TaxTMI 
TaxTMI 
2019 (9) TMI 1108
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....tioned in the Impugned order that the property in question (the Property) has been attached under the first proviso of Section 5(1) of the PMLA. 3. It is admitted on behalf of the Respondent while hearing the appeal that the Appellants were neither arrayed in any FIR, nor charge sheeted for any scheduled offence, nor named in Criminal Complaint bearing no. 57463 of 2016 filed by the SFIO, nor named in the ECIR bearing no. 01/DLZO-II/2017 registered by the Respondent. 4. The transactions alleged to be accommodation entries by the Respondent ED of FY 2008-09 has already been assessed under section 147/ 148 of the IT Act, wherein the Assessing Officer vide its order dated 18.03.2014, which has attained finality, it has held the transaction as genuine without any use of unaccounted money. It is stated on behalf of appellant that all the material and evidence that the Respondent ED relied on, was borrowed from the Income Tax department, which was in respect of searches conducted at the premises of the Jain Brothers on 14.09.2010 and the very same material and evidence that was considered by the Assessing Officer while passing assessment order dated 18.03.2014 and declaring the tra....
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....,00,000 30,000 2008-09 4. Desmond Vinimay Pvt. Ltd. (Presently Known as Shree Gajanand Fintrade Pvt. Ltd.) CIN -U51109WB1995PTC074093 Note: Admittedly, the said amount has not been utilized in the Property in question. 30,00,000 30,000 2007-08 Total 1,20,00,000 1,20,000 (e ) That the total amount of Rs. 1.20 Crore was raised and utilized for the expansion and diversification of Appellant No.1. The Appellant No.1 had invested an amount of Rs. 30,00,000/-, which was received from M/s. Desmond Vinimay Pvt. Ltd. in a company named Iceberg Hotels and Resort Pvt. Ltd. (presently known as Kingdom Hotels and Resort Pvt. Ltd.) in the year 2007. The remaining amount of Rs. 90 Lakhs was utilized towards purchase of the Property in question. (f) In 2008, the Appellant No.1 purchased the Property in question for a sum of Rs. 1.33 crores. It is pertinent to note that out of this Rs. 1.33 Crore, only Rs. 90 lakhs raised through abovementioned share capital were utilized and rest Rs. 43 lakhs were from loan from Directors of Appellant No.1 and internal accruals of the Company. It is submitted here that the said property has been du....
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.... d) No similar report or complaint has been made or filed under the corresponding law of any other country against the Appellants; and e) No reference of about the appellants in FIR, report, ECIR or the original complaint filed. 7. The Respondent has registered an ECIR No. 01/DZ-II/2017 dated 11.02.2017 against 31 persons, wherein the Appellants were neither a party nor a named accused. The said ECIR registered "...on the basis of information/ material, as evident from the predicate offences, Criminal Complaint No. 57463 of 2016 dated 29.11.2016 filed by the SFIO....". 8. It is also a matter of fact as admitted by Counsel for the respondent that even the SFIO has not named the Appellants herein as accused in its aforesaid Criminal Compliant. Further, the Respondent has also not alleged either in its ECIR or Provisional Attachment Order or Original Complaint that the Appellants have committed any scheduled offence. However, the Respondent has attached the Property under the first proviso of Section 5(1) of the PMLA. 9. A mere reading of Section 5 (1) read with Section 2(u) of the PMLA cojointly which indicate that the power to attach is only with respect to Proc....
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....the Property was attached as alleged proceeds of crime but the Respondent has served the notice for possession u/s 8(4) dated 23.02.2018 of the PML Act on 27.02.2018 to the Applicants after taking over the possession of the Property. 12. In the appeal, the appellant has challenged the Impugned Order on merits. There are two aspects of the matter involved in the present appeal. The first one is about the taking of physical possession of the Property in question by the Respondent. It is to be examined as to whether the said physical possession is taken by the Respondent by following the provisions of the Act and Rules or not and the second aspect of the matter is about the merit of the case. 13. It is stated on behalf of appellant that the took physical possession of 100% of the Property in complete violation of the impugned order, that too without giving mandatory notice under sub section (4) of section 8 of the PMLA read with Rule 5(1) of the PMLA (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013. The Impugned Order was passed on 19.02.2018 and the Respondent took physical possession on 22.02.2018. The Appellants were not....
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....ent, if so required is entitled to take the possession of the Property after passing the said order. However, due process of law and as per law. The Rule 5 of the Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013, the same read as under: "5. Manner of taking possession of immovable property.-(1) Where the immovable property confirmed by the Adjudicating Authority is in the form of a land, building, house, flat, etc., a notice shall be issued to the Registrar having jurisdiction of the area alongwith the provisional attachment order and order of the Adjudicating Authority confirming such attachment requiring the Registrar not to transfer or create any interest in such property until further orders and a copy of the order confirming the attachment shall be affixed at a conspicuous part of the property. (2) Where the immovable property confirmed by the Adjudicating Authority is in the form of a land, building, house, flat, etc., and is occupied by the owner, the authorized officer shall issue a notice of eviction of ten days so as to prevent the person from enjoying such property....
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....hey are abroad. The section by itself permits acquisition from various dealers in the country as well as outside the country. If the transaction is not between the person and an authorised dealer, there is a total statutory embargo on buying or otherwise acquiring, borrowing or selling or otherwise transferring or lending of any foreign exchange. Once it is shown that the person of the category mentioned in the section has acquired foreign exchange not from the authorised dealer, then as the width and amplitude of the section stands, the only defence available is the previous general or special permission of the Reserve Bank." d. State of Maharashtra vs. Mahesh Mehta (1983(1) Bom C R 600), "12. ...On proper analysis it would be clear that the absence of permission, either general or special, from the Reserve Bank is the foundation of the contravention indicated therein. The further restrictions are put on any person resident of India except the authorised dealer while a more generalised category is carved out which would include by any person, who may or may not be a resident of India, but who is not an authorised dealer. This, therefore, relates to the c....
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.... possession after the expiry of 10 days from the date of service of said notice, further steps are to be taken. But in the present case it has not happened. 18. In the present case, admittedly certain small portion of the immovable property was able portion where the appellant was operating office/Gym in the premises. However, the Respondent has taken the possession even before issuance of notice dated 23.02.2018 under subsection (4) of Section 8 of the Prevention of Money Laundering Act, 2002 (Act No. 15 of 2003) r/w Rule 5(1) of the Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 as mentioned in the notice itself The said notice was served only 27.02.2018 after taking the possession. In nutshell, the following dates are relevant in the following case: i). Date of Impugned Order is dated 19.02.2018. ii) Notice issued under Section 8(4) of the PML Act, 2002 is dated 23.02.2018, served on 27.02.2018 and in the said notice in sub Para 3 it is admitted that "the undersigned has taken possession of 90.225% portion of the aforesaid property, which shall be at disposal of the Dire....
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....r recording the subject ECIR no. 01/DLZO-II/2017 dated 11.02.2017, this Directorate has initiated further enquiries in terms of PMLA, 2002, with a view to identify the properties/assets etc. [Proceeds of crime as defined under Section 2(1)(u) of PMLA, 2002]. During investigation, proceeds of crime of Rs. 64.70 Crore and Rs. 1,11,96,000/- were identified pertaining to M/s Jagat Projects Ltd and Jain Brothers, respectively. An unaccounted money of Rs. 64.70 Crore was laundered by M/s Jagat Projects Ltd. through the companies controlled by Jain Brothers with the help of mediator, Shri Rajesh Agrawal, CA. Jain Brothers received a commission of Rs. 1,11,96,000/- from the beneficiary M/s Jagat Projects Ltd through mediator, Shri Rajesh Agrawal, CA. Shri Rajesh Agrawal, as a mediator also received commission for this illegal activity. On the basis of material in possession, there was reasons to believe that Shri Surendra Kumar Jain, Shri Virendra Jain and Shri Rajesh Agrawal were guilty of an offence punishable under the PMLA, 2002, they were placed under arrest. The Prosecution Complaint against them has already been filed before the Hon‟ble Patiala House Court, New Delhi. In the c....
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....e of Rs. 90 Lakh. All these companies were controlled by "Jain Brothers‟. The shares subscribed by above mentioned 3 companies were purchased by Ms. Misha Bharti, Director of M/s Mishail Packers and Printers Pvt Ltd., during the financial year 2009-10 at nominal price of Rs. 12 per share. Thus on paper these three companies suffered a loss of 88% of their investment value. However, in actual, there was no loss as the funds for investment by these companies were received by Jain Brothers in advance through the mediator Shri Rajesh Agrawal. (g) That during the financial year 2007-2008, M/s Mishail Packers and Printers Pvt Ltd. allotted its shares to M/s Desmond Vinimay Pvt Ltd., at a share value of Rs. 100 per share (including premium of Rs. 90 per share) and mobilized funds to the tune of Rs. 30 Lakh. The company, M/s Desmond Vinimay Pvt Ltd., was controlled by Shri Santosh Kumar Shah. The shares subscribed by M/s Desmond Vinimay Pvt Ltd., were first transferred to 4 companies, namely, Picadelly Trade & Holdings Pvt. Ltd., M/s. Vidhata Housing Pvt. Ltd., M/s. Diwakar Building Pvt. Ltd., M/s. Starlite Traders Pvt. Ltd. at the share value of Rs. 100 per share for the pu....
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...." for the purchase of the attached land vide its order dated 18.03.2014. On the point as to whether Income Tax violation is covered under PMLA or not, the same has been answered in negative. In lok sabha speech on the point of Income Tax violations vis a vis PMLA, the then finance minister made a statement which reads as follows; "Mr. Deputy Chairman sir, I am grateful to the Hon. Members, especially then Hon'ble Members who have spoken on the bill and supported the Bill. Naturally, some questions will arise; they have arisen. It is my duty to clarify those matters. Sir firstly, we must remember that money laundering is very technically-defined offence. It is not the way we understand "Money Laundering" in a colloquial sense. It is a technically defined offence. It postulates that there must be a predicate offence and it is dealing with the proceeds of a crime. That is the offence of money laundering. It is more than simply converting black money into white or white money into black. That is an offence under the income tax act. There must be a crime as defined in the schedule. As a result of that crime there must be certain proceeds- it could be cash; it could be property.....
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....Holdings Ltd. and Appellant No. 1 for FY 2008-09. No allegation about emergence of any proceeds of crime if any or is quantum has been made qua Shalini Holdings Ltd. on account of the said scheduled offence of Section 420/120B during FY 2008- 09. 25.6. The details of receipt of share application money is shown below:- S.No. Name of the Company Cheque No. and date Amount 1 M/s. Shalini Holdings Ltd. 025303 dated 27.05.2008 30,00,000 2 M/s Ad-fin Capital Service (India) Pvt. Ltd. 025304 dated 27.05.2008 30,00,000 3 M/s. Mani Mala Delhi Properties Pvt. Ltd. 025468 dated 03.06.2008 30,00,000 4 M/s. Desmond Vinimay Pvt. Ltd. 011912 dated 10.05.2007 30,00,000 25.7 There is no evidence or material to establish any link or nexus between the Appellants and M/s Jagat Projects Ltd., in order to raise the presumption under section 23 of the PMLA. 25.8. It is submitted that attachment under Section 5(1) first proviso of the Act cannot be sustained when the alleged offences which form the basis of the attachment are not scheduled offences either on the date they are allegedly committed, or even on the date when the alleged proc....
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....and in the absence of any Scheduled Offence, treating these transactions and the property as proceeds of crime is beyond the scope of the PMLA. 26.3. It is settled law that any judgments passed by the Hon‟ble Supreme Court, wherein it has been held that if any judicial order has submitted finality, then no other judicial proceedings can be initiated on the basis of same set of documents and evidences for the same facts in the issue. 27. Proceed of crime means any property by any person acquired as a result of criminal activity relating to schedule offence and a party or any person is in possession of any proceed of crime and such proceed of crime is likely to be concealed which may result in frustrating any proceedings relation to confiscation of such proceed of crime. In the impugned order, it was recorded and also admitted by I.O at the time of hearing when verified that attachment order was passed by invoking the first proviso. Section 5 is reproduced herebelow:- 5. Attachment of property involved in moneylaundering. -(1) Where the Director, or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this sect....
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....ing the property in question under the first proviso of section 5(1) of the PMLA, has only alleged that "the amount of Rs. 1,20,00,000/- received in M/s Mishail Packers and Printers Pvt. Ltd. apparently as share money from M/s Shalini Holding Ltd., M/s Ad-Fin Capital Services (India) Private Limited, Mani Mala Delhi Properties Pvt. Ltd. in lieu of the unaccounted money of equivalent value paid in advance, was utilized by M/s Mishail Packers and Printers Pvt. Ltd. for purchase of the property." 30. There is no investigation any evidence is available on record that the appellant is likely to conceal the property reason to believe are separately recorded by the respondent. Nor any cognizance of schedule offence is taken against the appellant in the complaint filed against the party. The appellant is not arrayed as party in the complaint. The case of the respondent is that it was unaccounted money. The assessment order has already attained finality. How unaccounted can became proceed of crime when there is no FIR or charge sheet under the schedule offence under Section 420 and 120B was registered against the appellant. 31. The Income Tax Department had conducted an enquiry int....
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....ould not be declared to be the properties involved in moneylaundering and confiscated by the Central Government: Provided that where a notice under this subsection specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property. (2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under sub- section (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and (c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not invol....
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....ed in the criminal court under Section 173 CrPC or cognizance is taken of the scheduled offence by a Magistrate before whom a complaint was filed, no provisional order of attachment can be made under Section 5(1) PMLA. 36. In case of para 51 of the said judgement is read wherein it has been clearly held that until a challan/charge-sheet/final report is filed in the criminal court under Section 173 Cr.P.C. or cognizance is taken of the scheduled offence by a Magistrate before whom a complaint was filed, no provisional order of attachment can be made under Section 5(1) PMLA. 37. Though the operation of the aforesaid judgment has been stayed by the Hon‟ble Supreme Court in the case of J. Sekar which was decided with the case of (Ram Chandran Supra), the above dicta cannot cease to be law of precedential value and binding in other matters i.e. third parties, in view of settled law. One of such decision reported as vide Shree Chamundi Mopeds Ltd. v. Church of South India Trust Assn., (1992) 3 SCC 1 (para 10). 38. A Division Bench of the Hon‟ble Calcutta High Court in Niranjan Chatterjee v. State of West Bengal & Ors., 2007 SCC OnLine Cal 283 after relying on the afo....
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....aid transactions in the attached property are said to have taken place. 41. The Respondent in its reply has taken a plea for the first time that "Further where the investigation under PML Act found that there are interconnected transactions in money laundering one or more such transactions is or are proved to be involved in money laundering the presumption enumerated under Section 23 of the PML Act come into picture...". 42. Section 23 of the PMLA provides for a rebuttable presumption to be proved to the satisfaction of the Adjudicating Authority. But the Respondent never took this plea before the Adjudicating Authority and the Impugned Order is also not based on such presumption u/s 23 of the PMLA. 43. In the case of interconnected transactions in money laundering, one or more transactions is/are to be proved to be involved in money laundering as basis to presume money laundering in respect of other transactions. Section 3 of The Indian Evidence Act defines - "Proved" - A fact is said to be proved when, after considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under th....