2024 (6) TMI 33 - HC - Money Laundering

Validity of Provisional Attachment Order u/s 5(1) of PMLA - attachment of shares considering them to be value equivalent to the proceeds of crime - substitution by bank guarantee/FDR/Indemnity Bond or any other security - respondent no 2 is a properly constituted Adjudicating Authority under Section 6 of PMLA or not. Whether 170, 00, 168 shares of JSPL attached as proceeds of crime based on equivalent in value of proceeds of crime and having book value at Rs. 3, 11, 05, 588/- can be substituted by bank guarantee/FDR/Indemnity Bond or any other security as prayed on behalf of the petitioner? HELD THAT - The perusal of impugned Provisional Attachment Order dated 30.07.2021 issued under signature of Sharad Kumar Deputy Director Directorate of Enforcement reflects that properties worth Rs. 59, 34, 21, 420 including 1, 70, 00, 168 shares of M/s Jindal Steel Power Limited with GSPIL as detailed in impugned Provisional Attachment Order equivalent to the proceeds of crime were provisionally attached under section 5 (1) of PMLA. It was observed in impugned Provisional Attachment Order that direct proceeds of crime are not available for provisional attachment due to circular movement/rotation of funds through various transactions. It was also observed that these properties are likely to be transferred or dealt with in such a manner which may result in frustrating the proceedings relating to confiscation under Chapter III of PMLA. The Supreme Court in Esskay Properties and Investment Private Limited another V Union of India others 2022 (9) TMI 1592 - SC ORDER lifted the attachment order on producing the fixed deposit of Rs. 3, 00, 00, 000/- in lieu of part of the attached property with no lien of any other party except the Enforcement Directorate and order of attachment was allowed to be substituted by fixed deposit although without prejudice to the rights and contentions of the parties in the proceedings to be instituted before the Appellate Authority. The Division Bench of the High Court of Telangana inY. S. Bharathi Reddy V Enforcement Directorate referred Hetero Drugs Limited V Deputy Director Directorate of Enforcement Delhi 2015 (7) TMI 1255 - APPELLATE TRIBUNAL PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI which was a decision of the Appellate Tribunal wherein it was held that there is no provision under the PMLA as well as the Rules framed thereunder which would entitle the appellant to seek replacement of immovable properties under attachment with fixed deposit and also argued by the CGSC observed that the Appellate Tribunal may be right in saying that there is no provision under PMLA and the Rules made thereunder for replacement of attached immovable property for some other property. The High Court observed that the Court is well within its power to alter or modify the status quo order passed by it and the interest of opposite party/appellant would be protected by directing various parties to provide bank guarantee equivalent to Rs. 192 crores. The impugned Provisional Attachment Order No. 04/2021 dated 30.07.2021 also attached 170, 00, 168 shares of JSPL with book value of Rs. 3.11, 05, 588 out of total provisional attachment of properties worth Rs. 59, 34, 21, 420 as detailed in impugned Provisional Attachment Order as proceeds of crime based on equivalent in value of proceeds of crime and not as proceeds of crime. There is a difference between proceeds of crime and amount equivalent to proceeds of crime as noted by another coordinate bench and this court is also in agreement with the said view expressed by another Bench. The Adjudicating Authority in pursuance of order dated 04.10.2021 may continue with proceedings but cannot pass final order. The petitioner is stated to be engaged in the business of investment and finance operations by Inter Corporate Deposits and investment in equity shares/preference shares/debentures/ mutual funds. The 170, 00, 168 shares of JSPL having book value of Rs. 3, 11, 05, 588 lying with the petitioner and attached not as proceeds of crime but being equivalent value of proceeds of crime cannot remain under provisional attachment in pursuance of impugned Provisional Attachment Order. Accordingly present application is allowed and 170, 00, 168 shares of JSPL are ordered to be released in favour of the petitioner on furnishing interest bearing FDR amounting to Rs. 3, 11, 05, 588 in name the of the petitioner and shall be deposited with the respondent no 1 who shall be having lien over said FDR. If the respondents succeed in the present petition then the respondent no 1 shall be at liberty to encash the FDR. Application allowed.

Summary

Issues Involved:
1. Quashing of Provisional Attachment Order No. 04/2021 dated 30.07.2021.
2. Quashing of Original Complaint bearing O.C. No. 1514 of 2021 dated 26.08.2021.
3. Quashing of Notice to Show Cause dated 22.09.2021.
4. Substitution of attached shares with a Bank Guarantee or Fixed Deposit Receipt (FDR) or Indemnity Bond.

Summary:

Issue 1: Quashing of Provisional Attachment Order No. 04/2021 dated 30.07.2021
The petitioner sought to quash the Provisional Attachment Order No. 04/2021 dated 30.07.2021 passed u/s 5(1) of the Prevention of Money Laundering Act (PMLA), which attached the shares of M/s Jindal Steel & Power Ltd. (JSPL) as 'value equivalent to the proceeds of crime'. The respondent argued that the petitioner acquired proceeds of crime amounting to Rs. 59,34,21,292 through share sales, and the attachment was necessary to prevent the concealment or transfer of these proceeds.

Issue 2: Quashing of Original Complaint bearing O.C. No. 1514 of 2021 dated 26.08.2021
The petitioner also sought to quash the Original Complaint bearing O.C. No. 1514 of 2021 filed u/s 5(5) of PMLA. The respondents argued that the complaint was filed following proper procedure after identifying proceeds of crime amounting to Rs. 59.34 crores during the investigation.

Issue 3: Quashing of Notice to Show Cause dated 22.09.2021
The petitioner challenged the Notice to Show Cause dated 22.09.2021 issued u/s 8(1) of PMLA, arguing that the Adjudicating Authority was not properly constituted and thus 'coram non judice'. The respondents maintained that the proceedings were in accordance with the law and that the petitioner had not exhausted available remedies under PMLA.

Issue 4: Substitution of Attached Shares with a Bank Guarantee or FDR or Indemnity Bond
The petitioner filed an application u/s 151 of the Civil Procedure Code, 1908, seeking substitution of 1,70,00,168 equity shares attached vide Provisional Attachment Order No. 04/2021 with a Bank Guarantee, FDR, or Indemnity Bond. The petitioner argued that the shares were allotted before the PMLA came into force and the attachment was causing significant prejudice. The court noted that while the attachment of 'proceeds of crime' cannot be substituted, the attachment of property equivalent to the proceeds of crime can be. The court allowed the substitution of the attached shares with an interest-bearing FDR amounting to Rs. 3,11,05,588, to be deposited with the respondent, who would have a lien over it.

Conclusion:
The court allowed the petitioner's application for substitution of the attached shares with an FDR, emphasizing that this order does not reflect an opinion on the merits of the case. The main petition is scheduled for further hearing on 03.09.2024.