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2019 (6) TMI 1151 - AT - Money LaunderingProvisional attachment of Bank Accounts - there is a reasonable belief that certain properties are derived out of proceeds of crime - invocation of provisions of sections 120-B read with sections 420, 467, 468 and 471 of IPC - scheduled offence or not - section 3 of the Prevention of Money Laundering Act, 2002 - HELD THAT - It is evident that the fraud is perpetrated on the Wakf Board by the Bank by transferring the funds credited to its account for the purpose of securing a Fixed Deposit in the name of CEO, Wakf Board. The funds credited to the account of Vijaya Bank, Chintamani Branch could not have been transferred by the Branch based on a letter stated to have been signed by the Chief Accounts Officer when the Cheque issued by the CEO has an endorsement that the amount is credited to the Branch for opening of Fixed Deposit in his name - The instruction purported to have been given by the Chief Accounts Officer in a letter is not by the authority who has signed the cheque. The instruction which is stated to have been issued to the Bank was not also verified by the Branch Officials and have been acted upon fraudulently. As per record, it is clear that the CEO of the Wakf Board having signed the cheques for the purpose of securing Fixed Deposit from Chintamani Branch has also specifically endorsed on the cheque that the instrument is drawn on Vijaya Bank, Chintamani Branch as towards Fixed Deposit to be issued in favour of CEO, KSBW. The transfer of the amount credited to third parties was without the authority of law and therefore there arise no obligation on the part of the CEO to comply as there could not have been any other outcome but to secure the Fixed Deposit in the name of CEO, Wakf Board. The investigating authority has not recorded any finding on the fraud perpetrated by the Bank exceeding its authority and by also transferring huge sums of money without even verifying the veracity of the letter which is not a banking document to transfer funds to third parties. These transactions are effected by the Bank exceeding the direction provided to the Bank. Admittedly there is no specific allegation in the Complaint against the CEO of Wakf Board to array the office of the CEO as one of the defendants in the complaint filed by the Respondent Authority. The respondent authority only states that the CEO of the Board accepts placing the money in Fixed Deposit with a Bank on the same day the proposal was mooted by the First Division Assistant, which was verified by the Chief Accounts Officer and the file was forwarded to the CEO who accepted to opening of Fixed Deposit at Vijaya Bank (which is a Nationalised Bank), Chintamani Branch - Admittedly the Chief Executive Officer, Karnataka State WAKF, Bangalore initiated the criminal proceedings against the Manager of Vijaya Bank, Assistant Branch Manager, Vijaya Bank, Chintamani Branch and also Shri Siraj Ahmed the First Division Assistant and Cashier of Karnataka State Board of WAKFs, Bangalore. There being no allegation by the investigating authority on the Chief Executive Officer representing Karnataka State Board of WAKF who had to secure the deposit from the Bank, the question of therefore arraying him as a Defendant in the proceedings was unnecessary. The Board is not in possession of any proceeds of crime under section 5 of the Prevention of Money Laundering Act, 2002 as the office of the Board has taken immediate action and recovery steps by filing an FIR in the Jurisdictional Police Station. The CEO of the Board has noted on the file that the money was not intended for any other person or for transferring it to any other account. The cheques were also endorsed on the back to state that the intention was to open an FD with the Bank. The fraud perpetrated on the Board was not known to the CEO of the Board as nothing contrary has come on record. The appellant is not involved in money laundering. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Legality of the Provisional Attachment Order under the Prevention of Money Laundering Act, 2002. 2. Allegations and averments against the CEO of the Karnataka State Board of Wakf. 3. Responsibility and liability of the bank and its employees in the fraudulent transaction. 4. Compliance with RBI guidelines and banking norms. 5. Admissibility of evidence and burden of proof regarding the proceeds of crime. Issue-wise Detailed Analysis: 1. Legality of the Provisional Attachment Order under the Prevention of Money Laundering Act, 2002: The appellant challenged the order of the Adjudicating Authority under Section 26 of the Prevention of Money Laundering Act, 2002 (PMLA). The CEO of the Wakf Board was served with Provisional Attachment Order No.3/2017 attaching an amount of ?2,72,74,444/- and ?1,10,00,000/- in different accounts. The attachment was based on the belief that these amounts were derived from "proceeds of crime." The Tribunal found that the CEO of the Wakf Board had no involvement in the fraudulent transfer of funds and that the attachment was unsustainable. The Tribunal set aside the impugned order dated 20.06.2017 and quashed the Provisional Attachment Order against the appellant. 2. Allegations and Averments Against the CEO of the Karnataka State Board of Wakf: The CEO was made Defendant No.8 in the proceedings. The complaint alleged that the CEO had issued cheques for ?2,29,45,465/- and ?1,71,00,000/- for opening Fixed Deposits, which were fraudulently transferred by the bank staff. The Tribunal noted that the CEO had acted in good faith by endorsing the cheques for Fixed Deposits and had no knowledge of the fraudulent activities. The CEO had promptly filed a complaint with the police upon discovering the fraud. The Tribunal concluded that there was no evidence of complicity or involvement of the CEO in the fraud. 3. Responsibility and Liability of the Bank and its Employees in the Fraudulent Transaction: The Tribunal found that the bank staff, including the Branch Manager and Assistant Branch Manager of Vijaya Bank, Chintamani Branch, had fraudulently transferred the funds to the account of M/s. Ajay Sharma Trading Corporation. The bank failed to verify the authenticity of the letter purportedly issued by the Chief Accounts Officer and acted against RBI guidelines. The Tribunal held that the bank and its employees were responsible for the fraudulent transaction and not the CEO of the Wakf Board. 4. Compliance with RBI Guidelines and Banking Norms: The Tribunal emphasized that the bank acted grossly against RBI guidelines by transferring funds based on an unauthorized letter. The RBI guidelines prohibit crediting proceeds of account payee cheques to third-party accounts without proper mandate. The bank's actions violated these guidelines, and the Tribunal held that the bank was at fault for not following proper procedures. 5. Admissibility of Evidence and Burden of Proof Regarding the Proceeds of Crime: The Tribunal noted that the burden of proof lies on the Respondent Authority to establish that the appellant was in possession of proceeds of crime. The Tribunal found no evidence linking the CEO to the proceeds of crime or any scheduled offense under the PMLA. The Tribunal relied on the decision of the Madras High Court in M/s. Indian Bank v. Joint Director of Enforcement, which held that victims of crime should not be penalized under sections 8 and 9 of the PMLA. Conclusion: The Tribunal set aside the impugned order dated 20.06.2017 and quashed the Provisional Attachment Order against the appellant. The Tribunal held that the CEO of the Wakf Board was not involved in money laundering and had acted in good faith. The bank and its employees were found responsible for the fraudulent transaction, and the Tribunal emphasized the importance of adhering to RBI guidelines and banking norms.
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