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TMI Blog2024 (6) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ited with GSPIL as detailed in impugned Provisional Attachment Order equivalent to the proceeds of crime were provisionally attached under section 5 (1) of PMLA. It was observed in impugned Provisional Attachment Order that direct proceeds of crime are not available for provisional attachment due to circular movement/rotation of funds through various transactions. It was also observed that these properties are likely to be transferred or dealt with in such a manner which may result in frustrating the proceedings relating to confiscation under Chapter III of PMLA. The Supreme Court in Esskay Properties and Investment Private Limited another V Union of India others [ 2022 (9) TMI 1592 - SC ORDER] lifted the attachment order on producing the fixed deposit of Rs. 3,00,00,000/- in lieu of part of the attached property with no lien of any other party except the Enforcement Directorate and order of attachment was allowed to be substituted by fixed deposit although without prejudice to the rights and contentions of the parties in the proceedings to be instituted before the Appellate Authority. The Division Bench of the High Court of Telangana inY. S. Bharathi Reddy V Enforcement Directorat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving lien over said FDR. If the respondents succeed in the present petition then the respondent no 1 shall be at liberty to encash the FDR. Application allowed. - HON'BLE DR. JUSTICE SUDHIR KUMAR JAIN ORDER For the Petitioner Through: Mr. Anirudh Sharma, Mr. Hemant Shah, Mr. Gurpreet Singh Parwanda, Mr. Akshay Rana, Mr. Pallav Srivastava, Advocates For the Respondents Through: Mr. Anurag Ahluwalia, CGSC for Respondents CM APPL. 12347/2024 1. The petitioner filed the present writ petition for quashing the Provisional Attachment Order No. 04/2021 dated 30.07.2021 passed by the respondent no 1 under Section 5 (1) of the Prevention of Money Laundering Act, (hereinafter referred to as PMLA ) whereby the respondent no 1 has proceeded to attach the shares of M/s Jindal Steel Power Ltd. ( JSPL ) subscribed by the petitioner considering them to be value equivalent to the proceeds of crime ; to quash the Original Complaint bearing O.C. No. 1514 of 2021 dated 26.08.2021 filed by the respondent no 1 under section 5 (5) of PMLA; and to quash Notice to Show Cause dated 22.09.2021 purportedly issued in exercise of powers under Section 8 (1) by the respondent no 2 as the respondent no 2 is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1988 against 5 additional accused. The Special Court has already taken cognizance and charges have been framed against the accused. The trial is under progress. The Delhi Zonal Office of the Directorate of Enforcement initiated investigation under the provisions of PMLA by recording case vide File No ECIR/12/DLZO/2014 for suspected commission of offences of money laundering. The Prosecution Complaint bearing CC No. 01/2019 has been instituted on 13.07.2018 whereupon cognizance was taken and the trial is under way. The respondents also initiated proceedings for attachment as further investigations is pending. 2.1 The petitioner was allotted shares by minutes of meeting dated 06.11.2002 19.06.2003. The share warrants have been allotted even prior to coming into force of PMLA and much prior to the alleged commission of scheduled offence or the alleged proceeds of crime gathered therefrom. Consequent to the sub-division of the face value of the these share warrants from Rs. 10 to Rs. 5 per share, the total number of equity shares became 25,00,000. Out of 25,00,000 shares, 2,19,198 shares were sold from 08.12.2005 till 28.02.2006 and 49,000 shares were sold from 11.06.2007 till 01/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed by the Petitioner considering them to be value equivalent to the proceeds of crime ; b. Quash the Original Complaint bearing O.C. No. 1514 of 2021 dated 26.08.2021 (Annexure P-2) filed by Respondent No. 1 under Section 5 (5) of PMLA; c. Quash the Notice to Show Cause dated 22.09.2021 (Annexure P-3) purportedly issued in exercise of powers under Section 8 (1) by Respondent No. 2 as Respondent No. 2 is not a properly constituted Adjudicating Authority under Section 6 of the Act and therefore, is coram non judice d. Issue/pass any other Writ(s), Order(s) or Direction(s) that this Hon ble Court may deem fit and proper in the facts and circumstances of the case. 3. The respondents filed counter affidavit wherein stated that the petitioner has filed the present petition to challenge action initiated by the respondent No. 1 in passing the respective order of the Provisional Attachment of the properties under section 5 (1) of the PMLA and subsequent filing of complaint under Section 5 (5) of PMLA by the respondent No. 1 and consequential Show Cause Notice issued by the respondent no 2 i.e. the Adjudicating Authority under Section 8 (1) of PMLA. The respondent directorate had initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Provisional Attachment Order provisionally attached 1,70,00,168 of Shares of M/s Jindal Steel Power Ltd. ('JSPL') with GSIPL with book value of Rs. 3,11,05,588.00; 9,38,164 Shares of JSPL @ Rs. 438 held by Naveen Jindal with book value of Rs. 41,09,15,832.00 and 8 FDRs of GSIPL maintained with HDFC Bank, along with interest accrued on these FDRs from the date of its creation till the time of taking possession with book value of Rs. 15,14,00,000.00 (total value amounting to Rs. 59,34,21,420.00). The equity shares were allotted prior to the coming into force of the PMLA and much prior to the alleged commission of the scheduled offence or the alleged 'proceeds of crime' gathered therefrom. The impugned PAO alleges that the said 1,70,00,168 equity shares are being provisionally attached as 'proceeds of crime' based on 'equivalent in value of proceeds of crime'. The attachment of these equity shares has significant implications due to which the petitioner is unable to trade these shares in the open market. The current market value of these shares is Rs. 1286,91,27,176/- at a rate of Rs. 757 per share. The attachment of these shares is causing grave pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities. The trial is under process. Thereafter the respondent no 1 on the basis of FIR registered by CBI recorded ECIR bearing No. ECIR/12/DLZO/2014 on 11.04.2014 for investigation under PMLA. Provisional Attachment Order No. 04/2021 dated 30.07.2021 amounting to Rs. 59,34,21,420/- was issued for proceeds of crime derived from share price manipulations by M/s Gagan Sponge Iron Pvt. Ltd. (GSIPL) and subsequently Original Complaint (OC) No. 1514/2021 dated 26.08.2021 was also filed before the Adjudicating Authority for adjudication. The respondent/ED after completion of investigation filed prosecution complaint under section 45 read with 44 of PMLA dated 09.03.2022 before the Special Judge (PMLA) on 15.03.2022 against 13 additional accused. The petitioner to challenge the impugned Provisional Attachment Order filed the present writ petition and this court vide order dated 04.10.2021 directed that the proceedings before the adjudicating authority may continue but no final order shall be passed. Rule 4 (2) of the Prevention of Money Laundering Act, 2002 (Taking possession of attached or frozen properties confirmed by Adjudicating Authority) Rules, 2013 is not applicable in present case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime to the tune of Rs. 2 crores at preliminary 'stage and subsequently proceeds of crime amounting to Rs. 59.34 crores was identified and attached as direct involvement of the petitioner was established. 7. Section 5 PMLA deals with attachment of property involved in money laundering. Section 5 (1) provides that where the Director or any other officer not below the rank of Deputy Director authorized by the Director has reason to believe (the reason for such belief to be recorded in writing) on the basis of material in his possession that any person is in possession of any proceeds of crime and such 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 may by order in writing provisionally attach such property for a period not exceeding as provided under the Act from the date of the order. Section 5(2) further provides that the Director or any other officer not below the rank of Deputy Director shall immediately after attachment forward a copy of the order along with the material in his possession to the Adjudicating Authority. Section 5 (5) further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te; Order dated 14.07.2023 passed by the Supreme Court of India in Special Leave Petition (Criminal) no. 22285/2023 titled as Y. S. Bharathi Reddy V Enforcement Directorate; Veerbhadrappa G.E. V State of Karnataka and others, Writ Petition (Criminal) no. 124/2023 decided on 21.04.2013; Joint Director, Directorate of Enforcement V A. Raja others, Crl. L.P. 184/2018; Santur Builders Pvt. Ltd. V Deputy Director, Directorate of Enforcement, W.P. (C) 5502/2023 decided on 09th January, 2024 decided by the Delhi High Court etc. The counsel for the petitioner also argued that impugned Provisional Attachment Order cannot be sustained in view of Rules 4 (1) and 4 (2) of the Prevention of Money Laundering Act, 2002 (Taking possession of attached or frozen properties confirmed by Adjudicating Authority) Rules, 2013 9. Sh. Anurag Ahluwalia, CGSC for the respondents argued that impugned Provisional Attachment Order bearing no 04/2021 dated 30.07.2021 amounting to Rs. 59,34,21,420/- was issued for proceeds of crime derived from share price manipulations by M/s Gagan Sponge Iron Pvt. Ltd. (M/s GSIPL) and subsequently Original Complaint (O.C.) No. 1514/2021 dated 26.08.2021 was also filed before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attached property confirmed by the Adjudicating Authority is in the form of shares, debentures, units of mutual fund or instruments, the Authorized Officer shall cause to get such shares, debentures, units Mutual Fund or instruments to be transferred in favour of the Director of Enforcement. 9.2 The CGSC also countered position of law referred by the counsel of the petitioner that the investigation by the respondent/Directorate of Enforcement for offences committed prior to their inclusion in the Schedule to PMLA is no longer res integra in view of the decision in Vijay Madanlal Chaudhary others V Union of India others, SLP (Criminal) 4634 of 2014. The CGSC also argued that there is no provision in PMLA allowing the substitution of provisionally attached property by any other property of equal value. He argued that the application is liable to be dismissed. 10. Issue which needs judicial consideration is that whether 170,00,168 shares of JSPL attached as proceeds of crime based on equivalent in value of proceeds of crime vide the impugned Provisional Attachment Order No. 04/2021 dated 30.07.2021 and having book value at Rs. 3,11,05,588/- can be substituted by bank guarantee/FDR/Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In that decision, Appellate Tribunal referred to Section 35 (1) of PMLA, which empowers the Appellate Tribunal to regulate its own procedure. Appellate Tribunal observed that though it is true that there is no specific provision under PMLA for substitution of property provisionally 2 2018 SCC OnLine ATPMLA 23 19 attached by the Enforcement Directorate and thereafter confirmed by the adjudicating authority, there is also no provision that the said power cannot be exercised by the Appellate Tribunal under Section 35 (1) of PMLA. In the facts of that case, prayer of the appellant for releasing the attached property was allowed by accepting the alternative property offered by the appellant. However, we may point out that even this decision was rendered by the Appellate Tribunal when appellate proceedings were pending before the Appellate Tribunal with the provisional attachment order and confirmation order still holding the field. 23. Before we advert to the order of the Appellate Tribunal insofar the related appeal is concerned, we may mention about Rule 5 (5) of the Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Order as proceeds of crime based on equivalent in value of proceeds of crime and not as proceeds of crime. There is a difference between proceeds of crime and amount equivalent to proceeds of crime as noted by another coordinate bench and this court is also in agreement with the said view expressed by another Bench. The court may not order substitution of attached property in case of attachment due to proceeds of crime but the court may allow substitution of attached property in case of attachment being equivalent value of proceeds of crime. The Adjudicating Authority in pursuance of order dated 04.10.2021 may continue with proceedings but cannot pass final order. The petitioner is stated to be engaged in the business of investment and finance operations by Inter Corporate Deposits and investment in equity shares/preference shares/debentures/ mutual funds. The 170,00,168 shares of JSPL having book value of Rs. 3,11,05,588 lying with the petitioner and attached not as proceeds of crime but being equivalent value of proceeds of crime cannot remain under provisional attachment in pursuance of impugned Provisional Attachment Order. Accordingly present application is allowed and 170,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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