2024 (11) TMI 794 - AT - Money Laundering

Money Laundering - proceeds of crime - Consideration of proceeds of crime regarding the refund amount from unsuccessful IPO applications - malpractices and manipulations indulged by certain individuals/entities for different Initial Public Offerings (IPOs) - forged documents - HELD THAT - The SEBI has passed the order within the four corner of the provisions applicable therein. The reference of the order passed by the SEBI rather goes against the appellant and proves the allegation substantially. It is, however, only to the extent of determination of unlawful gains pursuant to the provision of Securities and Exchange Board of India Act, 1992(SEBI Act, 1992). The SEBI has determined the amount of unlawful gain by taking the difference of the amount out of sale of shares. Their area of determination was only to find out illegal gain out of the allotment. The provisions of the Act of 2002 are quite different and distinct to the provisions of the SEBI Act, 1992. The FIR followed by ECIR was recorded finding commissioning of scheduled offence and the proceeds of crime in the hands of the appellant. It is taking into consideration the amount involved and used for illegal purpose to cheat the public and, therefore, the entire amount therein was considered to be the proceeds of crime . The satisfaction of the amount determined by the SEBI would not absolve the appellant from commission of the scheduled offence, otherwise the appellant would have challenged the FIR or ECIR but no such challenge has been made. Thus, there are no substance even in the second argument. Discrepancies and contradictions in the orders qua the amount - HELD THAT - There are no discrepancy or contradiction in the amount and otherwise the final amount has been referred and disclosed in the impugned order thus alleged issue of discrepancy no more remains. Thus there are no substance even in the third argument. Alleged discrimination in the action of the respondent - HELD THAT - The counsel for the appellant was called upon to refer to the documents to prove allegation of discrimination in the treatment between the similarly placed. A reference of the Income Tax Return was given but then the counsel fairly admitted that it cannot substantiate the argument of discrimination. It could have been by producing an order of provisional attachment against others which has not been produced. Thus, even the last argument alleging discrimination of treatment is not made out. There are no substance in any of the argument raised by the appellant - The appeals would accordingly fail and are dismissed.

Issues Involved:

1. Consideration of proceeds of crime regarding the refund amount from unsuccessful IPO applications.
2. Justification for continuance of attachment of Bank and Demat Accounts post SEBI's recovery of unlawful gains.
3. Alleged discrepancies and contradictions in the impugned order regarding the amount involved.
4. Consideration of refund amounts and sale proceeds as proceeds of crime.
5. Alleged discrimination in the attachment of property by the respondent.

Issue-wise Detailed Analysis:

Issue No. 1: Consideration of Proceeds of Crime Regarding the Refund Amount

The appellants argued that the refund amounts from unsuccessful IPO applications should not be considered as "proceeds of crime." They contended that the funds used for IPO applications were sourced from loans, and the refunds were not used for illegal purposes. The tribunal, however, found no substance in this argument. It was determined that the entire amount involved in the fraudulent scheme, including the refunds, was used for illegal purposes. The funds were provided to key operators who opened fictitious accounts to manipulate IPO allocations, thereby cheating genuine applicants. Consequently, the entire amount, including refunds, was deemed "proceeds of crime."

Issue No. 2: Justification for Continuance of Attachment Post SEBI's Recovery

The appellants argued that since SEBI had already recovered the unlawful gains, the attachment of their accounts should be lifted. They claimed that SEBI's determination of unlawful gains and the subsequent satisfaction of the amount should suffice. The tribunal rejected this argument, clarifying that SEBI's actions were limited to determining unlawful gains under the SEBI Act, 1992. The tribunal emphasized that the proceedings under the Prevention of Money Laundering Act, 2002, were distinct, focusing on the entire amount involved in the fraudulent scheme as "proceeds of crime," not just the unlawful gains determined by SEBI.

Issue No. 3: Alleged Discrepancies and Contradictions in the Order

The appellants pointed out discrepancies in the amounts mentioned in the impugned order, claiming it indicated a lack of meticulousness by the respondent. They noted variations in the total amount considered as "proceeds of crime." The tribunal dismissed this argument, stating that the final amount had been clearly disclosed in the impugned order. It found no substantive discrepancies or contradictions that would vitiate the proceedings.

Issue No. 4: Consideration of Refund Amounts and Sale Proceeds as Proceeds of Crime

The appellants argued that the refund amounts and sale proceeds should not be considered "proceeds of crime." The tribunal reiterated its earlier stance, emphasizing that the entire amount involved in the fraudulent scheme, including refunds, was used with criminal intent. The tribunal held that the funds were used to manipulate IPO allocations, thus constituting "proceeds of crime." This issue was considered repetitive and had been addressed in the tribunal's previous discussions.

Issue No. 5: Alleged Discrimination in Attachment of Property

The appellants alleged discrimination, claiming that in similar cases, refund amounts were not considered "proceeds of crime." The tribunal found no evidence to support this claim. It noted that the appellants failed to provide any documents or orders demonstrating differential treatment. The tribunal concluded that the allegation of discrimination was unsubstantiated and dismissed the argument.

Conclusion:

The tribunal dismissed the appeals, finding no merit in the arguments presented by the appellants. It upheld the attachment of the Bank and Demat Accounts, concluding that the entire amount involved in the fraudulent IPO scheme constituted "proceeds of crime." The tribunal's decision was consistent with its previous rulings and the findings of SEBI, reinforcing the enforcement of legal provisions against financial malpractices.

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