2011 (6) TMI 1040 - AT - Money Laundering

Summary

Issues Involved:
1. Legality of the provisional attachment order u/s 5 of the Prevention of Money Laundering Act, 2002.
2. The role of the Respondents in the alleged fraudulent acquisition of shares.
3. Whether the Respondents' actions constituted money laundering.
4. Applicability of Section 5(1) of the Act to persons not charged with a scheduled offence.

Summary:

1. Legality of the Provisional Attachment Order u/s 5 of the Act:
The appeal challenged the Adjudicating Authority's order dated 26th September 2008, which declined to confirm the provisional attachment of 3,91,020 equity shares of IDFC. The attachment was under Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA). The Tribunal found that the Adjudicating Authority did not consider the submissions made by the Appellant and instead took cognizance of non-est claims by the Respondents. The Tribunal concluded that the provisional attachment was valid and necessary to prevent the concealment or transfer of proceeds of crime.

2. Role of the Respondents in the Alleged Fraudulent Acquisition of Shares:
It was alleged that the Respondents provided funds to intermediaries who in turn transferred these funds to key operators for fraudulent acquisition of IPO shares reserved for Retail Individual Investors (RII). The investigation revealed that the funds provided by the Respondents were adjusted by transferring shares of IDFC to their demat accounts. The Tribunal noted that the Respondents were aware of the ultimate utilization of funds for subscribing to the IDFC IPO and the criminal antecedents of the shares received.

3. Whether the Respondents' Actions Constituted Money Laundering:
The Tribunal found that the Respondents deployed funds through intermediaries for subscribing to IPOs, knowing the end use of the funds. The shares received by the Respondents were part of the fraudulent scheme orchestrated by the key operators. The Tribunal rejected the Respondents' claim that the funds were provided as interest-bearing loans and concluded that the Respondents' actions constituted money laundering as defined under Section 3 of the Act. The shares received by the Respondents were considered proceeds of crime.

4. Applicability of Section 5(1) of the Act to Persons Not Charged with a Scheduled Offence:
The Tribunal held that the property involved in money laundering could be attached even if the person in possession of such property is not charged with a scheduled offence. This interpretation was supported by the Tribunal's previous judgment in Radha Mohan J. Lakhotia & Others vs. Dy. Director, PMLA, which was upheld by the Bombay High Court. The Tribunal emphasized that the legislative intent of the Act was to prevent money laundering and confiscate proceeds of crime, regardless of whether the person in possession of such proceeds is charged with a scheduled offence.

Conclusion:
The Tribunal reversed the Adjudicating Authority's order and confirmed the provisional attachment of the shares. The attachment would continue during the pendency of the criminal proceedings and would become final upon the conviction of the accused in the trial court. The Tribunal also directed that any dividend declared on the attached shares should be deposited in a separate bank account or fixed deposit with interest accumulation until the final outcome of the case.