Telangana High Court
Mr. Madhu Koneru vs The Directorate Of Enforcement on 11 July, 2022
Author: Surepalli Nanda
Bench: Surepalli Nanda
* THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE MRS JUSTICE SUREPALLI NANDA
+ W.P.No.32191 OF 2021
% Date: 11-07-2022
# Mr. Madhu Koneru
... Petitioner
v.
$ The Directorate of Enforcement, Rep. by Assistant Director,
Hyderabad, and others
... Respondents
! Counsel for the Petitioner : Mr. D. Prakash Reddy, learned Senior Counsel appearing for Mr. Avinash Desai ^ Counsel for respondents 1 to 4: Mr. Anil Prasad Tiwari Learned Standing Counsel for Enforcement Directorate < GIST:
HEAD NOTE:
? CASES REFERRED:
1. (1978) 1 SCC 405
2. (1972) 3 SCC 234
3. (1992) Supp 1 SCC 335
4. (2013) 16 SCC 147
5. 2018 SCC Online Hyd 787
6. 2020 SCC Online P&H 738
7. Manu/BH/0417/2021
8. MANU/DE/1095/2015
9. (1961) 2 SCR 241 : AIR 1961 SC 372 : (1961) 41 ITR 191
10. (1967) 1 SCR 90 : AIR 1967 SC 523 : (1967) 63 ITR 219
11. (1976) 3 SCC 757 : AIR 1976 SC 1753 : (1976) 103 ITR 437
12. (2015) 11 SCC 628 : (2015) 320 ELT 45
13. 2018 SCC OnLine Del 6523
14. AIR 1952 SC 16.
2THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE MRS JUSTICE SUREPALLI NANDA WRIT PETITION No.32191 OF 2021 JUDGMENT AND ORDER: (Per the Hon'ble the Chief Justice Ujjal Bhuyan) Heard Mr. D.Prakash Reddy, learned Senior Counsel appearing for the petitioner and Mr. Anil Prasad Tiwari, learned Standing Counsel for respondent Nos.1 to 4.
2. By filing this petition under Article 226 of the Constitution of India, petitioner has prayed for the following reliefs:
(i) to set aside the summons bearing
F.No.ECIR/08/HZO/2011/5048 dated 11.11.2021
issued by respondent No.2;
(ii) to set aside the Provisional Attachment
Order No.11/2021 bearing F.No.ECIR/HYZO/08/
2011/5361 dated 25.11.2021 issued by respondent No.3.
3. Be it stated that by way of the impugned summons dated 11.11.2021 issued under sub-sections (2) and (3) of Section 50 of the Prevention of Money Laundering Act, 2002, respondent No.2 called upon the petitioner to furnish complete details regarding his policies bearing Nos.MO22000752, MO22002114, 3018724Z and 3018697D held with RL360 Insurance Company Limited, UAE, including present status and valuation as well as details regarding 3 source for the premium amounts paid for the above insurance policies.
4. By the Provisional Attachment Order No.11/2011 dated 25.11.2021 issued under the first proviso to sub-section (1) of Section 5 of the Prevention of Money Laundering Act, 2002, respondent No.3 ordered provisional attachment of the above insurance policies, further ordering that those shall not be transferred, disposed, removed, parted with or otherwise dealt with, until or unless specifically permitted to do so by respondent No.3.
5. F.I.R. bearing No.RC-35-2011-A-0018 dated 17.08.2011 was registered by the Central Bureau of Investigation (CBI) against Sri B.P.Acharya, IAS, Chairman & Managing Director of Andhra Pradesh Industrial Infrastructure Corporation and others for offences punishable under Section 120-B read with Sections 406, 409 and 420 of the Indian Penal Code, 1860 (IPC).
6. After completion of investigation, CBI filed charge sheet No.1 of 2012 dated 01.02.2012 before the Special Judge for CBI Cases, Hyderabad under Section 120-B read with Sections 420, 409, 406, 109 and 477-A IPC read with Section 4 13(2) and Section 13(1)(c)(d), and 15 of the Prevention of Corruption Act, 1988.
7. In the charge sheet submitted by the CBI petitioner was arrayed as accused No.13. Special Judge for CBI Cases, Hyderabad (briefly, 'CBI Court' hereinafter) took cognizance of the charge sheet in C.C.No.6 of 2012.
8. Case of the CBI in C.C.No.6 of 2012 is that the accused persons named in the charge sheet had conspired with certain public officials to cheat the Andhra Pradesh Industrial Infrastructure Corporation which had given 535 acres of land in Manikonda village for executing a project for residential and commercial development. In terms of the proposed development project, a joint venture by the name M/s. Emaar Hills Township Private Limited (briefly, 'EMAAR' hereinafter) was formed with equity structures to the extent of 74% being owned by Emaar Properties PJSC, Dubai and 26% being owned by Andhra Pradesh Industrial Infrastructure Corporation. The allegation is that instead of selling developed plots, undeveloped plots were sold and such sale reflected a lesser amount in the documents than the actual sale value, thus depriving Andhra Pradesh Industrial Infrastructure 5 Corporation of its legitimate share. Insofar the petitioner is concerned the allegation was that he is the son of Mr. Koneru Rajendra Prasad who was an Additional Director in EMAAR. Petitioner had received USD 3,90,000 from two plot owners of the project i.e., an amount of USD 1,40,000 from one Challa Suresh for villa plot No.A-28 and USD 2,50,000 from one Parthasarathy for plot No.B-34 in EMAAR as part of excess amount paid towards purchase of villa plots. Further allegation was that the above amounts were not reflected in the books so as to deprive Andhra Pradesh Industrial Infrastructure Corporation of its legitimate share.
9. Petitioner filed a criminal petition before this Court under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) for quashing all proceedings against him in C.C.No.6 of 2012. The same was registered as Crl.P.No.3935 of 2016. By a detailed order dated 05.01.2018, this Court allowed Crl.P.No.3935 of 2016 and quashed the proceedings in C.C.No.6 of 2012 against the petitioner. Petitioner (accused No.13) was acquitted and his bail bonds stood cancelled.
10. CBI filed Special Leave Petition before the Supreme Court against the aforesaid order dated 05.01.2018 being 6 S.L.P. (Crl) (Dairy) No.29628 of 2018. By order dated 24.09.2018, the delay in filing the Special Leave Petition was condoned and notice was issued. It is stated that the said S.L.P. is still pending before the Supreme Court but no stay has been granted.
11. Respondent No.1 filed a complaint dated 12.04.2019 under Section 45 of the Prevention of Money Laundering Act, 2002 (for short, 'PMLA' hereinafter) which was registered as Enforcement Case Investigation Report (ECIR) No.08/HZO/ 2011 before the Special Judge for Offences under the PMLA (PMLA Court). In this proceeding, petitioner was arrayed as accused No.12. Allegation against the petitioner was the same as in the CBI case: that petitioner had knowingly received USD 3,90,000 as part of excess amount paid towards purchase of villa plots. While USD 2,50,000 was returned back to Mr. Parthasarathy, USD 1,40,000 received from Mr. Challa Suresh was still with the petitioner. Thus, it was alleged that petitioner knowingly was a recipient of proceeds of crime. PMLA Court took cognizance of the offences under Sections 3 and 4 of the PMLA and issued process against the petitioner in S.C.No.1 of 2019.
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12. Petitioner again filed a criminal petition under Section 482 CrPC before this Court for quashing all proceedings qua the petitioner in S.C.No.1 of 2019. The said petition was registered as Crl.P.No.4130 of 2019. By order dated 02.06.2021, this Court allowed the criminal petition and quashed the proceedings against the petitioner in S.C.No.1 of 2019.
13. Thus the case against the petitioner instituted by the CBI as well as by the Enforcement Directorate (ED) stood quashed by this Court in two different proceedings.
14. Notwithstanding the aforesaid two orders of this Court, respondent No.2 whimsically issued the summons dated 11.11.2021. Petitioner replied to the summons on 18.11.2021 and requested respondent No.2 to recall the same as it was contrary to the judgments of this Court in Crl.P.Nos.3935 of 2016 and 4130 of 2019.
15. Not to speak of withdrawing the summons, respondent No.3 passed the Provisional Attachment Order dated 25.11.2021 provisionally attaching the four insurance policies of the petitioner.
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16. Aggrieved, present writ petition has been filed seeking the reliefs as indicated above.
17. This Court by order dated 06.12.2021 had issued notice and granted interim stay as prayed for. The stay order has since been extended from time to time.
18. Respondents have filed a common counter affidavit through Mr. Vikram working as Assistant Director, Directorate of Enforcement, Government of India, Ministry of Finance, Department of Revenue, Hyderabad, treating the same as a vacate stay petition. Stand taken in the counter affidavit is that the summons were issued following the due process of law. While admitting that this Court had quashed the proceedings against the petitioner it is however stated that proceedings against Sri Koneru Rajendra Prasad are still pending. Provisional Attachment Order No.11/2021 dated 25.11.2021 has been passed alleging that proceeds of crime of Sri Koneru Rajendra Prasad have been intermingled with the companies presently under the control of the petitioner Sri Koneru Madhu and hence attached. The property under question i.e., the insurance policies taken by Sri Koneru Rajendra Prasad have been transferred to Sri Koneru Madhu 9 in the months of July and August, 2021, after quashing of proceedings against Sri Koneru Madhu by this Court. It is contended that the same was done with the intention of alienating the proceeds of crime and Sri Koneru Madhu was in the process of surrendering the insurance policies.
19. Summons under Section 50 of the PMLA were issued to Sri Koneru Madhu to explain the source of funds for the premia paid for the insurance policies because presently Sri Koneru Madhu is managing the said companies and has access to all the records of such companies.
20. Denying the allegation that issuance of summons is an attempt to overreach the orders of this Court, it is stated that complaint was filed by the Enforcement Directorate after thorough investigation and probing the role of Sri Koneru Madhu.
21. Again it is reiterated that while proceedings against Sri Koneru Madhu have been quashed, proceedings against Sri Koneru Rajendra Prasad are still in vogue. Sri Koneru Rajendra Prasad along with his wife Smt. Koneru Vimala Devi had assigned the insurance policies taken by them in favour of Sri Koneru Madhu in an attempt to alienate the assets 10 acquired from the funds of entities in which proceeds of crime have been intermingled. Proceedings against Sri Koneru Madhu were quashed in June, 2021 and assigning/ transferring of the insurance policies to Sri Koneru Madhu was done immediately thereafter in the months of July and August, 2021. Therefore, answering respondents have denied the contention of the petitioner that quashing of proceedings against Sri Koneru Madhu would debar the respondents from taking any lawful measures to prevent subsequent alienation of assets "suspected to be" proceeds of crime.
22. Respondents were not aware of the foreign assets being the insurance policies earlier i.e., at the time of filing the complaint. During the course of investigation against other accused persons, it had come to the notice of the Enforcement Directorate that Sri Koneru Rajendra Prasad along with his wife Smt. Koneru Vimala Devi had taken certain insurance policies the premia of which was paid out of the finances of foreign entities being M/s.Trimex International FZE, UAE (now known as M/s.Rescom Holdings, UAE) in which proceeds of crime have been alleged to have been intermingled. Therefore to ascertain the exact source of such funds summons were issued to Sri Koneru Madhu as he is the one in charge of 11 M/s.Trimex International FZE, UAE (now known as M/s.Rescom Holdings, UAE). Neither Sri Koneru Madhu nor his father Sri Koneru Rajendra Prasad offered any explanation as to the source of funds for the premia for the said insurance policies.
23. It is stated that against the order of this Court in Criminal Petition No.3935 of 2016, CBI has filed SLP and against the order of this Court in Criminal Petition No.4130 of 2019, Enforcement Directorate has filed SLP bearing (Diary) No.29438 of 2021.
24. Respondents have also stated that they had examined the reply of the petitioner but there was nothing therein to merit consideration. However it has been explained that action being initiated by the Enforcement Directorate is essentially against Sri Koneru Rajendra Prasad. Since Sri Koneru Madhu is in-charge of the entities as on date through which the premia of the subject insurance policies were paid he had to be issued summons which is in furtherance of investigation against Sri Koneru Rajendra Prasad.
25. Referring to Section 65 of the PMLA, it is submitted that Section 173(8) CrPC is very much applicable to investigation, 12 attachment etc., under PMLA. Adverting to Section 44(1)(ii) explanation of PMLA, respondents have stated that the assignment/transfer of insurance policies to Sri Koneru Madhu immediately following quashing of prosecution against him is a deliberate attempt by Sri Koneru Rajendra Prasad to alienate the proceeds of crime. Thereby Sri Koneru Rajendra Prasad had projected the proceeds of crime as legal monies and possession of the same by Sri Koneru Madhu constitutes the offence of money laundering as defined under Section 3 and punishable under Section 4 of PMLA.
26. Denying that there is any overreach of the orders of this Court, it is contended that it is Sri Koneru Rajendra Prasad who along with his wife Smt. Koneru Vimala Devi who assigned/transferred assets in the form of insurance policies to Sri Koneru Madhu with the intention of alienation of assets, the source of which is suspected to be out of proceeds/funds of offshore entities in which the proceeds of crime have been allegedly intermingled. Further, under the PMLA the burden of proof is on the person in whose possession the proceeds of crime are found to prove that the subject properties have been obtained through legitimate sources. The insurance policies were taken through payment of premia by the companies in 13 which proceeds of crime were intermingled and Sri Koneru Madhu is the one who is incharge of the affairs of those companies. However he miserably failed to provide any information with regard to the source of funds for payment of premia for the insurance policies.
27. Thus it is contended that there is no merit in the writ petition which should be dismissed.
28. In his rejoinder affidavit, petitioner has re-stated the averments made and grounds urged in the writ affidavit, besides denying all the averments made in the counter affidavit. It is asserted that the impugned summons and the impugned Provisional Attachment Order amounts to overreaching the process of this Court making the Enforcement Directorate an appellate authority over this Court. Enforcement Directorate had issued summons to the petitioner in a case which stood quashed by this Court. On this ground alone the impugned summons and the impugned Provisional Attachment Order are liable to be quashed.
29. Petitioner has categorically denied the contention of the respondents that proceeds of crime of Sri Koneru Rajendra Prasad have got intermingled with the funds of the companies 14 now under the control of Sri Koneru Madhu and that the said companies had paid the premia for the subject insurance policies. Allegation of the respondents has got no basis at all. That apart, respondent No.3 had no reason to believe that the subject insurance policies are proceeds of crime. Impugned Provisional Attachment Order is based entirely on assumptions and conjectures. Therefore the impugned Provisional Attachment Order is liable to be set aside being contrary to the mandate of Section 5(1) of the PMLA; rather the counter affidavit filed by the respondents admits the fact that the impugned Provisional Attachment Order is based on mere suspicion that the insurance policies are suspected to be proceeds of crime.
30. Thus there is no reason to believe that the subject insurance policies are proceeds of crime. Respondents have merely proceeded on the suspicion that the insurance policies are proceeds of crime since those were earlier held by Sri Koneru Rajendra Prasad and Smt. Koneru Vimala Devi has been made the beneficiary of the insurance policies in the normal course. The same has no connection whatsoever to the quashing of proceedings by this Court against the petitioner. Respondents have failed to demonstrate any connection/link 15 between the insurance policies and the alleged proceeds of crime in the impugned Provisional Attachment Order.
31. Denying that petitioner had not submitted explanation to the impugned summons, it is stated that the petitioner had submitted response to the summons on 18.11.2021 requesting the respondents to withdraw the summons in view of quashing of proceedings against the petitioner by the High Court. That response was not considered by the respondents. Petitioner has denied the submissions of respondents that Section 173(8) CrPC is applicable to an investigation under the PMLA. Finally petitioner has contended that issuance of impugned summons and passing of the impugned Provisional Attachment Order attaching four insurance policies is clearly an abuse of the process of law. There is no material at all for respondent No.3 to have reason to believe that the insurance policies are proceeds of crime. It is further stated that as per complaint of the Enforcement Directorate an amount of Rs.96.01 crores is alleged to be the proceeds of crime collected from the sale of plots. Respondents have already issued Provisional Attachment Order No.3 of 2014 dated 21.11.2014 attaching assets worth Rs.96.01 crores which was alleged to be the entire proceeds of crime. There are no allegations 16 regarding existence of any further proceeds of crime. Therefore contention of the respondents that premia paid for the insurance policies are also proceeds of crime is wholly untenable, unsustainable and inherently improbable. Respondents mechanically attached all assets that may have connection to the accused without therebeing any reason to believe that such properties are proceeds of crime.
32. Mr. Prakash Reddy, learned Senior Counsel for the petitioner at the outset submits that the impugned summons and the impugned Provisional Attachment Order are clearly an abuse of the process of law and amounts to overreaching two judgments of this Court. He submits that the Enforcement Case Investigation Report (ECIR) under which the impugned summons and impugned Provisional Attachment Order have been issued was registered on the basis of alleged scheduled offence in F.I.R.No.RC-35-2011-A-0018 filed by the CBI. Allegation pertains to sale of certain undeveloped plots which allegedly resulted in loss to Andhra Pradesh Industrial Infrastructure Corporation. In the said F.I.R., petitioner was arrayed as accused No.13. Specific allegation against the petitioner was that he had received money from two persons i.e., Challa Suresh and Parthasarathy who had purchased the 17 undeveloped plots. It was the case of the CBI that money so received i.e., USD 3,90,000 was actually meant for accused No.6, Koneru Rajendra Prasad i.e., father of the petitioner. This Court after examination of all relevant aspects quashed the proceedings of CBI against the petitioner vide the order dated 05.01.2018 in Criminal Petition No.3935 of 2016. Again this Court quashed all proceedings against the petitioner in S.C.No.1 of 2019 for offences under the PMLA vide order dated 02.06.2021 in Criminal Petition No.4130 of 2019. Thus there is clear finding by this Court in two different proceedings that the money received by the petitioner from the two plot owners of the project does not constitute any offence either under the IPC or under the PMLA. Though the investigating agencies have filed Special Leave Petitions before the Supreme Court, no stay has been granted. Therefore issuance of summons to the petitioner in the same ECIR is nothing but an abuse of the process of law. Neither is there any predicate offence nor any scheduled offence against the petitioner.
33. Mr. Prakash Reddy, learned Senior Counsel further submits that there are no new materials available with the respondents to exercise purported powers of further investigation. As per the impugned Provisional Attachment 18 Order, the basis of issuance of summons is the ostensible discovery of certain insurance policies held by the petitioner. Enforcement Directorate has alleged that the premia of these insurance policies is being paid from one M/s.Rescom Holdings (earlier Trimex International FZE). The connection or link between the main offence and the impugned summons is based entirely on the alleged statement that the co-accused has diverted funds into M/s.Rescom Holdings. However in the entire complaint of the Enforcement Directorate qua the petitioner which has since been quashed, the only reference to alleged diversion of funds by co-accused to the petitioner's account are deposits made by two plot owners into the account of the petitioner. However this Court on two different proceedings did not find any criminal culpability insofar petitioner is concerned.
34. Learned Senior Counsel submits that the impugned summons and the impugned Provisional Attachment Order suffer from non-application of mind. Both respondent No.2 and respondent No.3 had clearly overlooked the two orders passed by this Court. There is no reference to the impact of the two orders of this Court in the Provisional Attachment Order. However respondents have sought to improve upon 19 their case in the counter affidavit by contending that though proceedings against the petitioner have been quashed, proceedings against his father Koneru Rajendra Prasad are still in vogue. This is wholly untenable, he submits, and in this connection, he has referred to a decision of the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner1 in support of the proposition that validity of an order passed by a statutory functionary must be judged by the reasons mentioned in the order and cannot be supplemented by way of an affidavit.
35. Mr. Prakash Reddy, learned Senior Counsel also submits that mere paraphrasing the language of the statute or repeated use of expression reasons to believe in the impugned Provisional Attachment Order would not be enough to sustain the same which is absolutely without jurisdiction and suffers from the vice of non-application of mind. According to him, both respondent Nos.2 and 3 could not have formed any reason to believe that the insurance policies of the petitioner or the premia paid for the same have nexus with any proceeds of crime. Respondents have acted merely on assumptions and presumptions. In the absence of any reason to believe that the 1 (1978) 1 SCC 405 20 subject insurance policies constitute proceeds of crime, Provisional Attachment Order of the insurance policies would be wholly without jurisdiction. In the circumstances, he submits that the impugned summons and the impugned Provisional Attachment Order are wholly unsustainable in law as well as on facts. Those are as such liable to be set aside and quashed.
35.1 In support of his submissions, learned Senior Counsel for the petitioner has placed reliance on the following decisions.
1. Sheo Nath Singh v. Appellate Assistant Commissioner of Income Tax, Calcutta2
2. Mohinder Singh Gill v. Chief Election Officer (supra)
3. State of Haryana v. Bhajan Lal3
4. Union of India v. Ashok Kumar4
5. Satyam Computer Services Limited v. Directorate of Enforcement5
6. Seema Garg v. Deputy Director of Enforcement6
7. HDFC Bank Limited v. Government of India7 2 (1972) 3 SCC 234 3 (1992) Supp 1 SCC 335 4 (2013) 16 SCC 147 5 2018 SCC Online Hyd 787 6 2020 SCC Online P&H 738 7 Manu/BH/0417/2021 21
36. On the other hand, Mr. Anil Prasad Tiwari, learned Standing Counsel for the Enforcement Directorate appearing for the respondents stoutly defended the impugned summons and the impugned Provisional Attachment Order. He submits that respondents have acted within the four corners of the law in issuing the summons and thereafter passed the Provisional Attachment Order. According to him, the present writ petition is premature in as much as validity of the attachment is yet to be decided by the adjudicating authority. Once reference is made to the adjudicating authority, the said authority will adjudicate after hearing the petitioner and thereafter pass an order recording a finding as to whether all or any of the properties mentioned in the referral notice are involved in money laundering. Therefore, viewed in the above context, the writ petition is premature. The interim order passed by this Court may be vacated and the adjudicating authority should be allowed to decide as to whether the insurance policies are proceeds of crime or not. He therefore seeks dismissal of the writ petition.
37. Submissions made by learned counsel for the parties have been considered.
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38. At the outset, we may briefly refer to some of the provisions of the PMLA which may have relevance to the issue being adjudicated in the present proceeding.
39. Prevention of Money Laundering Act, 2002 (already referred to as 'the PMLA') is an Act to prevent money laundering and to provide for confiscation of properties derived from or involved in money laundering and for matters connected therewith or incidental thereto. Section 2 of PMLA defines various words and expressions appearing in the PMLA. Section 2(1)(fa) defines "beneficial owner" to mean an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person. 39.1 According to Section 2(1)(p), the expression 'money- laundering' has the meaning assigned to it in Section 3. Section 3 deals with the offence of money-laundering. As per Section 3, 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 with the proceeds of crime including its concealment, possession, 23 acquisition or use and projecting or claiming it as untainted property shall be guilty of the offence of money-laundering. Therefore to commit the offence of money-laundering, the essential pre-conditions are - involvement in any process or activity connected with the proceeds of crime; and projecting it as untainted property. This is further clarified by the Explanation below Section 3.
39.2 'Proceeds of crime' is defined under Section 2(1)(u) to mean 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 or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. The Explanation clarifies that 'proceeds of crime' include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. The aforesaid expression being relevant, the same is extracted hereunder:
2(1)(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 or where such property is taken or held outside the country, then the 24 property equivalent in value held within the country or abroad.
Explanation.- For the removal of doubts, it is hereby clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.
39.3 "Scheduled offence" is defined in Section 2(1)(y).
"Scheduled offence" means (i) the offences specified under Part A of the Schedule; or (ii) the offences specified under Part B of the Schedule if the total value involved in such offences is one crore rupees or more; or (iii) the offences specified under Part C of the Schedule.
40. Chapter III of PMLA comprises of Sections 5 to 11 which deal with attachment, adjudication and confiscation. Since in the present proceeding we are at the stage of provisional attachment, we may limit our deliberation to Section 5 only. Section 5 deals with attachment of property involved in money-laundering. Section 5 being relevant reads as under:
5. Attachment of property involved in money-
laundering.- (1) Where 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 (the reason for such belief to be recorded in writing), on the basis of material in his possession, that -
(a) any person is in possession of any proceeds of crime; and
(b) 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 under this Chapter, 25 he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed;
Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorized to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report complaint has been made of filed under the corresponding law of any other country:
Provided further that, notwithstanding anything contained in (first proviso), any property of any person may be attached under this section if the Director or any other officer nor below the rank of Deputy Director authorized by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money- laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.] Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted.
(2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.
(3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under [sub-section (3)] of Section 8, whichever is earlier.
(4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment.26
Explanation:- For the purposes of this sub-section, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property.
(5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.
41. Heading of Section 5 is attachment of property involved in money-laundering. As per sub-section (1), where the Director or any other officer not below the rank of Deputy Director authorised 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 (a) any person is in possession of any proceeds of crime; and (b) 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 under Chapter III, he may, by order in writing, provisionally attach such property for a period not exceeding 180 days from the date of the order. As per the first proviso, no such order of attachment shall be made in relation to a scheduled offence unless a report is forwarded under Section 173 CrPC or a complaint is filed to investigate the offence mentioned in the Schedule. The second proviso says that if the officer has reason to believe, which 27 reason must again be recorded in writing, on the basis of material in his possession that if such property involved in money-laundering is not attached immediately, such non- attachment of property would frustrate any proceeding under the PMLA.
41.1 Sub-section (5) of Section 5 provides that the officer provisionally attaching any property under sub-section (1) shall file a complaint before the adjudicating authority stating the facts of such attachment. Such complaint should be filed within 30 days from attachment.
41.2 Sub-section (3) clarifies that an order of attachment made under sub-section (1) would cease to have effect after expiry of 180 days or on an order being made by the adjudicating authority under sub-section (3) of Section 8, whichever is earlier.
42. We will revert back to Section 5 of the PMLA a little later.
43. Let us now deal with the charge against the petitioner as accused No.13 brought by the CBI in C.C.No.6 of 2012. We have already noted the substance of the allegation qua the 28 petitioner. However we may extract the same as was summarised by this Court in Criminal Petition No.3935 of 2016 filed by the petitioner for quashing the charge against him in C.C.No.6 of 2012. In the order dated 05.01.2018, this Court summed up the charge against the petitioner by the CBI in the following manner:
2. The brief case of the prosecution is that a Joint Venture Company by name M/s Emaar Hills Township Private Limited (EHTPL-A3) was formed in 2003 between Emaar Properties PJSC, Dubai(Emaar-A2) and M/s APIIC to develop 353 acres of land in Gachibowli in the ratio of 74:26 in profits in 2006. M/s Emaar, the partner of M/s EHPTL without the knowledge of APIIC in violation of agreement of various Government rules entered into partnership with another sister company known as M/s EMAAR MGF (A4) to develop the same piece of land in Gachibowli in the ratio of 75:25 in revenue i.e. M/s EMAAR MGF-A4 will hold 75% interest and M/s EHTPL-
A3 will hold 25%. Hence accordingly, the stake of M/s APIIC in this project has changed to 6.5% of revenue as opposed to 26% in profits. By way of reduction of share of M/s APIIC to 6.5%, their partner M/s EMAAR MGF alone was allegedly benefited about Rs.2,500 crores. M/s Emaar MGF sold the plots for the villas at Rs.5,000/- per yard from 2006 onwards. It is alleged that M/s Emaar MGF collected another Rs.25,000/- per yard from the buyers at the time of selling these plots. Total land for 134 villas sold so far 1,71,559 sq. yards (36 acres approx). So far they have collected official sale proceeds of Rs.85.77 crores and unaccounted amount of 450 crores, which is alleged to have been siphoned off. However, not a single rupee has been credited to M/s APIIC so far, but only shown as equity as shares, for the amount due to M/s APIIC. The petitioner-A13-(being son of Mr. Koneru Rajendra Prasad-Accused No.6) is carrying out his business at Dubai.
3. It is alleged that an amount of US $ 250,000 (equivalent to Rs.1.05 crores approximately) was deposited through RTGS into petitioner's bank account in Dubai on 09.08.2007 by one Mr. P.S. Parthasarthy upon instructions of one T.Ranga Rao-(A14-Approver)-who established an entity by name Stylish Homes Pvt. Ltd. at the instance of his classmate of A6) allegedly towards 29 part sale consideration of a plot. The petitioner-A13 camouflaged said amount in his account as a loan which was refunded to said Parthasarthy as an afterthought, though its refunding does not absolve him from the criminal liability. That an amount of US$ 140,000 (equivalent to Rs.65 lakhs approximately) was deposited into the petitioner's bank account in Dubai by one Mr. Suresh Challa, a plot purchaser, towards part consideration but stated to be for investing in the real estate by the petitioner. The aforesaid acts of the petitioner establish commission of offences punishable U/s 120-B r/w 420, 109 and 409 of IPC.
44. After summing up the facts, this Court clearly held that no offence of criminal breach of trust or cheating was made out against the petitioner. It was held as follows:
13. From the above, with no need of repetition of the facts, the main allegations from the prosecution case in so far as against the petitioner as A13 are that, though the rate of selling the villa plots was fixed by M/s Emaar Properties PJSC, Dubai with M/s Stylish Holmes Real Estates Pvt. Ltd., at Rs.5,000/- per Sq. Yd., as per the instructions of Shri Koneru Rajendra Prasad-A6, Shri T.Ranga Rao-A14 as Director of M/s Stylish Holmes, sold the villa plots by collecting excess amounts from the buyers ranging from Rs.4,000/- per Sq. Yd. to Rs.45,000/- per Sq. Yd., over & above the rate of Rs.5,000/- per Sq. Yd. and it is the criminal breach of trust and cheating and to commit the offences there was a criminal conspiracy and as part of their nefarious plan, the excess money over & above the documented price of Rs.5,000/- per Sq. Yd was collected of an amount of Rs.96,01,75,000/- by Shri T.Ranga Rao and Shri Rajendra Prasad from about 82 or so villa plot buyers in cash only; however two of such buyers viz., Shri P.S.Parthasarathy and Shri Challa Suresh, since deposited in to the account No.8900056630, US $ 250,000 and US $ 140,000 respectively towards part of excess payment in the bank accounts of the petitioner-
A13-Shri Madhu Koneru (S/o Shri Koneru Rajendra Prasad-A6) maintained at Dubai and Shri T.Ranga Rao, Shri P.S.Parthasarathy and Shri Y.V.Prasad in their respective statements U/s 164 CrPC confirmed that said amount was part of the sale consideration paid over & above Rs.5,000/- per Sq. Yd, even that was refunded by Shri Madhu Koneru on 14.10.2011 into the account of Shri P.S.Parthasarathy as if it was a return of loan amount, after registration of this case which is sought to 30 be inferred as an attempt to give a different colour to this transaction as an after thought; leave apart the excess amount of US $ 140,000 paid by Shri Challa Suresh still remains with the petitioner-A13-Shri Madhu Koneru and these facts as per the prosecution agency establishes that the petitioner-A13-Shri Madhu Koneru has abetted the offence committed by his father Shri Koneru Rajendra Prasad-A6 by parking the money in his bank account.
14. From reading of the material supra, there is thus no offence of criminal breach of trust and cheating much less with any proof of entrustment and any deception since inception of any contract between M/s Emaar and M/s Stylish Holmes in so far as against the petitioner-A13 separately concerned, but for subject to offence of criminal conspiracy made out if any with other accused under Sections 120B & 107(2) IPC r/w. Section 10 Evidence Act to the petitioner-A13 as privy for their committing those offences alleged from any agreement or abetment/instigation from the allegations in the charge sheet that though rate of selling the villa plots was fixed by M/s Emaar at Rs.5,000/-per Sq. Yd.; as per the instructions of Shri Koneru Rajendra Prasad-A6, Shri T.Ranga Rao-A14 as Director of M/s Stylish Holmes Real Estates Pvt. Ltd., sold the villa plots by collecting excess amounts from the buyers ranging from Rs.4,000/- per Sq. Yd. to Rs.45,000/- per Sq. Yd., over & above the rate of Rs.5,000/- per Sq. Yd. and the excess money was collected by Shri T.Ranga Rao from the buyers in cash only except from Shri P.S.Parthasarathy and Shri Challa Suresh, who deposited US $ 250,000 and US $ 140,000 respectively towards part of excess payment in the bank accounts of Shri Madhu Koneru S/o Shri Koneru Rajendra Prasad maintained at Dubai. Thus it is only to consider whether petitioner-A13 is privy to any criminal conspiracy with any other accused.
15. From the above now to consider whether the petitioner-A13 is in any way can be held privy to any criminal conspiracy punishable under Section 120B IPC with any other accused and liable to face trial for the accusation of criminal conspiracy, leave about with any other offence therefrom, from the material on record, even taken on its face value, from his allowing of any such amounts remitted in to his account without immediate refund?
45. Thus from the above, we find that after exonerating the petitioner from the offence of criminal breach of trust and cheating this Court examined as to whether petitioner was in 31 any way privy to any criminal conspiracy punishable under Section 120-B IPC with any other accused. On a thorough consideration of the materials on record, this Court held as follows:
15(c). Here coming to the case on hand, it is not even a case of separate conspiracy between A6 and A13, the father and son, from entire case of prosecution, for not a version that with that separate conspiracy they hatched any plan to commit another offence or part of any offence in any larger conspiracy. Even for arguments sake taken as such, it at best when shows A6-asked the two buyers to remit the excess amount into the bank account of his son- petitioner-A13-Madhu at Dubai, for none of the statements of Ranga Rao, Parthasarthy and Suresh show the remittances were made into the bank account of the petitioner-A13 at the instructions of petitioner-A13 or that it was petitioner-A13 that furnished the bank account, there is any privy of him to it? There is thus a force in the contention of the quash petitioner-A13 that there is every possibility for A6-Rajendraprasad knowing the bank account of petitioner -A13 being his son in furnishing said bank account in asking by him(A6) or through Ranga Rao the two buyers to remit the amounts into said bank account of petitioner-A13 and if so can it be said that there is any smaller criminal conspiracy even between A6&A13, in the absence of any further material from the prosecution of there were any acts prior or pursuant to any criminal conspiracy between A.6 & A.13 including from any say by any of so called witnesses even in relation to it; like A.13 furnishing his bank account and asking them to deposit into it to infer a little if at all therefrom, which is lacking. Thus the mere say of A6 was going to Dubai and visiting his son-A13 even if any, from that relation of father and son, there can be no presumption to draw on the primary facts to be made out from the prosecution case even of any privy between A6&A13, leave about with others, in the absence of any factual foundation to establish agreement and privy between persons to call as members of conspiracy, even by picking up any bits from here and there, for basically an offence of conspiracy cannot be deemed to have been established on mere suspicion and surmises or inferences which are not supported by cogent and acceptable material stands to scrutiny from its analysation on existence of prima-facie accusation or not.32
46. Finally this Court came to a definitive conclusion that there was no material to implicate the petitioner with criminal conspiracy. Relevant portion of the order dated 05.01.2018 in Criminal Petition No.3935 of 2016 is extracted hereunder:
18. Thus there is nothing to implicate him with criminal conspiracy, for there is nothing to show any circumstances give rise to a conclusive or irresistible inference of an agreement between him and one or more other persons to commit an offence; leave apart a few bits here and a few bits there on which the prosecution relies if any cannot be held to be adequate for connecting him with the commission of the crime of criminal conspiracy as held by the Apex Court in the decisions supra, for nothing that can be shown even of all means adopted and illegal acts done in furtherance of the object of conspiracy hatched from any circumstances relating to the period prior in time than only one circumstance in seeking to infer conspiracy from at a later point of time a part of the amounts of two so called buyers out of nearly hundred buyers amounts remitted to his account was not immediately returned to the two, but allowed to remain in his account as an alleged offence, which is when no way suffice to any prudence to say same was in furtherance of the alleged conspiracy to draw any inference of the alleged conspiracy. Undisputedly from the settled legal position, there must be a meeting of minds resulting in ultimate decision taken by the conspirators regarding the commission of an offence and where the factum of conspiracy is sought to be inferred from circumstances, the prosecution has to show that the circumstances give rise to a conclusive or irresistible inference of an agreement between two or more persons to commit an offence. For that the acts and conduct of the parties must be conscious and clear enough to infer their concurrence as to the common design and its execution. The innocuous, innocent or inadvertent events and incidents should not enter the judicial verdict. If the agreement is not an agreement to commit an offence, it does not amount to conspiracy unless it is followed up by an overt act done by one or more persons in furtherance of the agreement. what is essential of the Agreement as a primary fact is proved from the prosecution material on record, for mere knowledge, or even discussion, of the plan is not, per se enough. Nevertheless, existence of the conspiracy and its objective can be inferred from the surrounding circumstances and the conduct of the accused. But the incriminating circumstances must form 33 a chain of events from which a conclusion about the guilt of the accused could be drawn.
47. After holding so, this Court allowed Criminal Petition No.3935 of 2016 filed by the petitioner and acquitted the petitioner/accused No.13 from the charges.
48. Though CBI has filed Special Leave Petition before the Supreme Court against the aforesaid order dated 05.01.2018, no stay has been granted therein. As a result the charges brought in by CBI against the petitioner in F.I.R.No.RC-35- 2011-A-0018 which upon cognisance was registered as C.C.No.6 of 2012 stood quashed. In fact this Court was categorical in declaring that petitioner/accused No.13 was acquitted of the charges.
49. Since the offences under Section 120-B, 420 and 409 IPC and Section 13 of the Prevention of Corruption Act, 1988 are scheduled offences, Enforcement Case Investigation Report (ECIR) was lodged by the Enforcement Directorate which was registered as E.C.I.R.No.08/HYZO/2011. On conclusion of investigation, respondents filed a complaint under Section 200 CrPC read with Sections 45(1), 3, 4 and 8(5) of the PMLA before the Principal Special Judge for CBI 34 Cases-cum-Special Court under the Prevention of Money Laundering Act, 2002, Hyderabad. Upon cognisance being taken, the same was registered as S.C.No.1 of 2019, in which the petitioner was arrayed as accused No.12. The charge against the petitioner was the same as in the CBI case. After hearing the matter at length, this Court vide the order dated 02.06.2021 framed the following questions for consideration:
1) Whether there is material to constitute the offence amounting 'money laundering' under the PML Act against the Petitioner (Accused No. 12)?
2) Whether there is 'schedule offence' to be proceeded with against the Petitioner under the provisions of Prevention of Money Laundering Act in view of the Order of this Court in Crl. Petition 3935 of 2016 dated 05.01.2018?
3) Whether the amendment of PML Act, in the year 2009 so far as 'schedule offences' is concerned, can be applied to an act committed prior to amendment?
50. While deliberating upon question Nos.1 and 2 as extracted above, this Court adverted to the accusation made against the petitioner in the complaint filed by the respondents before the Special Court which may be extracted as under:
"L. Role of Sri Koneru Madhu (Accused No. 12) S/o Sri Koneru Rajendra Prasad in Money Laundering Offence:
i) He is an NRI and his father Sri Koneru Rajendra Prasad was a Director in EHTPL. He received an amount of USD 1,40,000 from Sri Challa Suresh and USD 2,50,000 from Sri PS Parthasarathy, who have purchased villa plots in EHTPL, as part of excess amount received from villa plot buyers.35
ii) Later he returned the amount of USD 2,50,000 to Sri PS Parthasarathy in the guise of investment colour to the amount received by him.
iii) However, USD 1,40,000 received from Sri Challa Suresh is still lying with him
iv) Hence, he is the recipient of part of proceeds of crime and still holding some of it knowingly.
v) Thus, Sri Koneru Madhu knowingly received USD 3, 90,000 and involved in the process of acquisition, possession of PoC thus directly involved in the offence of 'Money Launder' in terms of Sec. 3 of PMLA, 2002 for which Shri Koneru Madhu shall be guilty of offence of money laundering under sec. 3 and punishable under sec. 4 of the Act."
51. After analysing the legal provisions and considering the materials on record, this Court held as follows:
It is apt to note that the Complaint of the ED in S.C.No.1 of 2019 impugned and is challenged under Section 482 of the Cr.P.C., simply adopts the Charge Sheet contents/accusations against the Accused No. 13 therein who is the Petitioner/Accused No. 12 in this Criminal Petition. There was a Charge Sheet and Supplementary Charge Sheet filed by the CBI. The offences cited against the Petitioner herein (A13 in that charge sheet) in that original Charge Sheet are Sections 120B, 420, 409 and 477-A IPC. Interestingly, the accusations made in that charge sheet against A-13 therein (petitioner herein) are replica of the allegations made in the impugned complaint filed before the Special Court by the ED under the PML Act. It is also important to note that in the Complaint itself the ED has asserted that a detailed reference is made to the Charge sheet filed by CBI at various places and at paragraph No. 10 a reference is made to the 'investigation under PMLA, 2002' as below:
"11. It is humbly submitted that on receiving documents from CBI like FIR, Charge Sheet etc., the Directorate of Enforcement, Hyderabad made enquiries and having found that there is a prima facie case under PMLA, 2002 and as Sec. 120B read with Sec. 420 of IPC and Sec. 13 of PC Act are the Scheduled offences under PMLA, 2002, Directorate of Enforcement has registered ENFORCEMENT 36 CASE INFORMATION REPORT (ECIR) No. 08/HZO/2011 dt. 30.08.2011 (Annexure-A4) and took up the investigation."
12. During the investigation summonses were issued under Section 50 of the Act to several persons and recorded their depositions, obtained Financial Accounts and Bank statements of M/s Stylish Holmes, Shri Tummala Ranga Rao, M/s Southend Projects & Foundations Pvt. Ltd. Sri N. Sunil Reddy, Sri Koneru Rajendra Prasad and also from other persons who were associated with the transactions and their voluntary statements ..."
It is therefore, as rightly contended by the Learned Senior Counsel for the Petitioner, other than the material collected by the CBI, the ED did not collect, nor did any further investigation to collect some more material to charge the petitioner with the offence under sec. 120B and Sec. 420 IPC. This Court in Crl.P.No 3935 of 2016, wherein the present petitioner was figured as Accused No. 13 made a clear observation vide Para 17 at page 40 as below:
"From the above, when it is not a case of the Petitioner-A13 was privy to any conspiracy with M/s Emmar Properties, Public Joint Stock Company (PJSC), Dubai, from the time of their entering the MOU, much less even party to agreement between M/s Emmar and its subsidiaries and M/s Stylish Homes and not even privy with Ranga Rao-Director of M/s Stylish Homes and nothing even of any material with substance to say any privy between A6-Rajendra Prasad and the Petitioner-A13, leave apart as discussed supra even any ting to infer between father and son of any knowledge of the son about his father was privy with others in any offence and not prevented, that no way establish any criminal conspiracy to mulct the petitioner as A13 with other of them, even taken for arguments sake of his version of the amount remitted by Parthasarathy was a loan and the amount remitted by Suresh was investment in any business are untrue, that by itself but for one of several circumstances to infer no way suffice to charge him with accusation of criminal conspiracy..."37
At paragraphs 18 and 19 of the Order, this Court made further observations that the offence of Criminal Conspiracy is not made out from the material provided by the CBI in their Charge Sheet. The relevant observations are extracted below for instant reference:
"18. Thus, there is nothing to implicate him with criminal conspiracy, if there is nothing to show any circumstances give rise to a conclusive or irresistible inference of an agreement between him and one or more other persons to commit an offence leave apart a few bits here and a few bits there on which the prosecution relies, if any, cannot be held to be adequate for connecting him with the commission of the crime of criminal conspiracy as held by the Apex court...
19. The respondent-CBI even alleged in the charge sheet that the petitioner-A13 is also a party to the so-called criminal conspiracy, but on the evaluation of the entire subject matter, there is nothing for what is discussed supra. The learned Special Judge also did not go through and evaluate the prosecution material covered by the final report in taking cognizance for respective offences against him as A-13."
So far as the other offences of criminal breach of trust and cheating (sections 409 and 420 IPC) is concerned, this Court has recorded the following observations:
"14. From reading of the material supra, there is thus no offence of criminal breach of trust and cheating much less with any proof of entrustment and any deception since inception of any contract between M/s Emaar and M/s Stylish Holmes in so far as against the petitioner-A13 separately concerned, but for subject to offence of criminal conspiracy made out if any with other accused under sections 120B & 107 (2) IPC r/w 10 Evidence Act to petitioner A13 as privy for their committing those offences alleged from any agreement or abetment/instigation from the allegations in the charge sheet that though rate of selling the villa plots was fixed by M/s Emaar at Rs. 5, 000/ per sq. yd. as per the instructions of Shri Koneru Rajendra Prasad - A6, Shri T. Ranga Rao-A14 as Director of M/s Stylish Holmes Real Estates Pvt. Ltd., sold the 38 villa plots by collecting excess amounts from the buyers...."
Thus, this Court upheld the contentions of the Petitioner herein who is the Petitioner-A13 in Charge sheet filed by CBI that no offences are made out under sec. 120B, 409 and 420 IPC and quashed the charge sheet against him. This Court is called to examine the same facts which were considered by this Court in Crl P. No.3935 of 2016, in this case which are arisen out of the Complaint filed by the ED under PML Act. The contention of the learned Standing Counsel for the Respondent is that this case is independent and has no relevance with the result of Crl.P.No. 3935 of 2016 is lacking force and logic because the ED can proceed only for those offences which are 'scheduled offences' under the IPC. This Court, on facts cannot take a different opinion from the one taken by another co-ordinate bench of this Court.
52. Upon thorough consideration of all aspects of the matter, this Court concluded as under:
Therefore, as rightly argued by the learned Senior Counsel for the Petitioner, it is redundant for this court to discuss the facts and law on the same points once again in this petition. Therefore, this Court finds reasons to accept the contentions of Sri Mukul Rohatgi, learned Senior Counsel for the Petitioner that according to the findings in Crl.P. No. 3995 of 2016, the scheduled offences are not made out and the Charge Sheet is quashed against the Petitioner and therefore, and in consequence thereof, there cannot exist any more scheduled offences for the purpose of prosecution under Sections 3 and 4 of PML Act, 2002 (as amended).
In view of the above discussion, I find that there is no material to proceed against the petitioner under Sections 3 and 4 of Prevention of Money Laundering Act, 2002 and that there are no 'schedule offences' committed by him to proceed under the provisions of PML Act in view of the Order of this Court in Crl.P. No. 3935 of 2016 dated 5.1.2018.
53. Insofar question No.3 was concerned, this Court took the view that the amendments brought to the PMLA in the year 2009 could not be applied to offences committed prior to 39 the amendment to initiate proceedings under PMLA. To arrive at this conclusion, this Court followed the decision of the Delhi High Court in Arun Kumar Mishra v. Directorate of Enforcement8. Accordingly this Court allowed the criminal petition filed by the petitioner and quashed the proceedings against the petitioner in S.C.No.1 of 2019.
54. In the counter affidavit respondents have stated that they have filed Special Leave Petition before the Supreme Court against the aforesaid order of this Court but we do not find any stay granted by the Supreme Court. Thus as on today there is neither any CBI case against the petitioner nor any case by the Enforcement Directorate, not to speak of any scheduled offence being charged against the petitioner.
55. Let us now deal with the impugned summons and order of provisional attachment.
56. Insofar the summons are concerned, petitioner was called upon by respondent No.2 to furnish complete details of his four insurance policies held with M/s.RL360 Insurance Company Limited, UAE including the present status and valuation. Petitioner was also called upon to furnish complete 8 MANU/DE/1095/2015 40 details regarding source for payment of premia amounts for the said insurance policies.
57. As already noted earlier, petitioner had replied to respondent No.2 on 18.11.2021 contending that the ECIR under which the summons were issued was already quashed by this Court qua the petitioner. He also pointed out that the charge sheet filed by the CBI against petitioner was also quashed by this Court qua the petitioner. Therefore issuing summons to the petitioner in the same ECIR was contrary to the above two judgments of this Court. Accordingly petitioner requested respondent No.2 to withdraw the summons.
58. That brings us to the Provisional Attachment Order No.11/2021, dated 25.11.2021 passed by respondent No.3 brushing aside the above reply. It is seen that respondent No.3 considered the following while passing the impugned order:
(i) Copy of FIR No.RC-35-2011-A-0018 dt. 17.08.2011 registered by CBI, Hyderabad against M/s Emaar Hills Township Pvt.Ltd. and Others.
(ii) Copy of Charge Sheet No. 01/2012 dated 01.02.2012 (CC No.06/2012) in FIR No.RC-35-2011-A-0018 dt.17.08.2011 filed before Special Judge for CBI Cases, Hyderabad.
(iii) Copy of Supplementary Charge Sheet No.05/2012 dated 23.04.2012 (CC.No. 06/2012) in FIR No.RC-35- 41
2011-A-0018 dt.17.08.2011 filed before Special Judge for CBI Cases, Hyderabad.
(iv) ECIR No.08/HZO/2011 dated 30.08.2011 registered by Directorate of Enforcement, Hyderabad Zonal Office, Hyderabad.
(v) Statement dated 31.08.2021 given by Shri Koneru Pradeep under Section 50 of the Prevention of Money Laundering Act, 2002.
(vi) Reply of Shri Madhu Koneru vide email dated 18.11.2021 in response to summons dated 11.11.2021, issued u/s 50 of the Prevention of Money Laundering Act, 2002. Hard copy of the same also submitted in the office on 22.11.2021.
59. After narrating the case history and the charges framed by the CBI, respondent No.3 referred to the investigation under PMLA. It was noted that at the stage of preliminary investigation, Provisional Attachment Order No.1 of 2012 dated 25.09.2012 was issued for attachment of properties valued at Rs.71.27 crores which was subsequently confirmed by the adjudicating authority on 15.02.2013. After CBI filed supplementary charge sheet following investigation, it was noted that further proceeds of crime to the tune of Rs.96.01 crores into the hands of EMAAR were attached vide Provisional Attachment Order No.3 of 2014 dated 21.11.2014 which was confirmed by the adjudicating authority on 09.04.2015. Thereafter statement of Sri Pradeep Koneru recorded on 31.08.2021 was referred to as follows: 42
6.4 During investigation under section 50 (2) & (3) of PMLA, statement of Shri Pradeep Koneru was recorded on 31.08.2021, and during recording of statement, he, interalia, stated that his father Shri Koneru Rajendra Prasad set up a firm by name M/s Trimex Agencies, Chennai and his mother, Smt Koneru Vimala Devi was the partner of the said firm. In 1995, the firm was later renamed as M/s Trimex Industries Private Limited, Chennai; that his father was managing his business in Dubai; that M/s Trimex Agencies was later renamed to M/s Trimex Industries Pvt Ltd; that he was looking after the affairs till 1998-99 and later his mother, was made the Director of the company and looking after the affairs of the company under the guidance of his father; that his brother Shri Madhu Koneru is currently looking after the business operations of entities established by his father in Dubai and he is owner of all the companies established by his father in Dubai; that his father has setup a company in Dubai and later in the year 2005, it was transferred to his elder brother Madhu Koneru and the name of the company was later changed to M/s Trimex International FZE, which was subsequently renamed as M/s Rescom Holdings, Boulevard Plaza, Tower 1-Downtown Dubai-Dubai-United Arab Emirates. He furnished the details of his bank accounts held outside India viz., Abu-Dhabi Islamic Bank and Emirates NBD.
6.5 He also furnished the details of insurance policies held in his name outside India. He informed that he had five insurance policies outside India, out of which one was being surrendered; and the premia for all these policies were paid by his brother Shri Madhu Koneru, from his business income, as a gift or being paid by M/s Rescom Holdings, Dubai and that 4 out of 5 insurance policies have completed their tenure before 6 years.
6.6 It is pertinent to mention that when questioned to furnish the source of funds utilized for purchasing the above insurance policies, Mr. Pradeep Koneru has stated that the premium for the above mentioned 5 insurance policies were being paid by his elder brother, Shri Madhu Koneru, from his business income, as a gift or being paid by M/s Rescom Holdings, Dubai and that 4 out of 5 insurance policies have completed their tenure before 6 years. He also furnished a copy of HSBC Bank, UAE, cheque dated 01/04/2006 for an amount of AED 13,601,30 paid as premium to M/s Friends Provident International, UK from the bank account of M/s Trimex International FZE (M/s Rescom Holdings) as documentary evidence.
43
6.7 Accordingly, a Provisional Attachment Order was issued vide PAO No.08/2021 dated 08.09.2021 for attachment of Momentum Individual Retirement Plan Policy held with Scottish Provident International, London, in the name of Mr. Pradeep Koneru vide Insurance policy No. MO22000754 (surrender value USD 120,000) by this Directorate.
60. Reference was also made to the summons dated 11.11.2021 and the reply filed by the petitioner dated 18.11.2021. However there is no discussion on the contention of the petitioner that in view of the two judgments of this Court quashing the charges against the petitioner both under IPC and under PMLA, the impugned summons could not have been issued. Thereafter respondent No.3 held as follows:
6.9 During investigation, it also came to light that the above mentioned policies were assigned to Shri Madhu Koneru by Shri Rajendra Prasad Koneru (his father) and Smt. Vimla Devi Koneru(his mother) in the months of July and August 2021 only. These policies were taken in the year 1998, however it appears that the premia were continued to be paid till many subsequent year, similar to the policies of Koneru Pradeep; that the premia of these polices were paid by the Dubai based company viz. M/s Trimex International FZE (M/s Rescom Holdings). Accordingly, Shri Koneru Rajendra Prasad was required to provide details regarding the premia paid for the aforesaid insurance policies and source of funds for such premia; u/s 50 of the PMLA, 2002. However, no reply has been received from Mr Koneru Rajendra Prasad.
6.10 Shri Rajendra Prasad Koneru and Shri Madhu Koneru did not provide any information required vide annexure to the said letter/summons u/s 50 of the PMLA, 2002. There was no evidence as to the genuineness of source of funds used for paying premia for the insurance policies mentioned above. Thus, Shri Rajendra Prasad Koneru and Shri Madhu Koneru failed miserably in discharging the burden of proof cast upon them u/s 24 of the PMLA, 2002 section 24 of the PMLA, 2002 provides that:44
"24. Burden of Proof.--In any proceeding relating to proceeds of crime under this Act,--
(a) in the case of a person charged with the offence of money-laundering under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering ; and
(b) in the case of any other person the Authority or court, may presume that such proceeds of crime are involved in money-laundering".
6.11 The assets in question are matured insurance policies which are located in UAE. Once their existence has been revealed to the investigating department, it gave opportunity to the respondents to explain the source of the funds. The beneficial owners have provided no evidence to establish the genuinity of the source of funds and if no action is taken by invocation of section 5 of the PMLA, there is a possibility that the impugned funds may be layered and alienated to frustrate any proceedings relating to confiscation of such suspect proceeds of crime. Therefore, it is necessary to safeguard the tainted assets from alienation.
61. Thus on the above basis respondent No.3 held that he had reasons to believe that Sri Koneru Rajendra Prasad in furtherance of criminal conspiracy hatched with other accused persons has infused the proceeds of crime into the company floated by Sri Koneru Rajendra Prasad, Dubai which was subsequently transferred to the name of his son Sri Koneru Madhu. Respondent No.3 further recorded that he has reasons to believe that Sri Koneru Rajendra Prasad and Sri Koneru Madhu out of the proceeds derived from the off-shore company floated by Sri Koneru Rajendra Prasad had made payments to the insurance policies taken by him, integrated 45 proceeds of crime, concealed its origin and projected the same as untainted. Therefore he had reasons to believe that the said insurance policies are involved in the offence of money laundering and if those were not attached immediately it would frustrate further proceedings under the PMLA as after maturity/upon surrender the same would be paid to Sri Koneru Madhu without the knowledge of the Department.
62. From the above, it is evident that the four subject insurance policies are in the name of the petitioner. Those were assigned to him by his parents, thus his property. It is the allegation of the respondents that proceeds of crime belonging to Sri Koneru Rajendra Prasad has been infused into the company M/s.Rascom Holdings presently looked after by the petitioner for making payment of premia of the subject insurance policies.
63. It is a matter of record that as on date there is no criminal case against the petitioner on the basis of FIR No.RC- 35-2011-A-0018 dated 17.08.2011 lodged by the CBI, the same having been quashed by this Court vide the order dated 05.01.2018 passed in Criminal Petition No.3935 of 2016. There is also no case against the petitioner under PMLA 46 relatable to ECIR No.08/HZO/2011 registered by the Directorate of Enforcement, the same having been quashed by this Court vide the order dated 02.06.2021 passed in Criminal Petition No.4130 of 2019.
64. Reverting back to Section 5 of PMLA, more particularly to sub-section (1) thereof, it is evident that the requirement of the law is that the competent attaching authority must have reason to believe, which must 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, before he provisionally attaches such property for the limited period not exceeding 180 days.
65. Thus the sine qua non for exercising power under sub- section (1) of Section 5 is that the attaching authority must have reason to believe, which must be recorded in writing. Such reason to believe must be formed on the basis of material(s) in his possession that any person is in possession of proceeds of crime and that such proceeds of crime are likely 47 to be concealed etc. Therefore the material in possession of the attaching authority must pertain to the above two aspects and on the basis of such materials he must form the reason to believe. In other words, the reason to believe must have a direct nexus or live link with the materials in possession pertaining to the above aspects.
66. The expression reason to believe has been subjected to numerous judicial pronouncements. It is an expression of considerable import and finds place in a number of statutes - fiscal, penal etc. However, the expression reason to believe is not defined in the PMLA. But this expression is explained in Section 26 IPC as per which a person may be said to have reason to believe a thing, if he has sufficient cause to believe that thing but not otherwise. In the context of Customs Act, 1962, it confers jurisdiction upon the proper officer to seize goods liable to confiscation under sub-section (1) of Section 110 of the said Act.
67. Under Section 34 of the Indian Income Tax Act, 1922, if the Income Tax Officer had reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income or to disclose fully and fully all material 48 facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, the Income Tax Officer could initiate the process for re-opening of assessment. In Calcutta Discount Company Limited v. Income Tax Officer9, Supreme Court held that:
The expression "reason to believe" postulates belief and the existence of reasons for that belief. The belief must be held in good faith: it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income Tax Officer: the forum of decision as to the existence of reasons and the belief is not in the mind of the Income Tax Officer. If it be asserted that the Income Tax Officer had reason to believe that income had been under-assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable. The expression therefore predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income Tax Officer must on information at his disposal believe that income has been under-assessed by reason of failure to fully and truly disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information.
68. In S.Narayanappa v. Commissioner of Income Tax, Bangalore10, Supreme Court again had the occasion to examine this expression in the context of Section 34 of the Indian Income Tax Act, 1922. Reiterating what was held in Calcutta Discount Company Limited (supra), it was pointed out that the expression 9 (1961) 2 SCR 241 : AIR 1961 SC 372 : (1961) 41 ITR 191 10 (1967) 1 SCR 90 : AIR 1967 SC 523 : (1967) 63 ITR 219 49 reason to believe does not mean a purely subjective satisfaction on the part of the Income Tax Officer. The belief must be held in good faith: it cannot be merely a pretence. It is open to the Court to examine the question as to whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief. To that extent, action of the Income Tax Officer in starting proceedings under section 34 is open to challenge in a court of law.
69. Supreme Court in Sheo Nath Singh (supra) held that there can be no manner of doubt that the words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief. Court can always examine this aspect though sufficiency of the reasons for the belief cannot be investigated by the Court. 50
70. In Income Tax Officer v. Lakhmani Mewal Das11, Supreme Court held that the grounds or reasons which lead to the formation of the belief that income chargeable to tax has escaped assessment must have a material bearing on the question of escapement of income from assessment. Once there exists reasonable grounds for the Income Tax Officer to form such belief, that would be sufficient to clothe him with jurisdiction. Sufficiency of the grounds, however, is not justiciable. The expression reason to believe does not mean a purely subjective satisfaction on the part of the Income Tax Officer. The reason must be held in good faith and cannot be a mere pretence. It is open to a Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant. Elaborating further, Supreme Court held that rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of income from assessment in that particular year. Supreme Court sounded a note of caution by observing 11 (1976) 3 SCC 757 : AIR 1976 SC 1753 : (1976) 103 ITR 437 51 that though the powers of the Income Tax Officer to re-open assessment are wide, those are not plenary; the words of the statute are 'reason to believe' and not 'reason to suspect'.
71. Tata Chemicals Limited v. Commissioner of Customs (Preventive), Jamnagar12 was a case where Supreme Court explained the meaning of the expression reason to believe as appearing in section 110 of the Customs Act, 1962. Supreme Court has opined that the said expression does not connote the subjective satisfaction of the officer concerned. For such a power given to the officer concerned is not an arbitrary power and has to be exercised in accordance with the restraints imposed by law, the belief must be that of an honest and reasonable person based upon reasonable grounds. If the authority acts without jurisdiction or there is no existence of any material or conditions leading to the belief, it would be open to the Court to examine the same though sufficiency of the reasons for the belief cannot be investigated.
72. A Division Bench of the Delhi High Court in J.Sekhar v. Union of India13 was examining challenge to vires of Section 5(1) of PMLA. In that context Delhi High Court held that reason to 12 (2015) 11 SCC 628 : (2015) 320 ELT 45 13 2018 SCC OnLine Del 6523 52 believe cannot be a rubber stamping of the opinion already formed by someone else. The officer who is supposed to write down his reason to believe has to independently apply his mind. It cannot be a mechanical reproduction of the words in the statute. When an authority judicially reviewing such a decision peruses such reason to believe, it must be apparent that the officer penning the reasons had applied his mind to the materials available on record and has on that basis arrived at his reason to believe; the process of thinking of the officer must be discernible. The reasons have to be made explicit. It is only the reasons that can enable the reviewing authority to discern how the officer formed his reason to believe.
73. Having examined the contours of the expression reason to believe, we may mention that the offence of money laundering is not an independent or autonomous offence but is dependent on commission of a predicate offence. In other words an offence under the PMLA is not a standalone offence. It is relatable to commission or an offshoot of a scheduled offence. In so far the petitioner is concerned, as noticed above, there is no charge of scheduled offence against him. 53
74. In so far the affidavit of the respondents is concerned, two distinct things are discernible. Firstly, it is contended that though proceedings against the petitioner have been quashed, proceedings against his father Sri Koneru Rajendra Prasad are still in vogue. Secondly, it is stated in both paragraphs 6 and 9B that the four insurance policies are "suspected to be proceeds of crime" which has got intermingled with untainted money. Insofar the second aspect is concerned, law is settled that suspicion cannot form the basis of reason to believe; reason to believe is not and cannot be suspicion. As held by the Supreme Court in Sheo Nath Singh (supra) and Lakhmani Mewal Das (supra), reason to believe is not reason to suspect. There must be materials on the basis of which an objective assessment has to be made by the attaching authority that the property to be attached accrues out of proceeds of crime and that the same is an outcome of money laundering.
75. As regards the first aspect, it is clearly an improvement upon the impugned Provisional Attachment Order. Because proceedings against Sri Koneru Rajendra Prasad are in vogue, respondents can investigate the proceeds of crime of Sri Koneru Rajendra Prasad which according to the respondents have got intermingled with the money of the petitioner. 54
76. At this stage, we may remind ourselves of the famous observations of Vivian Bose, J in Commissioner of Police v. Gordhandas Bhanji14. He had said that that public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the acting and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself. This salutary principle was reiterated and re-stated with great emphasis by a Constitution Bench of the Supreme Court in Mohinder Singh Gill (supra). Supreme Court held that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. If that is allowed, an order bad in the beginning may, by the time it comes to the Court on account of a challenge, gets validated by additional 14 AIR 1952 SC 16.
55grounds later brought out. It was succinctly put that 'orders are not like old wine becoming better as they grow older'.
77. On the above principle the explanation given by the respondents in the affidavit cannot be accepted. However, the affidavit is a give away in the sense that it is a clear admission on the part of the respondents that the provisional attachment of insurance policies is based on suspicion that those may have been obtained through the proceeds of crime of Sri Koneru Rajendra Prasad which is untenable and impermissible.
78. That apart, it is trite that for allegation of money laundering against one person, property belonging to another person cannot be attached. Patna High Court in HDFC Bank Limited (supra) held that the property derived from legitimate source cannot be attached on the ground that the property derived from a scheduled offence is not available for attachment. It was held that the expression 'proceeds of crime' would be attracted only when the money launder appears to have committed any other scheduled offence in addition to the offence under enquiry/investigation and the property was 56 derived as a result of the activity in the said scheduled offence.
79. A Division Bench of this Court in Satyam Computer Services Limited (supra), held that to come within the definition of 'proceeds of crime', the property sought to be attached should have been derived or obtained directly or indirectly as a result of a criminal activity relating to a scheduled offence. In that case, it was noticed that the amount constituting the proceeds of crime had gone out of the company in the form of salaries etc and got mingled with other legitimate source of income. This Court held that there cannot be provisional attachment on the basis of intermingling of alleged proceeds of crime with other legitimate sources of income.
80. Thus on a thorough consideration of all aspects of the matter, we are of the unhesitant view that respondents had clearly exceeded their jurisdiction in issuing the impugned summons and passing the impugned Provisional Attachment Order against the petitioner. Those are wholly unsustainable in law being without jurisdiction. Therefore question of relegating the petitioner to the adjudicating authority would not arise. Further, when the impugned summons and the 57 impugned Provisional Attachment Order are without jurisdiction, question of Section 24 of PMLA coming into play does not arise.
81. Consequently, we set aside and quash the summons dated 11.11.2021 bearing F.No.ECIR/08/HZO/2011/5048 and Provisional Attachment Order No.11/2021 dated 25.11.2021 bearing F.No.ECIR/HYZO/08/2011/5361.
82. Writ petition is accordingly allowed. However, there shall be no order as to costs.
Miscellaneous applications, pending if any, shall stand closed.
______________________________________ UJJAL BHUYAN, CJ ______________________________________ SUREPALLI NANDA, J 11.07.2022 Pln Note: LR copy be marked.
(By order) pln