TMI Blog2018 (12) TMI 1675X X X X Extracts X X X X X X X X Extracts X X X X ..... same through competitive price bids. After one wing of the Government had induced a third party like the strategic investor to come to the rescue of the company, another wing of the Government cannot take an action that will vitiate the entire process - the impugned order of attachment is liable to be set aside. Petition allowed. - Writ Petition No. 37487 of 2012 and WAMP. No. 155 of 2016 in W.A. No. 133 of 2013 - - - Dated:- 31-12-2018 - V. Ramasubramanian and J. Uma Devi, JJ. For Appellant: S. Ravi, Senior Counsel For Respondents: Nagaraj, A.S.G. for E.D. Narender Reddy, Senior Counsel ORDER V. Ramasubramanian, 1. Challenging a Provisional Attachment Order passed by the Enforcement Directorate and the proceedings initiated under the Prevention of Money Laundering Act, 2002 (PMLA, 2002), the petitioner came up with the writ petition in W.P. No. 37487 of 2012. 2. Pending disposal of the writ petition, the petitioner sought interim suspension of the impugned Provisional Attachment Order. On 11-12-2012, a learned Judge of this Court granted interim suspension, in WPMP. No. 47572 of 2012. 3. As against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the company by name B. Ramalinga Raju sent short waves across the board, by making startling revelations, to the effect that the books of accounts of the company reflected fictitious cash and bank balances to the tune of about ₹ 5040 crores and an understated liability of ₹ 1230 crores and that none of the Board Members had any clue about the situation in which the company was. (c) Shocked at the sathyam (truth) coming out of (A) Satyam, in such a fashion, the Government of India initiated prompt action, by filing an application through the Ministry of Corporate Affairs, before the Company Law Board. The application was filed on 09-01-2009 under Sections 388B, 397, 398, 401, 402, 403 read with 406 and 408 of the Companies Act, 1956. (d) The reason as to why the Government of India intervened to take prompt action within 48 hours, as stated in their application before the Company Law Board, was that the company had to be maintained as a going concern, in order to protect the interests of 53,000 employees and more than 3 lakhs share holders. In the application so filed by the Ministry of Corporate Affairs before the Company Law Board, they sought th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard dated 19-02-2009, the Board of Directors of the company issued a Request for Proposal (RFP) on 13-03-2009. It was stated therein that the company needed capital infusion of ₹ 1000 crores. The RFP required the interested bidders to give Expression of Interest (EOI) on or before 20-03-2009 along with the proof of availability of ₹ 1500 crores and two performance bank guarantees of ₹ 5.00 crores and ₹ 100 crores. (l) During the period from 24-03-2009 to 04-04-2009, all the bidders were given access to the data room. (m) On 12-04-2009 all bidders submitted their financial bids. On 13-04-2009, the bids were opened under the supervision of Sri S.P. Bharucha, former Chief Justice of India. A company by name Venturebay Consultants Private Limited, a subsidiary of Tech Mahendra Limited became the successful bidder and the former Chief Justice of India certified that the auction was fair, transparent and open. (n) On 16-04-2009, the Company Law Board passed an order in C.A. No. 179 of 2009 in C.P. 001/2009, approving the induction of Venturebay as a strategic investor and also approving the allotment of preferential shares subject to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of off-loading the shares held by them at the most opportune times. (u) After three years of filing of the charge sheets before the designated Court, the Joint Director of Enforcement passed a provisional attachment order bearing No. 4 of 2012 dated 18-10-2012, attaching the fixed deposits lying with the Andhra Bank, ING Vysya Bank, IDBI Bank and Bank of Baroda to the total tune of ₹ 822 crores, on the ground that they represent part of the proceeds of crime within the meaning of Section 2(1)(u) of the Prevention of Money Laundering Act, 2002. (v) Thereafter, the adjudicating authority under the PMLA, 2002 issued a show cause notice dated 29-10-2012 under Section 5(5) of the Act. (w) Aggrieved by the Provisional Order of Attachment dated 18-10-2012 and also challenging the show cause notice dated 29-10-2012, the petitioner came up with the above writ petition. Proceedings before this Court: 9. After admitting the above writ petition, a learned Judge of this Court passed a detailed order dated 11-12-2012 in WPMP No. 47572 of 2012, staying the Provisional Attachment Order as well as all further proceedings pursuant to the show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Computers held in the accounts of Ramalinga Raju and others to the extent of 2.78 Crores were sold to S.R.S.R. Holdings Pvt. Ltd., through the Stock Market; (iii) that the individuals borrowed funds from a non-baking financial company to the extent of ₹ 2,266/- Crores and invested the same in S.R.S.R. Holdings Pvt. Ltd., for purchasing the shares of Satyam Computers through Stock Market; (iv) that the shares consequently became the investment of S.R.S.R. Holdings Pvt. Ltd.; (v) that thereafter, Satyam Computers announced the issue of bonus shares in the ratio of 1:1, resulting in the shares held by S.R.S.R. Holdings Pvt. Ltd. getting doubled to the extent of 5.56 Crore shares; (vi) that by transferring the shareholding, the individuals derived illegitimate gain to the tune of ₹ 2,171.45 Crores; (vii) that this amount represented the proceeds of crime within the meaning of Section 2(1)(u) of the Act; (viii) that these proceeds of crime were transferred from the loan companies to other front companies, which in turn transferred the same to some other companies, to conceal the actual source of funds, which happened to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company; (iii) that the impugned provisional attachment order is full of contradictions, in the sense that even according to the order, the amount of ₹ 822 crores went out of the company with the same amount of swiftness with which it came in and hence it was not available anymore in the company to be attached; and (iv) that Section 8(5) of the Prevention of Money Laundering Act, 2002, as amended in the year 2013 cannot be applied retrospectively and that therefore the impugned order is liable to be set aside. Objections of the Enforcement Directorate 14. But the writ petition is opposed by the Enforcement Directorate on the grounds, inter alia,-- (i) that the writ petition is not maintainable in view of the existence of a statutory remedy; (ii) that the entertaining of the writ petition will defeat the object of the Prevention of Money Laundering Act, 2002, which is to confiscate to the Government, the proceeds of crime; (iii) that after the 2013 amendment to the Act, even the property held by a person who is not an accused in respect of a scheduled offence, can be attached by the Enforcement Directorate; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 5(5), the Adjudicating Authority is obliged to initiate action under Section 8(1). He shall then pass an order under Section 8(3) confirming the attachment, if he has reason to believe that the properties concerned were involved in money laundering. If the commission of the offence of money laundering is established after trial, then the Adjudicating Authority may order the confiscation of such property under Section 8(6). 18. In view of the procedure detailed as aforesaid, it is contended by the learned Additional Solicitor General of India that the petitioner can as well raise all objections they have, to the provisional order of attachment, before the Adjudicating Authority, as and when a show cause notice is issued under Section 8(1). In fact, the Adjudicating Authority has issued notices to the petitioner in this case under Section 8. 19. According to the learned Additional Solicitor General of India, even if the Adjudicating Authority passes an order adverse to the interest of the petitioner, they have a remedy of appeal under Section 26 to the Appellate Tribunal and thereafter under Section 42 to the High Court. When the scheme of the Act prescribes so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Bench, the question of maintainability has attained finality; and (ix) that in any case, the Adjudicating Authority itself has filed a counter to the writ petition, swearing to an opinion that the attached property represents the proceeds of crime and that therefore there is no use going before the same authority. 22. Before proceeding further, it should be pointed out that the 3rd respondent in the writ petition is the Adjudicating Authority. The 1st respondent is the Directorate of Enforcement. A counter affidavit was sworn to by the Assistant Director of Enforcement Directorate on 06-12-2012 in the main writ petition. In the caption given, it was stated counter affidavit filed on behalf of respondent Nos. 1 and 3 . Even in the solemn affirmation column, it was stated by the Assistant Director who was the deponent to the counter affidavit that he was filing the counter affidavit on behalf of the respondents 1 and 3. 23. If the Assistant Director of Enforcement Directorate had sworn to a counter affidavit, as though it was filed on behalf of the Adjudicating Authority also, but without the knowledge of the Adjudicating Authority, then the Adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of doubt to the Enforcement Directorate on this aspect. 27. That takes us to the other arguments revolving around the question of maintainability. There is no dispute about the fact that the writ petition was admitted six years ago. Therefore, as held by the Supreme Court in L. Hriday Narain v. ITO MANU/SC/0268/1970 : (1970) 2 SCC 355, the petitioner cannot now be asked to go back. Moreover, the main contention of the writ petitioner is that the condition precedent for the exercise of jurisdiction under Section 5(1)(c) of the Act is not present. Therefore, as held by the Supreme Court in Raza Textiles v. ITO MANU/SC/0333/1972 : AIR 1973 SC 1362, no authority much less a quasi judicial authority can confer jurisdiction to itself by deciding a jurisdictional fact wrongly. The Supreme Court held that the question whether the jurisdictional fact has been rightly decided or not is a question that is open for examination by the High Court in an application for a Writ of certiorari. Therefore, the writ petition cannot be held to be not maintainable. 28. In any case, two important substantial questions of law of importance arise in this case. They are - (i) whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 388.47 crores; (5) to the report of Serious Fraud Investigation Office dated 13-04-2009 disclosing payment of commission to the Board of Directors to the tune of ₹ 0.42 crores, though the company was making losses; (6) to the report of the Serious Fraud Investigation Office, dated 24-12-2009 disclosing exorbitant remuneration to statutory auditors, who helped the accused in suppressing the falsification of accounts, resulting in funds to the tune of ₹ 7.40 crores being drained out of the company; (7) to the CBI report dated 22-11-2009 and the judgment of the Designated Court showing an outflow of ₹ 43.63 crores in the form of interest on an unauthorized borrowal to the tune of ₹ 1221.16 crores; (8) to the report of the Serious Fraud Investigation Office dated 13-04-2009 showing an outflow of cash to the tune of ₹ 141.50 crores, to resist the claims of the investors who were demanding the return of huge cash balances in the books; (9) to the CBI report and the judgment of the designated Court showing payments to the tune of ₹ 65.88 crores to non-existent customers by creating fake identities; (10) to the CBI report dated 22-11-2009, which disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 166.80 crores for the period 2002-03 to 2008-09, when the payment of dividend itself was totally illegal. 33. The payments made in the form of dividends to the shareholders, the payments made to the Income Tax Department, the incentives paid to the employees, the payments made to the Board of Directors by way of commission, the payments made to the statutory auditors and the payment made to suppliers, when such payments were not due at all, clearly showed that the company was the victim of fraud and was actually made to bleed. This is why the Company Law Board, the CBI, Serious Fraud Investigation Office and the designated court repeatedly referred to the company as the victim of fraud. 34. The contention of the learned Additional Solicitor General that the company was not implicated in the criminal case only due to the nature of the offences under the Indian Penal Code for which charges were framed against the individuals is unacceptable. It was not as though the company omitted to be implicated as an accused in the criminal case for technical reasons. There were positive opinions and findings recorded in all the reports and in the judgment to the effect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the amount was not sufficient, the Board of Directors nominated by the Central Government moved an application before the Company Law Board for induction of a new promoter to pump in equity. This application was allowed by the Company Law Board by an order dated 19-02-2009. By this order the Board was permitted to amend the capital clause of the Memorandum of Association to increase the authorised equity share capital from ₹ 160 crores comprising of 80 crores equity shares of ₹ 2/- each to ₹ 280 crores comprising of 140 crores equity shares of ₹ 2/- each. The order of the Company Law Board further directed the newly constituted Board to devise a plan for the induction of a strategic investor. 37. Accordingly, a Request for Proposal was issued on 13-03-2009 indicating that the company needed infusion of ₹ 1000 crores. The bidders were put to stringent conditions and the bidding process was supervised by the retired Chief Justice of India. Eventually, a subsidiary of Tech Mahindra Limited became the strategic investor and there is no dispute that they infused a total amount of ₹ 2908 crores. 38. As we have pointed out ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 and after having allowed the investor to infuse funds to the tune of ₹ 2908 crores, it is indeed unfair to identify some properties of the company as proceeds of crime. 42. It must be pointed out that the Act empowers the Adjudicating Authority to order the confiscation of the property to the Government under Section 8(6). After such confiscation, the property would lose the character of proceeds of crime . Otherwise, the Enforcement Directorate or the Appropriate Authority cannot deal with the property including by way of sale after such confiscation. When the confiscated property is put to sale, by the Government, it is no longer a proceed of crime, so as to enable the Enforcement Directorate to attached it once again. Confiscation of the property is perhaps a purification ceremony. 43. Similarly, if the other regulatory bodies including the Ministry of Corporate Affairs through the Company Law Board had allowed a third party to come up for equity participation, it tantamounts a different kind of purification process. The Board of Directors nominated by the Government of India, who invited Expression of Interest from intending bidders, owed a duty t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers or with the newly constituted Board of Directors. The strategic investor did not get into any private treaty. The whole process was ordered by the Company Law Board and carried out under the supervision of a former Chief Justice of India. Today, the order of the Company Law Board and the entire bidding process has been turned into a mockery by the Enforcement Directorate ordering the provisional attachment. What is now at stake is the credibility of the Ministry of Corporate Affairs, which moved the application on 09-01-2009 and the validity of the orders of the Company Law Board pursuant to which the strategic investor came into the picture. Therefore, the second contention of the learned senior counsel for the petitioner that after inducing and enticing a strategic investor to become the savior of the company, it is not fair on the part of the Enforcement Directorate to ask the savior to look for a savior for itself. 49. The second contention of the learned senior counsel for the petitioner is sought to be countered by the learned Additional Solicitor General on the basis of the orders of amalgamation passed by the company court in CP 123 of 2013. The learned Additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that an amount of ₹ 1,425/- Crores was transferred to the bank accounts of Satyam Computers by 34 front companies during the period from November, 2006 to October, 2008. Out of this amount, a sum of ₹ 194.60 Crores was repaid and the balance of ₹ 1,230.40 Crores remained with Satyam Computers. 57. As per paragraph-15 of the impugned order, the trail of funds relating to ₹ 1,425/- Crores showed that out of the same, an amount of ₹ 822/- Crores constituted a part of money derived by pledging of inflated shares of Satyam Computers. 58. After stating so, it is asserted in paragraph-15 of the impugned order that the amount of ₹ 822/- Crores was routed through 34 front companies to the petitioner. These 34 companies, according to paragraph-15 of the impugned order, merely transferred the funds received by them as a result of circuitous financial transactions of Satyam Computers. 59. What can be deduced from paragraph-15 of the impugned order is either that an amount of ₹ 822/- Crores belonged to 34 front companies of the promoters or that they belonged to Satyam Computers itself, but which went out and came back in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 822/- Crores constituted the proceeds of crime, the same, even according to the impugned order, had gone out of the company in the form of salaries etc., and it has also mingled with other legitimate sources of incomes. This money had been put into day-to-day use. Once this is clear, we do not know how the Fixed Deposits could be attached. Therefore, the contention that the impugned order contains contradiction in terms, cannot be brushed aside easily. 67. The fourth and last ground of attack to the impugned order of attachment is that Section 8(5) of the Prevention of Money Laundering Act, 2002, as amended in the year 2013 cannot be applied retrospectively and that therefore the impugned order is liable to be set aside. 68. In order to appreciate this contention, it is necessary to have a look at Section 8(5) of the PMLA, 2002, as it was before and as it is after amendment: Section 8(5) before amendment Section 8(5) after amendment w.e.f. 15-02-2013 (5) Where on conclusion of a trial for any scheduled offence, the persons concerned is acquitted, the attachment of the property of the retention of the seized property or record under sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claratory in nature has to be construed as retrospective, unless there is clear indication to the contrary. 71. The PMLA is not a statute dealing merely with matters of procedure or evidence or which is declaratory in nature. It is a statute which affects substantive rights of parties. Therefore, by the test indicated in K.S. Parpoornan, it cannot have retrospective effect. 72. In fact, the PMLA, 2002 underwent several amendments from the year 2005 onwards. Even the expression proceeds of crime defined in Section 2(1)(u) underwent an amendment by Act 2 of 2013 and later by Finance Act, 2016. Today, the definition includes any property derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence. Therefore, even the property in the hands of third parties can be attached and confiscated, if it is shown that they represent proceeds of crime. Hence, by its very nature, the provisions of the Act cannot have retrospective effect. 73. It was contended by the learned Additional Solicitor General that it is not permissible for this Court to decide in a writ petition whether the property of a person com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial decision to become a strategic investor is induced by the facts disclosed and the net worth of the company. 77. As a matter of fact, the Enforcement Directorate was part of the Multi Disciplinary Investigation Team and hence, they were in the know of things about the induction of a strategic investor. Therefore, the Enforcement Directorate could not have kept quiet at the time of competitive price bids and allowed the investors to become victims at their hands, for the purpose of redressing the grievances of the first set of victims. As pointed out by the Supreme Court in Vadilal Chemicals Limited v. State of Andhra Pradesh (2005) 6 SCC 292, the State which is represented by various departments should speak only with one voice. When the Ministry of Corporate Affairs swung into action within 48 hours of the disclosure made by the Managing Director of the company, the object was to save more than 3 lakhs shareholders and 53,000 employees. After inducing the petitioner to infuse funds in order to rehabilitate the company, it is not open to another Department of the Government to treat a portion of what was part of the assets of the company at the time of competitive pric ..... X X X X Extracts X X X X X X X X Extracts X X X X
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