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2015 (12) TMI 1083 - MADRAS HIGH COURT

2015 (12) TMI 1083 - MADRAS HIGH COURT - TMI - Property representing the proceeds of crime - attachment of the properties - Held that:- In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal activi .....

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ame before the Adjudicating Authority . Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank. - In view of these facts, the judgment in Radha Mohan lakhotia's case [2010 (8) TMI 947 - BOMBAY HIGH COURT ]is in favour of the appellants as they have rebutted the presumption that the property in question is proceeds of crime. - C.M.A. (MD) NOS. 104 TO 110 OF 2015 - Dated:- 10-10-2015 - V.M. VELUMANI, J. F .....

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ssue involved is one and the same. Hence, all the appeals are heard together and disposed of, by this common order. 3. Relevant Facts: (i) One Mr.R. Manoharan projected himself as proprietor of M/s. Bhagavathi Textiles Mills. He produced bogus and fabricated documents in connivance of one S. Arivarasu, the then Business Development Manager of M/s. Global Trade Finance Limited, Coimbatore, availed loan facilities to the tune of Rupees Fifteen Crores. On coming to know of this fraud, one B. Surend .....

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; FC Bangalore, filed charge sheet in C.S.No.6 of 2011 dated 26.07.2011, before the Court of Special Judge, CBI against R. Manoharan, Proprietor of non-existent M/s. Bhagavathi Textiles Mills, G. Srinivasan, S. Arivarasu, K. Vignesh and others for the offences committed under Sections 120(B) r/w. Sections 420,467,468 and 471 of IPC and Section 13 (2) r/w Section 13(1)(d) of Prevention of Corruption Act, 1988 before the Court of Special Judge, CBI cases, Coimbatore. (ii) In the investigation, one .....

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of 2008, dated 02.09.2008 and Document No.1559 of 2009 dated 09.09.2009. These three persons, as per instructions of G. Srinivasan appointed one P.Ayyappan, as their power of attorney, registered as Document Nos.137 and 138 of 2009, dated 07.09.2009 and Document No.807/2009, dated 12.09.2009 and Document No.186 of 2009, dated 22.09.2009. All the four power of attorneys were registered in the office of Sub Registrar of Assurances, Chathirapatti. (iii) The said P. Ayyappan, Power of Attorney of th .....

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sis of FIR dated 07.10.2010 and CBI letter dated 19.11.2010. An Enforcement case Information Report (ECIR) Vide F.No.ECIR/06/CZ/PMLA/2011 was registered on 03.01.2011, by Directorate of Enforcement, Chennai. The statements of G. Srinivasan, P. Manoharan, K. Vignesh, P. Venkatachalapathy, P. Rajendiran, R. Ayyappan, K. Gunaseelan, the appellants and others were recorded under Sections 50(2) and 50 (3) of Prevention of Money Laundering Act, 2002 (herein after referred as PMLA, 2002). (v) During in .....

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n and K. Vignesh in their statement stated that the lands referred to above belonged to G. Srinivasan and they are Benami owners. As per the instructions of G. Srinivasan, they executed power of attorney appointing P. Ayyappan as their power agent. They did not receive any money from G. Srinivasan and did not pay any money to G. Srinivasan or anybody else. (vi) G. Srinivasan filed a complaint against P. Ayyappan, Gunaseelan and appellants, which was registered as FIR No.57/11, dated 30.08.2011, .....

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Enforcement, respondent herein considering all the materials before him held that there are reasons to believe that property measuring 165 acres in the hands of appellants is part of proceeds of crime as defined under Section 2(1)(u) of Provision of Money Laundering Act and is involved in the offence of Money Laundering and is liable for adjudication and confiscation in terms of Section 8 of PMLA, 2002 . The properties are liable to attachment under Chapter III of PMLA, 2002. If the properties a .....

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ffences in terms of Sections 2(7) of PMLA and the properties are involved in offence of Money Laundering under Section 3 of PMLA, 2002 and prayed to, Adjudicating Authority to confirm the attachment of properties, made under Sub Section 1 of Section 5 of PMLA, 2002. (x) The appellants filed replies denying all the averments and complaints made by respondent in the complaint. They contended that they are agriculturists. They purchased the property from and out of their agricultural income from Gu .....

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through agricultural operations and transactions were carried out through bank and hence, they are bonafide purchasers of the land for value. The respondent attached the property under misconception that property would fall under the provisions of Section 2(u) of the said Act. (xi) The Adjudicating Authority considering the contentions of appellants and respondent and relying on the judgment of Bombay High Court in the case of Mr. Radha Mohan Lakhotia v. Deputy Director, PMLA, Department of Rev .....

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Civil Miscellaneous Appeals. 4. At the time, the appeals were taken up for hearing, the learned counsel for the respondent raised a preliminary objection that the appeals can be heard and decided only by a Division Bench of this Court. The learned counsel for the Respondent relied on the judgment 1997(3) SCC 261 [L. Chandrakumar v. Union of India]. 5. Per contra, the learned Senior Counsel appearing for appellants contended that appeals are filed as per section 26 of the Prevention of Money Lau .....

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t case. The issue in that case was appeal to Supreme Court from the order of Debt Recovery Tribunal. The Hon'ble Apex Court held that the order of Debt Recovery Tribunal can be challenged in High Court under Article 226 of Constitution of India. 6. The preliminary objection raised by learned counsel for the respondent was already considered at the time of numbering the appeals itself. The Registry raised the issue and it was placed before the Hon'ble Administrative Judge. After orders, i .....

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attachment by Adjudicating Authority as well as dismissal of Appeals filed by Appellate Authority are also contrary to facts and law. (ii) The Appellants are not accused of being involved in criminal activities. They are not accused in Crime No.RCO 9/E/2010 and charge sheet in C.C.No.6 of 2011. They are not accused of Money Laundering under Section 3 of the Prevention of Money Laundering Act, 2002. Only property in the hands of persons, who are accused of Money Laundering, charged for criminal .....

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tivities of G. Srinivasan and not his Benamies. They were un-aware of the alleged fraud committed by G. Srinivasan and that the property in question is proceeds of crime. They are bonafide purchasers for valuable consideration. They verified the title of the property in the hands of Gunaseelan and then only, they purchased the property. The Appellants are agriculturists for generations owning lands and cultivating it. They were regularly getting income from cultivation. The sale consideration pa .....

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Ayyappan. The respondent did not dispute the statement of Gunaseelan recorded under Section 50(2) of the PMLA 2002. Having accepted the purchase by Gunaseelan, it cannot be said that the property in question continued to be proceeds of crime. The respondent can only proceed against the sale consideration as the property in question lost its character of proceeds of crime. The appellants have proved that the property in their hand is untainted property and they purchased the property by sale cons .....

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established by the Authorities to prove that the properties attached are proceeds of crime and gifts/money received by the Appellants are not from legitimate sources. This ground may require us to consider the factual aspects of the matter. The action of provisional attachment was resorted to against the appellants under Section 5, on account of reference made by NCB, Mumbai to the Director of Enforcement for investigation under the Act of 2002. The reference was the consequence of the reported .....

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onsignment was shipped from Ecuador. When consignment was intercepted, 200 kgs. Cocaine was recovered. In this connection, NCB, Mumbai arrested Shri O.P. Nogaja, Umesh Bangur, both directors of M/s. OPM International Pvt. Ltd. Ant Vijay A. Throve, Managing Director of M/s. Mayur clearing Agency, the Customs House Agent under NDPS Act, 1985. The department initiated investigation in the case when it was revealed that there were four firms involvedidn the smugling of cocaine, namely, (ik) M/s. OPM .....

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jendra Prasad Modani (R. P.Modani) is the brother-in-law of said Umesh Bangur and real brother of the appellant. He and his wife Smt. Trupti Modani (sister of Shri Umesh Bangur) both resident of Bangkok, found to have remitted a total amount of ₹ 8.45 crores on different occasions into the NRE account No. 6.104.1181 (old A/c. N o. 10233/4) with Bharat Overseas Bank) and the entire amount was found to have been transferred to various individuals including relatives and firm for no economic .....

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e search of his residence by NCB. Thus the said Shri Umesh Bangur was found to be in possession and control over the money lying in the said accounts. The details of transfer of the said money to different individuals and firms have been detailed in the complaint. It is evident that proceeds of crime has been transferred by Shri R.P. Modani and placed at the disposal of Shri Umesh Bangur which was further transferred in the guise of gift to close relatives viz., Shri Radha Mohan Lakhotia, Smt. A .....

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. The fact that the Respondent could have acted only if there was reason to believe that a person is in possession of proceeds of crime does not mean that the Authorities at this stage are obliged to prove the fact beyond doubt that the property in possession was in fact proceeds of crime. All that the Authority is required to show is that there was "substantially probable cause" to form opinion that the property under attachment is proceeds of crime. The circumstances adverted to by t .....

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nts disbursed from NRE account of R.P. Modani by way of gift, no other justification is offered. The fact that the amount has been disbursed from NRE Account and such remittance is permissible in law does not and cannot legitimise the transaction, until it is established that the amount so gifted by R.P. Modani itself was not tainted funds. The real question is whether the funds in the account of R.P. Modani were tainted or otherwise. The burden to prove that fact is on the appellants themselves .....

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in offence under Section 3 of the Act of 2002. The burden of proof that properties in their possession are untainted properties, as per Section 24 is on the person accused of having committed offence under Section 3 of the Act of 2002. The appellants cannot absolve themselves by saying that the amount received by them was from the NRE account of Shri R.P. Modani. That is not enough. It was necessary for the appellants to further establish that the amount so disbursed from the account of R.P. Mo .....

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of which he has acquired the property attached, under Section 5(1) or seized under Sections 17 or 18 the evidence on which he relies and other relevant information and particulars. It is therefore clear that where a property is provisionally attached under Section 5, the person in possession of such property may avail the opportunity under Section 8 to indicate/establish that he has acquired the property attached (prima facie the proceeds of crime) out of his lawful earnings or assets, that he .....

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tes proceeds of crime and the authorities may have to proceed against the property or value in the hands of the transferor. 38. In the illustration proffered on behalf of the Petitioners; since the dividend, the higher dividend or the value of the shares sold would be relatable to illegal conduct of a company or its officers (if such illegality is a scheduled offence and the company or a person in management or control of the company is accused of an offence under Section 3) and would be proceed .....

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individual (s) who orchestrated the massive scam and that these persons had traded in the shares of SCSL (with a presumptive insider information) when those shares had a peak value, achieved on account of the criminal conduct of Sri Ramalinga Raju, and others. 40. Section 24 inheres on a person accused/charged of having committed an offence under Section 3, the burden of proving that proceeds of crime are untainted property. Section 23 of the Act enjoins a presumption in inter-connected transact .....

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rsons can be attached pending conclusion of criminal proceedings. It is not correct to state that the property in the hands of persons prosecuted for criminal offences and/or scheduled offence can only be attached. Section 2(p) and (u) defines "Money Laundering" and "Proceeds of Crime". Section 3 of the Act deals with the offence of Money Laundering and in Section 4 of the Act, the punishment for offence of Money Laundering has been stated. (ii) In the present case, the relev .....

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ontrary to Section 5(1)(a) of the Act. (iii) The prosecution and attachment are two different aspects dealt by different sections namely sections 3, 4, and 5 of the Act. The property in question in the hands of appellants is proceeds of crime. The property was purchased from and out of loan of ₹ 15 crores obtained by G. Srinivasan by fraud. The property was purchased in Benami names. The subsequent transactions will not convert the tainted proceeds of crime as untainted property. The appel .....

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nsel for the respondent relied on the same two judgments relied on by the learned Senior Counsel appearing for the appellants. The learned counsel for the respondent relied on the following Judgments. (i) 2010 (5) Bom CR 625 [Mr. Radha Mohan Lakhotia v. Deputy Director, PMLA, Department of Revenue] wherein in paragraphs 11,12 and 13, it has been held as follows:- "11. The question is whether Section 5 can be invoked against a person who is not named as an accused in the commission of a sche .....

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e basis of material in his possession. That action is intended to freeze the proeeds 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 name therein. The proceeds of crime means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangi .....

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n of proceeds of crime, if it is also found that he has directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property, he shall be liable to be prosecuted for offence under Section 3 read with Section 4 of the Act of 2002-in addition to suffering the action of attachment of the proceeds of crime in his possession. Attachment of proceeds of cr .....

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e 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 the Act. 12. Going by the definition of "person" occurring in Section 2(s) and on conjoint reading of Section 2(u), which also refers to "any person"; coupled with the purpose and intent for which the enactment has been brought into force, accepting the argument of the appellants would result in a pedan .....

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ned to it in Section 3 of the Act of 2002. It essentially refers to the tainted property which is derived from criminal activity relating to a scheduled offence. Such tainted property may travel at different levels or by way of circular transactions for being eventually projected as untainted property in the hands of or possession of person other than the person charged of having committed a scheduled offence. That involves direct or indirect involvement of person or persons other than the perso .....

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held by him is tainted. That person may not face prosecution under Section 3 of the Act of 2002. But even in his case, an order of attachment of the proceeds of crime can be invoked and later end up with confiscation there of 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, .....

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session of any proceed of crime, such proceeds of crime can be attached and confiscated, subject to fulfillment of the specified conditions. 13. The Appellants however, have placed emphasis on the expression "such person" used in Clause (b) of Section 5(1) of the Act. According to them, the word "such" is prefix to the word "person" in Clause (b). That is not superfluous, but is ascribable to the person referred to in Clause (a). Which means that even Clause (a) dea .....

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should be in possession of any proceeds of crime. The governing factor is possession of any proceeds of crime by a person. Taking any other view may defeat the legislative intent. Inasmuch as, a person who has been charged of having committed a scheduled offence can successfully defeat the object of the enactment of attachment and confiscation of the proceeds of crime by transferring it to some other person who is not so involved with him in commission of stated scheduled offence. In our opinion .....

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a scheduled offence, that person is found to be in possession of any proceeds of crime. In either case, it is open to take recourse to Section 5 of the Act if the specified Authority has reason to believe and reason for such belief is recorded in writing that the 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. Indeed, the proviso to Sub-section (1) as was appl .....

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ected against the second category of person covered by Sub-section (1), namely, person who has been charged of having committed a schedule offence. In other words, action of attachment of proceeds of crime in possession of the person charged of a scheduled offence can be proceeded only on forwarding of a report to Magistrate under Section 173 of the Code or a complaint has been filed for taking cognizance of offence by the Special Court constituted under the NDPS Act. Insofar as the person who i .....

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indicate that the person to be proceeded for this offence need not necessarily be charged of having committed a scheduled offence. For, the expression used is "whosoever". The offence of money-laundering under Section 3 of the Act of 2002 is an independent offence. It is committed if "any person" directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and p .....

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t;whosoever" appearing in Sections 3 and 4 of the Act will have to be limited to person who has been charged of having committed a scheduled offence. The object of the enactment of 2002 would be completely defeated by such approach. Besides, the view that we propose to take is reinforced also from the purport of Section 8 of the Act of 2002. It provides that the Adjudicating Authority if has reason to believe that "any person" has committed an offence under Section 3, may serve no .....

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person charged of having committed scheduled offence. The proviso to Sub-section (1) thereof stipulates that where a notice under the said sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served up on such other person. Suffice it to observe that even Section 8 contemplates adjudication to be done by the Adjudicating Authority after provisional attachment order is passed under Section 5 of the Act and upon receipt of .....

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SCL 491 (AP) [B. Rama Raju v. Union of India (UOI) Ministry of Finance, Department of Revenue, represented by its Secretary, (Revenue) and others], wherein in 32 to 34 and 39, it has been held as follows: "32. On the aforestated scheme the provisions of the Act, the prosecution under the Act; and attachment and eventual confiscation proceedings are distinct proceedings. These two sets of proceedings may be initiated against the same person if he is accused of the offence of money-launderin .....

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well, do not violate the provisions of the Constitution including Articles 14, 21 and 300-A and are operative proprio vigore. 34. While the offence of money-laundering comprises various degrees of association and activity with knowledge and information connected with the proceeds of crime and projection of the same as untainted property; for the purposes of attachment and confiscation (imposition of civil and economic and not penal sanctions) neither mens rea nor knowledge that a property has a .....

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nterest in such property or assets wherever located. 39. The contention by the Petitioners that attachment and confiscation of proceeds of crime in possession of a person who is not charged of an offence under Section 3 or who has no knowledge or information as to the antecedent criminality are arbitrary and unfair legislative prescriptions in misconceived." 9. I have heard the learned Senior Counsel appearing for the Appellants and learned counsel appearing for respondent and carefully per .....

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nsideration can be attached. (iii) Whether property purchased bona fide with legal sale consideration looses the character of proceeds of crime and the sale proceeds in the hands of vendor only can be attached. 11. Point No. 1:- The learned Senior Counsel for appellants contended that the proceedings initiated against appellants for provisional attachment of property in question is without jurisdiction and void ab initio. The appellants are not accused of having committed any criminal offence an .....

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ns, who are accused of criminal activities or having committed scheduled offence. 12. Per contra, the learned counsel for the respondent contended that person referred to in Section 5 of the Act includes all the persons, who are in possession of proceeds of crime. Section 5 has to be read along with Section 2(u) of the Act. Sections 2(p), 3 and 4 relates to money laundering and punishment for the same. Punishment for Money-Laundering is distinct and different from provisional attachment. The lea .....

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n of persons or a body of individuals, whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and (vii) any agency, offence or branch owned or controlled by any of the above persons mentioned in the preceding sub-clauses; 2(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 .....

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gorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words "which may extend to seven years", the words "which may extend to ten years" had been substituted. Section 5. Attachment .....

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an be attached pending confiscation. This issue was considered by two Division Benches of Bombay High Court and Andra Pradesh High Court referred to above. Both the Courts after elaborately considering this issue referring to relevant Sections of Act referred to above held that proceeds of crime in the hands of persons not involved in Money Laundering or accused of criminal offence can also be attached. Both the Courts have held that person referred to in Section 5 is not restricted to a person .....

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the property was purchased from and out of monies obtained by playing fraud on Financial Institution. The appellants paid the sale consideration from and out of their agricultural income. The appellants have proved that they belong to agricultural families owning lands and cultivating them. They cultivated Gloriosa Superba seeds which has considerable demand and yields huge income per acre. The appellants have produced acceptable documents to show the sale and given the names of their purchasers .....

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pra) and paragraphs 17, 17h and 19 of the judgment reported in 2010 (5) Bom CR 625 (supra), as extracted above. 18. Per contra, the learned counsel for the respondent contended that by subsequent transactions, the property will not loose its character of 'proceeds of crime'. The persons, who purchased the property out of amounts obtained by fraud try to project the property as untainted property by subsequent transactions. In the present case, the appellants failed to prove that sale con .....

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n the hands of Appellants is proceeds of crime. But the appellants have a right to rebutt the said presumption. 21. The said sections read as follows:- "23. Presumption in inter-connected transactions Where money-laundering involves two or more inter-connected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the money-laundering offence, it shall unle .....

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the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering. 22. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of ₹ 15,00,00,000/- by producing bogus and fabricated documents. From and out of the said amount, the property in question was purchased by him in the names of his Benamies. One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through t .....

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f the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G.Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunasee .....

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statements. Some of the Appellants have stated that they sold their lands and borrowed monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements. Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent does not alleg .....

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ty in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge. 25. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacit .....

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d section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B, 420,471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants, particularly Def nos. 2 to 8 is that the landed prop .....

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ale consideration and the money paid to the seller is also well explained. 22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia v. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal no. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that th .....

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crime. They have also verified the papers relating to these properties before the deal. No point has been raised with regard to the financial capability of these Defendants to buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA." Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha .....

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