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2023 (2) TMI 1048 - HC - Insolvency and BankruptcyCIRP - applicability of provisions of PMLA - Provisional attachment order - legality of assets acquired by petitioner (whether assets acquired from the proceeds of crime or not?) - seeking declaration that the right, title and interest of the Petitioners to the Specified Assets sold to the Petitioners will not be affected in any manner by any action taken/to be taken by Respondent No. 1 under the provisions of the Prevention of Money Laundering Act against the Corporate Debtor or the Corporate Debtor’s promoters. HELD THAT:- From the chain of events narrated, what is evident is that ABG Shipyard Limited went into liquidation. Assets of the company ‘corporate debtor’ were offered for sale pursuant to an auction held under the directions of the Apex Court. The petitioners were successful bidders and had after depositing the entire sale consideration received sale certificates. Certainly can it not be said that the assets which are ‘specified assets’ which the petitioners have acquired are those assets which are acquired as a result of criminal activity and therefore can be said to be ‘proceeds of crime’. If the authorities were given a free hand to pass orders of attachment of properties which were acquired by a successful bidder in a liquidation process, on a presumption that such acquisition was as a result of a criminal activity, could be contrary to the interest of value maximization of the corporate debtor’s assets by substantially reducing the chances of finding a willing resolution applicant or a bidder in liquidation. VIJAY MADANLAL CHOUDHARY & ORS. VERSUS UNION OF INDIA & ORS. [2022 (7) TMI 1316 - SUPREME COURT] was a case where the Apex Court was considering a batch of appeals concerning the validity and interpretation of certain provisions of the PMLA, where it was held that sub-section (1) delineates sufficient safeguards to be adhered to by the authorised officer before issuing provisional attachment order in respect of proceeds of crime. It is only upon recording satisfaction regarding the twin requirements referred to in sub-section (1), the authorised officer can proceed to issue order of provisional attachment of such proceeds of crime. Before issuing a formal order, the authorised officer has to form his opinion and delineate the reasons for such belief to be recorded in writing, which indeed is not on the basis of assumption, but on the basis of material in his possession. The order of provisional attachment is, thus, the outcome of such satisfaction already recorded by the authorised officer. Therefore, what is clear is that it is only such property which is derived or obtained directly or indirectly as a result of a criminal activity can be regarded as proceeds of crime. In the facts of the case, obviously apparent it is that the only allegation and the gist that had been discussed is that the corporate debtor used the credit raised from the bank for purposes other than intended purposes to carry out circular transactions with various group companies and making overseas investments. There is no explanation as to how the properties standing in the name of corporate debtor and which form part of the assets sold to the petitioners are proceeds of crime especially since these assets are neither overseas assets or that of the group companies. Sine qua non to arrive at a determination that the assets are proceeds of crime, the foremost requirement is that the author has to have ‘reason to believe’ on the basis of material in his possession. ‘Reason to believe’ cannot arise from mere suspicion, gossip or rumour. Merely because the impugned order records alleged fraudulent transactions and diversion of funds, it cannot automatically lead to a conclusion that the properties acquired by the petitioners are proceeds of crime. In order to arrive at a conclusion that ‘reason to believe’ exists, there must be some material to suggest such formation of opinion. Alternative remedy - HELD THAT:- When the assumption of jurisdiction by the authorities itself is non-existent and the respondent proceeds on facts which have no nexus to the objects sought to be achieved, and the opinion is not based on any tangible material, ‘reason to believe’ is a jurisdictional fact and in absence of such ‘reason to believe’ arrived at by the authorities, the bar of alternative remedy cannot oust the jurisdiction of this court. Section 8 of the PMLA - HELD THAT:- What is evident on reading the provision is that the onus shifts on the petitioners once the adjudicating authority decides to take action and therefore section 8 cannot be a ground on which the petitioner can be ousted from securing a relief in exercise of powers under Article 226 of the Constitution of India. The order dated 21.09.2022 insofar as it attaches the specified assets of the petitioners as shown in the impugned order in the schedule of properties at Sr. Nos. 13, 14, 15, 17, 18, 19 and 20 shall be treated as assets not falling within the purview of and having acquired from ‘proceeds of crime’. The order holding so is without jurisdiction and the assets are directed to be released from such attachment - Petition allowed.
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