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TMI Blog2011 (6) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... hares, as per guidelines issued by Securities and Exchange Board of India (hereinafter referred to as SEBI). The entire IPO process has to conform to the Disclosure and Investors Protection Guidelines, 2000, issued by SEBI. 2. Investors subscribe to the IPO in the prescribed application form. To subscribe to the IPO, an applicant must have bank account and the demat account, whose numbers are to be mentioned in the application. Demat account is an electronic account of a beneficiary, opened and maintained with any of the approved Depository Participants (hereinafter referred to as DP). Shares allotted to successful applicants in the IPO, are electronically credited to their respective demat accounts. Demat accounts are opened by the DPs only for those applicants who hold an account with a bank also. Opening of a bank account and the demat account has to be in compliance with Know Your Customer (KYC) norms prescribed by the Reserve Bank of India and SEBI, respectively. 3. During the year 2005, Infrastructure Development Finance Company Ltd. came out with an IPO - opened for subscription from dt. 15.07.2005 to dt. 22.07.2005. In this IPO 40,36,00,000 (forty crore thirty six lakh) sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n retail category for subscription of shares in an IPO, receiving allotted shares in fictitious/benami demat accounts, pooling these shares in one demat account by off market transfers before the listing of shares and transferring these shares to financiers in off market transaction. These individuals/entities including Sh. Parag Priyakant Jhaveri, Sh. Dipak Jashvantlal Panchal, Sh. Purshottam Ghanshyamdas Budhawani, Sh. Manoj Gokulchand Seksaria, Sh. Kantilal Jitmal Jain were referred to as key operators by the SEBI in its report. The persons who provided the finance for IPO subscription and were the ultimate beneficiaries in the scheme of cornering of retail allotment were referred to as financiers by SEBI in its report. 6. During the investigation it was found that based upon fraudulently prepared/forged documents, a large number of bank accounts and demat accounts were clandestinely opened by the key operators in fictitious/benami names, and using the identity of the said bank accounts and demat accounts, the key operators put in applications in the said fictitious/benami names while subscribing to the IPO and thus predatorily cornered a large number of shares, which were actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same bank branch. He procured data from internet to create purportedly legitimate identity in respect of the said demat account holders, which were otherwise held in fictitious names. Thereafter, he added a list of 10 fictitious names to 30 out of 40 of the said accounts as joint account holders, so as to increase the number of demat accounts and subscribe to the IPO of IDFC and Yes Bank on a much larger scale. 11. After fraudulently creating the aforementioned identities and forging the identification documents, as aforesaid, he opened 13,200 demat accounts by submitting applications in the names of fictitious persons, along with forged bank introduction letters using their forged signatures and used aforesaid demat accounts to subscribe to the IDFC IPO and in this manner with the help of fraudulently prepared documents, clandestinely cornered 35,14,392 shares of IDFC, which were actually reserved for allotment to genuine Retail Individual Investors. The shares, so allotted to the said demat account holders, were first transferred to the demat accounts of i) M/s. Sugandh Estate and Investment Pvt. Ltd., (Demat Account Client ID No. 14405199) with the Depository Participant Karvy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of IDFC IPO shares reserved for RII category. The funds provided by the Respondents were adjusted by way of transfer of proportionate no. of shares of IDFC in the demat accounts of the Respondents and refund of balance funds by cheques. 15. As a result of investigation and proceedings started under the Act, the properties were attached and complaint was filed with the Adjudicating Authority under Section 5(5) of the Act. The matter was placed before the Adjudicating Authority, who declined to confirm the order of provisional attachment by detailed order which is now being assailed before us in the present proceedings. 16. The Ld. Counsel for the Appellant vehemently contended that while declining to confirm the provisional attachment order dt. 03.07.2008, the Adjudicating Authority has not taken into consideration the submissions made on behalf of the Appellant and on the other hand Adjudicating Authority had taken cognizance of certain non-est claims in support of the purported contentions of the Respondents. He submitted that the order of the Adjudicating Authority is bad in law and in the appeal memorandum/court proceedings, assailed the order of the Adjudicating Authority on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjudicating Authority is exposed in view of the following arguments: i. In the statement recorded under the Act on dt. 12.6.2008, the Respondent no. 2 while mentioning about his business relationship with Dhiren H. Vora, has gone at length explaining about stock market investments through him. On the other hand, he has not mentioned anything about the said relationship involving extending of funds as loan on interest basis. ii. In the second statement recorded under the Act on dt. 14.6.2008, the Respondent no. 2 provided further details about his and Respondent no. 1's stock market transactions with Dhiren H. Vora and his associate companies. Here too, he did not make any mention of providing funds on loan basis or interest thereon. iii. In the statement recorded under the Act on dt. 27.2.2008, Dhiren H. Vora while answering to question no. 16 and 27 has stated about the funds extended by Respondents for deploying in stock market through him. He has also no where mentioned about receipt of funds on loan basis or interest payable thereon to the Respondents. iv. The Respondents has filed copy of ledger account, vouchers, interest calculation sheet etc. in support of their claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business association with the above named Shri Dhiren H. Vora and his associate companies, with regards to providing him funds for investments in stock market-both primary as well as secondary market, that during the period 01.04.2005 to 31.08.2005 he had provided funds/finances aggregating to Rs. 2,18,75,000/- to M/s. Zenet Software Ltd., Ahmedabad, and in consideration thereof, received shares of various companies, including 55,680 shares of IDFC worth Rs. 19,57,893/- as off market transaction, he also disclosed having provided funds/finances aggregating to Rs. 37,92,50,0000/- from his company M/s. Lok Prakashan Ltd. (Respondent No. 1) to the above named three companies, as under:- a) M/s. Excell Multitech Ltd., Ahmedabad - Rs. 17,37,50,000/- b) M/s. Taurus Infosys Ltd., Ahmedabad - Rs. 10,57,50,000/- c) M/s. Zenet Software Ltd., Ahmedabad - Rs. 9,97,50,000/- That, against the above funds/finances, his company (Respondent No. 1), had received shares of various companies allotted in IPO including 3,35,160 shares of IDFC for value of Rs. 1,17,47,358/- from the above named three companies. 20. He further submitted that during the course of investigation the above named intermediar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds in IPOs. A. 3. Whenever any party (financier) wanted to subscribe to IPO in retail individual investor category he would provide the necessary amount of funds to SEIPL by way of cheques/banking channels only. These funds were then deposited in SEIPL's Vijaya Bank Ambawadi branch C/A No. 2036 and HDFC Bank Navrangpura branch C/A No. 0062000026487. Subsequently cheques were issued from HDFC Navrangpura branch C/A No. 0062000026487 to Vijaya Bank's SEIPL current A/C No. 2036 which was used as a main account for receiving/refunding funds from/to different financiers with respect to different IPOs. After the receipt of amount in this Vijaya Bank Ambawadi Current account no. 2036 cheques were issued for making application in those particular IPOs for respective applications made through different demat accounts all which were held with M/s. Karvy Stockbroking Limited Ahmedabad/Hyderabad (KSBL). On allotment of shares, shares to the extent allotted were credited to respective demat accounts which were transferred to SEIPL demat account No. 14405199 with KSBL and in turn these shares were finally were transferred through off market transactions to respected parties/financiers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the director till 2006 had business relation with Shri Parag Jhaveri and Shri Dipak Panchal. During this business association my family promoted companies had deployed/extended funds to Sugandh Estate Investment Ltd. and Roopal N. Panchal (sister in law of Dipak Panchal). These funds were put by them in stock market. Q. 13: You have stated that these funds were deployed by your family promoted companies. Which were these companies? A. 13: These companies are as under 1. Excell Multitech Limited; 2. Taurus Infosys Limited; 3. Zenet Software Limited; 4. Seer Finlease Limited; 5. Sujal Leasing and Finance Limited. .... .... Q. 16: Please state the source of funds which were used to deploy as explained above in stock market through Shri Parag Jhaveri and Dipak Panchal? A. 16: Most of the capital/funds belonged to these companies only however some of the funds were extended by M/s. Lok Prakashan Ltd., Ahmedabad, Bahubali Shah, Shreyans Shah, Smrutiben S. Shah for deploying in stock market through our above companies details of these funds are not remembered by me at the moment. I hereby undertake to furnish details of all these funds by 29.02.2008. I wish to state that M/s. Lok P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him from time to time. Details of these funds shall be furnished by me within 7 days. Q. 13. You are hereby shown the Transaction statement in respect of your Demat account number 10255355 held with AXIS Bank Ltd. DP ld. IN300484 having a closing credit balance of 1,58,789 shares of IDFC Ltd.. Please go through the same and explain the source of credit entries in respect of IDFC Ltd. shares in your said account. Please also explain the debit entries. A. 13 I have seen and gone through the Transaction statement in respect of my Demat account number 10255355 held with AXIS Bank Ltd. DP ld. IN300484 and in token of same I have put my signature in today's date on the same. The credit of 55,860 shares of IDFC Ltd. as on 10.08.2005 was received from the Demat account number 10009298 of Zenet Software Ltd. held with H. Nyalchand. As regard to other credit entries of 1,27,929 shares on 11.08.2005 and 1,00,000 shares on 19.08.2005 and debit entries of 1,00,000 shares on 16.08.2005, 20,000 shares on 10.09.2005 and 5,000 shares on 28.11.2005, I do not recollect the details of same. I hereby undertake to furnish the details of these credit entries within 7 days. I state that all the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thousand only) was provided to M/s. Taurus Infosys Ltd. M/s. Zenet Software Ltd. In all between 02-04-2005 to 31-08-2005 a total amount of Rs. 9,97,50,000/-(Rupees Nine crore ninety seven lac fifty thousand only) was provided to M/s. Zenet Software Ltd. As regard to the funds provided by me to Dhiren Vora, I state that I had given him one cheque number 136881 dated 07.07.2005 for an amount of Rs. 2,18,75,000/- favouring M/s. Zenet Software Ltd. This cheque was issued by me from my saving account number 5009013662 held with Citi Bank, C.G. Road Branch, Ahmedabad. I further state that as of now only these details are readily available with me. I request for some time to verify my records to ascertain all details regarding funds provided to various companies of Dhiren Vora by myself as well as Lok Prakashan Ltd. as it was a running account. Q. 4. Please state the manner in which you received back this finance amounting to Rs. 2,18,75,000/- provided to M/s. Zenet Software Ltd. A. 4. Out of finance I received 6000 shares of IL FS for a total value of Rs. 8,26,560/- (Rupees Eight Lac twenty six thousand five hundred sixty only) on 27.07.2005 from demat account number 10009298 of M/s. Zen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2, who is also a Director of Respondent No. 1 is well conversant with the nuances of stock market-both Primary as well Secondary; c) In the IDFC IPO, Respondents had applied for allotment of shares in HNI category and were aware of the maximum limit upto which RII category shares could be applied by any person; d) Shri Parag P. Jhaveri (Key Operator) has disclosed the scheme of financing/funding of various IPOs including IDFC by a number of financers-intermediaries, including Shri Dhiren H. Vora through the afore-named three companies, besides about disbursal of the allotted/cornered shares. He also disclosed the financing of multiple applications under RII Category of IDFC IPO by the afore-named three companies who had deployed funds/finances through Dhiren H. Vora; e) Shri Dhiren H. Vora (intermediary), in turn admitted the above relevant specific arrangement of deployment of funds/finances, as disclosed by Shri Parag Jhaveri (Key Operator) in his above statement. He also admitted the factum of deployment/financing by Lok Prakashan Ltd., Bahubali Shah (Respondents No. 1 and 2) through his afore-named three companies and deployment thereof in Stock Market; f) Shri Dhiren H. Vora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate companies, and further that since Dhiren H. Vora his associate companies, on being asked to return the said funds, expressed their inability to do so, and therefore, transferred 55860 IDFC shares in the name of Respondent No. 2 and 335160 IDFC shares in the name of Respondent No. 1. It was further claimed that the said financial transactions were of giving loans and advances on interest and also that they were not aware of any fraudulent act of Dhiren H. Vora his associate companies. It was further claimed that the said Dhiren H. Vora in his statement dated 27.02.2008 before the officers of Enforcement Directorate has categorically admitted that he borrowed the funds from these Defendants through banking channels only and that he transferred some shares to these Defendants after receiving the shares of IDFC from Roopal Panchal, the seventh Defendant herein. It is also pertinent to note that nowhere in his statement the said Dhiren H. Vora alleged that these Defendants gave the funds to him to invest in IDFC shares (Reference Para 5/page 7 of their reply) . Synopsis/written submission were also filed by the present Respondent No. 1 and 2 wherein too, they claimed that it is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents while pleading before the Adjudicating Authority that there was no advantage for Respondents to go in for acquisition of the RII category shares as they could have acquired the same without any problem even as an HNI category applicant. This claim of the Respondents is completely incorrect when seen in the context of the conclusion drawn by SEBI in its order dt. 12.1.2006 inter-alia, to the effect that whereas the retail portion of the IDFC IPO was over subscribed by 5.27 times, the non institutional portion was oversubscribed by 56.53 times. Hence, the probability of acquiring these shares through RII category was 10 times more than that from HNI category. 29. The Counsel submitted that the order of the Adjudicating Authority is in conflict with its own findings given in Original Complaint No. 11 of 2008 and Original Complaint No. 17 of 2008 in which the provisional Attachment Orders have been confirmed on the similar facts while disagreeing in the present Original Complaint No. 14 of 2008 and as such there is serious miscarriage of justice. 30. The Counsels for the Respondents denied and disputed all the allegations made by the Appellant. They contended that the appeal file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that all the transactions of purchase of shares from Dhiren H. Vora his associate companies, sale of these shares, capital gain on sale have been duly accounted for in the books of accounts of the Respondents and the same have been duly declared in their income tax returns also. This clearly shows that the Respondents are bona fide investors in good faith and for valuable consideration. They drew our attention to the copies of ledger accounts, bills, vouchers for transactions with Dhiren H. Vora and his associate companies showing that the transactions were purely of finance, money advanced and money received back including IDFC shares as repayment, interest charged/receivable, share purchase bill, income tax return papers etc. 32. The Counsels submitted that Respondents did not know Dipak J. Panchal or Parag P. Jhaveri or about their fraudulent cornering of shares of IDFC in RII category. They have not played any role in opening of bank and demat accounts in the names of fictitious persons. They further submitted that neither Respondents nor Dhiren H. Vora have been charged for any scheduled offence. The Respondents' names do not even figure in the F.I.R. registered by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge sheeted for commission of scheduled offence. They submitted that as per section 5 of the Act, the Appellant is empowered to pass provisional attachment order only if he has reason to believe that a person is in possession of any proceeds of crime, that such person has been charged of having committed a scheduled offence and that such proceeds of crime are likely to be concealed or transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime. They submitted that as per section 5(1) of the Act, all three significant and essential conditions are required to be satisfied before passing an order of provisional attachment. They submitted that none of the conditions laid down in section 5(1) of Act are attracted in the case of Respondents. They submitted that neither the Respondents nor the said Dhiren H. Vora have been charged for any scheduled offence under the Act and Respondents have not indulged in the act of money laundering by introducing into the financial system, any illegally earned profits from any such criminal activities, which are the two prime considerations, sine qua non, for commission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proceeds of crime and these facts were recorded in the provisional attachment order as well as complaint filed before the Adjudicating Authority. He further argued that the Respondents are covered by the provisions of section 5(1) of the Act and relied on this Tribunal's Judgment which has been upheld by the Bombay High Court in the case of Radha Mohan J. Lakhotia Others vs. Dy. Director, PMLA (First Appeal No. 527, 528 529 of 2010) where it has been held that the property which is proceeds of crime and is in possession of any person, even though he is not charged of having committed a scheduled offence, can be attached. He further submitted that it is the Appellant's reasonable belief that he is of the opinion that property is likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under Chapter III of the Act. He further submitted that in the present case the source of funds utilized for acquisition of property would not be relevant as the shares of IDFC per se are proceeds of crime involved in money laundering. 39. We have considered arguments/contentions made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocument showing that they were authorized to carry out financing activities, any resolution authorizing board of directors/managing director to extend unsecured loans/inter corporate deposits to Dhiren H. Vora his associate companies. Similarly Respondents could not explain why no document was executed to give such large amount of fund as interest bearing unsecured loans/inter corporate deposits on regular basis and why no interest was charged/received on these transactions in the financial years 2003-04 2004-05, why the interest charged for the FY 2005-06 was not received till date, why no legal steps were taken to recover the interest. They also failed to explain that when on earlier occasions/first occasion, Dhiren H. Vora his associate companies failed to refund loan(s) on time and the loan(s) was/were partly adjusted by forced off market transfer of unlisted shares, after that occasion why they extended finance to Dhiren H. Vora his associate companies again on various occasions. They failed to explain the basis of cost taken for transfer of shares as the shares were not listed in stock exchange and they were transferred in off market transactions. 41. The Respondents had cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the limits prescribed under that Act, tax is to be deducted at source by the person making payment of interest and in the present case, tax was deductible at source (in short TDS) by all the three companies i.e. Zenet, Taurus and Excell but Respondents have neither accounted for any amount on account of TDS in their books nor filed copies of TDS certificate in prescribed Form 16A. The Respondents have also not filed any confirmation from Dhiren H. Vora his associate companies confirming receipt of loan/inter corporate deposits, interest payable, tds deduction, repayment of loan, sale of shares etc. All the documents filed by the Respondents are prepared/maintained at their end only. This is unfathomable and raises strong presumptions against the argument advanced by the Respondents and shows that the transactions for accounting interest by the Respondents in their books are unilateral and Dhiren H. Vora his associate companies do not confirm that any interest is payable to them. 44. Respondent no. 2 - Sh. Bahubali Shantilal Shah in his paper book has filed copies of two bills (The bills are prepared on a plain paper with the help of computer.) raised by M/s. Zenet Software Ltd. for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Dhiren H. Vora and his associate companies and when they asked Dhiren H. Vora and his associate companies to refund the amount, Dhiren H. Vora and his associate companies expressed their inability to issue cheques and therefore transferred 335160 55860 shares of IDFC and the balance amount by cheques, have no force. From the above charts, consider the case of Excell Multitech Ltd., as contended by the Respondents, they gave this company Rs. 4,37,50,000/- on 7.7.2005 and when asked for repayment, Excell transferred 19,350 shares on 27.7.2005 for a sum of Rs. 25,72,002/- as it did not have funds available with it. The Demat account statement shows that on 27.7.2005, Excell had a total no. of 47,650 shares of IL FS, out of these shares, why only 19,350 shares were given in part repayment and some amount was paid by cheques after eight days on 4.8.2005. If the transfer of shares on 27.7.2005 was genuinely to settle the loans from Respondents (as contended by Respondents), then why an odd no. of 19,350 shares were transferred whereas on that day Excell had 47,650 shares in its demat account. Similarly, on 10.8.2005, Excell had 7,04,550 shares of IDFC as balance in its demat account, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and he transferred some shares to these Respondents for discharging his legal liability are not correct. The correct facts are that Dhiren H. Vora in reply to question no. 16 admitted that funds were extended by the Respondents for deploying in stock market through his companies i.e. Excell, Taurus and Zenet. In the same reply, he stated that the Respondents had deployed these respective funds through banking channel only. The words Respondents had deployed these respective funds clearly indicate that Dhiren H. Vora his associate companies have not borrowed these funds as contended by the Respondents. Further, Dhiren H. Vora in his statement in reply to question no. 21 stated that after receipt of IDFC IPO shares from Dipak J. Panchal and Parag P. Jhaveri some of the shares representing the amount of funds received from Respondents were transferred to their respective demat accounts as off market transaction prior to listing of IDFC issue . This clearly indicate that transfer of IDFC IPO shares was not on account of sale of shares to discharge his companies' legal liability, as he was not able to repay the loans given by Respondents, as contended by the Respondents. 54. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. whenever any IPO was announced the interested financier had extended the funds based on application money required for each application under RII category. At that time for RII category application money per application had upper ceiling of Rs. 50,000/-. This was also the case for IDFC Ltd. IPO. I further furnish the details of funds received from respective financiers as under: I further clarify in response to each of the application for IDFC IPO 266 shares per application were allotted against application for 1400 shares each. These 266 shares were allotted @ Rs. 34/- per share and balance amount of Rs. 38,556/- per application was refunded. I Further state that as explained in reply to question 3 above these shares allotted to individual demat account holder first transferred as off-market to the demat account of SEIPL and there from to the respective financier as off market transfer prior to listing. Statement dated 27.02.2008 of Sh. Dhiren H. Vora-associated with M/s. Excell Multitech Ltd., M/s. Zenet Software Ltd. And M/s. Taurus Infosys Ltd. Q. 16: Please state the source of funds which were used to deploy as explained above in stock market through Shri Parag Jhaveri and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 4.8.2005) for subscribing in RII category of IPO of IDFC and got 55,860 shares whereas he paid Rs. 24,58,88,000/- for subscribing in HNI category of IPO of IDFC and got 1,27,929 shares which fully justifies the contention of the Appellant. It was also noted that Respondent no. 2 took loan from J.M. Financial Products P. Ltd. to pay application money for subscribing under HNI category and paid total interest thereon amounting to Rs. 16,08,697/-. Thus, the cost of acquisition in RII category to the Respondent no. 2 was Rs. 35.05 per shares whereas cost of acquisition under HNI category including interest on loan was Rs. 46.57 per shares, which is much higher than the cost per share under RII category. Similar are the facts in the case of Respondent No. 1 except that the application amount paid and shares received are much higher than in the case of Respondent no. 2. Thus, the Respondents not only got higher proportionate no. of shares under RII category but also got the shares at lower cost as compared to shares received under HNI category and this fully justifies the argument of the Appellant and negates the contentions raised by Respondents. 56. The argument of the Appellant tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts for purchase of shares were made after transfer of shares in his demat account whereas in the present case funds were deployed by the Respondents through Dhiren H. Vora his associate companies for funding applications in fictitious/benami names for subscribing shares offered in the IPOs and shares cornered by the key operator as a result of these funds were received by them in their demat accounts. 59. The argument of the Respondents that provisions of section 5(1) of the Act are not attracted as they have not been charged for commission of scheduled offence has no merits. Any person who is in possession of proceeds of crime and even if not charged for commission of a scheduled offence is covered by the provisions of section 5(1) of the Act in view of the findings of this Tribunal in its judgment which has been upheld by the Bombay High Court in the case of Radha Mohan J. Lakhotia Others vs. Dy. Director, PMLA (First Appeal no. 527, 528 529 of 2010) where it had been held that the property which is proceeds of crime and is in possession of any person, even though he is not charged of having committed a scheduled offence, can be attached. Relevant portion of this Tribunal's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all the penal statutes should be construed strictly and the court must see that the thing charged is within the plain meaning of the words used, but it must also be borne in mind when the context in which the words are used is important. The legislative purpose must be noted and the statute must be read as a whole and it should be interpreted in such a way so that the purpose of the legislation is allowed to be achieved. The court must work on the constructive task of finding the intention of parliament by referring not only to the language of the statute but also from a consideration of the social conditions which gave rise to it and of the mischief which it was passed to remedy. Where the language of the statute in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity presumably not intended, a construction may be put upon which advances the laudable purpose then to paralyze the provision. Therefore the provisions of the Act which are designed to prevent/suppress money laundering have to be construed in a way which advances the remedy and suppress the mischief. 16. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeds of the crime and projecting it as untainted property is covered under the Act and therefore any person in the possession of proceeds of any crime even if he is not charged for the commission of scheduled offence is covered under the Act. It has been held in the M. Pentiah v. Veeramallappa Muddala, (AIR 1961 SC 1107 (p. 1111)) that the court must strongly lean against a construction which reduces the statute to a futility. A statute or any enacting provision therein must be so construed as to make it effective and operative 'on the principle expressed in the maxim: 'ut res magis valeat quam pereat'. In CIT v. S. Teja Singh, (AIR 1959 SC 352, (p. 356)): it was held that a statute is designed to be workable and interpretation thereof by a court should be to secure that object unless crucial omission or clear direction makes that end unattainable. The Hon'ble Supreme Court in that case was considering the construction of section 18A of the Income Tax Act. The contention there, was that when action for imposing penalty was sought to be taken under section 28, for failure to comply with section 18A(3), the conditions as to notice under section 22(1) or 22(2) must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etrospective operative operation. The presumption against retrospective operation is not applicable if the declaration to statute or an amending Act is for clarification or to clear meaning of a provision of the statute. It removes doubts existing as to the meaning or affect of the statute as held in Central Bank of India v. Their Workmen, (AIR 1960 SC 12, p. 27). In Punjab Traders v. State of Punjab, (AIR 1990 SC 2300, p. 2304): Apex Court held that an amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and therefore, the amending Act also will be part of the existing law. 64. Effect of a proviso added from 1.4.1988 to section 43B inserted in the Income tax Act, 1961 from 1.4.1984 came up for consideration in Allied Motors (P) Ltd. Vs. Commissioner of Income Tax (AIR 1997 SC 1361) and it was given retrospective effect from the inception of the section on the reasoning that the proviso was added to remedy unintended consequences and supply an obvious omission so that the section may be given a reasonable interpretation and that in fact the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 'such' proceeds of the crime are likely to be concealed or dealt with in a manner which may result in frustrating proceedings for confiscation. It is argued that the word 'such' used in sub-clauses (b) and (c) of section 5 are conjunctive 'and' used after clause (b) shows that all the three ingredients should be satisfied to attract section 5. It is also pointed out that section 8(3) provides that when the Adjudicating Authority confirm the attachment of the property made under sub-section of (1) of section 5, it should record a finding that the attachment of properties shall continue during the pendency of the proceedings relating to any scheduled offence before a court and becomes final only if the guilt is proved in the trial court and the order of such trial court becomes final. Sub-section 5 of section 8 provides that on conclusion of the trial if the person is acquitted, the attachment of the property shall cease to have affect. Therefore, it is argued that unless a person is charged with the crime, his property cannot be attached. Otherwise section 8(3) or section 8(5) will become otiose. It was argued that the contents of the legislation can primar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving a literal meaning to a word used by the draftsman, particularly in a penal statute, would defeat the object of a legislature, which is to suppress a mischief, the court can depart from the dictionary meaning or even the popular meaning of the word and instead give it a meaning which will 'advance the remedy and suppress the mischief. 70. In interpreting provisions of economic statute like Customs Act, Foreign Exchange Regulation Act, the courts have invariably resorted to the Hyden's rule. The Apex Court in State of Maharashtra v. Natwarlal Damodardas (AIR 1980 SC 593: 1980(4) SCC 669): held that the provision should be construed in consonance with the scheme of the statute, the purpose of the provisions and a strict narrow construction shall be avoided when it would defeat the object of this provisions and undermine their efficacy. 71. The Hon'ble Supreme Court in N.K. Jain Vs. C.K. Shah - (AIR 1991 SC 1289: (1991) 2 SCC 493) held that The legislative purpose must be noted and the statute must be read as a whole. They should be interpreted in such a way so that the purpose of the legislation is allowed to be achieved. In Directorate of Enforcement v. Deepak Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to indulge or knowingly assisted or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property, he shall be liable to be prosecuted for offence under section 3 read with section 4 of the Act of 2002 - in addition to suffering the action of attachment of the proceeds of crime in his possession. Attachment of proceeds of crime in possession of any person (other than the person charged of having committed a scheduled offence) will, therefore, be legitimate within the sweep of Section 5 of the Act of 2002. In our opinion, the thrust of section 5 is to attach every property involved in money-laundering irrespective of whether it is in possession of the person charged of having committed a scheduled offence or any other person - provided however it must be shown to be proceeds of crime and further, that proceeds of crime are likely to be concealed, transferred or dealt with in any manner, which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under the Act. 12. Going by the definition of person occurring in Section 2(s) and on conjoint reading of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rag P. Jhaveri were charge-sheeted for committing crimes scheduled under the Act and proceeds of such crime (shares) were held in the demat accounts held in the names of Respondents. So in effect, the property attached is the property of Dipak J. Panchal and Parag P. Jhaveri who are charged with the crime and if they are acquitted, automatically attachment of the property will cease. Other party is issued with a notice as the attached property is in his name and they cannot complain later that property in their name was taken away without issue of notice to them in violation of principle of natural justice. 74. We are of the view that all these interpretative discussions are necessary on the fact of this case. Even if we accept the contention of the Respondents, i.e. a strict literal interpretation should be given to section 5 of the Act and property of a person who was not charge-sheeted for the crimes specified in the Act cannot be attached, the position will not change. Action was taken only on the basis that the property in question was obtained by Dipak J. Panchal and Parag P. Jhaveri who were charge-sheeted for the commission of scheduled offence. In other words, Respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name they are kept or by whosoever they are held. The independent properties of relatives and friends, which are not traceable to the convict/detenu, are not sought to be forfeited nor are they within the purview of SAFEMA**. The Court further held as follows:- In this view of the matter, there is no basis for the apprehension that the independently acquired properties of such relatives and associates will also be forfeited even if they are in no way connected with the convict/detenu. So far as the holders (not being relatives and associates) mentioned in Section 2(2)(e) are concerned, they are dealt with on a separate footing. If such person proves that he is a transferee in good faith for consideration, his property - even though purchased from a convict/detenu-is not liable to be forfeited. It is equally necessary to reiterate that the burden of establishing that the properties mentioned in the show cause notice issued under Section 6, and which are held on that date by a relative or an associate of the convict/detenu are not the illegally acquired properties of the convict/detenu, lies upon such relative/associate. He must establish that the said property has not been acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 5 of the Act and the attachment proceedings commenced by the authorities under the Act were valid proceedings. 77. Further, as regards another argument of the Respondents that source of investment was fully explained and the same was shown in books of account income tax return etc., in our opinion, the same is of no help and without merits. Section 2(u) of the Act reads thus: 2(u) proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of such property. From plain reading of above section, it is clear that any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence is proceeds of crime. In the present case, the shares of the IDFC IPO were obtained by the Respondents directly as a result of commission of scheduled offence by Dipak J. Panchal and Parag P. Jhaveri. The Respondents has not placed on record any material to show that the shares attached by the Respondent are different from the shares cornered by Dipak J. Panchal Parag P. Jhaveri as a result of commission of sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he pendency of the criminal proceeding before the Court of Competent Jurisdiction at Greater Mumbai and shall become final after the guilt of persons (Dipak J. Panchal and Parag P. Jhaveri) is proved in the trial court and the order of such trial court becomes final. For the reasons aforesaid, the appeal is allowed. The Respondents requested to direct the respective companies to release the dividend warrants declared in respect of the attached shares or to set apart the dividend amount in separate bank fixed deposit and allow it to accumulate. It was argued that unpaid/unclaimed dividends are transferred to Investor Protection Fund and it will not be possible to claim dividend refund from them. The Appellant objected to release of the dividend warrant to Respondents but agreed that the dividend be kept in a bank account or bank fixed deposit with accumulation of interest till the proceedings for scheduled offence and adjudication u/s. 8 become final. We have considered the matter. In the interest of justice, it is ordered that if any dividend is declared on the attached shares, pending final proceedings such dividend should be deposited in a separate bank account or separate fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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