TaxTMI 
TaxTMI 
2025 (7) TMI 155
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.... appellant against the order dated 30.01.2017 passed by the Adjudicating Authority in Original Complaint No. 629/2016, whereby properties attached by ED vide Provisional Attachment Order (PAO) No. 15/2016 dated 09.08.2016 were confirmed. The details of the immoveable properties claimed by present appellant are mentioned as under:- SI. No. Description of the property Document No. & and value Present Guideline Value 1. House property with Land bearing Survey No. 5/258, in all totally measuring an extent of 18400 Sq. Ft. (7.66 Grounds) or thereabouts, in COPPER BEACH AVENUE, Sholinganallur II Village, Sholinganallur Taluk (Formerly Tambaram Taluk) Kancheepuram District, EC Road, Chennai Purchased vide Document Nos. 1262/1996 & 1263/1996 registered with SRO, Adyar, Chennai and Document No. 1458/2004 registered with SRO, Neelankarai, Chennai in the name of Shri Farouk Irani & Smt. Sherna Irani. Thereafter Settled in the name of Smt. Farah Bakshay and Smt. Lia Gagrat vide Document No.91/2014 registered with SRO, Neelankarai, Chennai. Total Purchase value Rs.38,60,790/-. Total Construction value Rs. 10,00,000/-(approx.) Rs.6,44,00,000/- @ Rs.3500/Sq.ft.....
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.... also lodged complaint to CBI on 06.01.2016 and CBI registered FIR No. RC02(E)/2016 dated 08.01.2016 at CBI, BS & FC, Bangalore against the 7 accused persons as under: 1) Shri A.C. Muthaiah (A-1), Ex-chairman, M/s. First Leasing Company of India, R/o. Adyar Villa, Kotturpuram, Chennai-85 2) Shri Farouk Irani (A-2), Ex-Managing Director, M/s. First Leasing Company of India, R/o. La Reve, No.10, River view road, Kotturpuram, Chennai-85 3) M/s. First Leasing Company of India Limited (A-5), No.749, Anna Salai, Chennai 4) Shri N. Sethuraman (A-4), Partner, M/s. Fraser & Ross, Chartered Accountants 5) Shri K. N. Ramasubramanian (A-5), Partner, M/s. Fraser & Ross, Chartered Accountants 6) Shri V. Balasubramanian (A-6), Partner, M/s. Sarathy and Balu, Chartered Accountants 7) Shri N. R. Sridharan (A-7), Partner, M/s. Sarathy and Balu, Chartered Accountant, and other unknown others. The said FIR was registered for the commission of offence punishable under Section 120 B of IPC read with 409, 420, 467, 468, 471 and 477 A of IPC and substantive offence thereunder. During the investigation ED recorded the statements of the su....
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....statements submitted to Banks by treasury department were always overstated. Consequently, the balance sheet assets were also over-stated. (v) Shri V. Lakshmanan, Manager-Deposits of FLCIL vide his voluntary statement had stated that he had come to understand that FLCIL was in the habit of projecting the company's income and assets value of the Company, in their books of accounts, which were furnished to the banks, public, shareholders and Stock Exchange in order to avail more financial facilities from the banks and the outsiders. (vi) Shri Natarajan Rajagopalan, then Senior Executive of FLCIL disclosed that as per his knowledge FLCIL was fabricating documents and records such as lease agreement with various clients, lease rental documents and other subsequent records such as Balance Sheet and other Statuary documents in order to borrow loans from the various banks which was used for the purpose of payment of Bank interest, for payment of Dividends to shareholders, for payments of salaries to the staff of FLCIL and other services companies promoted by FLCIL. (vii) Shri Farouk Irani, Managing Director of FLCIL disclosed that as a managing director, he ....
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....erefore, to avoid discrimination, these shareholders must be made to return their dividends including the chairman and other shareholders. The total dividend paid to all the shareholders including me is around Rs 62.5 Crores approximately for the last 10 years irrespective of the losses incurred. Out of which, my share will be around Rs. 3 Crores" (ix) Further in the meeting held by the Banks' consortium on 19.09.2013, to get the information and reasons from the company for the action by the RBI, the Managing Director, Shri Farouk Irani made revelation about the manner in which affairs of the company were mismanaged and the accounts of the company were prepared and submitted to various bodies including RBI and SBI consortium including the Bank with inflated/falsified entries on profits, cash flow, income and its state of affairs so far, since two decades. (x) As per the revelation made by the Managing Director, in the meeting held by the Banks' consortium on 19.09.2013, the following are the series of events narrating the acts of fraud, misrepresentation, criminal breach of trust, siphoning of funds, cheating etc. committed by the Company, the Managing Dir....
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....Banks by the Treasury Department of FLCIL were always over-stated, consequently the Balance Sheet assets were also over-stated; that they had never made any false entries on their own. The accounts were falsified at the Instance of the Managing Director, i.e., Shri Farouk Irani, with the support of the system. All negotiations, statements, certifications, assurances submitted to Banks were made under the supervision of Shri Farouk Irani. Further, Shri Farouk Irani worked as the Managing Director of M/s First Leasing Company from 1973 up to 2013 and the fudging of records and cheating of banks were done from 1997 to 2013, i.e., during his period only. As the Managing Director of FLCIL he is the key personnel and at the helm of affairs and it does not stand to reason that he is unaware of the entire fudging of the records and without his concurrence and connivance it is not possible to fudge the records, for his sub-ordinate officials. (xiii) FLCIL was incurring only losses for a significant period of its operation and do not have any income on their own. FLCIL was not having the prescribed net owned fund although it was carrying on the business of a Non-Banking Financial In....
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....e immovable and movable properties, as mentioned in para no.1 of the impugned order, and thereafter, filed Original Complaint No. 629/2016 before the Adjudicating Authority under Section 5(5) of PMLA, 2002, for confirmation of PAO. The Adjudicating Authority being satisfied with the allegations mentioned in the Original Complaints coupled with the statements under Section 50 of PMLA and the relied upon documents issued the Show Cause Notice to the defendants to file their reply. After receiving the replies and hearing the rival submissions, the Adjudicating Authority confirmed the said two PAO no.13/2016 & 15/2016, vide orders dated 08.12.2016 & 30.01.2017 respectively. Aggrieved by the said orders, appellant filed the present appeals. 3. During the arguments Ld. Counsel for the appellant submitted the grounds for pressing these appeals:- i) It is argued that the attached immovable properties cannot be attached as they were acquired prior to the enforcement of PMLA as well as prior to the alleged commissioning of the scheduled offence. She pointed out that the attached immovable properties at Serial No. 1 & 2 of the Schedule of Properties at the Impugned Order wer....
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....L Act, unless the proceeds of crime were taken out of the country." ii) Ld. Counsel for the appellant further contended that the PAO was passed by the Respondent without a report having been forwarded to the magistrate under Section 173 of the Code of Criminal Procedure, 1973, by having resort to the second proviso of Section 5(1) of the PMLA. However, the Respondent has completely failed to comply with any condition under the said proviso which may entitle the Respondent to attach a property in the absence of a Chargesheet. The Respondent has failed to record any real and identifiable reasons, or, identify any material in its possession which could lead to an inference that if the properties were not attached immediately, the non-attachment of the properties was likely to frustrate any proceeding under the PMLA. She argued that the Adjudicating Authority has failed to deal with this necessary aspect under the PMLA and has merely approved the action of the Respondent ED and confirmed the attachment by holding that the attachment of the Appellant's properties was under the second proviso of Section 5(1) without a word on the compliance of the conditions as stated under ....
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.... aforesaid properties were purchased even prior to the alleged commission of the scheduled offence i.e. as per the FIR, the alleged period of commission of offence is between 2005 to 2013. Therefore, the Respondent has miserably failed to draw any connection with the alleged proceeds of crime and acquisition of the aforesaid properties. v) Ld. Counsel for the appellant pointed out that the Appellant has identified the source of her income by way of which the attached properties were obtained by the Appellant, the Appellant in her Reply to the Show Cause Notice dated 5 September 2016 has categorically stated that she worked with FLCIL during the period 1995-1998 and thereafter from 2003, became the partner of Bakshay & Company along with other partners including the husband of Appellant. Bakshay & Co was in the business of fruits and vegetables and was closed down in the year 2012. Thereafter, the Appellant started her own consultancy at her residence. The Appellant has regularly filed Income Tax Returns (ITRs) and all the income earned by her has been disclosed in such ITRs. Further, the immovable properties Kotturpuram and Cooper Beach Avenue were settled to the Appellant....
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....er being interconnected. PMLA, 2002 came into force w.e.f. 01.07.2005. The period of commission of the schedule offence is from 1997 to 2013. The contention of the Ld. Counsel for the appellants that investments/ acquisitions made by the appellants prior to the alleged period of offence is also not covered within the definition of proceeds of crime is devoid of any merits. To analyze this issue, it would be gainful to refer to the definition of "proceeds of crime" given under Section 2(1)(u) of the Act of 2002 and is quoted thus- 2. Definitions -(1) In this Act, unless the context otherwise requires, -xx xx xx xx xx xx xx xx xx xx xx (u) "proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property' [or where such property is taken or held outside the country, then the property equivalent in value held within the country] [or abroad]; [Explanation.- For the removal of doubts, it is hereby clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which ....
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....r observed that bona fide rights acquired by third parties prior to the commission of the predicate offense would stand saved." Further, this Tribunal has also given an elaborate judgment on the issue in the case of Sadananda Nayak v. The Deputy Director, Directorate of Enforcement, Bhubaneswar in FPA-PMLA-5612/BBS/ 2023 delivered on 14.10.2024, where all the judgments on the issue have been considered and thereby this issue was decided in favour of Respondent ED. Further, in view of the para 68 of the judgment of Hon'ble Supreme Court of India in the case of Vijay Madanlal Chaudhary Vs. Union of India, 2022 SCC OnLine SC 929 wherein, it is held that- "68. It was also urged before us that the attachment of property must be equivalent in value of the proceeds of crime only if the proceeds of crime are situated outside India. This argument, in our opinion, is tenuous. For, the definition of "proceeds of crime" is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence, but also of the value of any such property. If the property is taken or held outside the country, even in such a case, the prope....
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....r analysis. As per Section 5(1) : "Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that- (a) any person is in possession of any proceeds of crime; and (b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed: Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 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 that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, ....
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....scheduled offence), if he is involved in any process or activity connected with the proceeds of crime." Hence, both these issues are decided against the appellant. 8. Now, coming to issue no. v): whether the appellant was able to prove her legal source of income for acquiring the properties? and issue no. vi): Whether the attachment of the two immovable properties and term deposits need to be set-aside, in view of Settlement Deed No. 3133 of 2013 and 91 of 2014 executed by her parents in favour of appellant and her sister? Both these issues are taken up together for analysis. The appellant has not been able to prove any documentary evidence via which the legal source of income could be proved for acquiring the term deposits or share in the property at S. No.2. She has not filed her bank statements reflecting any regular income and accumulated balance for acquiring these properties. On the other hand, the documentary evidence reveals that the income of FLCIL was regularly inflated to get more loans year after year from the consortium of banks and thereafter, fraudulently diverted the same. In fact, these properties were apparently purchased by Sh. Farouq Irani as discussed ....