TaxTMI 
TaxTMI 
2019 (1) TMI 832
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....nt Order (PAO) No. 19/16 dated 02.09.2016 in ECIR/CEZO/03/2016. 2. The Appellants are five brothers along with the company, M/s Pothys Private Ltd. (which is a close-knit company) where the only shareholders are the brothers and their father and running an organization in the field of textile business for more than 85 years. 3. By this common order, I propose to decide all appeals. The facts which are common in all the appeals are taken from the Appeal no. FPAPMLA- 1624/CHN/2017 filed by Shri Ramesh Pothy. 4. The subject matter of property purchased by Appellant (jointly being brothers measuring 12,945 sq. feet) which is attached by ED, under PMLA, hereinafter would be referred as Pothys. The subject property is the access to a larger extent of land in the back portion which was purchased for constructing a commercial building. 5. The subject property was purchased by the Appellant jointly from one Ms. Dhanalakshmi Sridhar, in and by a Sale Deed dated 29.02.2016, for a consideration of Rs. 5,30,74,500/-. The said Ms. Dhanalakshmi Sridhar is the daughter of one Mr. Sridhar Dhanapal, (who was facing criminal prosecution by the Tamil Nadu Police for alleged offences and shown as a....
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.... Ms. Dhanalakshmi or give up the whole project. 9. The payment was made in four tranches. Details of the payments made are as under: 31.12.2015 An advance payment of Rs. 2 Cr. by way of RTGS transfer from the City Union Bank A/c No. 51202001008681 account of Pothys to Mrs. Kumari's HDFC A/c No. HDFC0000879. 13.01.2016 An advance amount of Rs. 1.65 Cr. through RTGS from the City Union Bank A/c No. 51202001008681 account of Pothys to Mrs. Kumari's HDFC A/c No. HDFC0000879. 23.02.2016 An advance payment of Rs. 1.35 Cr. through RTGS from the City Union Bank A/c No. 51202001008681 account of Pothys to Mrs. Kumari's HDFC A/c No. HDFC0000879. 29.02.2016 A final payment of Rs. 25,43,755/- to Ms. Dhanalakshmi at the time of execution of the Sale Deed was made by way of cash, which is duly reflected in the Sale Deed. 10. The source of funds were that they are into retail business and their sources of funds are reflected from the bank details and statements who produced documents such as Bank Statement of account and also individual income tax returns before the Adjudicating Authority to show the means of the funds for purchase of the subject property. The amounts shown as credits i....
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....1st Street, Sevilimedu, Kanchipuram) from PMLA angle, this office vide letter dated 07.03.2016 has requested for the copies of all the FIRs lodged against Sridhar Dhanpal and other relevant documents for the purpose of investigation under PMLA into the aforesaid illegally obtained properties by Sridhar Dhanpal. The above mentioned copies of FIRs lodged against Shri Sridhar Dhanapal were obtained from the office of superintendent of Police, Kanchipuram. It has been found that a large number of complaints were lodged against Sridhar Dhanapal, Male, a notorious criminal for his involvement in 5 murders, 10 attempt to murders, kidnapping for ransom and also many prohibition cases with B1 Police Station at Sivakanchi, B3 Police Station at Kanchi Taluk, B2 Police Station at Vishnu Kanchi and M4 Police Station, Red Hills, Kancheepuram District, Tamil Nadu and 19 FIRs were filed by the respective Police Stations against Shri Sridhar Dhanapal. Shri Sridhar Dhanapal has been evading the judicial proceedings in India for past 3 years and a Red Corner Notice No. A-4947/8-2013 was issued against him by Central Bureau of Investigation, National Central Bureau- India Interpol, New Delhi. It i....
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....issued to accused, his wife and Shri Ramesh Pothy and statement were recorded except Sridhar who did not appear and the details of the same are as follows: Sr. No. Name of the person summoned Date of issue of summons Whether appeared or not 1. Shri Sridhar 21.03.2016 He did not appear for any of the Summons served on him 08.08.2016 16.08.2016 22.08.2016 2. Smt. Kumar, W/o Shri Sridhar 21.03.2016 She did not appear for any of the Summon served on her 08.08.2016 16.08.2016 22.08.2016 3. Ms. S. Dhanalakshmi, D/o Shri Sridhar 12.03.2016 Appeared on 16.03.2016 rendered her voluntary statement 4. Sh. D. Senthil, Younger Brother of Sh. Sridhar Appeared on 26.05.2016 rendered his voluntary statement. 5. Sh. Ramesh Pothy Managing Director of M/s Pothys Private Ltd. 04.04.2016 Appeared on 12.04.2016 rendered his voluntary statement. 15. The main findings out of investigation under PMLA, 2002 as per the case of the Respondent with regard to the impugned property is that: Shri Ramesh Pothy and his 4 brothers of M/s Pothys Private Ltd. , had purchased immovable properties from Smt. Kumari in the year 2010 and from Ms. Dhanalakshmi Sridhar durin....
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.... and to his 4 brothers for a sale consideration of Rs. 5,30,74,500/- on 29.02.2016. An amount of Rs. 5,00,00,000/- has been credited by M/s Pothys Private Ltd., wherein Shri Ramesh Pothy is the Managing Director, in three tranches (Rs. 2 Crores on 31.12.2015, Rs. 1.65 Crores on 13.01.2016 and Rs. 1.35 Crores on 23.02.2016) into the Bank Account No. 50100001455442 held by Smt. S. Kumari with HDFC Bank as mentioned above, for the purchase of immovable properties from Ms. Dhanalakshmi Sridhar, vide Document No. 1184/2016 registered with Joint II Sub Registrar, Kanchipuram, for a sale consideration of Rs. 5,30,74,500/- on 29.2.2016. Out of the balance amount of Rs. 30,74,500/- , an amount of Rs. 25,43,755/- was paid by the Shri Ramesh Ptohy and 4 brothers to Ms. Dhanalakshmi Sridhar on the day of Registration and the remaining amount of Rs. 5,30,745/- was deducted being 1% TDS of the sale consideration, which is as per the sale deed document referred to above. Ms. Dhanalakshmi Sridhar has acquired the two immovable properties totally valued at Rs. 5,20,08,500/- (3,06.5700 + 2,13,51,500) vide Document No. 03/2016 and Document No. 18/2016 respectively, whereas she had sold the said t....
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.... - "In view of the foregoing and based on the materials available in my possession I have reason to believe, that Shri Sridhar and Shri D. Senthil and their associates, who have committed offences vide various FIRs registered by various Police Stations at Kanchipuram, Tamilnadu have derived proceeds of crime and have laundered the same by buying and selling immovable properties. One such immovable property as detailed below in the Schedule, which was acquired by laundering the said proceeds of crime by Shri Sridhar in the name of his wife, Smt. S. Kumari and immediately the said property was settled/transferred to her daughter Ms. Dhanalakshmi Sridhar and subsequently sold to Shri Ramesh Pothy and his 4 brothers that too below the guideline value prescribed by the Government and instead of making payment to the actual seller viz. Ms. Dhanalakshmi Sridhar, aged 21 years, the sale consideration was paid through the bank account of Smt. S. Kumari only, who is not a seller in the said transaction, by the company M/s Pothys Private Ltd., in the process of laundering the proceeds of crime. The entire laundering process was held within a period of 7 days and while purchasing the said pr....
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....le property involved in money laundering is not attached immediately, under Section 5(1) of PMLA, 2002, the non-attachment of the said properties are likely to frustrate any proceedings under PMLA, 2002. Therefore, I order that the aforesaid property specified at Para 20 above, totally valued at Rs. 6.47 Crores (approximately) are attached provisionally in terms of Section 5(1) of PMLA, 2002, for a period of 180 days (One Hundred and eighty days) and further order that the same shall not be transferred, disposed, removed, parted with or otherwise dealt with, until or unless specifically permitted to do so. 17. On 02.09.2016 the Enforcement Directorate issued Provisional Attachment Order. The said order was confirmed by the Adjudicating Authority on 29.12.2016, the appellants have challenged both orders by filing the present appeals. 18. It is not denied by the respondent that in the reason of believe, the impugned property was valued at about Rs. 6.47 crores. It is also admitted that the property was purchased against the sale deed. ECIR was registered on the basis of FIR registered against Late Sridhar. There were personal allegations against his wife and daughter, except it was....
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....before the adjudicating authority on the date of passing the impugned order. 22. In the counter affidavit filed by the Respondents, the statement given by Mrs. S. Kumari on 01.12.2016 has been reproduced which clearly indicates that the Appellants have paid the total sale consideration for the subject property and the same was credited in her bank account in HDFC Bank at Kancheepuram. The relevant portion of the statement are reproduced:- "....I purchase the said landed property from various owners and got the same registered in my name and also the remaining portion of that property was purchased in the name of my daughter Dhanalakshmi, then transferred the entire landed property in the name of the daughter Dhanalakshmi, who subsequently sold the same under one single document to Shri. Ramesh Pothy. I know that the extent of the land is around 12700 Sq. ft., but I do not know the amount for which the same was sold to Shri. Ramesh Pothys. I know the amount towards the sale of said property was credited into my account in HDFC Bank, Kanchipuram and that no other amount was given other than that". 23. During the hearing of appeals (many time) even once after the reserve of orders....
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....nt media news referring to the proceeding against the Appellants under PMLA, apart from causing them serious monetary loss, is also causing a dent to their reputation developed over decades of commitment and hard work. 29. Under the Transfer of Property Act and the Registration Act, there is no method or process to either find out about the existence of any FIR nor there is any provision to mandatorily disclose the existence of any FIR against the Vendors or their family members. The No Encumbrance Certificate which is issued in the state of Tamil Nadu does not have any such clause whereby the FIR against the relatives or family members of vendors are reflected. 30. The respondent for the first time in the rejoinder, the Enforcement Directorate refers to a newspaper report, in paragraph 7, where it was mentioned that the property was worth Rs. 45 Cr. As per settled law, the rejoinder is not a pleading in law. In the judgment of the Hon'ble Delhi High Court in M/S. Anant Construction (P) Ltd. V. Shri Ram Niwas, 1995 (2) Del ILR 76, paragraphs 8.3 and 24.10. 31. There is no cogent and clear material on record on behalf of the respondent even prima facie that the Appellants have a....
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....ere involved in many serious offences and many FIR's are pending. There was no clear answer except it was stated that he was hard-core criminal and they must be aware. 35. Section 8 (1) of PMLA, states as follows: 8. Adjudication.-(1) On receipt of a complaint under subsection (5) of section 5, or applications made under sub section (4) of section 17 or under sub-section (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, it may 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, out of which or by means of which he has acquired the property attached under subsection (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: 36. On being served with the show cause notice, the Appellant produced all records to show the source ....
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.... in W.P. (Crl) No. 02/2015 in the matter of ‗EIILM University vs Joint Director ED' , the Hon'ble Court by allowing the petition, passed the following directions in para-19 of the Judgement:- "(i) The Respondent No. l shall take appropriate steps with the concerned authorities of the Central Government for appointment of the Judicial Member of the Adjudicating Authority urgently within a period of 3 (three) months and not later than that; (ii) On appointment of the Judicial Member, the Chairman of the Adjudicating Authority shall constitute the Bench consisting of a Judicial Member keeping in view the observations made above having regard to the nature of the lis and the anxiety expressed by the Petitioner- University. (iii) Soon after it is constituted, the Bench shall then issue notice upon the Petitioner-University and the Petitioner- University shall appear before the Bench and place before it all grievances expressed in the Petition; and (iv) Since the proceedings before the Adjudicating Authority was stayed by this Court by order dated 02-04-2015, the period of attachment prescribed under Sub-Section (1) of Section 5 shall exclude the period spent during the pen....
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....ing Authority are the credits of short term loans availed by the Appellants' Company from City Union Bank Ltd. Further the Appellants being in the retail business, the credits to the Appellants' Company Bank account is by transactions reflecting through Credit/Debit cards (referred as POS {point of sale} transactions) and cash deposits of daily collections. The certificate of the Bank for having credited the Short Term Loan to the Bank account and also the regular cash deposits from the sales in the retail outlets. However, there is no finding after discussions of these documents. Only the vague findings are given. 45. The Adjudicating Authority in its finding has concluded that the market value of the property is over Rs. 25 Cr. The said findings are not supporting with evidence. In the reason to believe, the value of property not mentioned. Even nothing is disclosed about the purchase of property by the Pothy although ED was aware about the said property. In the PMLA investigation, ED was concluded and specifically admitted that the total value of the property is Rs. 6,47,25000/- as guideline value. Now the ED has entirely changed its stand which is not permissible in law. The ....
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....nted amount to the sellers i.e. the wife and daughter of Late Sridhar. Nor it is the case of respondent (even there are no proceedings of respondent ) that the original vendors who had sold the property to the family member of Late Sridhar were originally purchased by them from proceed of crime. In fact, it appears prima facie that they have sold their own properties which were purchased by themselves. There is no material on record to show that any action is brought by any of them, except allegations mentioned in the FIR and in the pleadings of ED. No doubt, the said allegations are of serious nature against Late Sridhar but ED cannot equate the case of Sridhar with the appellants against whom no FIR is pending. They are simply businessmen and bona fide purchasers of the property. 50. This Tribunal in the case of IPRS in appeal no. FPA-PMLA- 1302/MUM/2016 decided on 22.06.2017 had dealt with the similar issue as to whether the innocent party whose immovable properties are attached by the ED can approach the Adjudicating Authority for release of the same in para no. 55 to 60 the same read as under:- "55. Whether innocent party whose properties i.e. movable or immovable are attac....
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....hall also be given an opportunity of being heard to prove that the property is not involved in money-laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach" 56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for release of property by showing their bonafides in their dealings with the property. In the case of Sushil Kumar Katiyar (Appellants) Vs UOI and Ors. (Respondents) MANU/UP/0777/2016 decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single Judge after noticing the judgment of Karnataka High Court that the element of knowingly or mensrea 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 atta....
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....nfirming or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to release the said property out of the properties by holding that the said property is not involved in money laundering. 58. For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge 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 conceal....
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....gher plane than "reason to believe". A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to believe if he has sufficient cause to believe the same." The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence. C. Actually involved: Actually involved would mean actually involved into any process or activity connected 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....
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....ions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the moneylaundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court), be presumed that the remaining transactions form part of such inter-connected transaction. 24. Burden of proof In any proceeding relating to proceeds of crime under this Act, (a) in the case of a person charged with the offence of moneylaundering 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 moneylaundering. 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 Po....
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....link of Appellants with G. Srinivasanand his benamies. Once a person proves that his purchase is genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge. 24. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the 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 sect....
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....y High Court in Radha Mohan Lakhotia's case. 25. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. 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....