TaxTMI 
TaxTMI 
2011 (6) TMI 1040
X X X X Extracts X X X X
X X X X Extracts X X X X
....e funds from the investors by issuing authorized shares, as per guidelines issued by Securities and Exchange Board of India (hereinafter referred to as SEBI). The entire IPO process has to conform to the Disclosure and Investors Protection Guidelines, 2000, issued by SEBI. 2. Investors subscribe to the IPO in the prescribed application form. To subscribe to the IPO, an applicant must have bank account and the demat account, whose numbers are to be mentioned in the application. Demat account is an electronic account of a beneficiary, opened and maintained with any of the approved Depository Participants (hereinafter referred to as DP). Shares allotted to successful applicants in the IPO, are electronically credited to their respective demat accounts. Demat accounts are opened by the DPs only for those applicants who hold an account with a bank also. Opening of a bank account and the demat account has to be in compliance with "Know Your Customer" (KYC) norms prescribed by the Reserve Bank of India and SEBI, respectively. 3. During the year 2005, Infrastructure Development Finance Company Ltd. came out with an IPO - opened for subscription from dt. 15.07.2005 to dt. 22.07.2005. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fictitious/benami bank and demat accounts, filing applications in retail category for subscription of shares in an IPO, receiving allotted shares in fictitious/benami demat accounts, pooling these shares in one demat account by off market transfers before the listing of shares and transferring these shares to financiers in off market transaction. These individuals/entities including Sh. Parag Priyakant Jhaveri, Sh. Dipak Jashvantlal Panchal, Sh. Purshottam Ghanshyamdas Budhawani, Sh. Manoj Gokulchand Seksaria, Sh. Kantilal Jitmal Jain were referred to as "key operators" by the SEBI in its report. The persons who provided the finance for IPO subscription and were the ultimate beneficiaries in the scheme of cornering of retail allotment were referred to as "financiers" by SEBI in its report. 6. During the investigation it was found that based upon fraudulently prepared/forged documents, a large number of bank accounts and demat accounts were clandestinely opened by the key operators in fictitious/benami names, and using the identity of the said bank accounts and demat accounts, the key operators put in applications in the said fictitious/benami names while subscribing to the IPO a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ployees bearing nos. 2026 to 2035, 2037 to 2046, 2051 to 2060 and 2071 to 2080, in the same bank branch. He procured data from internet to create purportedly legitimate identity in respect of the said demat account holders, which were otherwise held in fictitious names. Thereafter, he added a list of 10 fictitious names to 30 out of 40 of the said accounts as joint account holders, so as to increase the number of demat accounts and subscribe to the IPO of IDFC and Yes Bank on a much larger scale. 11. After fraudulently creating the aforementioned identities and forging the identification documents, as aforesaid, he opened 13,200 demat accounts by submitting applications in the names of fictitious persons, along with forged bank introduction letters using their forged signatures and used aforesaid demat accounts to subscribe to the IDFC IPO and in this manner with the help of fraudulently prepared documents, clandestinely cornered 35,14,392 shares of IDFC, which were actually reserved for allotment to genuine Retail Individual Investors. The shares, so allotted to the said demat account holders, were first transferred to the demat accounts of i) M/s. Sugandh Estate and Investment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ra and his associate companies to key operators for fraudulent acquisition/cornering of a large number of IDFC IPO shares reserved for RII category. The funds provided by the Respondents were adjusted by way of transfer of proportionate no. of shares of IDFC in the demat accounts of the Respondents and refund of balance funds by cheques. 15. As a result of investigation and proceedings started under the Act, the properties were attached and complaint was filed with the Adjudicating Authority under Section 5(5) of the Act. The matter was placed before the Adjudicating Authority, who declined to confirm the order of provisional attachment by detailed order which is now being assailed before us in the present proceedings. 16. The Ld. Counsel for the Appellant vehemently contended that while declining to confirm the provisional attachment order dt. 03.07.2008, the Adjudicating Authority has not taken into consideration the submissions made on behalf of the Appellant and on the other hand Adjudicating Authority had taken cognizance of certain non-est claims in support of the purported contentions of the Respondents. He submitted that the order of the Adjudicating Authority is bad ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 269(T) of the Income Tax Act, 1961. He further submitted that story concocted by the Respondents before the Adjudicating Authority is exposed in view of the following arguments: i. In the statement recorded under the Act on dt. 12.6.2008, the Respondent no. 2 while mentioning about his business relationship with Dhiren H. Vora, has gone at length explaining about stock market investments through him. On the other hand, he has not mentioned anything about the said relationship involving extending of funds as loan on interest basis. ii. In the second statement recorded under the Act on dt. 14.6.2008, the Respondent no. 2 provided further details about his and Respondent no. 1's stock market transactions with Dhiren H. Vora and his associate companies. Here too, he did not make any mention of providing funds on loan basis or interest thereon. iii. In the statement recorded under the Act on dt. 27.2.2008, Dhiren H. Vora while answering to question no. 16 and 27 has stated about the funds extended by Respondents for deploying in stock market through him. He has also no where mentioned about receipt of funds on loan basis or interest payable thereon t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bali Shantilal Shah, Respondent no. 2 was examined on 12.06.2008 and 14.06.2008 and his statements were recorded under section 50(2) & (3) of PMLA, wherein he, inter-alia, disclosed his business association with the above named Shri Dhiren H. Vora and his associate companies, with regards to providing him funds for investments in stock market-both primary as well as secondary market, that during the period 01.04.2005 to 31.08.2005 he had provided funds/finances aggregating to Rs. 2,18,75,000/- to M/s. Zenet Software Ltd., Ahmedabad, and in consideration thereof, received shares of various companies, including 55,680 shares of IDFC worth Rs. 19,57,893/- as off market transaction, he also disclosed having provided funds/finances aggregating to Rs. 37,92,50,0000/- from his company M/s. Lok Prakashan Ltd. (Respondent No. 1) to the above named three companies, as under:- a) M/s. Excell Multitech Ltd., Ahmedabad - Rs. 17,37,50,000/- b) M/s. Taurus Infosys Ltd., Ahmedabad - Rs. 10,57,50,000/- c) M/s. Zenet Software Ltd., Ahmedabad - Rs. 9,97,50,000/- That, against the above funds/finances, his company (Respondent No. 1), had received shares of various compani....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Pvt. Ltd. [SEIPL], - (Key Operator, who had clandestinely cornered IDFC RII category shares on the basis of fraudulently prepared documents). Q. No. 3: Please clarify the specific arrangement with the different parties wanting to deploy funds in IPOs. A. 3. Whenever any party (financier) wanted to subscribe to IPO in retail individual investor category he would provide the necessary amount of funds to SEIPL by way of cheques/banking channels only. These funds were then deposited in SEIPL's Vijaya Bank Ambawadi branch C/A No. 2036 and HDFC Bank Navrangpura branch C/A No. 0062000026487. Subsequently cheques were issued from HDFC Navrangpura branch C/A No. 0062000026487 to Vijaya Bank's SEIPL current A/C No. 2036 which was used as a main account for receiving/refunding funds from/to different financiers with respect to different IPOs. After the receipt of amount in this Vijaya Bank Ambawadi Current account no. 2036 cheques were issued for making application in those particular IPOs for respective applications made through different demat accounts all which were held with M/s. Karvy Stockbroking Limited Ahmedabad/Hyderabad (KSBL). On allotment of sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to you that you have business Relationship with Shri Parag Jhaveri and Dipak Panchal. Please state above this? A. 12: Shri Dipak Panchal is a client of HNFSL having his trading and D.Mat A/c with HNFSL. I do not have any personal business transactions with either Dipak Panchal or Parag Jhaveri but our family promoted companies where my mother Saryuben H. Vora was one of the director till 2006 had business relation with Shri Parag Jhaveri and Shri Dipak Panchal. During this business association my family promoted companies had deployed/extended funds to Sugandh Estate & Investment Ltd. and Roopal N. Panchal (sister in law of Dipak Panchal). These funds were put by them in stock market. Q. 13: You have stated that these funds were deployed by your family promoted companies. Which were these companies? A. 13: These companies are as under 1. Excell Multitech Limited; 2. Taurus Infosys Limited; 3. Zenet Software Limited; 4. Seer Finlease Limited; 5. Sujal Leasing and Finance Limited. .... .... Q. 16: Please state the source of funds which were used to deploy as explained above in stock mar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Shah (Respondent No. 2 and Director of Respondent No. 1), Financier Q. 11. Please elaborate your business relations with Shri Dhiren Vora. A. 11. From some time around 2002-03 my business relations started with Dhiren Vora where he used to approach me with feedback, his opinions about stock markets, both primary as well as secondary. He used to be bullish about the investment in stock market. Q. 12. When did you first provide him finance for investing in stock market and till date how much finance has been given to him? A. 12. I have been extended funds to him from time to time. Details of these funds shall be furnished by me within 7 days. Q. 13. You are hereby shown the Transaction statement in respect of your Demat account number 10255355 held with AXIS Bank Ltd. DP ld. IN300484 having a closing credit balance of 1,58,789 shares of IDFC Ltd.. Please go through the same and explain the source of credit entries in respect of IDFC Ltd. shares in your said account. Please also explain the debit entries. A. 13 I have seen and gone through the Transaction statement in respect of my Demat account number 10255355 held with AXIS Bank ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 and Director of Respondent No. 1), Financier Q. 3. Please furnish the details of finances provided to Dhiren Vora by you as well as Lok Prakashan Ltd. since beginning. A. 3. The details of funds provided to various companies of Dhiren Vora by Lok Prakashan Ltd. since 01.04.2005 is as under:- M/s. Excell Multitech Ltd. In all between 02-04-2005 to 31-08-2005 a total amount of Rs. 17,37,50,000/-(Rupees Seventeen crore thirty seven lac fifty thousand only) was provided to M/s. Excell Multitech Ltd. M/s. Taurus Infosys Ltd. In all between 02-04-2005 to 31-08-2005 a total amount of Rs. 10,57,50,000/-(Rupees Ten crore fifty seven lac fifty thousand only) was provided to M/s. Taurus Infosys Ltd. M/s. Zenet Software Ltd. In all between 02-04-2005 to 31-08-2005 a total amount of Rs. 9,97,50,000/-(Rupees Nine crore ninety seven lac fifty thousand only) was provided to M/s. Zenet Software Ltd. As regard to the funds provided by me to Dhiren Vora, I state that I had given him one cheque number 136881 dated 07.07.2005 for an amount of Rs. 2,18,75,000/- favouring M/s. Zenet Software Ltd. This cheque was issued by me from my s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall be furnished by me within 7 days. 23. The Counsel submitted that from the explanations/answers given by the Respondents, key operator and Dhiren H. Vora in their respective statements as adverted to above, the following important conclusions are drawn: a) It establishes an inter-connected chain between the various players involved in this scam, viz. The Key Operators (S/Shri Parag P. Jhaveri and Dipak J. Panchal), the Intermediaries (M/s. Excell Multitech Ltd., M/s. Zenet Software Ltd., M/s. Taurus Infosys Ltd., Shri Dhiren H. Vora) and the Financiers (M/s. Lok Prakashan Ltd. and Shri Bahubali Shantilal Shah - Respondents No. 1 and 2 respectively) and that the role of the each was complementary and supplementary to each other; b) Respondent No. 2, who is also a Director of Respondent No. 1 is well conversant with the nuances of stock market-both Primary as well Secondary; c) In the IDFC IPO, Respondents had applied for allotment of shares in HNI category and were aware of the maximum limit upto which RII category shares could be applied by any person; d) Shri Parag P. Jhaveri (Key Operator) has disclosed the scheme of financing/funding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ary each one of them admitted the same as funds/finances with regard to the captioned IPO. 24. The Counsel contended that from the above submissions it is clear that the Respondents were very well aware of the clandestine arrangement, resultant to which the captioned IDFC RII category shares were acquired through the above chain of intermediaries/key operators and the factum of providing funds by the Respondents has not been denied. 25. The Counsel submitted that during the course of proceedings u/s. 8(3) of the Act before the Adjudicating Authority, the Respondents filed written replies and also made oral submissions, wherein it was claimed, inter-alia, that they had made investments, in normal course for acquiring IDFC shares, which investments were purely for investment purpose and they had lent money to Dhiren H. Vora & his associate companies, and further that since Dhiren H. Vora & his associate companies, on being asked to return the said funds, expressed their inability to do so, and therefore, transferred 55860 IDFC shares in the name of Respondent No. 2 and 335160 IDFC shares in the name of Respondent No. 1. It was further claimed that the said financial transaction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Adjudicating Authority that the claim of the of the Defendants qua repayment of alleged loan, in the form of shares was even otherwise not permissible, in terms of Section 269(T) of Income-tax Act, 1961. Also the overall conduct of the present Respondent No. 1 and 2, especially the factum of their operations in the stock market, both primary as well as secondary, was also re-emphasized. 28. The Counsel submitted that Respondent no. 2 has been operating in stock market - primary as well as secondary and that he was very well conversant with the nuances thereof. He was, therefore, well aware of the advantages of going in for deployment of substantial funds in the IPO in RII category vis a vis as an High Networth Individual (in short HNI) category. He contended that the Adjudicating Authority conveniently accepted another false plea taken by the Respondents while pleading before the Adjudicating Authority that there was no advantage for Respondents to go in for acquisition of the RII category shares as they could have acquired the same without any problem even as an HNI category applicant. This claim of the Respondents is completely incorrect when seen in the context of the conc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndents asked Dhiren H. Vora and his associate companies to refund the amount, they expressed their inability to issue cheques and therefore, transferred 3,35,160 shares of IDFC Ltd., 36,000 shares of IL & FS and the balance amount by way of cheques to the Respondent No. 1 and 55,860 shares of IDFC Ltd., 6,000 shares of IL & FS Ltd. and the balance amount by way of cheques to the Respondent No. 2. They strongly contended that the Respondents did not acquire the shares by their choice or desire but they were given the shares by the borrower viz. Dhiren H. Vora and his associate companies towards settling their dues. They further contended that the Respondents invested the money with a view to get interest @ 15% p.a. and in fact charged interest and credited the same in their books of account and reflected in their income tax returns and paid tax thereon. It was submitted that all the transactions of purchase of shares from Dhiren H. Vora & his associate companies, sale of these shares, capital gain on sale have been duly accounted for in the books of accounts of the Respondents and the same have been duly declared in their income tax returns also. This clearly shows that the Responde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....35. The Counsels submitted that shares were purchased by the Respondents in good faith and they are bona fide transferee for valuable consideration. It is a co-incidence that shares received by them were cornered by Dipak J. Panchal & Parag P. Jhaveri by commission of a scheduled offence. He submitted that there is not a whisper in the statements of Dipak J. Panchal and Parag P. Jhaveri to show any connection of the Respondents with them. Reliance was placed on the order and judgment of this Tribunal in Jitender Kumar Lalwani vs. Dy. Director, PMLA, Directorate of Enforcement, Ahmedabad (FPA-PMLA-37/AHD/2009). He argued that the facts of the present case are similar to the facts in the case of Jitender Kumar Lalwani (supra), therefore, the appeal should be dismissed on this ground. 36. The Counsels argued that Respondents cannot be proceeded under the Act because they have not been charge sheeted for commission of scheduled offence. They submitted that as per section 5 of the Act, the Appellant is empowered to pass provisional attachment order only if he has reason to believe that a person is in possession of any proceeds of crime, that such person has been charged of having com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ove must exist in the case of every person, whose property is sought to be attached. They submitted that the Respondents have also explained their source of investment and documents to explain the source of investment were also placed on record. It was further submitted that all the transactions for giving loans, purchase of shares in lieu of repayment of loan, repayment of loan by cheques, sale of shares & gain thereon etc. are duly recorded in the books of accounts and declared in their income tax returns filed. They relied upon findings given in the impugned order of the Adjudicating Authority. The Counsels referred to and relied upon various judgments and contended that provisions of the Act should be strictly interpreted. 38. The Counsel for Appellant argued that Dipak J. Panchal and Parag P. Jhaveri have been charged with having committed the scheduled offence under section 467 of I.P.C. besides other offences and the Respondents are in possession of proceeds of crime and these facts were recorded in the provisional attachment order as well as complaint filed before the Adjudicating Authority. He further argued that the Respondents are covered by the provisions of section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iled in his paper book detail of funds transferred to Zenet Software Ltd. only for the FY 2005-06 showing transfer of Rs. 2,18,75,000/- and this was squared partly by transfer of 6000 shares of IL & FS for Rs. 8,26,560/- and 55,860 shares of IDFC for Rs. 19,57,893/- and balance amount was repaid by issue of cheques. When this Tribunal asked the Respondents to file copies of agreements or any documents executed to give funds to Dhiren H. Vora & his associate companies, it was submitted by them that no documents were executed to give funds and no terms and conditions were reduced in writing. Even they could not divulge any terms and conditions except that funds were given for short term at 15% rate of interest. It was observed that funds were provided when any IPO was open for subscription and on twelve occasions, the repayment of funds was partly by way of transfer of shares allotted in different IPOs and remaining by way of issue of cheques. Respondents did not produce any document showing that they were authorized to carry out financing activities, any resolution authorizing board of directors/managing director to extend unsecured loans/inter corporate deposits to Dhiren H. Vor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Respondent No. 1 made provision for interest for all the transactions at the end of the year i.e. on 31.03.2006. Respondent No. 1 has invested funds in various other bonds/deposits, provision of interest on these deposits was accounted for in Interest Receivable account on 31.03.2006 and the last voucher no. for such interest provision entry was JV030374 whereas entries for provision of interest receivable from Dhiren H. Vora & his associate companies has been made vide voucher no. JV030558 to JV030562. The last voucher no. passed for closing annual books of accounts is JV030570. The above voucher no. clearly indicates that the Respondent made provision for interest receivable from Dhiren H. Vora & his associate companies towards the end of annual exercise to close the books and much later than the entries for provision of interest receivable on all other bonds/deposits made in normal course. 43. As per the provisions of Income Tax Act, 1961, if during the year interest payable/paid is more than the limits prescribed under that Act, tax is to be deducted at source by the person making payment of interest and in the present case, tax was deductible at source (in short TDS) by al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cy noted from the paper books filed by Respondent no. 2 is that as per copy of account of Zenet Software Ltd. in the books of Respondent no. 2, the narration to journal entries dt. 27.7.2005 & 10.8.2005 for purchase of shares of IL & Fs and IDFC reads as "RECEIVED AS DEBIT NOTE NO. 1" and "RECEIVED AS DEBIT NOTE NO. 2" respectively whereas the supporting documents filed in paper book on the basis of which these journal entries are passed in books are bill no. 1 and 2. This shows contradictions and in consistencies in the contentions raised by the Respondents. 49. The Respondent no. 1 transferred Rs. 4,37,50,000/- on 07.07.2005 to each of three companies i.e. Excell, Zenet and Taurus and Respondent no. 2 transferred Rs. 2,18,75,000/- on 07.07.2005 to Zenet which were adjusted/repaid as follows: 50. The Demat accounts of the above companies shows receipts, transfers and balance of shares of IDFC and IL & FS as follows: 51. The argument of the Respondents that in the course of usual investment business activity, they lent money to Shri Dhiren H. Vora and his associate companies and when they asked Dhiren H. Vora and his associate companies to refund the amount, Dhiren H. Vora....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the intermediary company/key operator. Similar are the facts and figures in the case of other two companies i.e. Taurus and Zenet. Further, Respondent No. 2 paid Rs. 2,18,75,000/- on 7.7.2005 to Zenet when IPO for IL & FS was open. Out of this, part amount being Rs. 52,15,000/- was repaid by off market transfer of shares of IL & FS allotted in IPO and issue of cheque and the remaining amount being Rs. 1,66,60,000/- was retained which is exactly equal to subscription amount required for making 350 (350*47600) applications in RII category in the IDFC IPO. Further, 266 shares were allotted to each applicant, accordingly a total of 93,100 (266*350) shares were allotted. Out of these 55,860 shares were transferred to the Respondent no. 1 which is 60% of the total shares received i.e. 93,100*60% and remaining 40% shares were retained by the intermediary company/key operator. 53. The contentions of the Respondents that Dhiren H. Vora in his statement dt. 27.2.2008 has categorically admitted that he had been borrowing funds from Respondents to invest in shares and he transferred some shares to these Respondents for discharging his legal liability are not correct. The correct facts ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....king Limited Ahmedabad/Hyderabad (KSBL). On allotment of shares, shares to the extent allotted were credited to respective demat accounts which were transferred to SEIPL demat account no. 14405199 with KSBL and in turn these shares were finally transferred through off market transactions to respective parties/financiers. In most of the cases all these transfers of shares took place before date of listing of shares of respective IPOs. So far as of balance application money is concerned the refund is received and deposited by SEIPL in respective bank accounts, particular of which are linked to different respective demat accounts. After credit of refund money in these bank accounts the same were further transferred to SEIPL bank account no. 2036 with Vijaya Bank Ambawadi Branch and from which the funds were refunded back to respective financiers by the way of issue of cheques only. All these receipts/deployment/refund of funds were duly recorded in books of SEIPL. Q. No. 9: What was the basis of funding by these financiers for subscribing to IPO of IDFC in particular and other IPO in general? A. 9. whenever any IPO was announced the interested finan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shares, some of the shares representing the amount of funds receipt from Lok Prakashan, Bahubali Shah, Shreyans Shah, Smrutiben Shah were transferred to their respective Demat Accounts as off market transaction prior to listing of IDFC issue. I may clarify here that funds were being deployed through Parag Jhaveri and Dipak Panchal on a running Account basis. 55. The Respondents had contended that they have applied IPO of IDFC in HNI category and received allotment of large number (2,73,794 and 1,27,929 by Respondents no. 1 and no. 2 respectively) of IDFC shares in IPO and therefore, there was no necessity for them to ask someone else to apply for the shares of IDFC in RII category, the argument of the Respondents have no force. It was pointed out by the Appellant that the subscription in HNI category was 56.53 times as compared to 5.27 times in RII category and subscriber in RII category had 10 times better chances to get shares in RII category. It was noted that Respondent no. 2 allegedly provided funds to the tune of Rs. 1,66,60,000/- (i.e. Rs. 2,18,75,000/- paid on 7.7.2005 minus Rs. 8,26,560/- & Rs. 43,88,440/- being refunds by way of transfer of shares of IL & FS and chequ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es towards settling their dues are not correct and they are after thoughts. We are in complete disagreement with the views taken by the Adjudicating Authority in declining to confirm the provisional attachment order. On the basis of the facts noted from the documents, details and information available on record, we are of the opinion that the funds transferred by the Respondents to Dhiren H. Vora and his associate companies were not in the nature of interest bearing loans/inter corporate deposits. In view of the facts, details and discrepancies discussed in above paragraphs, we are of the view that the Respondents deployed funds through Dhiren H. Vora and his associate companies for investment in shares in IPOs, they were aware of the end use of the funds and they received the shares cornered by the key operators as per their mutual understanding with Dhiren H. Vora and his associate companies and receipt a 3,91,020 shares of IDFC cannot be held as a bona fide purchase in good faith for valuable consideration. 58. Further, Jitender Kumar Lalwani case (supra) is also of no help as the facts of the present case are different from the facts in the case of Jitender Kumar Lalwani. In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence. Reading together sections 2(p), 2(u) and 3, we are of the opinion that even person(s) who are not charged of having committed a schedule offence are covered under the provisions of section 3 of the Act. Now coming to section 5, from sub section (1)(a) which says any proceeds of crime, read with sub section 1(c) which says such proceeds of crime, we have no doubt that all the proceeds of crime are to be attached. In our opinion, if the contention of the appellant, as regard provisions of section 5(1)(a) and (b) of the Act, that property of only such person can be attached who has been charged of having committed a schedule offence is accepted it will lead to absurdity/advance the mischief and a person who is in possession of proceeds of crime but not charged of having committed a schedule offence, though covered within the definition of section 3 r/w section 2(u) of the Act, will be free to transfer, conceal or deal with such property in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of cr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Legislature must be found by reading the statute as a whole. The rule is referred by to as an "elementary rule" by VISCOUNT SIMONDS in AG v. HRH Prince Ernest Augustus, (1957 1 All ER 49p. 55 (HL), ). Observations of the Lord Davy in Canada Sugar Refining Co. v. R, (1898 AC 735, p. 742) which was accepted by the Apex Court in M. Pentiah v. Veeramallappa Muddala, (AIR 1961 SC 1107, (p. 1111)) and held as follows: Every clause of a statute should be construed with reference to the context and other clauses of the Act, so as, as far as possible, to make a consistent enactment of the whole statute or series of statutes relating to the subject-matter. The State of W.B. v. Union of India, (AIR 1963 SC 1241, p. 1265: 1964(1) SCR 371), the Chief Justice of India, Sinha observed as follows: The court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with the other parts of the law, and the setting in which the clause to be interpreted occurs. 61. The definition of 'offence of money laundering' in section 3 read with section 5 shows ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the subject or in the occasion on which they are used, and the object to be attained. The Apex Court in Busching Schmitz Private Ltd. v. P.T. Menghani, (AIR 1977 SC 1569, pp. 1575, 1576): held that the Court should adopt an object oriented approach keeping in mind the principle that legislative futility is to be ruled out so long as interpretative possibility permits. 62. In this context, it is also pointed out that the 2nd proviso introduced in section 5 by the Prevention of Money Laundering (Amendment) Act, 2009 clears any doubt in the interpretation of applicability of the Act. The second proviso to section 5 reads as follows: Provided further that, notwithstanding anything contained in clause (b), 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 authorized 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 p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Municipal Act, 1973 by the Haryana Municipal Second Amendment Act, 1994 was held to be correction of an obvious drafting error to bring about the text in conformity with the legislative intent and, therefore, retrospective. Even without the amendment of the proviso, the court in all probability would have read and interpreted the section as corrected by the amendment. 65. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation or which is declaratory or clarificatory in nature, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given. In this case, a proviso was added only to clarify the existing provisions of the Act. 66. It is argued by the Respondents that the properties of a person that can be attached under section 5 of the Act are specified in that section itself. It should be proved that the person who hold the property must have possession of any proceeds of crime specified under the Act (section 5(1)(a)) and 'such' a person....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nstruction can be adopted by the Court. However, legislation is a social document enacted with a purpose and courts have to avoid interpretation that may lead to evasion so as to continue mischief and construct a provision to implement the intentions of the makers of the Act 'pro-lono publico'. 68. It was held by the Apex Court in the Swantraj v. State of Maharashtra (AIR 1974 SC 51) that the Court has to consider what is the mischief that is intended to be remedied, what is the remedy provided in the Act; what is the reason for the remedy etc. while interpreting a provision. This Hyden rule was adopted by our Supreme Court in Bengal Immunity Co. Ltd. Vs. State of Bihar (AIR 1955 SC 661 (at p. 671)) and held that the court must adopt to construction which shall "suppress the mischief, and advance the remedy, and to suppress all evasions for continuance of the mischief. To carry out effectually the object of a statute, it must be so construed as to defeat all attempts to do or avoid doing, to an indirect or circuitous manner that which it has prohibited or enjoined; quando aliquid prohibetur, prohibetur et omne per quod devenitur ad illud" 69. It was held in Kanwar Sin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itherto, including section 8 thereof. Section 5 authorises the Director or any other officer not below the rank of Deputy Director authorized by Director for the purposes of the said section to resort to action of "attachment of property" if he has reason to believe and the reason of such belief has been recorded in writing arrived at on the basis of material in his possession. That action is intended to freeze the proceeds of crime, which property, is derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence or value of any such property until the criminal action for the scheduled offence is taken to its logical end against the accused named therein. The proceeds of crime means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located - which has been derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence or the value of such property. The proceeds of crime may be or can be in possession of "any perso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s case, an order of attachment of the proceeds of crime can be invoked and later end up with confiscation thereof depending on the outcome of the criminal action against the person charged of having committed a scheduled offence. The action of attachment is not in relation to a person as such but essentially to freeze the proceeds of crime. The interpretation given by the Appellants, if accepted would be destructive of the said legislative intent. Suffice it to observe that the term "person" appearing in clause (a) of the Section 5(1) of the Act cannot be limited to the person who has been charged of having committed a scheduled offence. If that was the intent of the legislature, there was no reason to insert clause (a). In that case, the Legislature would have simply provided for any person who has been charged of having committed a scheduled offence and in possession of any proceed of crime, such proceeds of crime can be attached and confiscated, subject to fulfillment of the specified conditions. Repelling similar contentions at the end of paragraph 13, the court held as follows:- Considering the above, we are of the considered opinion that there is no merit in the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acquired properties of the convict or detenu, acquired or kept in their names, do not escape the net of the Act. It is a well-known fact that persons indulging in illegal activities screen the properties acquired from such illegal activity in the names of their relatives and associates. Sometimes they transfer such properties to them, may be, with an intent to transfer the ownership and title. In fact, it is immaterial how such relative or associate holds the properties of convict/detenu - whether as a benami or as a mere name-lender or as a bona fide transferee for value or in any other manner. He cannot claim those properties and must surrender them to the State under the Act. Since he is a relative or associate, as defined by the Act, he cannot put forward any defense once it is proved that property was acquired by the detenu - whether in his own name or in the name of his relatives and associates. It is to counter-act the several devices that are or may be adopted by persons mentioned in Cls. (a) and (b) of S. 2(2) that their relatives and associates mentioned in Cls. (c) and (D) of the said subsection are also brought within the purview of the Act. The fact of their holding or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(5) in accordance with the principle of natural justice, if Dipak J. Panchal and Parag P. Jhaveri are acquitted in the scheduled offence, provisional attachment of the shares will automatically cease to have effect. Hence section 8(3) or 8(5) will not become otiose as contended. We also note that even if Dipak J. Panchal and Parag P. Jhaveri are convicted, before final confiscation, the Respondents will get an opportunity for personal hearing under section 8(6) before the attached properties are finally confiscated. 76. It was the reasonable belief formed by the Appellant that in case no provisional attachment order is passed at this crucial stage, it may result in frustrating confiscation proceedings under the Act which is duly recorded by the Appellant in provisional attachment order as follows: And whereas from the investigations conducted so far under PMLA, 2002, it is revealed that the afore-mentioned 3,91,020 [3,35,160 + 55,860] shares of IDFC, which prima-facie, are proceeds of crime, are likely to be concealed, transferred or dealt with in such a manner, which may result in frustrating further proceedings viz. confiscation as provided under Chapter III of the PM....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iscating the property so that the proceeds of crime are not concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under the Act and if the Accused Dipak J. Panchal & Parag P. Jhaveri are acquitted by the Trial Court, the attachment order shall cease to have effect, otherwise after the guilt of the Dipak J. Panchal & Parag P. Jhaveri are proved in the trial court and the order of such trial court becomes final, the Respondents will be afforded another opportunity of being heard before the order for confiscation of property is made by the Adjudicating Authority under section 8(6) of the Act. 78. The Ld. Counsel for Respondents relied upon and referred to various judgments which have been duly taken into consideration by this Tribunal. These judgments are of no help to the Respondents as either the facts of the case are different from the facts of the present appeal or the judgments have been rendered while considering the provisions/procedure or mechanism enjoined under different statutes which are different from the provisions/procedure or mechanism provided under the Act. 79. In vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Thakker 1,42,80,000/- 300 (x) Rita R. Thakker 1,42,80,000/- 300 (xi) Rajesh N. Jhaveri 5,35,50,000/- 1125 (xii) Jitender Lalwani 4,76,00,000/- 1000 Document 2 Sl. Date Cheque No. Amount(Rs.) Drawn On No. 1. 02-04-2005 148247 2. 31-05-2005 153833 3. 07-07-2005 147638 4. 31-08-2005 Not 2,00,00,000/- Bank of Baroda, Bhadra Branch 60,00,000/- Bank of Baroda, Bhadra Branch 4,37,50,000/- Bank of Baroda, Bhadra Branch 5,00,00,000/- Not Available Available Document 3 Sl. Date No. No. 1. 02-04-2005 148246 2. 07-07-2005 147640 Cheque Amount(Rs.) Drawn On 1,20,00,000/- Bank of Baroda, Bhadra Branch 4,37,50,000/- Bank of Baroda, Bhadra Branch 3. 31-08-2005 Not 5,00,00,000/- Not Available Available Document 4 SI. Date Cheque Amount(Rs.) Drawn On No. No. nl. 02-04-2005 148248 60,00,000/- Bank of Baroda, Bhadra Branch a2. 07-07-2005 147639 4,37,50,000/- Bank of Baroda, Bhadra Branch 13. 31-08-2005 Not 5,00,00,000/- Not Available Available Document 5 SI. Date of No. funds Total ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No bill raised Lok Prakashan Ltd. FCS 19.09.2005 22235 10.08.2005 111720 3915786 1111750 Document 9 Date of Amount Rs. Details of mode of adjustment/ repayment repayment/ adjustment M/s Excell Multitech Ltd.: 27.07.2005 04.08.2005 10.08.2005 12.08.2005 Total Rs. 25,72,002 19350 shares of IL&FS received 78,57,998 Ch no. 825329 received 39,15,786 111720 shares of IDFC received 2,94,04,214 Ch no. 825341 received 4,37,50,000 M/s Zenet Software Ltd.: 7,34,421 19350 shares of IL&FS received 27.07.2005 04.08.2005 96,95,579 Ch no. 825329 received 10.08.2005 39,15,786 12.08.2005 2,94,04,214 111720 shares of IDFC received Ch no. 825341 received Total Rs. 4,37,50,000 M/s Tauras Infosys Ltd. 27.07.2005 04.08.2005 10.08.2005 12.08.2005 Total Rs. 7,34,421 19350 shares of IL&FS received 96,95,579 Ch no. 825329 received 39,15,786 111720 shares of IDFC received 2,94,04,214 Ch no. 825341 received 4,37,50,000 M/s Zenet Software Ltd.: 8,26,560 19350 shares of IL&FS received 27.07.2005 04.08.2005 43,88,440 Ch no. 825329 received 10.08.2005 19,57,893 11....