Property purchased bonafide is not ” proceeds of crime “

AR.L. Sundaresan and C. Prakasam for the Appellant. K.K. Senthilvelan for the Respondent.

JUDGMENT

1. These appeals are filed challenging the order dated 05.09.2014, passed by Appellate Authority dismissing the appeals filed by appellants and confirming the provisional attachment order of adjudicating authority, dated 07.09.2012, made in complaint No.144/2012.

2. The appeals are against the common order, dated 05.09.2014 passed in FPA-PMLA-Nos.399 to 402, 406 to 408/MUM/2012 and the issue involved is one and the same. Hence, all the appeals are heard together and disposed of, by this common order.

Relevant Facts:

3. (i) One Mr.R. Manoharan projected himself as proprietor of M/s. Bhagavathi Textiles Mills. He produced bogus and fabricated documents in connivance of one S. Arivarasu, the then Business Development Manager of M/s. Global Trade Finance Limited, Coimbatore, availed loan facilities to the tune of Rupees Fifteen Crores. On coming to know of this fraud, one B. Surendran, Vice President and Branch Head of M/s. SBI Global Factors Limited, Coimbatore lodged a complaint against the said R. Manoharan, Proprietor of M/s. Bhagavathi Textiles Mills, G. Srinivasan, S. Arivarasu and others. The said complaint was registered on 07.10.2010 in FIR No.RC.09(E)2010-BS& FC/BLR under Sections 120-B r/w. Sections 420, 467 and 471 of IPC and Section 13(2) r/w. Section 13(1)(d) of the Prevention of Corruption Act, 1988. After investigation by concerned Police, CBI, BS & FC Bangalore, filed charge sheet in C.S.No.6 of 2011 dated 26.07.2011, before the Court of Special Judge, CBI against R. Manoharan, Proprietor of non-existent M/s. Bhagavathi Textiles Mills, G. Srinivasan, S. Arivarasu, K. Vignesh and others for the offences committed under Sections 120(B) r/w. Sections 420,467,468 and 471 of IPC and Section 13 (2) r/w Section 13(1)(d) of Prevention of Corruption Act, 1988 before the Court of Special Judge, CBI cases, Coimbatore.

(ii) In the investigation, one G. Srinivasan was found to be main accused and he only availed the loan projecting R. Manoharan as Proprietor of M/s. Bhagavathi Textiles Mills Limited. After availing the loan, he purchased about 165 acres of land in Pudukkottai Village from One K. Gunasekaran, G. Selvarani, R. Sivkumar, Shri Chinnakkannu in the names of his Benamies viz., K. Vignesh, P. Venkatachalapathy and P. Rajendran. The sale deeds were registered as Document Nos.853 to 855 of 2008, dated 12.06.2008 and Document No.1344 of 2008, dated 02.09.2008 and Document No.1559 of 2009 dated 09.09.2009. These three persons, as per instructions of G. Srinivasan appointed one P.Ayyappan, as their power of attorney, registered as Document Nos.137 and 138 of 2009, dated 07.09.2009 and Document No.807/2009, dated 12.09.2009 and Document No.186 of 2009, dated 22.09.2009. All the four power of attorneys were registered in the office of Sub Registrar of Assurances, Chathirapatti.

(iii) The said P. Ayyappan, Power of Attorney of these persons sold this 165 acres to one Gunaseelan, S/o. Kuppusami Gounder, by four sale deeds registered as Document Nos. 187 to 190 of 2010. The said Gunaseelan sold the entire 165 acres to the appellants, by four sale deeds and registered as Document Nos.379 to 382 of 2010. The said 165 acres was purchased by G. Srinivasan in Benami names from and out of monies obtained by fraud. Hence, the said property is proceeds of crime.

(iv) The Directorate of Enforcement initiated proceedings, on the basis of FIR dated 07.10.2010 and CBI letter dated 19.11.2010. An Enforcement case Information Report (ECIR) Vide F.No.ECIR/06/CZ/PMLA/2011 was registered on 03.01.2011, by Directorate of Enforcement, Chennai. The statements of G. Srinivasan, P. Manoharan, K. Vignesh, P. Venkatachalapathy, P. Rajendiran, R. Ayyappan, K. Gunaseelan, the appellants and others were recorded under Sections 50(2) and 50 (3) of Prevention of Money Laundering Act, 2002 (herein after referred as PMLA, 2002).

(v) During investigation G.Srinivasan admitted on 29.09.2011 that R.Manoharan is looking after his all financial transaction and other activities. In his statement he stated that in the name of M/s. Bhagavathi Textile Mills by submitting bogus bills and documents he obtained Rupees Fifteen Crores as loan. He utilized the said amount to purchase the lands referred to above and also movie rights etc., R.Manoharan, in his statement corroborated this statement of G. Srinivasan. P. Venkatachalapathy, P. Rajendiran and K. Vignesh in their statement stated that the lands referred to above belonged to G. Srinivasan and they are Benami owners. As per the instructions of G. Srinivasan, they executed power of attorney appointing P. Ayyappan as their power agent. They did not receive any money from G. Srinivasan and did not pay any money to G. Srinivasan or anybody else.

(vi) G. Srinivasan filed a complaint against P. Ayyappan, Gunaseelan and appellants, which was registered as FIR No.57/11, dated 30.08.2011, by District Crime Branch, Dindigul, alleging that P.Ayyappan and his men, came to his office at Udumalpet and took all the documents and forced him to give power to P.Ayyappan, with regard to 165 Acres at Chathirappatti Village. K.Vignesh, P.Venkatachalapathy and P.Rajendiran also gave power to Ayyappan who using the power sold the lands to Gunaseelan. The said Gunaseelan in turn sold the property to the appellants.

(vii) The Deputy Director of Prevention of Money Laundering Act, Directorate of Enforcement, respondent herein considering all the materials before him held that there are reasons to believe that property measuring 165 acres in the hands of appellants is part of proceeds of crime as defined under Section 2(1)(u) of Provision of Money Laundering Act and is involved in the offence of Money Laundering and is liable for adjudication and confiscation in terms of Section 8 of PMLA, 2002 . The properties are liable to attachment under Chapter III of PMLA, 2002. If the properties are not attached will frustrate further proceedings under the Act and by order dated 10.05.2012, ordered Provisional Attachment of the properties.

(viii) The respondent filed a complaint under Section 5(5) of the PMLA, 2002 against the appellants and G. Srinivasan, viz., [original complaint] OC No.144/2012. As per Section 5 (2) the respondent sent copies of attachment order to appellants and to adjudicating authority.

(ix) According to the respondent, the said G. Srinivasan involved in scheduled offences in terms of Sections 2(7) of PMLA and the properties are involved in offence of Money Laundering under Section 3 of PMLA, 2002 and prayed to, Adjudicating Authority to confirm the attachment of properties, made under Sub Section 1 of Section 5 of PMLA, 2002.

(x) The appellants filed replies denying all the averments and complaints made by respondent in the complaint. They contended that they are agriculturists. They purchased the property from and out of their agricultural income from Gunaseelan by registered sale deeds after satisfying themselves. They purchased the property without having knowledge that the property bought by them was proceeds of crime. They are bonafide purchasers and the sale consideration paid by them were earned through legal activities like selling lands etc. The sale considerations were paid through the bank, received from purchasers of agricultural products through bank and paid to vendor. The sale consideration were paid through legal source of income through agricultural operations and transactions were carried out through bank and hence, they are bonafide purchasers of the land for value. The respondent attached the property under misconception that property would fall under the provisions of Section 2(u) of the said Act.

(xi) The Adjudicating Authority considering the contentions of appellants and respondent and relying on the judgment of Bombay High Court in the case of Mr. Radha Mohan Lakhotia v. The Deputy Director, PMLA, Department of Revenuereported in 2010(5) Bom CR 625, held that property represent the proceeds of crime and are involved in Money Laundering and consequently up-held and confirmed the attachment of the properties.

(xii) The appellants challenged the order of adjudicating authority dated 07.09.2012 by filing 7 appeals before Appellate Tribunal, Prevention of Money Laundering Act at New Delhi. The Tribunal by the judgment dated 05.09.2014 dismissed all the appeals.

(xiii) Against the said order, the appellants have filed the Civil Miscellaneous Appeals.

4. At the time, the appeals were taken up for hearing, the learned counsel for the respondent raised a preliminary objection that the appeals can be heard and decided only by a Division Bench of this Court. The learned counsel for the Respondent relied on the judgment reported in 1997(3) SCC 261 [L. Chandrakumar v. Union of India and others].

5. Per contra, the learned Senior Counsel appearing for appellants contended that appeals are filed as per Section 26 of the Prevention of Money Laundering Act, 2002. The said Section does not contemplate that only Division Bench can decide the appeal. When the intention of Legislature is that appeal has to be decided by a Division Bench or by Full Bench, the same has been incorporated in the Appeal provisions itself. In the absence of such provisions, the appeal can be decided by single judge. The learned Senior Counsel also contended that the judgment relied on by the counsel for the respondent is not applicable to the facts of the present case. The issue in that case was appeal to Supreme Court from the order of Debt Recovery Tribunal. The Hon’ble Apex Court held that the order of Debt Recovery Tribunal can be challenged in High Court under Article 226 of Constitution of India.

6. The preliminary objection raised by learned counsel for the respondent was already considered at the time of numbering the appeals itself. The Registry raised the issue and it was placed before the Hon’ble Administrative Judge. After orders, it was posted before the learned Single Judge for admission. All the appeals were admitted and Status Quo was granted on 05.02.2015 by the learned Single Judge. Therefore, the contention of learned counsel for the respondent is unsustainable.

7. The learned Senior Counsel for the appellants contended that:—

8. Per contra, the learned counsel for the respondent contended that;

9. I have heard the learned Senior Counsel appearing for the Appellants and learned counsel appearing for respondent and carefully perused all the materials on record, the judgments relied on by the learned Senior Counsel appearing for the appellants and the learned counsel for the respondent and their arguments.

10. The following issues arise for consideration in these appeals:—

11. Point No. 1:-

The learned Senior Counsel for appellants contended that the proceedings initiated against appellants for provisional attachment of property in question is without jurisdiction and void ab initio. The appellants are not accused of having committed any criminal offence and or scheduled offence. The property in the hands of those accused persons alone can be attached. The appellants are bonafide purchasers for valuable consideration without knowledge of any criminal activities of their predecessors in title. They paid the sale consideration out of their legitimate agricultural activities. The learned Senior counsel referred to Sections 2(p), 3,4 and 5 of the said Act. According to the learned Senior Counsel, the person mentioned in Section 5 refers only to persons, who are accused of criminal activities or having committed scheduled offence.

12. Per contra, the learned counsel for the respondent contended that person referred to in Section 5 of the Act includes all the persons, who are in possession of proceeds of crime. Section 5 has to be read along with Section 2 (u) of the Act. Sections 2(p), 3 and 4 relates to money laundering and punishment for the same. Punishment for Money Laundering is distinct and different from provisional attachment. The learned counsel relied on paragraphs 11 to 13 of the judgment reported in 2010 (5) Bombay CR 625 [supra] and paragraphs 32 to 34 and 39 of the Judgment reported in [2011] 164 Comp Cas 149 (AP) extracted supra.

13. The Sections 2(p),(s),(u), 3,4, & 5 are extracted for reference.

“2(p) :- “money-laundering” has the meaning assigned to it in section 3;

2(s)”person” includes:-

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 any such property.

Section 3. Offence of money-laundering-Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected [proceeds of crime including its concealment, possession, acquisition or u s e an d projecting or claiming] it as untainted property shall be guilty of offence of money-laundering.

Section 4. Punishment for money-laundering-Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine

Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule , the provisions of this section shall have effect as if for the words “which may extend to seven years”, the words “which may extend to ten years” had been substituted.

Section 5. Attachment of property involved in money- laundering- Whether the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (there as on for such belief to be recorded in writing), on the basis of material in his possession, that-

14. There is no restriction in respect of person in possession of proceeds of crime. Section 5 does not restrict that property in the hands of persons involved in Money Laundering alone can be attached pending confiscation. This issue was considered by two Division Benches of Bombay High Court and Andra Pradesh High Court referred to above. Both the Courts after elaborately considering this issue referring to relevant Sections of Act referred to above held that proceeds of crime in the hands of persons not involved in Money Laundering or accused of criminal offence can also be attached. Both the Courts have held that person referred to in Section 5 is not restricted to a person accused of crime or involved in Money Laundering. The judgements squarely apply to facts of this case.

15. For the reasons stated above, the provisional attachment of property is not restricted in the hands of accused persons alone.

Points Nos. 2 & 3:-

16. The learned Senior Counsel for appellants contended that the property in question in the hands of appellants is not the proceeds of crime. The appellants are bonafide purchasers without knowledge of any fraud being committed and that, the property was purchased from and out of monies obtained by playing fraud on Financial Institution. The appellants paid the sale consideration from and out of their agricultural income. The appellants have proved that they belong to agricultural families owning lands and cultivating them. They cultivated Gloriosa Superba seeds which has considerable demand and yields huge income per acre. The appellants have produced acceptable documents to show the sale and given the names of their purchasers. The Authorities without properly considering the documents had passed the impugned orders. In any event, the property lost its character of proceeds of crime in the hands of their vendor Gunaseelan as the respondent failed to prove that he did not purchase the property out of legitimate income or he is a relative, employee or Benami of persons, who had committed fraud.

17. The learned Senior Counsel relied on paragraphs 37, 38 and 40 of the judgment reported in [2011] 164 Comp Cas 146 (AP) (supra) and paragraphs 17, 17h and 19 of the judgment reported in 2010 (5) Bom CR 625 (supra), as extracted above.

18. Per contra, the learned counsel for the respondent contended that by subsequent transactions, the property will not loose its character of ‘proceeds of crime’. The persons, who purchased the property out of amounts obtained by fraud try to project the property as untainted property by subsequent transactions. In the present case, the appellants failed to prove that sale consideration paid by them was obtained by legitimate means. The appellants failed to file any application for filing additional documents at Appellate stage and has not given any reason for not filing those documents before Adjudicating Authority.

19. Considering the rival contentions and the judgment relied on by the learned Senior Counsel, I am inclined to accept the contentions of the learned senior counsel.

20. As per the Sections 23 and 24 of PMLA, 2002, there is a presumption that property in the hands of Appellants is proceeds of crime. But the appellants have a right to rebutt the said presumption.

21. The said sections read as follows:—

“23. Presumption in inter-connected transactions Where money-laundering involves two or more inter-connected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the money-laundering offence , it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court), be presumed that the remaining transactions form part of such inter-connected transaction.

24. Burden of proof

In any proceeding relating to proceeds of crime under this Act,

22. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of Rs. 15,00,00,000/- by producing bogus and fabricated documents. From and out of the said amount, the property in question was purchased by him in the names of his Benamies. One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G.Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G.Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connected with G.Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime.

23. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate Gloriosa Superba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the Gloriosa Superba seeds and produced Bank statements. Some of the Appellants have stated that they sold their lands and borrowed monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements. Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent does not allege that Appellants are Benamies of G.Srinivasan or no sale consideration passed to the vendor.

24. Considering the materials on record and judgments reported in 2010 (5) Bom CR 625 (supra) and [2011] 164 Comp Cas 146 (AP) (supra), I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The respondent failed to prove any nexus or link of Appellants with G. Srinivasan and his benamies. Once a person proves that his purchase is genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bonafide purchaser without knowledge.

25. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties. Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation.

“21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Murtha Muthu, Sh. V. Indu Nesan , Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, for the offences punishable under Section 120-Bread with 420,467,471 IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B,420,471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants, particularly Def no.2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants without having any knowledge, whatsover, that these properties were derived or obtained through criminal activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after due verification of every details entered into the sale transactions as such these are bonafide deals entered by them against proper sale consideration and the money paid to the seller is also well explained.

22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bonafide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia v. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal no. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that the same is tainted could be subjected to Provisional Attachment Order.

23. In the instant case the only point to be decided is whether the properties bought by any person against clean money and without any knowledge that properties have been acquired directly or indirectly through scheduled offence could be subject matter of provisional attachment order.

24. It is an admitted position that the Defendants (D-2 to D-8) had no knowledge that the properties in the hands of the vendor was proceeds of crime. They have also verified the papers relating to these properties before the deal. No point has been raised with regard to the financial capability of these Defendants to buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA.”

Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia’s case.

26. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly appreciate the facts and findings in Radha Mohan lakhotia’s case. In that case, the Department had placed substantial and acceptable facts to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. Radha Mohan Lokatia’s case, Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence. All the persons involved in that case were close relatives.

27. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority . Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank.

28. In view of these facts, the judgment in Radha Mohan lakhotia’s case is in favour of the appellants as they have rebutted the presumption that the property in question is proceeds of crime.

29. In the result, all the Civil Miscellaneous Appeals are allowed and the impugned orders are set aside. No costs.