TMI Blog2021 (9) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... . The respondent has filed original complaint on 7th May, 2021 in the present provisional attachment order. The said order is required to be confirmed by the adjudicating authority constituted under Section 6 of the Act. The authority has had after receipt of the complaint issued show-cause notice requiring the party to file their reply. The order which would be passed by the adjudicating authority is appealable one under Section 26 of the PML Act before the appellate Tribunal - The petitioners are required to be relegated to the concerned authorities as prima facie it appears that the authorities are proceeding by following due process of law. The petitions are devoid of merits and looking to the conduct of the petitioners, they are not entitled to seek any equitable relief under the writ jurisdiction of this Court - Petition dismissed. - WRIT PETITION NO. 1569 OF 2021 WITH INTERIM APPLICATION (L) NO. 16884 OF 2021 IN WRIT PETITION NO. 1569 OF 2021 ALONG WITH WRIT PETITION NO. 1636 OF 2021 - - - Dated:- 23-8-2021 - K.K. TATED PRITHVIRAJ K. CHAVAN, J.J. Mr. Aabad Ponda, Senior Counsel a/w Mr. Devansh Bheda, Ms. Jheel Mheta i/b M/s. Purnanand Co. for the petitioner i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vice President and Director of HDIL Group of Companies and Shri Lakhminder Dyal Singh, Director of HDIL group of companies were appointed members of Board of Directors in M/s. Mack Star Marketing Pvt. Ltd. Since the Wadhawans had significant experience in developing and managing commercial real estate projects in Mumbai, the Wadhawans and certain directors appointed by them, unofficially called the Wadhawan Directors , exercised full control over day-to-day management and operations of Mack Star from 2008 until January 2019. The Wadhawans and the Wadhawan Directors also operated the bank accounts of Mack Star. Such arrangement is common in joint ventures between foreign investors and domestic entities. 4. That in order to safeguard the interest of Investor i.e. ODIL, which played a passive role in Mack Star s Management the Article of Association of M/s. Mack Star Marketing Pvt. Ltd. has been embedded with some prohibitions like Article 14.1.2 of the Association Memorandum, which provides the right to appoint two directors (the Investor Directors ) to Board of Directors meetings of Mack Star. Similarly, Article 14.4.2 of the Association Memorandum prohibits Mack Star (and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor of HDIL till November 2016 and is a very close business associate of the Wadhawans, and (b) has himself participated in these fraudulent transactions and misappropriated two office units owned by Mack Star. 9. Further, in January 2016, the investors realized that the Wadhawans had taken fraudulent loans from the Yes Bank in the name of M/s. Mack Star Marketing Pvt. Ltd. They informed Yes Bank Ltd. Even after this Yes Bank Ltd. disbursed 3 installments of loan amounting to ₹ 19.60 crore to Mack Star s account on 23.03.2016, 26.04.2016 25.05.2016. 10. That three of such loans of ₹ 140 crore were sanctioned to the Mack Star for the purpose of Expenditure for modification, renovation refurbishment of Kaledonia Property and other Capex in Company. The purpose assigned for these loans was fictitious because Kaledonia was a newly constructed building and that total cost of construction was only ₹ 100 crore. Therefore, the actual purpose for sanctioning and disbursement of loans was to siphon off the amounts and transfer the misappropriated funds to struggling HDIL group companies, so that the cash strapped HDIL Group Companies could repay loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of loan through their HDIL group of companies without using the same for its declared purpose. Wadhawans had fraudulently committed the act without the consent of majority of the shareholders of Mack Star i.e. DE Shaw Group. It is further alleged that Wadhawans, pursuant to a criminal conspiracy, had illegally and fraudulently transferred the properties of Mack Star situated in Kaledonia building viz. 7 office units bearing No. 101 to 104, 202B, 501-A and 504-A situated at Andheri (E), Mumbai to the petitioner M/s. Sunlight Housing Development Pvt. Ltd. (for short M/s. Sunlight Housing ) a company beneficially owned by Mr. Mukesh Doshi, Mr. Kaushal Doshi and controlled by Mr. Mukesh Doshi and Ankit Doshi. 8. The respondent further noticed during investigation that Doshis of M/s. Sunlight Housing connived with Wadhawans of HDIL had illegally and fraudulently transferred the aforesaid 7 office units to Mack Star in Kaledonia building without paying any actual consideration to Mack Star, meaning thereby, value of the property for its acquisition had never been paid by Doshis of M/s. Sunlight Housing to Mack Star. Thus, the aforesaid properties in Kaledonia building, Andheri (W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner M/s. Sunlight Housing, Mr. Jagtiani, learned Senior Counsel for the petitioner in Mack Star as well as Mr. Venegaonkar, learned Counsel for the respondent E.D. at length. 14. At the outset, Mr. Ponda, challenged the impugned provisional attachment order on two grounds namely; the preconditions of Section 5 of the PLM Act are not fulfilled and, therefore, the provisional attachment order dated 9th April, 2021 passed by the respondent no.1 is bad in law and secondly, the order of provisional attachment has been passed ignoring a binding precedent and the consent decree passed by this Court. Mr. Ponda would argue that the immovable properties in question namely; Flat Nos. 1001 and 1002 in Atlantis building (subject flats) have been acquired in the year 2010 as can be discern from the petitioners averments in the petition, which has also been fortified on the basis of record of Index No.II of the Deed of Conveyance registered in the name of M/s. Crystal Pride Developers, Ms. Dhwani Doshi and Petitioner no.3 in June, 2010, which is prior to the scheduled offence. As such, according to Mr. Ponda, the subject flats are, therefore, untainted and clean property, which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , vehemently urged that the petitioners being victim of crime, who have been defrauded by M/s. Sunlight Housing, there is absolutely no question of they being arraigned as accused and being prosecuted by the respondent in terms of the provisional order dated 9th April, 2021. Mr. Jagtiani would argue that even the impugned provisional attachment order dated 9th April, 2021 does not, in so many words, accuses the petitioners as coconspirators, rather it can be seen that the petitioners suffered a wrongful loss. 19. Per contra, Mr. Venegaonkar, in his brief submissions emphasized and brought to our notice as to how the whole facade of money laundering was conspired by Wadhawans and Doshis in a meticulous way wherein, without actual payment of a single rupees, seven properties worth ₹ 100 crores were acquired; preferential shares allegedly worth ₹ 76.87 crores were acquired in connivance with one another and the said amount of ₹ 5 crores was rotated 223 times, which totally amounts to ₹ 994.28 crores amongst Wadhawans group of companies and Doshis group of companies, so as to project a payment of ₹ 76.87 crores by M/s. Sunlight Housing to Mack Star Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83 will give, at a glance the enormity and deep rooted conspiracy entered into by the petitioners which can prima facie be said to be an offence of money laundering as contemplated in Section 3 of the PML Act. 24. The pictorial chart of rotation of funds between Mukesh Doshi s group companies and Rakesh Wadhawan controlled HDIL group companies under the garb of purchase of 7 office units in Kaledonia building is as under :- 25. Flow Chart of further rotation of funds ahead of M/s. Capetown Exports Pvt. Ltd. and M/s. Harsh Propcon Pvt. Ltd. is as under :- 26. On clubbing both the charts as aforesaid, the complete circular rotation of the funds is shown in the chart below :- 27. The aforesaid charts opened pandora s box and uncovered a well hatched conspiracy of the petitioners and their coterie indicating as to how every attempt has been made to conceal the proceeds of crime by obfuscating the facts. Be that as it may. The main contention of the learned Counsel for the petitioners while invoking extraordinary writ jurisdiction of this Court is that the preconditions of Section 5 of the PML Act are not fulfilled and, therefore, the impugned provisional att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores as depicted in the chart hereinabove were made to appear by the Wadhawans and Doshis so as to illegally transfer / acquire the 7 properties in Kaledonia building. According to the respondent E.D., the whole facade of cheating conspiracy and money laundering by way of rotation was done with mere amount of ₹ 5 crore. This single amount of ₹ 5 crore was circulated to approximately 16 times in between 15 below mentioned companies of Wadhawans and Doshis on a single day i.e. 2nd September, 2016 in such a way that it gives impression of circulation of ₹ 77.65 crores approximately. 30. The companies of the petitioners for the sake of understanding have been clubbed group-wise which are as under :- A. M/s. Sunlight Housing Development Pvt. Ltd. (it s a Doshi s owned company; but here represented as a separate entity to demonstrate rotation of fund) B. M/s. Mack Star Marketing Pvt. Ltd. (at the material time it was controlled by Wadhawan; but here represented as a separate entity to demonstrate rotation of fund) C. Wadhawan Group Companies / entities : (1) M/s. Serveall Constructions Pvt. Ltd., (2) Sarang Rakesh Wadhawan, (3) M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in paragraph nos. 11 and 12, which reads thus :- 11. During the course of investigation, it is also revealed that the said amount of ₹ 5 Crore (most of the time as a single amount of ₹ 5 Crore and sometimes in broken form i.e ₹ 187 Crore, ₹ 2.65 Crore etc.) was transferred 16 times from M/s Sunlight Housing to M/s Mack Star; then from M/s Mack Star this amount was transacted 16 times to M/s Serveall Constructions; then from M/s Serveall Constructions this amount was transacted 11 times to Mr. Sarang Wadhawan and 6 times to M/s Sapphire land; thereafter this amount of ₹ 5 Crore was rotated between M/s Sapphire, Mr. Sarang HDIL wherein this same amount was transacted Mr Sarang to HDIL 22 times then from HDIL to M/s Sapphire 11 times then from M/s Sapphire to Sarang 11 times; thereafter this amount was transacted by HDIL to M/s Awas Developers 8 times and to M/s Bidco Studs 4 times; then from M/s Sapphire to M/s Bidco Studs 7 times; further from M/s Bidco Studs this amount was transacted 11 times to M/s Harsh Propcon; then from M/s Harsh Propcon to M/s HRS Realtors 11 times; then from M/s HRS Realtors to a Joint account of Mr. Mukesh Doshi, Harsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a front/tool to rotate the money through their companies. Further investigation in this regard is in progress. 32. The aforesaid facts and charts if juxtaposed, demonstrates that the Authority has every reason to believe from the material on record to arrive at its objective as well as subjective satisfaction to construe that the subject flats which have been provisionally attached, have been involved in money laundering and if it is not attached it would result in frustrating the further proceedings under the PML Act. 33. Mr. Ponda, learned Senior Counsel would argue that the subject flats are untainted and clean property as it has been acquired in the year 2010 and, therefore, it cannot be attached by branding it as proceeds of crime . To substantiate his point, reliance is placed upon a decision of Punjab Haryana High Court in the case of Seema Garg (supra) and Kumar Pappu Singh (supra) that value of property and property equivalent are different terms to be understood in different sphere. We accept the argument of Mr. Ponda albeit with a pinch of salt on the aspect that the subject flats are untainted and clean property. We shall discuss the case law shortly aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kesh Doshi) Unit Floor Area (in sq.mtrs.) 1001 10th 368.69 1002 10th 361.43 1101 11th 368.69 1102 11th 361.43 1201 12th 368.69 1202 12th 361.43 1401 14th 368.69 36. This gives a very vital blow to the petitioners contention. The petitioners have, therefore, can be said to have approached this Court with unclean hands while seeking an equitable and discretionary relief under Article 226 of the Constitution of India. This also amounts to suppression of material facts and misleading the Court. Not only the property is unclean and tainted but the hands of the petitioners too. Prima facie, the unholy nexus amongst the petitioners is apparent. 37. Mr. Ponda has placed reliance on a decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the properties purchased prior to the commission of the offence would not fall within the meaning of proceeds of crime . The Division Bench also held that there are three limbs to Section 2(1) (u) viz., i) Any property derived or obtained directly or indirectly as a result of criminal activity relating to scheduled offence; ii) Value of property derived or obtained from criminal activity; iii) Property equivalent in value held in India or outside where property obtained or derived from criminal activity is taken or held outside the country. 24. The Division Bench held that the property derived from the offence would be proceeds of the crime and as such any property purchased or acquired before the commission of the offence would not fall within the first limb of the definition of proceeds of crime . It also held that if such property is moved abroad, any property of the accused available within India, irrespective of the date of acquisition, can be attached as proceeds of crime, as the same would fall within the third limb of the definition. However, the Division Bench held, on the ambit of value of such property , that this term is not the same as the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019 also speaks only of properties derived or obtained from the proceeds of a crime and expands the scope of the definition to include properties obtained not only from the scheduled offences but also criminal activity relatable to the scheduled offence. The explanation did not expand the definition to include any other property of equivalent value where the proceeds of the crime are lost even by the offender. 30. In that view of the matter, the properties purchased before the commission of the offence, cannot fall within the definition of proceeds of crime and cannot be attached or confiscated under the Act. Consequently, the attachment and subsequent proceedings before the Adjudicating authority for confiscation of the properties in Table-I of the impugned order would be without jurisdiction and would have to be struck down. (emphasis supplied) 38. In the case of Seema Garg (supra), the appeals were filed against the order of attachment which has been affirmed by the Appellate Tribunal. In those cases, property had been purchased prior to the commission of the scheduled offence. The question that arose before the Court was whether such property can be brought wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India Ors. 2018 SCC Online Del. 6523. It would be advantageous to refer paragraph 26 to 32 of the judgment by which a judicial review of the provisional attachment has been made, which read thus :- 26. To complete the scheme of the PMLA, after the provisional attachment order is passed under Section 5(1) PMLA, the officer making such order will immediately forward a copy thereof to the AA in a sealed envelope, as stipulated under Section 5(2) PMLA. 27.Section 5 (3) PMLA states that the provisional attachment order shall cease to have effect on the expiry of the period specified in Section 5 (1) or on the date when the AA makes an order under Section 8 (2) PMLA, whichever is earlier. As already noted, under Section 5 (5) PMLA, the officer making such order must file a complaint before the AA within 30 days of the order of provisional attachment being made. 28.As far as the AA is concerned, under Section 8(1), once such a complaint is received and if the AA has a reason to believe that any person has committed an offence under section 3 or is in possession of the proceeds of crime , the AA may serve a notice (SCN) of not less than 30 days on such person calling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of the learned counsel for the Union of India are as under: (i) The mere possibility of abuse of power is not a ground to strike down the provision on the basis that it is ultra vires or unconstitutional. In such case, the decisions in individual cases can be the subject matter of judicial review. Reliance is placed on the decisions in Sushil Kumar Sharma v. Union of India (2005) 6 SCC 281, Collector of Customs v. Nathella Sampathu Chetty (1961) 3 SCR 786 and State of Rajasthan v. Union of India (1978) 1 SCR 1. (ii) There are sufficient safeguards in the second proviso to Section 5(1) PMLA which in no way obliterates the first proviso thereto. The second proviso kicks in only where there is urgency and the officer believes that the property involved in money-laundering should be immediately attached and the failure to attach it is likely to frustrate any proceedings under the Act . Since the reasons for such belief has to be recorded in writing, on the basis of material in his possession , there are sufficient safeguards inasmuch as there cannot be any arbitrary and whimsical exercise of powers. (iii) The second proviso has been inserted for a very sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son; as a result of criminal activity relating to a scheduled offence, or b) the value of any such property, or c) where such property is taken or held outside the country, then the property equivalent in value held within the country. 46. It was sought to be contended by the Petitioners thatthe latter portion of (c) viz., that it could also be a property equivalent in value held within the country should also apply to the situation in (b). In other words, for (b) to be the subject matter of proceeds of crime', the property which is the proceeds of crime should be taken out of or held outside the country and not be available in the country. 47. The above submissions ignore the important disjunctive or' occurring between the expression the value of any such property' in (b) above and the expression in (c) where such a property is taken or held outside the country . On the contrary, the qualifying word such in (b) refers to the earlier portion in (a) viz., property derived or obtained, directly or indirectly, by any person' as a result of criminal activity relating to a scheduled offence. 48. The above definition is to be read with Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the aspect of availability of alternate efficacious remedy, the law is no more res integra right from a well known judgment of the Hon ble Supreme Court in the case of Shalini Shyam Shetty and Anr. Vs. Rajendra Shankar Patil, (2010) 8 SCC 329 up to the judgment in the case of Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai Ors. (1998) 8 SCC 1 . It has been well settled by a catena of decisions that the power to issue a writ of certiorari and the supervisory jurisdiction are to be exercised sparingly and only in appropriate cases where judicial conscience of the High Court dictates it to act lest a gross failure of justice or grave injustice should occasion. Care, caution and circumspection needs to be exercised when any of the aforesaid two jurisdictions is sought to be invoked during the pendency of any suit or proceedings in a subordinate court and the error though calling for correction is yet capable of being corrected at the conclusion of the proceedings in an appeal or revision preferred thereagainst and entertaining a petition invoking certiorari or supervisory jurisdiction of the High Court would obstruct the smooth flow and/ or early disposal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. At the same time, it cannot be lost sight of that though the matter relating to an alternative remedy has nothing to do with the jurisdiction of the case, normally the High Court should not interfere if there is an adequate efficacious alternative remedy. If somebody approaches the High Court without availing the alternative remedy provided the High Court should ensure that he has made out a strong case or that there exist good grounds to invoke the extraordinary jurisdiction. 50. A bare look at the ratio laid down by the Hon ble Supreme Court would indicate that the High Court should not interfere if there is an adequate efficacious remedy. If someone approaches the High Court without availing the alternate remedy provided, the High Court should ensure that he has made out a strong case or there exists a good ground to invoke extraordinary jurisdiction. As already demonstrated hereinabove, no good grounds or strong case has been made out by the petitioners warranting interference of this Court in the impugned provisional attachment order passed by the respondent - ED. 51. The Hon ble Supreme Court extracted sub-para (7) and (8) of para 38 from the judgment in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 and the cases cited there). The fact that the aggrieved party has another and adequate remedy may be taken into consideration by the superior court in arriving at a conclusion as to whether it should, in exercise of its discretion, issue a writ of certiorari to quash the proceedings and decisions of inferior courts subordinate to it and ordinarily the superior court will decline to interfere until the aggrieved party has exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequate legal remedies. 22. The mere existence of alternate forums where the aggrieved party may secure relief does not create a legal bar on a High Court to exercise its writ jurisdiction. It is a factor to be taken into consideration by the High Court amongst several factors. Thus, the mere fact that the High Court at Madras is capable of granting adequate relief to the appellant does not create a legal bar on the Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt issued show-cause notice requiring the party to file their reply. The order which would be passed by the adjudicating authority is appealable one under Section 26 of the PML Act before the appellate Tribunal. The order passed by the appellate Tribunal, in turn, is further appealable before this Court under Section 42 of the PML Act. The Act is a complete code in itself. The petitioners, therefore, cannot be heard to say that only because the petition was filed on 28th April, 2021 i.e. much prior to the show-cause notice, the same is still alive. The petitioners are required to be relegated to the concerned authorities as prima facie it appears that the authorities are proceeding by following due process of law. 56. It is pertinent to note that the petitioners have not yet been dispossessed of the subject flats but have been prevented from dealing with the said property till the orders are passed by the appellate authority under Section 8(2) of the PML Act. Last but not the least, the petitions needs to be dismissed also on the ground of suppression of dismissal of the earlier Writ Petition being Writ Petition (L) NO. 10807 of 2021 (Mr. Mukesh Doshi Anr. Vs. Directorate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a likelihood of the property being transferred or dealt with by the person from whose possession it was seized, would offer a good ground for the Director to act under Section 5 of the PML Act. 5 Mr. Ponda, learned Senior Counsel appearing for the Petitioners, submits that the law on the point requires the formation of reason to believe the existence of the two preconditions under Section 5 on the basis of material in possession of the Director. Learned Counsel submits that on the date when the order was passed under Section 5, there was no such material. It is submitted that there was no material to indicate that the cash was likely to be transferred or dealt with by the Petitioners, considering particularly that it was under seizure at that time under Section 17 of the PML Act and placed in a designated bank account under the control of the Director. Insofar the argument of learned Counsel that likelihood of transfer or dealing with the property must exist on the very date of the order under Section 5 and not on any anterior date or on the date when order was passed under Section 17 of the PML Act, is concerned, that has already been dealt with by us above. The other leg of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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