2017 (8) TMI 1076 - AT - Money Laundering

Prevention of Money Laundering - determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering - Held that - The Adjudicating Authority did not mention any reason as to why while passing the impugned order dated 23.03.2016, selective approach was adopted in considering and discussing the grounds submitted by the appellant in its written reply dated 11.01.2016 and on what basis the 14 ground. The said biased approach has caused severe prejudice and resulted in miscarriage of justice. The Adjudicating Authority despite submissions of documentary evidence by the appellant that the respondent had misrepresented the facts and had distorted the same in the Original Complaint for prejudicing the mind of the Adj. Authority accepted the same distorted version as the Facts & circumstance of the case in the impugned order. It is evident from the record that the appellant had been following the international standards and norms of collection and distribution of royalty. The amounts of the royalty collected and pending distribution could in no manner be construed as proceeds of cheating. The appellant had been filing all the statutory returns under the Income Tax Act and the Companies Act on time and never ever an iota of suspicion has ever been raised by any of the Statutory Authority in respect of the working of the Appellant or with regard to its financial statements and returns. The balance amount of royalty lying in the investment portfolios in the name of Appellant can in no way be construed as proceeds of crime and can be liable for provisional attachment or for any other purpose under the provisions of PMLA, 2002. If for the sake of arguments if it was assumed that that royalty collected was proceeds of crime then the amount which has been distributed also will amount to proceeds of crime and all those who have received the same will have to be booked for offence for money laundering along with the persons from whom the said sums of royalty had been collected. That the contention of the respondent that the royalties so collected in legal and lawful manner were proceeds of crime was grossly wrong, baseless and without any logic. The Adjudicating Authority failed to appreciate the order of the Hon ble Bombay High Court in the Notice of Motion wherein it had been held that the operations of the appellant are lawful and legitimate. Accordingly, the impugned order passed by Adjudicating Authority in confirmation being not sustainable, is liable to be set-aside as the same was passed contrary to facts and against the law. We may clarify here that during the course of the hearing, the learned counsel for the appellant has confirmed to us to pay the Royalty to the unpaid Artist without any condition as per law. Under these circumstances, we are of the view that unpaid artists will also be entitled to claim the interest on the amount of Royalty.

Issues Involved:
1. Termination of Membership
2. Non-payment of Royalties
3. FIR and Criminal Proceedings
4. Provisional Attachment Order (PAO)
5. Jurisdiction of Enforcement Directorate
6. Definition and Scope of 'Proceeds of Crime'
7. Validity of Adjudicating Authority's Order

Detailed Analysis:

1. Termination of Membership
The appellant, a company incorporated under the Companies Act, 1956, had terminated the membership of Mr. Surender Sathi in 2009 for not signing the Assignment Deed required by the Governing Council. Despite repeated requests, Mr. Sathi did not comply, leading to his membership being treated as terminated. This termination was never legally challenged by Mr. Sathi.

2. Non-payment of Royalties
Mr. Sathi alleged non-payment of royalties from 2000 onwards, leading to a complaint against IPRS and its directors. The appellant contended that royalties were not paid due to Mr. Sathi's failure to complete necessary formalities. The appellant also argued that the royalties collected and pending distribution were due to non-fulfillment of formalities by members.

3. FIR and Criminal Proceedings
An FIR was registered against IPRS and its directors under sections 420, 406, 468, 471, 506, and 120B of the IPC. The Allahabad High Court granted interim relief to the appellants, questioning the territorial jurisdiction of the FIR. The court observed that the criminal forum was being misused and suggested that Mr. Sathi should pursue a civil forum for royalty disputes.

4. Provisional Attachment Order (PAO)
The Directorate of Enforcement issued a PAO, attaching royalties amounting to ?70,17,00,483/- invested in various mutual funds, alleging them to be "proceeds of crime." The Adjudicating Authority confirmed the PAO, holding that the properties were involved in money laundering. The appellant argued that the royalties collected were not proceeds of crime and that the attachment was disproportionate.

5. Jurisdiction of Enforcement Directorate
The appellant challenged the jurisdiction of the Directorate of Enforcement, Mumbai Zonal Office, arguing that the FIR was registered in Agra and hence Mumbai had no territorial jurisdiction. The Adjudicating Authority disregarded this argument.

6. Definition and Scope of 'Proceeds of Crime'
The appellant contended that the royalties collected were from legal activities and not from any criminal activity, thus not qualifying as proceeds of crime under the Prevention of Money Laundering Act (PMLA). The respondent argued that the wrongful retention of royalties constituted proceeds of crime.

7. Validity of Adjudicating Authority's Order
The Adjudicating Authority's order was challenged on grounds of being biased, disregarding the appellant's submissions, and not providing a reasoned decision. The Tribunal found that the Adjudicating Authority selectively considered the appellant's arguments and failed to provide a rational nexus for the attachment of ?70,17,00,483/-.

Conclusion:
The Tribunal set aside the Adjudicating Authority's order confirming the PAO, holding that the royalties collected were not proceeds of crime and that the attachment was disproportionate and without basis. The Tribunal also noted that the appellant had agreed to pay the unpaid royalties to artists, including interest, as per law.

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