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TMI Blog2019 (6) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... ny constituted as a special purpose vehicle for the purpose of completing the project and any amount given to M/s CHIDCO Ltd. was for the purpose of implementing the project. The entire transaction has been declared and the requisite taxes have also been paid as per the case of the respondents. It appears from the impugned order that the Adjudicating Authority has held that no proceeds of crime are available with the Respondents and as such no property of the Respondents is involved in money laundering based on the facts and materials placed before the Adjudicating Authority. It is also held by the Adjudicating Authority that the business transactions were fair, and in the normal course thereof did M/s Dynasty Developers Pvt. Ltd. and M/s Embassy Realtors Pvt. Ltd. had made profits, as is discernible from the above quoted excerpts of the impugned order. The Appellant has failed to establish any nexus whatsoever of the Respondent Company even remotely being linked to the alleged offences, and neither has the Appellant produced even a single document. It is a settled principle of law that upon amalgamation between two Companies the transferor Company dies a civil death which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. (b) The case is in respect of allotment of housing projects in Hyderabad and Nandyala to M/s Indu Projects who was incorporated on 04.12.2001, the company owned and controlled by I. Syam Prasad Reddy. (c ) Embassy Realtors (erstwhile Dynasty Developers) is a group company of, and owned and controlled by Jitender Virwani. Shyam Prasad Reddy and Jitender Virwani worked on project from 2002-2005. (d) Vide GO No. 123, Housing (HB.II.1) Department dated 13.05.2004, the Special Chief Secretary, Housing Department has been made the Chairman of HPC in place of DG, NAC. Notification of Expression of Interest dated 22.02.2004 and criteria. It was alleged that the criteria mentioned at page 136 was completely flouted by the defendants and its consortium agreement dated 10.03.2004. 3. Properties attached by ED i) 1Shri Jitendra Virwani ₹ 19,00,00,000/- (FDs/TDs) ii) M/s. Embassy Property Developments Pvt. Ltd.-₹ 25,05,57,469/- (FDs/TDs) 4. List of dates and events submitted by the respondent are as under: Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Indu and that the consortium satisfies the legal requirements and meets all the eligibility criteria laid down in the RFP. Page 31, para 26 of the Complaint. 04.10.2004 I. Syam Prasad Reddy vide his letter dated 04.10.2004 submitted the RFP documents including MOU dated 29.09.2004. Page 33, para 28 of the Complaint. 01.11.2004 and 19.11.2004 The High-Powered Committee (HPC) approved selection of bidders and Embassy Unity Consortium was the highest bidder, based on which a Letter of award (LOA) was issued to M/s Indu Projects Ltd. for 4.29 acres at Gachibowli and 50 acres at Kukatpally along with other successful bidders. Page36, Para 32 of the Complaint. Page 38, Para 36 of Complaint. 07.12.2004 The share holding pattern of the Consortium was restructured. Page 41, Para 39 of Complaint. 22.01.2005 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.01.2010 Order dated 25.01.2010 passed by the Hon ble High Court of Karnataka amalgamating ERPL into EPDPL. Volume 9 Page No. 3158. 09.09.2014 Final Report/Charge Sheet No. 20 filed by CBI in C.C. No. 26/2014 on investigation by Enforcement of Directorate as directed by the Hon ble High Court of Andhra Pradesh. Page 13, Para 8 of the Complaint. 03.01.2018 Provisional Attachment Order No. 01/2018 issued by the Complainant in file no. ECIR/09/HZO/2011 (Copy of the said Provisional Attachment Order was not supplied to Respondent). Page 4, Para 2 of the complaint 22.01.2018 On the basis of the charge sheet a Complaint was filed by Directorate of Enforcement. 12.02.2018 Order passed by the Adjudicating Authority recording the satisfaction in terms of Section 8(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. 6. By order dated 15.04.2019 passed in the present Appeals noted that the I.O. after taking the instructions from JD makes the statement to withdraw its communications issued to the banks which were sent by the letter dated 13th January 2019, 6th August, 2018 and 21st August, 2018 and January 2019. Let the said letters be withdrawn by the appellant within 10 days. The undertaking given by I.O. is duly accepted. 7. The order dated 15.04.2019 passed by the Appellate Tribunal, PMLA was stayed ex-parte by the Hon ble High Court for the State of Telangana, Hyderabad vide order dated 26.04.2019 passed in IA No. 1 of 2019 in WP No. 9196 of 2019. 8. When this matter was taken on 29.04.2019, both parties agreed to argue the main appeals, thus they were given time to file their written submissions. The appeals were listed for final arguments with the consent of the parties on 06.05.2019. In view of hearing concluded in the appeals, learned counsel appearing on behalf of respondents did not press any relief in M.P. No. 5915/2019. The order was reserved. 9. The submissions were made on behalf of appellant, the same are:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of Kukatpally Project, it was declared to APHB that a Special Purpose Vehicle (SPV) shall be formed for the successful completion of the project on award of the project to the consortium with equity participation of (a) Indu-51% (b) Embassy-20% (c) Soma- 14% (d) Unity-1% and (e) Avinash-14% with details of roles and responsibilities of each of the members was also mentioned. M/s Embassy Realtors Private Limited was designated as the technical member for the purpose of satisfying the technical criteria. (e ) Embassy-Unity consortium formed an SPV in the name and style of M/s Cyberabad Hitech Integrated Township Development Corporation Private Limited (M/s CHIDCO Private Limited) for implementing the housing project on Ac.50.00 at Kukatpally. Shri I Syam Prasad Reddy through his letter to APHB sought approval for restructuring of the equity holding with (i) M/s Indu Projects Limited-51.25%; (ii) M/s Embassy Realtors Private Limited - 34.75% and (iii) Mr. Avinash N. Bhosale - 14.00%. (f) The shares in M/s CHIDCO Private Ltd were allotted to M/s Embassy Realtors Private Limited Other shareholders on 23.03.2005 i.e. after the declaration made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. As per the RFP documents, technical consortium member needed to continue till completion of the project and exit midway through was not envisaged therein and the request was not in tune with the spirit of the agreement and also in the light of undertakings in the MOU and letter of acceptance by the individual consortium members. The company made a request on 23.03.2007 to become a 100% owned subsidiary of M/s Indu Projects Limited and enclosed a letter dated 20.03.2007 of M/s Embassy Realtors Private Limited indicating their inability to continue in the project due to their other commitments. APHB had not sent any reply to the company. (k) Without obtaining the approval from APHB, both Shri I. Syam Prasad Reddy and Shri Jitendra Virwani have negotiated between themselves and finalized the exit deal, in gross violation of the terms and conditions of allotment of the project. (l) Shri I. Syam Prasad Reddy representing M/s CHIDCO Private Limited and Shri Jitendra Virwani representing M/s Dynasty Developer Private Limited, (M/s DDPL - presently renamed as M/s Embassy Property Developments Private Limited), entered into an agreement dated 10.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicle company with M/s Indu Projects Limited, as the lead member with 74%. M/s Indu Projects Limited informed APHB that they have constituted a SPV i.e., M/s Indu Eastern Province Projects Private Limited, with shareholding by M/s Indu Projects Ltd - 74% and M/s Embassy Realtors Private Ltd - 26%, however, M/s Embassy Realtors Private Limited had never been the shareholder in their company and it never invested its funds in the purported SPV. (p) It is further submitted that no technical expertise was ever provided by M/s Embassy Property Realtors Private Limited in the development project and it never participated in the project development at all. M/s Embassy Realtors Private Limited exited from the consortium even without the consent of APHB and the same was in gross violation of the MOUs entered, development agreements undertaken and letter of acceptance submitted to APHB. (q) Therefore, Shri I. Syam Prasad Reddy and M/s Indu Projects Limited, who are otherwise not eligible to bid and win the housing projects on their own, as per the eligibility criteria notified in February 2004, became successful in getting housing projects at Kukatpally an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e ) From the above, it is evident that the proceeds of crime received by Shri Jitendra Virwani through his companies were utilised for the business activities and such proceeds of crime are inseparable with the other monies involved with the companies, as such value equivalent to the proceeds of crime are attached from the funds available with the aforesaid companies/ persons. (f) Further, it proves beyond doubt that Shri Jitendra Virwani used his companies as conduit to receive the Proceeds of Crime and projected the same to be untainted and thus, ultimately enjoyed the fruits of proceeds of crime through the account of his companies. 11. Beneficial Ownership as per appellant: i) M/s Embassy Realtors Private Limited and M/s Dynasty Developers Private Limited were the group companies of Embassy Group and Shri Jitendra Virwani was the Chairman of Embassy Group. These two companies got amalgamated and formed a new company namely M/s Embassy Property Developments Private Limited. Shri Jitendra Virwani is the Managing Director of this company. ii) Shri Jitendra Virwani was controlling the business affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the projects or the development agreements. He did not from DDPL and ERPL ever receive any proceeds of crime nor could they have passed the same onto the Respondent Company as the Respondent Company herein was incorporated by virtue of the wholly legal and legitimate sanction of amalgamation proceedings of ERPL into the Respondent Company by the Hon ble High Court of Karnataka and as such the Respondent Company cannot be prosecuted for any criminal liability, if at all, either of the DDPL or ERPL. 13. The learned senior counsel appearing on behalf of respondents has argued that the main job of the appellant is to trace out the proceed of crime and take action as per law. It is not the duty of the authorized officer to patch the discrepancies, if any, occurred during the course of business activities and change of hands. 14. As far as schedule offence is concerned, the said issue has to be decided by the Special Court as per its own merit. This Tribunal does not wish to express any opinion on merit. The question in the present appeals is only to consider as to whether the respondents are involved in money laundering or not or the respondents ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 5(1) of the Prevention of Money Laundering Act, 2002 (hereinafter referred to as the Act ) had not been met satisfactorily by the Appellant with respect to the Respondent herein; (d) Ss far back as in the year 2010, ERPL and DDPL came to be merged by virtue of the Judgment of the Hon ble High Court of Karnataka dated 25.01.2010, thereby negating the transfer of any criminal liability whatsoever to the Respondent herein. (Copy of the Order dated 25.01.2010 is annexed with the Appeal). (e ) That the Adjudicating Authority has duly considered the balance sheets of DDPL and duly noted the expenditure incurred towards the construction and development works under the purview of the technical services agreement between DDPL and CHIDCO. (f) Adjudicating Authority has correctly noted that the purchase of the Villas by Mr. Jitendra Virwani cannot be said to be a criminal activity, as the Appellant has failed to establish any illegality thereto for the said Villas had been sold legitimately and without lowering of prices from the market value of the villas. (g) Tthe Adjudicating Authority has analysed the application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be noted that it is not the case that no development work has taken place. The fact that supplementary development agreement dated 02.12.2009 was executed between APHB and CHIDCO, which indicated that the APHB extended the time for completion of the project indicated that development work has taken place. The fact that development took pace is also evident from the fact that several Villas could be sold. DDPL had entered into an agreement with CHIDCO on 10.03.2005, whereby DDPL had agreed to share its expertise for the purpose of conceptualising, coordination in designing, development and marketing of residential and commercial properties. However, by agreement dated 23.03.2009, titled as cancellation agreement, DDPL expressed that it had rendered services as per the agreement referred for Villas completely, partly for apartment and commercial properties and that DDPL be compensated for the services already rendered. It was inter alia agreed by CHIDCO to compensate DDPL by paying compensation of ₹ 20 Crores. The said cancellation was acted upon as is indicated from the records relied upon and payment of ₹ 188780000 was made to Dynasty Developers P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other allegation of the Appellant that the Adjudicating Authority has erred in understanding the facts pertaining to the alleged proceeds of crime has also no force as the Adjudicating Authority in the impugned order has expressly recorded at pages 185-190 while dealing with the said submission, the same are reproduced hereunder: As can be seen from the records adduced and relied upon, including the statement of Jitendra Virwani, that the amounts received from Indu Group got exhausted in the same financial year or a year thereafter. Consequently there were no balance amounts remaining left with M/s ERPL/DDPL from the payments received from M/s Indu Project Ltd./CHIDCO stated to be proceeds of crime, as such with the ERPL/DDPL, much less in January stated to be proceeds of crime, which could not have been transferred being an illegal corpus and as even otherwise pointed out in the facts and circumstances that no such proceeds of crime existed in the hands of ERPL on the date of merger. and None of the proceeds have gone into any account of Jitendra Virwani from the receipt of ₹ 28.70 Crore by Embassy Realtors Pvt. Ltd. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant has also contended that the Adjudicating Authority failed to appreciate that the equity participation of M/s Embassy Realtors Pvt. Ltd. in M/s Indu Eastern Province Projects Private Limited M/s Vasantha Projects Private Limited was bought back to M/s Indu Projects Ltd. at cost and while selling their stake in M/s CHIDCO Private Ltd., Embassy Group claimed that they have calculated the share value, whereas in the case of M/s Indu Eastern Province Projects Pvt. Ltd. M/s Vasantha Projects Pvt. Ltd. they sold at cost price, which as per the Appellant depicts that the inclusion of Embassy Group in getting Housing Projects is orchestrated by I. Syam Prasad Reddy along with Mr. Jitendra Virwani for which the latter was paid handsome amounts. 25. In response whereto, it is submitted on behalf of respondents that the said presentation of facts are without any clear, cogent and direct evidence, the appellants are trying to twist the facts and giving the incomplete picture. It is stated that at the time of establishing M/s CHIDCO Pvt. Ltd., which is an SPV, the company was yet to begin its operations, likewise the share value of the M/s Indu Easter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading of the parties and material placed on record, it is evident that all the issues raised by the Appellant had been considered by the Adjudicating Authority who by the impugned order dated 26.06.2018 passed in O.C. No. 886/2018 adjudicated the same. All contentions made by the appellant have been discussed and thereafter it is ruled that the movable properties of the Respondent herein are not proceeds of crime and therefore cannot be attached by the Appellant herein. 31. The reference to the fact that ERPL and M/s Dynasty Developers Pvt. Ltd. amalgamated and are presently named as the Respondent cannot substitute the requirement of the formation of the reasonable belief as to why the properties of the Respondent are liable to be provisionally attached. It is noted by the Adjudicating Authority that the fact that the Appellant herein has formed a conclusion that M/s Dynasty Developers Pvt. Ltd. received an amount of ₹ 20 crore from CHIDCO as technical service. In this regard it needs to be noted that it is not the case that no development work has taken place. And thereupon conclusively holding that the provisional attachment order cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atural person abates all pending litigation to which the corporation is appearing either as a plaintiff or defendant. To allow actions to continue would be to continue the existence of the corporation pro hac vice. But corporations exist for specific purposes, and only by legislative act, so that if the life of the corporation is to continue even only for litigating purposes it is necessary that there should be some statutory authority for the prolongation. The Hon ble Delhi High Court summing up the principles laid down by the Judgments, concluded that the legal position which emerges from afore-noted judicial decisions is that upon an amalgamation between two companies, the transferor company dies a civil death and the entity which has evolved upon amalgamation cannot be prosecuted for an offence committed by the transferor company. To the same effect are the observations of the High Court of Himachal Pradesh in the decision Crl. Rev. No. 150/1994 M/s. Brooke Bond Lipton (India) Ltd. and Anr. V. State of H.P. and Anr. Decided on 24.03.1995. The Hon ble Madhya Pradesh High Court (Hindustan Lever Ltd. V/s The State of Madhya Pradesh D/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part B of the Schedule to the PMLA. As the Adjudicating Authority has decided all the issue on merit, therefore, in the present appeals, let the same has been discussed on merit with regard to the finding arrived at by the Adjudicating Authority. 36. Even no valid reasonable belief was formed by the Appellant against the Respondent in the Provisional Attachment Order dated 03.01.2018 passed under section 5(1) of the Prevention of Money Laundering Act, 2002. The Adjudicating Authority has correctly noted that the Appellant did not adduce any reason for attaching the properties of the Respondent, which was admittedly not the recipient of any proceeds of crime whatsoever. For attaching the properties of the Respondents was essential for the Appellant to form and express the reasonable belief as to why the properties of the Respondent herein are being attached as value of the proceeds of crime. 37. No valid reason to belief were recorded by the Joint Director as it was a very casual approach. The said valid opinion has not formed on the basis of settled law by the Supreme Court and various High Court. There is no reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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