement Directorate's contention is to be accepted; the Directorate could - as has been done in this case - freeze the asset....
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....nt in its wisdom did not confer upon the Enforcement Directorate, any powers to attach or freeze assets on a mere suspicion. 73. The learned counsel appearing for the Enforcement Directorate has also referred to the decision of the Supreme Court in V.T. Khanzode and Ors. v. Reserve Bank of India and Anr.: (1982) 2 SCC 7. The said decision has no application in the facts of the present case. In that case, the petitioners had challenged the circular issued by the Reserve Bank of India whereby it had decided to combine the seniority of all officers. The petitioners had contended that such conditions of service could not be framed by administrative circulars but necessitated framing Regulations under Section 58 of the Reserve Bank of India Act, 1934. The Supreme Court repelled the said contention and held that under Section 7(2) of the Act, the Central Board had the power to provide for service conditions of the bank staff by issuing administrative circulars as long as they did not impinge upon the Regulations made under Section 58 of the said Act. The power of an employer to fix service conditions cannot be equated to police powers. 74. In view of the above, the contention that offi....
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....hat through this laundering of money M/s Abdulla Ali Obeid Balasharaf & M/s Omar Ali Obeid Balsharaf acquired 3.19% shares each of M/s KRBL Limited. Further, it is reported that M/s Abdulla Ali Obeid Balsharaf & M/s Omar Ali Obeid Balsharaf had entered into the transaction to sell the shares of M/s. KRBL Ltd, which may frustrate the purpose of investigation and further proceedings under PMLA. Since, the matter is under investigation for the offences of money laundering and its operation is required to be seized necessarily. Thus, the operation of the transaction pertaining to the transfer of shares of M/s. KRBL Ltd owned by M/s Abdulla Ali Obeid Balsharaf & M/s Omar Ali Obeid Balsharaf ought to be restrained/stopped under the provisions of Sec. 102 Cr.P.C. r/w sec. 65 r/w Sec. 2 (na) of The Prevention of Money Laundering Act 2002 during the pendency of investigation. The same may not be transferred without permission of this Directorate or competent authority. Yours sincerely, S/d Vikas Singh, IRS (Deputy Director)" 77. It is apparent from the above that the allegation against the petitioners was that AgustaWestland had paid kickbacks which had been received by KRBL Ltd. thr....
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....e order dated 13.02.2018 passed by the Enforcement Directorate was put to rest by BSE by the abovementioned email dated 15.02.2018, whereby they confirmed that they were holding the securities to be delivered to M/s Pabrai Investment Fund and withholding of Rs.3,86,10,00,261.00 payable to the petitioners. 82. Clearly, the Deputy Director of the Enforcement Directorate had no authority whatsoever to freeze the shares, which were to be delivered in settlement to the purchaser. There was no allegation or any iota of suspicion against the purchaser who had purchased the shares from the floor of the exchange. If at all, any order for freezing any property was required to be passed under Section 102, Cr.P.C. (assuming it is accepted that Section 102, Cr.P.C. is at all applicable, which this Court has not accepted), at best, the officers of the Enforcement Directorate could have frozen the money (approximately Rs. 386 crores) which were to be paid out by the BSE to the petitioners. 83. On 25.02.2018, M/s Pabrai Investment Fund sent a letter to the Enforcement Directorate confirming that they had purchased shares on the floor of BSE and paid consideration for the same. There was no alleg....
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.... the BSE from effecting the clearing and, by the letter dated 23.03.2018, the Assistant Director of the Enforcement Directorate had nullified the sale transaction that was complete. No authority for such actions can be found in section 102 Cr. PC. A police officer cannot set aside a transaction of sale and purchase of shares under the provisions of Section 102 Cr.PC. This Court pointedly asked Mr Singh, the learned counsel for the respondents as to under which authority did the Assistant Director, PMLA issue the communication dated 23.03.2018. Apart from contending that such action was bonafide, there was no explanation forthcoming as to under which provision of law, this direction had been issued. 87. Curiously, the said officer permitted BSE to let the transaction relating to 5109 equity shares go through. On 15.02.2018 the said officer sent an email to the BSE, which reads as under: "Subject: RE: Seizure/freezing of shares traded on 12.02.2018 of M/s KRBL Please refer to the trail mail. As discussed with you regarding the 3 counter parties mentioned below, as they have already sold their securities on the same day, no action is required to be taken against them. Sum of Qty ....
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....ment Directorate by their action have effectively reduced the assets which may have been available for such seizure. 93. It is seen that orders under Section 17 of the PMLA freezing the said shares and the amount released in the bank account of the petitioners has since been passed and, the petitioners have preferred an appeal before the Appellate Tribunal. Keeping this in view, no further orders are being passed and it would be open for the petitioners to seek appropriate remedy including compensation for any loss suffered by them on account of the illegal actions on the part of the respondents. Whether the provisions of the PMLA apply to the shares of KRBL Ltd. that were acquired prior its enactment. 94. The next question to be examined is whether the provisions of the PMLA are applicable in respect of freezing orders passed under Section 17(1A) of the PMLA in respect of the shares of KRBL Ltd. As noticed above, these shares were acquired in the year 2003 and held uninterruptedly by the petitioners for approximately 15 years. Although, in the communication dated 13.02.2018 sent to BSE, it is alleged that the said shares were acquired in the process of money laundering, there i....
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....ed Enforcement Directorate to file the statement indicating money trail which the Enforcement Director alleges to be proceeds of crime. In compliance with the aforesaid order, the Enforcement Directorate had filed an affidavit affirming the following: "A. M/s. AgustaWestland transferred Euro 24.37 millionto M/s. IDS Tunisia between 2008 to 2013. B. Further, M/s. IDS Tunisia transferred Euro 12.4 million to the accounts of M/s. Interstellar Technologies Limited, Mauritius between 2009 to2012. C. M/s. Interstellar Technologies Limited transferred USD 2,749,948 to M/s. Rawasi Al Khaleej General Trading LLC (RAKGT) in its HSBC bank account between11.10.08 to 27.01.2010. D. M/s. Interstellar Technologies Limited transferred Euro 1 million and USD 1 million to M/s. Windsor Group Holding Limited between 2009 to 2012. Out of which, USD 830,000 were transferred to M/s RAKGT between03.02.2010 to 13.02.2010. E. M/s. Interstellar Technologies Limited transferred USD 10,000 to the accounts of M/s. Carisma Investment Limited in 2010. Whereas, USD 419,980 were transferred to M/s RAKGT between 18.04.2009 to27.02.2010 by M/s. Carisma Investment Limited. F. M/s. Interstellar Technologies Limit....
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....rial with the Enforcement Directorate to indicate that the petitioners are in possession of proceeds derived from any alleged crime or any property received as kickbacks from AgustaWestland. However, it is not necessary for this Court to delve into this issue any further as the petitioners have already challenged the orders passed by the Adjudicating Authority allowing the application filed under Section 17(4) of the PMLA and extending the orders passed under Section 17(1A) of the PMLA, before the Appellate Tribunal. 104. The limited question to be addressed at this stage is whether the provisions of the PMLA are applicable to the shares in question. Mr. Bhattacharya had contended that the PMLA was enacted after the shares were purchased, therefore, the PMLA would be inapplicable to those shares. 105. This Court is of the view that the question whether the provisions of the PMLA would apply would depend on the allegation made against the petitioners. 106. The expression "proceeds of crime" has been defined under Section 2(1) (u) of PMLA as under: "Section 2(1) (u) - "proceeds of crime" means any property derived or obtained, directly, or indirectly, by any person as a result of....