TMI Blog2020 (11) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... atements recorded during the course of investigation under the PMLA Act and the modus operandi of IL FS and its subsidiary companies has surfaced. The PMLA Act of 2002 which aim to prevent money laundering, it contain a provision which raises presumption as to records or property and into interconnected transactions. By virtue of Section 24 while dealing with proceedings relating to proceeds of crime unless the contrary is proved, a presumption exists that such proceeds of crime are involved, where a person is charged with offence of money laundering. The burden under Section 24 is cast on the accused to prove that proceeds of crime are not involved in purchasing the properties owned by the accused. The applicant who has been arraigned as an accused in the capacity as the Managing Director of ITNL and one of the members of the Committee of Directors of IFIN (for infrastructure projects) is attributed a key role. IFIN who was shouldering the responsibility of syndicating the debt and equity for ITNL and ITNL would post its requirement for the projects to IFIN, the RBI had advised IFIN to run down its exposure to group companies with no fresh lending. In spite of that, ITNL for wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult makes it a serious economic offence. The IL FS Financial Services which was facing a serious liquidity crisis leading to their inability to fulfil debt obligation and the investigation has revealed that those in helm of affairs played a hoax and in a disguised way duped the stakeholders and general public whose monies were at stake. The Committee of Directors failed to discharge their obligation and they were in hand-in-gloves with big corporate groups. They continued to refinance the big groups in connivance with their promoters, on the existing collateral or without sufficient security merely on personal guarantees being offered in order to avail the loans as also in re- financing - The default crisis in the IL FS has adversely impacted the growth of Non-banking Finance Companies. It has jeopardised hundreds of investors, banks and mutual funds associated with IL FS and sparked panic among equity investors, as several NBFC faced turmoil amid a default scare. The applicant is not entitled for being released on bail and the application deserves to be rejected - Application dismissed. - Bail Application No. 361 of 2020 - - - Dated:- 29-10-2020 - Bharati Dangre, J. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans and the new loans were sanctioned to repay their earlier loans and to be utilized by the groups, otherwise then, as mentioned in the Credit Approval Memorandum thereby committing schedule offences. It is alleged that the COD did so in order to maintain the credentials of IFIN and in lieu to continue to receive high remuneration. Thus, according to him, the COD of IFIN which had the sole authority to approve all loan proposals but the COD included four accused persons i.e. Ravi Parthasarthy, Ramesh Bawa, Hari Sankaran and Arun Saha. According to Shri Ponda, the applicant was not a member of COD of IFIN and thus, no accusations can be attributed to him. Further, according to him, the name of the applicant is not included in the Top Management, which is not the case as regards the other accused persons. According to him, the applicant was only a member of United Approval Framework (UAF) of IFIN Infrastructure Projects and the role of the applicant was limited to review of the infrastructure projects which, in any case, was not binding on IFIN. Further, he is not recipient of any monies from IFIN. The submission, therefore, is during his entire tenure with IL FS, the applicant rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions of the learned senior counsel, Shri Venegaonkar appearing for the respondent strongly rely on the material contained in the complaint and submit that the applicant is implicated in a serious offence under the Prevention of Money Laundering Act and relying on the affidavit in reply sworn by the competent officer of the Directorate of Enforcement, Shri Venegaonkar would asseverate that while considering the bail for an offence under the PMLA, the barrier of Section 24 of the Act, which cast a burden of proof on the accused/applicant in any proceedings under PMLA will have to be crossed. He submit that this has become even more essential as post the 2018 amendment, Section 45(1) of the Act now refers to the offence of Money Laundering and therefore, the accused must discharge the burden of proof cast under Section 24, before seeking any relief under the Act. The submission of Shri Venegaonkar is that the applicant has failed to discharge the burden and has failed to produce even prima facie material in support of his contention. Shri Venegaonkar specifically deny the submission of Shri Ponda that the applicant was not a member of COD of IFIN at any point of time. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant was the Managing Director of ITNL and one of the member of COD of IFIN for infrastructure project, IFIN had the sole mandate to carry out debt and equity syndication for ITNL. During the course of investigation, it appear that RBI in its inspection report dated 1st November 2017 had advised IFIN to run down its exposures to group companies with no fresh lending and in ignorance of this advise, it managed to receive funds from IFIN and the modus operandi was that the loans came to be sanctioned to various entities and through them, the money was routed to ITNL and the Special Purpose Vehicles by IFIN. Shri Venegaonkar would submit that the allegations levelled in the complaint that the applicant along with other COD members of IFIN, in connivance with promoters of loanee group did not exercise their due diligence for their personal benefit is substantiated. He would state that the amount received by the applicant is part of proceeds of crime in terms of Section 2(1)(u) of PMLA, which was thereafter laundered and projected by him as untainted. Thus, the applicant has indulged in the offence of money laundering in terms of Section 3 read with Section 70 of the PMLA 2002, si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r resignation. The Committee of Directors (COD) of IFIN comprise of Shri Ravi Parthasarathy, Arun Kumar Saha, Ramesh Bawa, Hari Sankaran, Ramchand Karunakaran (in case of infrastructure projects) as on 31st March 2018 till their resignation on appointment of new Board of Directors as per the direction issued by NCLT. Further, the name of the applicant was also found in the Approval Committee for approval of various documents i.e. transaction approval Memorandum (TAM), Advisory Approval Memorandum (AAM), Bid submission Approval Memorandum, Investment Approval Memorandum etc. along with Shri Ravi Parthasarathy, Ramesh Bawa, Hari Sankaran and Arun Saha. 8 The IFIN also had an Unified Approval Framework which mandated that all loan approvals by IFIN Committee of Directors (COD). Asset and Structured Finance (ASF), team was primarily involved in execution of these transactions. The method of working disclose that all loan approvals were to pass through the COD of IFIN and the Asset and Structured Finance Team was involved in execution of the transaction including client sourcing, preparation of group approval memo, getting approval from COD, documentation of facilitating and disburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni, Director of M/s.ENSO Infrastructure (P) Ltd against ILFS, Rail Ltd, ILFS Transportation Networks Ltd (ITNL), Shri Ravi Parthasarathy, Chairman and Managing Director of IL FS, Director of ITNL, Shri Hari Sankaran Director of ILFS and ITNL. Ramesh Bava, Chairman and CEO of IFIN, Ramchand Karunakaran, Managing Director of ITNL alleging commission of offences under Section 120B, 409, 467, 468, 471 of IPC, which fall within the purview of scheduled offence under PMLA Part A . Accordingly, the Directorate of Enforcement, Bombay Zonal Office-I recorded case vide ECIR MDZO-1/02/2019 dated 19th February 2019 under the provisions of PMLA against the aforesaid entities and the accused persons which included the applicant in the capacity of Managing Director of ITNL. Further, against the ILFS, on 30th September 2018, the Ministry of Corporate Affairs, Government of India directed the Serious Fraud Investigating Office (SFIO) to conduct investigation against the group companies of ILFS. On investigation, SFIO filed a criminal complaint bearing No.20 of 2019 dated 30th May 2019, wherein the ILFS and the accused persons along with M/s.Siva Group Companies and its proprietor C. Sivasank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 The SFIO alleged that the accused persons who were controlling day to day affairs of IFIN colluded in order to avoid declaring non-performing asset of the defaulting loan recipients, lent to other companies belonging to the borrowing group for repaying the principal and/or interest of the defaulting borrower company. The aforesaid modus operandi was alleged to be in violation of the RBI directives. The process was repeated on multiple occasions with the earlier loan facility being closed and a new one being created which was again funded, on their default through another cycle of funding through the same or another group company. After the scam broke off, the current outstanding final loan facility was declared as NPA or written off, or is still shown outstanding resulting in delayed recognition of the non-performing assets, balloning of debt and ultimate higher losses to IFIN and its stake holders. The lending of IFIN to its group companies increased substantially and reached to 37% of total loans and advances in financial year 2017-18 and to circumvent the RBI guidelines on group lending, they devised illegal strategy for IFIN to lend money to its group companies by routi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 1 to 2 % less than the rate of interest at which they were lending to IFNL or its Special Purpose Vehicles. 14 such companies are enlisted, through whom the amounts were transferred to ITNL by IFIN. The statement recorded under the PMLA reveal that thus the Directors/third parties were instructed to transfer the loans received, either to ITNL or to its SPV in the form of loan. By this method, ITNL and its SPVs received huge loans and as per Grant Thorton report, ₹ 2270 crores remained outstanding against those parties to IFIN, who in turn funded to ITNL or its SPV. It is in the conspectus of this transaction, the applicant has been implicated. 14 The response of ED is to the effect that the Committee of Directors had thus created a complex system in order to show artificially enhanced turnover and show profits in order to increase profitability and attract capital from third parties. This was done in order to maintain high credibility which gave way to easy access to the loans at lower rate of interest. The COD members have shown inflated performance of the group in order to receive high PRP. The accused persons received huge amount of PRP from the financial Year 2011-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the letter of RBI is only an advisory. The letter is addressed to IFIN, which is a subsidiary of IL FS and subjected to the RBI Regime. 16 As far as the complicity of the applicant is concerned, though Mr.Ponda has asserted that he is not involved in the entire allegation as he is not the member of COD of IFIN and for this purpose, he has placed reliance on some brochure as well as the documents from Ministry of Corporate Affairs, he is shown as Managing Director of ITNL and a Director of IL FS Engineering and Construction Ltd. The profile of the applicant on the website of Ministry of Corporate Affairs reflect him to be a Director and Additional Director in the IL FS subsidiaries including the Transportation Networks Limited (ITNL) Renewable Energy Limited, IL FS Energy Development Co, Maritime Infrastructure Company, ITNL Road Infrastructure Development Company, IL FS Asian Infrastructure Managers Ltd, IL FS Township and Urban Asset Ltd etc. From the material placed by the respondent, it can be seen that the applicant was involved in the infrastructure projects and the documents from the Ministry of Corporate affairs rather corroborate the submission of the respondent. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the loanee group and for not exercising due diligence and availing personal benefit. The burden which he is expected to discharge under the provisions of PMLA would be done by him at the time of trial. Prima facie on the basis of the allegations levelled against him and on the basis of the statements of the co-accused, Arun Saha has described the applicant to be in executive management of ITNL as Managing Director and Chief Executive Officer and his response to the query whether ITNL had any control over the SPVs and the contractors to whom work was allotted, is that ITNL had control over those SPVs in which ITNL was one of the partners and holding majority stake and that the executive management of ITNL had a role to play by ascertaining the genuineness, working experience, good will etc for contractors and their companies. The applicant has played a pivotal role since in most of the SPVs, ITNL had 100% stake. The applicant who was working as Managing Director of ITNL, therefore, will have to answer the charge. 17 In the backdrop of the aforesaid incriminating material collated by the ED against the applicant, the present application requires a consideration in light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceeds of crime as untainted money. It is held that allegations may not ultimately be established, but having been made, the burden of proof that the monies were not the proceeds of crime and were not, therefore, tainted shifted on the accused persons under Section 24 of the PML Act, 2002. Therefore, taking into account the aforesaid proposition of law, the application for bail of the applicant should be seen at this stage while he is involved in the economic offence, in general, and for the offence punishable under Section 4 of the PMLA, in particular. 20 Learned counsel Shri Ponda has heavily relied upon the judgment of the Apex Court in P. Chidambaram vs. DRI, 2019 SCC Online SC 1549. The said judgment will have to be read in light of the facts involved. While testing the judgment of the High Court which had concluded that the triple test of flight risk, tampering with evidence and influencing the witnesses, was in favour of the appellant, the High Court was found to be justified in adverting to the issue relating to gravity of the offence. On discerning the typical facts involved that the appellant was not named as one of the accused in the ECIR but the allegation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or without sufficient security merely on personal guarantees being offered in order to avail the loans as also in re- financing. IFIN continued to project its business as healthy and robust and maintain high rating though the Directors continued to receive their remuneration. Investigation has revealed that although the profit earned by IFIN was on a decline, the PRP, commission, deputation cost, sitting fee received by the officials of IL FS as well as IFIN, ITNL have increased significantly. This had a wide impact on the economy of the country, since the IL FS is a finance company which subdued the equity from shareholders like the LIC, HDFC, Central Bank of India and State Bank of India. In light of the accusations and the manner in which the economy of this country has been impacted, the role of the applicant is clearly exposed. The default crisis in the IL FS has adversely impacted the growth of Non-banking Finance Companies. It has jeopardised hundreds of investors, banks and mutual funds associated with IL FS and sparked panic among equity investors, as several NBFC faced turmoil amid a default scare. In the background of the accusations and its gravity, the applicant is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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