Delhi High Court
M/S Gagan Infraenergy Ltd. Earlier ... vs Deputy Director Directorate Of ... on 22 May, 2024
Author: Sudhir Kumar Jain
Bench: Sudhir Kumar Jain
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: April 23, 2024
Decided on: May 22, 2024
+ W.P.(C) 11264/2021
M/S GAGAN INFRAENERGY LTD. EARLIER KNOWN
AS M/S GAGAN SPONGE IRON PVT. LTD. THROUGH
ITS AUTHORIZED REPRESENTATIVE SH. AJAY
SEHGAL ..... Petitioner
Through: Mr. Anirudh Sharma,
Mr. Hemant Shah,
Mr. Gurpreet Singh
Parwanda, Mr. Akshay
Rana, Mr. Pallav Srivastava,
Advocates
V
DEPUTY DIRECTOR DIRECTORATE OF
ENFORCEMENT & ANOTHER ..... Respondents
Through: Mr. Anurag Ahluwalia,
CGSC for Respondents
CORAM
HON'BLE DR. JUSTICE SUDHIR KUMAR JAIN
ORDER
CM APPL. 12347/2024
1. The petitioner filed the present writ petition for quashing the Provisional Attachment Order No. 04/2021 dated 30.07.2021 passed by the respondent no 1 under Section 5(1) of the Prevention of Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 1 11:40:15 Money Laundering Act, (hereinafter referred to as "PMLA") whereby the respondent no 1 has proceeded to attach the shares of M/s Jindal Steel & Power Ltd. („JSPL‟) subscribed by the petitioner considering them to be „value equivalent to the proceeds of crime‟; to quash the Original Complaint bearing O.C. No. 1514 of 2021 dated 26.08.2021 filed by the respondent no 1 under section 5(5) of PMLA; and to quash Notice to Show Cause dated 22.09.2021 purportedly issued in exercise of powers under Section 8(1) by the respondent no 2 as the respondent no 2 is not a properly constituted Adjudicating Authority under Section 6 of PMLA.
2. The petitioner pleaded that the petitioner is a promoter company of Jindal Steel & Power Limited („JSPL‟) and also the promoter of other companies of JSPL Group. The petitioner is engaged in the business of investment and finance operations by Inter corporate deposits and investment in equity shares/preference shares/debentures/ mutual fund. The petitioner was incorporated under name & style of M/s Navin Sponge Iron Limited on 24.02.1989 but subsequently the name of the petitioner was changed to M/s Gagan Sponge Iron Private Limited (GSIPL) on 30.01.2004. Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 2 11:40:15 The name of the petitioner further changed to Gagan Sponge Iron Limited on 02.02.2007 and finally changed to its present nomenclature i.e. M/s Gagan Infraenergy Limited („GIL‟) on 12.10.2009. CBI registered a FIR No. RC 219 2013 (E) 0006 dated 10.06.2013 for the offences under Section 120-B read with 420, 409 IPC (409 IPC was dropped at the time of framing of charge) and Sections 13(2) read with 13(1) (d) of Prevention of Corruption Act, 1988 against various accused including the petitioner on the basis of findings of PE No. 219.2012.E.0002 dated 01.06.2012 initiated by CBI on a reference of Central Vigilance Commission. It was alleged in FIR that in response to the advertisement dated 06.11.2006 issued by Ministry of Coal for allocation of Coal Blocks, M/s JSPL and M/s GSIPL misrepresented in their application & feedback form on the count of their preparedness in setting up their proposed End Use Project (EUP) as well as previous allocation of Coal Blocks to their group companies and fraudulently obtained Amarkonda Murgadangal Coal Block in the State of Jharkhand. The Supreme Court of India vide order dated 24.09.2014 passed in WP (Crl.) No. 120/2012 cancelled the allotment of Amarkonda Murgadangal Coal Block to Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 3 11:40:15 M/s JSPL & M/s GSIPL. CBI after completion of the investigation filed charge sheet no. 04/2015 dated 29.04.2015 in the RC No. 219 2013 (E) 0006 dated 10.06.2013 for the commission of offences under section 120-B read with 420 of Indian Penal Code (IPC) and 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988 against various accused including the petitioner. CBI also filed supplementary charge sheet on 22.03.2017 for the offences 120- B/420 IPC and 13(2) read with 13(l) (d) of the Prevention of Corruption Act, 1988 against 5 additional accused. The Special Court has already taken cognizance and charges have been framed against the accused. The trial is under progress. The Delhi Zonal Office of the Directorate of Enforcement initiated investigation under the provisions of PMLA by recording case vide File No ECIR/12/DLZO/2014 for suspected commission of offences of money laundering. The Prosecution Complaint bearing CC No. 01/2019 has been instituted on 13.07.2018 whereupon cognizance was taken and the trial is under way. The respondents also initiated proceedings for attachment as further investigations is pending. Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 4 11:40:15 2.1 The petitioner was allotted shares by minutes of meeting dated 06.11.2002 & 19.06.2003. The share warrants have been allotted even prior to coming into force of PMLA and much prior to the alleged commission of scheduled offence or the alleged „proceeds of crime‟ gathered therefrom. Consequent to the sub-division of the face value of the these share warrants from Rs. 10 to Rs. 5 per share, the total number of equity shares became 25,00,000. Out of 25,00,000 shares, 2,19,198 shares were sold from 08.12.2005 till 28.02.2006 and 49,000 shares were sold from 11.06.2007 till 01/02.11.2007, thereby, the shares got reduced to 22,31,802. On 27.12.2007, a further sub-division in the face value of the shares from Rs. 5 to Rs. 1, the total number of shares swelled from 22,31,802 to 1,11,59,010. M/s JSPL on 19.09.2009 issued bonus shares in the ratio of 5:1 i.e. 1,11,59,010 x 5 = 5,57,95,050. The total number of shares as such becomes 6,69,54,060. Thereafter 4,50,000 shares on 21.06.2013 were bought from open market at the rate of Rs. 202.12 per share and thus, total shares of JSPL held by the petitioner rose to 6,74,04,060. Subsequently 1,76,94,108 shares were gifted to Glebe Trading Private Limited on 20.03.2014 in terms of a settlement and number of Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 5 11:40:15 shares held by the petitioner got reduced to 4,97,09,952. The Income Tax Department pursuant to some demand/recovery against the petitioner attached 3,00,00,000 shares (3 crores shares) on 30.07.2019. 27,09,784 shares have been pledged to a lender towards borrowings and the balance 170,00,168 shares have been attached by the ED vide the impugned Provisional Attachment Order. 2.2 The respondent no 1 in impugned Provisional Attachment Order claimed that GSIPL has acquired „proceeds of crime‟ to the tune of Rs. 59,34,21,292/- through sale of shares of JSPL at increased prices out of which, the petitioner is in possession of 170,00,168 shares of JSPL having book value at Rs. 3,11,05,588/-. The Provisional Attachment Order alleges that these shares are being attached as „proceeds of crime‟ merely as being „equivalent to the value of proceeds of crime‟. The respondent no 1 filed impugned Original Complaint bearing O.C. No. 1514 of 2021 has been filed by the Respondent No.1 before the Adjudicating Authority on 26.08.2021 in terms of Section 5(5) of PMLA and thereafter, the Adjudicating Authority has issued the impugned Show Cause Notice dated Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 6 11:40:15 22.09.2021 in terms of Section 8(1) of PMLA. The petitioner being aggrieved filed present petition and prayed as under:-
a. Quash the Provisional Attachment Order No. 04/2021 dated 30.07.2021 (Annexure P-1) passed by Respondent No.1 under Section 5(1) of PMLA whereby, in a concept alien to the settled tenets of law and contrary to the legislative mandate governing the ambit, sweep & scope of the expression „proceeds of crime' as defined under Section 2(1)(u) thereof, Respondent No.1 has proceeded to attach the shares of M/s Jindal Steel & Power Ltd. („JSPL‟) subscribed by the Petitioner considering them to be „value equivalent to the proceeds of crime';
b. Quash the Original Complaint bearing O.C. No. 1514 of 2021 dated 26.08.2021 (Annexure P-2) filed by Respondent No. 1 under Section 5(5) of PMLA;
c. Quash the Notice to Show Cause dated 22.09.2021 (Annexure P-3) purportedly issued in exercise of powers under Section 8(1) by Respondent No.2 as Respondent No.2 is not a properly constituted Adjudicating Authority under Section 6 of the Act and therefore, is „coram non judice' d. Issue/pass any other Writ(s), Order(s) or Direction(s) that this Hon‟ble Court may deem fit and proper in the facts and circumstances of the case.
3. The respondents filed counter affidavit wherein stated that the petitioner has filed the present petition to challenge action initiated by the respondent no.1 in passing the respective order of the Provisional Attachment of the properties under section 5 (1) of the Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 7 11:40:15 PMLA and subsequent filing of complaint under Section 5 (5) of PMLA by the respondent No.1 and consequential Show Cause Notice issued by the respondent no 2 i.e. the Adjudicating Authority under Section 8 (1) of PMLA. The respondent directorate had initiated investigation and quantified the proceeds of crime to the tune of Rs. 2 crores at preliminary 'stage and later during further investigation proceeds of crime amounting to Rs. 59.34 crores were identified and attached where direct involvement of the petitioner was established. The Enforcement Directorate, Delhi Zonal Office had initiated investigation vide ECIR/12/DLZO/2014 dated 11.04.2014 against M/s Jindal Steel and Power Ltd., M/s Gagan Sponge Pvt. Ltd. & others for commission of offence under section 3 of PMLA punishable under section 4 of PMLA on basis of FIR RC No. 219 2013 E 0006 dated 10.06.2013 against the suspected person as mentioned in ECIR for commission of offences punishable under sections 120B read with section 420 IPC and section 13(2) read with section 13(1)(d) of the Prevention of Corruption Act, 1988. The Prosecution Complaint CC No.1/2019 (Old CC No. 08/2018) was filed before the Special Court on 13.07.2018 and the Special Court Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 8 11:40:15 has taken cognizance on 14.08.2018. The trial is under progress. The proceeds of crime amounting to Rs 59.34 crores was identified during investigation and attached vide Provisional Attachment Order (PAO) No. 04/2021 dated 30.07.2021 being equivalent value of proceeds of crime as defined under section 2(1)(u) of PMLA and Original Complaint (OC) No. 1514/2021 dated 26.08.2021 were also filed before Adjudicating Authority for confirmation. The respondent no 2 on complaint filed by the respondent no 1 issued Show Cause Notice dated 22.09.2021. The present petition is not maintainable without exhausting remedies available under PMLA. The proceedings of attachment under section 5 of PMLA would be adjudicated by the Adjudicating Authority under section 8 of PMLA and thereafter under section 26 of PMLA before the Appellate Tribunal and before the High Court under section 42 of PMLA. The respondents also denied other allegations of the petitioner.
4. The petitioner filed present application bearing CM APPL. no 12347/2024 under section 151 of the Civil Procedure Code, 1908 which is under disposal seeking substitution of 1,70,00,168 equity shares attached vide Provisional Attachment Order no. 04/2021 dated Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 9 11:40:15 30.07.2021 by the respondent no. 1 with a Bank Guarantee or Fixed Deposit Receipt (FDR) or Indemnity Bond or any other security of equivalent amount. The petitioner pleaded that the respondent no 1 vide impugned Provisional Attachment Order provisionally attached 1,70,00,168 of Shares of M/s Jindal Steel & Power Ltd. ('JSPL') with GSIPL with book value of Rs.3,11,05,588.00; 9,38,164 Shares of JSPL @ Rs.438 held by Naveen Jindal with book value of Rs.41,09,15,832.00 and 8 FDRs of GSIPL maintained with HDFC Bank, along with interest accrued on these FDRs from the date of its creation till the time of taking possession with book value of Rs.15,14,00,000.00 (total value amounting to Rs. 59,34,21,420.00).
The equity shares were allotted prior to the coming into force of the PMLA and much prior to the alleged commission of the scheduled offence or the alleged 'proceeds of crime' gathered therefrom. The impugned PAO alleges that the said 1,70,00,168 equity shares are being provisionally attached as 'proceeds of crime' based on 'equivalent in value of proceeds of crime'. The attachment of these equity shares has significant implications due to which the petitioner is unable to trade these shares in the open market. The current market Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 10 11:40:15 value of these shares is Rs. 1286,91,27,176/- at a rate of Rs. 757 per share. The attachment of these shares is causing grave prejudice to the petitioner since it is engaged in the business of investment and finance operations by way of inter-corporate deposits and investments in equity shares/preference shares/debentures/mutual funds etc. The petitioner accordingly prayed that provisionally attached property be released, and be substituted with a bank guarantee/FDR/indemnity bond or any other security in the sum of INR 3,11,05,588/- It is also submitted that the physical attachment of the provisionally attached property is not required for any purpose or the completion of the trial and restoring property to the petitioner in lieu of a bank guarantee/FDR/indemnity bond or any other security of an equivalent amount would not impact the proceedings initiated by the ED. ED has power to release property on furnishing a fixed deposit even Provisional Attachment Order is confirmed by the Adjudicating Authority under the PMLA as per proviso to Rule 4(2) of Prevention of Money Laundering Act, 2002 (Taking possession of attached or frozen properties confirmed by Adjudicating Authority, Rules, 2013). The petitioner/applicant prayed as under:- Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA
Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 11 11:40:15
a) Directing the release of the Petitioners/Applicant's Provisionally Attached Property ( details in respect whereof have been stated in para 8(iii) above) and permitting the same to be substituted with a bank guarantee/FDR/indemnity bond or any other security of equivalent amount i.e., INR 3,11,05,588/- (Indian Rupees Three Crores Eleven Lakhs Five Thousand Five Hundred and Eighty-Eight only);
b. Pass any other Order(s) or Direction(s) as this Hon'ble Court may deem fit and proper in the peculiar facts and circumstances of the present case.
5. The respondents filed reply to application wherein stated that CBI registered FIR No. RC 219 2013 (E) 0006 dated 10.06.2013 for the offences committed under Section 120-B read with 420 of IPC, 1860 and Section 13(2) read with 13(1)(d) of Prevention of Corruption Act, 1988 on the basis of findings of PE No 2192012E 0002 dated 01.06.2012 initiated by CBI on a reference of Central Vigilance Commission. CBI after investigation filed Chargesheet no. 04/2015 dated 29.04.2015 for the commission of offences under section 120-B read with 420 IPC & 13(2) read with 13(1)(d) of Prevention of Corruption Act, 1988. The Special Court has taken cognizance and charges have been framed against the accused persons and entities. The trial is under process. Thereafter the respondent no 1 on the basis of FIR registered by CBI recorded ECIR bearing No Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 12 11:40:15 ECIR/12/DLZO/2014 on 11.04.2014 for investigation under PMLA. Provisional Attachment Order No. 04/2021 dated 30.07.2021 amounting to Rs. 59,34,21,420/- was issued for proceeds of crime derived from share price manipulations by M/s Gagan Sponge Iron Pvt. Ltd. (GSIPL) and subsequently Original Complaint (OC) No. 1514/2021 dated 26.08.2021 was also filed before the Adjudicating Authority for adjudication. The respondent/ED after completion of investigation filed prosecution complaint under section 45 read with 44 of PMLA dated 09.03.2022 before the Special Judge (PMLA) on 15.03.2022 against 13 additional accused. The petitioner to challenge the impugned Provisional Attachment Order filed the present writ petition and this court vide order dated 04.10.2021 directed that the proceedings before the adjudicating authority may continue but no final order shall be passed. Rule 4(2) of the Prevention of Money Laundering Act, 2002 (Taking possession of attached or frozen properties confirmed by Adjudicating Authority) Rules, 2013 is not applicable in present case. The respondents besides taking other pleas prayed that the application be dismissed.
Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 13 11:40:15
6. It is appearing that the petitioner is a promoter company of Jindal Steel & Power Limited („JSPL‟) besides promoter of other companies of JSPL Group and is engaged in the business of investment and finance operations by Inter Corporate Deposits and investment in equity shares/preference shares/debentures/mutual fund. CBI on the basis of findings of PE No. 219.2012.E.0002 dated 01.06.2012 registered a FIR bearing no. RC 219 2013 (E) 0006 dated 10.06.2013 for the offences under Section 120-B read with 420, 409 IPC and Sections 13(2) read with 13(1) (d) of Prevention of Corruption Act, 1988 against various accused including the petitioner on the basis of findings of PE No. 219.2012.E.0002 dated 01.06.2012 on allegations that JSPL and GSIPL on misrepresention, fraudulently obtained Amarkonda Murgadangal Coal Block in the State of Jharkhand. CBI after completion of the investigation filed chargesheet no. 04/2015 dated 29.04.2015 for the commission of offences punishable under sections 120-B read with 420 of Indian Penal Code (IPC) and 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988 against various accused including the petitioner and also filed supplementary chargesheet on 22.03.2017 for the Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 14 11:40:15 offences 120-B/420 IPC and 13(2) read with 13(1) (d) of the Prevention of Corruption Act, 1988 against 5 additional accused. The Special Court after taking cognizance and framed charges. The respondent no 1/ED also initiated investigation vide File no ECIR/12/DLZO/2014 and instituted Prosecution Complaint bearing CC no. 01/2019 on 13.07.2018 wherein cognizance has already been taken. The respondent no 1/ED attached 170,00,168 shares of JSPL vide the impugned Provisional Attachment Order No. 04/2021 dated 30.07.2021 by claiming that GSIPL has acquired proceeds of crime amounting to Rs. 59,34,21,292/- through sale of shares of JSPL and the petitioner is in possession of 170,00,168 shares of JSPL having book value at Rs. 3,11,05,588/-. The respondent no 1 filed Original Complaint bearing OC No 1514 of 2021 before the Adjudicating Authority on 26.08.2021 as per Section 5(5) of PMLA and the Adjudicating Authority has already issued Show Cause Notice dated 22.09.2021 in terms of Section 8(1) of PMLA. The respondent no 1 after investigation quantified the proceeds of crime to the tune of Rs.2 crores at preliminary 'stage and subsequently proceeds of crime Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 15 11:40:15 amounting to Rs. 59.34 crores was identified and attached as direct involvement of the petitioner was established.
7. Section 5 PMLA deals with attachment of property involved in money laundering. Section 5(1) provides that where the Director or any other officer not below the rank of Deputy Director authorized by the Director has reason to believe (the reason for such belief to be recorded in writing) on the basis of material in his possession that any person is in possession of any proceeds of crime and such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime may by order in writing provisionally attach such property for a period not exceeding as provided under the Act from the date of the order. Section 5(2) further provides that the Director or any other officer not below the rank of Deputy Director shall immediately after attachment forward a copy of the order along with the material in his possession to the Adjudicating Authority. Section 5(5) further provides that the Director or any other officer who provisionally attaches any property under sub-section (1) shall within a period of thirty days from such Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 16 11:40:15 attachment file a complaint stating the facts of such attachment before the Adjudicating Authority. Section 8 deals with Adjudication. Section 8(1) provides that the Adjudicating Authority on receipt of a complaint under section 5(5) and if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, it may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached section 5(1). Section 8(3) provides that where the Adjudicating Authority decides that any property is involved in money-laundering then Adjudicating Authority shall by an order in writing confirm the attachment of the property under section 5 (1). Section 25 of PMLA deals with Appellate Tribunal. Section 26(1) provides that the Director or any person aggrieved by an order made by the Adjudicating Authority may prefer an appeal to the Appellate Tribunal. Section 35 deals with power and procedure of Appellate Tribunal.
Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 17 11:40:15
8. Sh. Anirudh Sharma, Advocate for the petitioner/applicant argued that the equity shares subject matter of present petition were allotted prior to commencement of PMLA and commission of the scheduled offence and further accumulation of proceeds of crime from scheduled offence. He further argued that 1,70,00,168 equity shares are being provisionally attached as proceeds of crime based only on equivalent in value of proceeds of crime as per impugned Provisional Attachment Order. The petitioner due to attachment is not able to trade these shares in open market. He also argued that physical attachment is not required for completion of trial and can be restored to the petitioner by substituting bank guarantee/FDR/Indemnity Bond or any other security. The counsel for the petitioner relied on Order dated 16.09.2022 passed by the Supreme Court of India in SLP (c) no 9335/2022 titled as Esskay Properties and Investment Private Limited & another V Union of India & others; Order dated 28.11.2022 passed by the High Court of Telangana in CMSA no 15 of 2019 titled as Y. S. Bharathi Reddy V Enforcement Directorate; Order dated 14.07.2023 passed by the Supreme Court of India in Special Leave Petition (Criminal) no. 22285/2023 titled as Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 18 11:40:15 Y. S. Bharathi Reddy V Enforcement Directorate;
Veerbhadrappa G.E. V State of Karnataka and others, Writ Petition (Criminal) no. 124/2023 decided on 21.04.2013; Joint Director, Directorate of Enforcement V A. Raja & others, Crl. L.P. 184/2018; Santur Builders Pvt. Ltd. V Deputy Director, Directorate of Enforcement, W.P. (C) 5502/2023 decided on 09th January, 2024 decided by the Delhi High Court etc. The counsel for the petitioner also argued that impugned Provisional Attachment Order cannot be sustained in view of Rules 4(1) and 4(2) of the Prevention of Money Laundering Act, 2002 (Taking possession of attached or frozen properties confirmed by Adjudicating Authority) Rules, 2013
9. Sh. Anurag Ahluwalia, CGSC for the respondents argued that impugned Provisional Attachment Order bearing no 04/2021 dated 30.07.2021 amounting to Rs. 59,34,21,420/- was issued for proceeds of crime derived from share price manipulations by M/s Gagan Sponge Iron Pvt. Ltd. (M/s GSIPL) and subsequently Original Complaint (O.C.) No. 1514/2021 dated 26.08.2021 was also filed before the Adjudicating Authority for adjudication. He further argued Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 19 11:40:15 that issues and contentions raised in present petition have already been settled by the Supreme Court and High Court. The CGSC to counter issue whether property of equivalent value may be attached where property is not held or taken outside India relied on Vijay Madanlal Chaudhary & others V Union of India & others, SLP (Criminal) 4634 of 2014 wherein it was observed as under:-
It was also urged before us that the attachment of property must be equivalent in value of the proceeds of crime only if the proceeds of crime are situated outside India. This argument, in our opinion, is tenuous. For, the definition of "proceeds of crime" is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence, but also of the value of any such property. If the property is taken or held outside the country, even In such a case, the property equivalent in value held within the country or abroad can be proceeded with. The definition of "property" as in Section 2(1) (v) is equally wide enough to encompass the value of the property of proceeds of crime. Such interpretation would further the legislative intent in recovery of the proceeds of crime and vesting it in the Central Government for effective prevention of money laundering.
9.1 The CGSC further argued that the proceedings before the Adjudicating Authority are still pending but order of confirmation in Original Complaint (OC) No. 1514/2021 dated 26.08.2021 filed in PAO No. 04/2021 dated 30.07.2021 is still awaited due to stay granted by this Court. The provisional attachment issued by the Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 20 11:40:15 respondent no 1 shall be confirmed by the Adjudicating Authority/the respondent no 2 and referred Sections 5 and 8 of PMLA besides referring definitions of Property as per section 2(v) and Proceeds of Crime as per section 2(u). The CGSC also countered argument advanced by the counsel for the petitioner regarding applicability of Rule 4(2) of the Prevention of Money Laundering Act, 2002 (Taking possession of attached or frozen properties confirmed by Adjudicating Authority) Rules, 2013 by arguing that this Rule pertains to attached properties that are liable to speedy and natural decay or the expense of maintenance is likely to exceed its value and Rule 4(4) which pertain to equity instruments provides that where the attached property confirmed by the Adjudicating Authority is in the form of shares, debentures, units of mutual fund or instruments, the Authorized Officer shall cause to get such shares, debentures, units Mutual Fund or instruments to be transferred in favour of the Director of Enforcement.
9.2 The CGSC also countered position of law referred by the counsel of the petitioner that the investigation by the respondent/Directorate of Enforcement for offences committed prior to their inclusion in the Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 21 11:40:15 Schedule to PMLA is no longer res integra in view of the decision in Vijay Madanlal Chaudhary & others V Union of India & others, SLP (Criminal) 4634 of 2014. The CGSC also argued that there is no provision in PMLA allowing the substitution of provisionally attached property by any other property of equal value. He argued that the application is liable to be dismissed.
10. Issue which needs judicial consideration is that whether 170,00,168 shares of JSPL attached as proceeds of crime based on equivalent in value of proceeds of crime vide the impugned Provisional Attachment Order No. 04/2021 dated 30.07.2021 and having book value at Rs. 3,11,05,588/- can be substituted by bank guarantee/FDR/Indemnity Bond or any other security as prayed on behalf of the petitioner. The perusal of impugned Provisional Attachment Order dated 30.07.2021 issued under signature of Sharad Kumar, Deputy Director, Directorate of Enforcement reflects that properties worth Rs. 59,34,21,420 including 1,70,00,168 shares of M/s Jindal Steel & Power Limited with GSPIL as detailed in impugned Provisional Attachment Order equivalent to the proceeds of crime were provisionally attached under section 5(1) of PMLA. It Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 22 11:40:15 was observed in impugned Provisional Attachment Order that direct proceeds of crime are not available for provisional attachment due to circular movement/rotation of funds through various transactions. It was also observed that these properties are likely to be transferred or dealt with in such a manner which may result in frustrating the proceedings relating to confiscation under Chapter III of PMLA. 10.1 The Supreme Court in Order dated 16.09.2022 passed in SLP (c) no 9335/2022 titled as Esskay Properties and Investment Private Limited & another V Union of India & others lifted the attachment order on producing the fixed deposit of Rs. 3,00,00,000/-
in lieu of part of the attached property with no lien of any other party except the Enforcement Directorate and order of attachment was allowed to be substituted by fixed deposit although without prejudice to the rights and contentions of the parties in the proceedings to be instituted before the Appellate Authority.
10.1.1 The Division Bench of the High Court of Telangana in order dated 28.11.2022 passed in CMSA no 15 of 2019 titled as Y. S. Bharathi Reddy V Enforcement Directorate referred Hetero Drugs Limited V Deputy Director, Directorate of Enforcement, Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 23 11:40:15 Delhi, MANU/ML/0032/2015 which was a decision of the Appellate Tribunal wherein it was held that there is no provision under the PMLA as well as the Rules framed thereunder which would entitle the appellant to seek replacement of immovable properties under attachment with fixed deposit and also argued by the CGSC observed that the Appellate Tribunal may be right in saying that there is no provision under PMLA and the Rules made thereunder for replacement of attached immovable property for some other property. The High Court also referred VGN Property Developers Private Limited V Deputy Director, Directorate of Enforcement, 2018 SCC OnLine ATPMLA23 and observed as under:-
In that decision, Appellate Tribunal referred to Section 35(1) of PMLA, which empowers the Appellate Tribunal to regulate its own procedure. Appellate Tribunal observed that though it is true that there is no specific provision under PMLA for substitution of property provisionally 2 2018 SCC OnLine ATPMLA 23 19 attached by the Enforcement Directorate and thereafter confirmed by the adjudicating authority, there is also no provision that the said power cannot be exercised by the Appellate Tribunal under Section 35(1) of PMLA. In the facts of that case, prayer of the appellant for releasing the attached property was allowed by accepting the alternative property offered by the appellant. However, we may point out that even this decision was rendered by the Appellate Tribunal when appellate proceedings were pending before the Appellate Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 24 11:40:15 Tribunal with the provisional attachment order and confirmation order still holding the field.
23. Before we advert to the order of the Appellate Tribunal insofar the related appeal is concerned, we may mention about Rule 5(5) of the Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 which says that where the attached immovable property as confirmed by the adjudicating authority is in the form of land, building, house, flat etc. and is under joint ownership, the authorised officer may accept the equivalent value of fixed deposit to the extent of the value of the share of the concerned person in the property estimated by the authorised officer to be involved in money laundering.
Therefore, it would not be correct to say that PMLA as well as the Rules framed thereunder does not have any provision for accepting alternative equivalent value of attached property.
10.1.2 The High Court observed that the Court is well within its power to alter or modify the status quo order passed by it and the interest of opposite party/appellant would be protected by directing various parties to provide bank guarantee equivalent to Rs.192 crores. This Order passed by the Division Bench of Telangana High Court was affirmed by the Supreme Court vide Order dated 14.07.2023 passed in Special Leave Petition (Criminal) no. 22285/2023 titled as Y. S. Bharathi Reddy V Enforcement Directorate.
Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 25 11:40:15 10.2 The Coordinate Bench of Delhi High Court in Joint Director, Directorate of Enforcement V A. Raja & others, Crl. L.P. 184/2018 vide order dated 20.09.2023 noted the difference between "proceeds of crime" and "amount equivalent to proceeds of crime". It was observed as under:-
It may be noted that there is a difference between "proceeds of crime" and "amount equivalent to proceeds of crime". In case of attachment of proceeds of crime, the court may not agree to the request for substitution of the attached property, but in case of attachment being on account of equivalent value of proceeds of crime, the Court may allow substitution of such attached property. 10.2.1 The Coordinate Benches of Delhi High Court in Santur Builders Pvt. Ltd. V Deputy Director, Directorate of Enforcement, W.P. (C) 5502/2023 & CM Application 58651/2023 decided on 09th January, 2024; Jai Durga Industries & another V Union of India & others, W.P. (C) 6314/2020 & CM No 22418/2020 decided on 15.10.2020 etc. granted relief on similar lines.
11. The impugned Provisional Attachment Order No. 04/2021 dated 30.07.2021 also attached 170,00,168 shares of JSPL with book value of Rs. 3.11,05,588 out of total provisional attachment of properties Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 26 11:40:15 worth Rs. 59,34,21,420 as detailed in impugned Provisional Attachment Order as proceeds of crime based on equivalent in value of proceeds of crime and not as proceeds of crime. There is a difference between "proceeds of crime" and "amount equivalent to proceeds of crime" as noted by another coordinate bench and this court is also in agreement with the said view expressed by another Bench. The court may not order substitution of attached property in case of attachment due to proceeds of crime but the court may allow substitution of attached property in case of attachment being equivalent value of proceeds of crime. The Adjudicating Authority in pursuance of order dated 04.10.2021 may continue with proceedings but cannot pass final order. The petitioner is stated to be engaged in the business of investment and finance operations by Inter Corporate Deposits and investment in equity shares/preference shares/debentures/ mutual funds. The 170,00,168 shares of JSPL having book value of Rs.3,11,05,588 lying with the petitioner and attached not as proceeds of crime but being equivalent value of proceeds of crime cannot remain under provisional attachment in pursuance of impugned Provisional Attachment Order. Accordingly Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 27 11:40:15 present application is allowed and 170,00,168 shares of JSPL are ordered to be released in favour of the petitioner on furnishing interest bearing FDR amounting to Rs. 3,11,05,588 in name the of the petitioner and shall be deposited with the respondent no 1 who shall be having lien over said FDR. If the respondents succeed in the present petition then the respondent no 1 shall be at liberty to encash the FDR. The petitioner is also directed to submit an undertaking by way of affidavit that the petitioner shall not create any interest in favour of any other person or entity in respect of said FDR. FDR shall be renewed from time to time in accordance with Rules and Regulations and Law. The arguments advanced by the CGSC are considered in right perspective but in context of present application are not providing much legal assistant to the respondents. The claim of the petitioner subject matter of present application is legally justified and supported by various decisions of the Supreme Court and High Courts including Delhi High Court.
12. It is made clear that nothing in this order shall be taken as an opinion or expression on merits of the case.
Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA
Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 28 11:40:15 W.P. NO 11264/2021
13. List on 03.09.2024, the date already fixed.
DR. SUDHIR KUMAR JAIN (JUDGE) 22 MAY, 2024 SK/HVK Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:29.05.2024 CM APPL. 12347/2024 in W.P(C) 11264/2021 Page 29 11:40:15