D. Kotieswari vs Deputy Director Directorate Of Enforcement

FPA-PMLA-1688/CHN/2017

FPA-PMLA-1689/CHN/2017

This order disposes of the Appeals No. FPA-PMLA-1688/CHN/2017 & FPA-PMLA-1689/CHN/2017 filed by Smt. D. Kotieswari and Shri S. Dilliraj respectively. The Appeals were filed on 28.02.2017 against the impugned Order dated 02.02.2017 passed by the Ld. Adjudicating Authority, PMLA, confirming the Provisional Attachment Order No. 17/2016 dated 23.08.2016 issued by the Deputy Director, Enforcement Directorate, Chennai in ECIR No. ECIR/CEZO/10/2015 dated 20.11.2015.

The impugned Order dated 20.02.2017 confirmed the Provisional Attachment Order No. 17/2016 dated 23.08.2016, in the Original Complaint (O.C.) No. 634/2016 dated 07.09.2016, whereby provisional attachment of 3 immovable properties each comprising of house, ground and premises valued at Rs. 2,36,52,000/- and a movable property comprising of fixed deposit of Rs. 75,00,000/- in HDFC Bank, Hyderabad, totally valued at Rs. 3,11,52,000/- (Rupees Three crores Eleven lakhs and Fifty Two thousands only) were confirmed. The 3 immovable properties were acquired by Shri S. Dilliraj and settled in the name of his wife Smt. D. Kotieswari. The movable property was in the name of Shri S. Dilliraj.

The Provisional Attachment Order dated 23.08.2016 was issued on the basis of FIR Nos. 06/2015 dated 21.09.2015 and RC 02(E)/2016 dated 08.01.2016 filed by CBI, BS & FC, Bangalore. FIR No. 06/2015 was registered on the complaint of IDBI Bank, Chennai against M/s First Leasing Company of India Ltd. and its promoters, Directors and other key officials for having conspired to have siphoned off loans and advances from the Bank to the tune of Rs. 274 Crores. FIR No. RC 02(E)/2016 was registered on the complaint of State Bank of India, Chennai against M/s First Leasing Company of India Ltd. and its promoters, Directors and other key officials for having diverted Rs. 248 Crores fraudulently, out of the loans and advances granted to it. Offences under Sections 120-B, 420, 467 & 471 of the IPC were invoked as Scheduled Offences under PMLA, to register ECIR No. 10/2015 by the Enforcement Directorate, Chennai. Accordingly, the PAO No. 17/2016 was issued on 23.08.2016 which was confirmed by the Ld. Adjudicating Authority on 02.02.2017.

During the course of the hearing on 30.11.2022, in the Appeals filed before this Tribunal, the Ld. Counsel for the appellants informed that the Division Bench of the Hon’ble High Court of Madras has quashed the proceedings on 04.02.2021 in Criminal Original Petition no. 24888 of 2016, in the cases of both the appellants. The Ld. Counsel for the respondent informed that a SLP has been preferred against the Order dated 04.02.2021 of the Hon’ble High Court of Madras vide SLP (S) No. 7714 to 7716/2021 and notices have been issued in these matters to the appellants vide Order dated 29.10.2021. It was submitted by the Ld. Counsel for the appellants that there is no stay granted by the Hon’ble Supreme Court. He further informed that on the basis of the Order passed by the Hon’ble High Court of Madras, the prosecution complaint filed against the appellants under The Prevention of Money- Laundering Act, 2002 has been quashed by the Principal Sessions Court at Chennai on 04.03.2021. An application for dropping of the proceedings in view of the aforementioned Orders, was filed and served on the respondents on 12.09.2023. Arguments were heard on 31.10.2023. Ld. Counsels for the respondent did not want to file the reply to the application and prayed for disposal of the appeals only after completion of proceedings before the Hon’ble Supreme Court. However, they admitted that there was no stay against the aforementioned Orders of the Hon’ble High Court of Madras and against Order of the Principal Sessions Court at Chennai.

The Hon’ble High Court of Madras in its Order dated 04.02.2021 in Criminal Original Petition No. 24888 of 2016 filed by the two Appellants herein, under Section 482 CRPC, quashed the proceedings in Criminal Complaint CC No.70 of 2016 in the ECIR No. 10/2015 filed before the Ld. Principal Sessions Court (Special Court for PMLA Cases). The Hon’ble High Court has observed that while Shri. Dilliraj has been made as an accused (A8) by the CBI in its Charge Sheet filed in the proper Court for FIR No. RC- 02(E)/ 2016, they have very clearly stated that the loan amounts obtained from the Banks were diverted for the benefits of persons other than Shri. Dilliraj. The Hon’ble High Court has observed that Shri. Dilliraj is not a beneficiary of the proceeds of crime. Even from the Charge Sheet filed by the CBI for the FIR No. 6/2015 before the proper Court, the Hon’ble High Court has found that Shri. Dilliraj has not benefitted financially from the criminal activity of fudging records.

The Hon’ble High Court has noted from the aforementioned ECIR that the M/s First Leasing Company of India Ltd. was making the due repayment of the facilities in terms of Working Capital Agreements till 13.09.2013. The Hon’ble High Court has observed the following in Para 10 of the Order:

“Concededly, Dilliraj(A.1) left the services of FLCI(the M/s First Leasing Company of India Ltd.) way back in the year 2007 and the salaries drawn by him from 1996 to 2007 can, by no stretch of imagination, be construed as proceeds of crime. Even in the complaint, it is stated that the working capital loan amounts that were given by various banks based on the hyped up financial statements of the company were diverted to 15 shell companies floated by FLCI and into the kitty of Farouk Irani and his family members. Thus, when the proceeds of crime had gone into the hands of fictitious companies that were floated for this purpose, there cannot be further flow of the proceeds of crime into the account of Dilliraj(A.1) as salaries and perquisites. Though it is true that Dilliraj(A.1) is facing the music in the prosecutions that have been launched by the CBI against FLCI, A.C. Muthiah, Farouk Irani and others for the predicate offences of making the banks believe their records and sanction the loans , the present prosecution of Dilliraj(A.1) for money laundering, in the opinion of this Court, is misconceived. It is not the case of the C. B. I or the Enforcement Directorate that FLCI was throughout engaged in criminal activities nor is it their case that Dilliraj(A.1) was engaged by FLCI only to fabricate records for their business purpose. For instance, if FLCI had engaged a master forger only for the purpose of forging records for their business purposes, the salary paid to the said master forger would undoubtedly be construed as proceeds of crime and if the master forger projects his salary as untainted money, he can be prosecuted under the PML Act. But, that is not the allegation against Dilliraj(A.1) in the complaint.”

The Hon’ble High Court of Madras has concluded that the salaries and perquisites that were paid to Shri. Dilliraj while he was in employment with the M/s First Leasing Company of India Ltd. was not proceeds of crime and hence, any property acquired there from would not be tainted. The Hon’ble High Court of Madras quashed the prosecution of Shri. Dilliraj and his wife Smt. Kotieswari, the two Appellants herein, under the Prevention of Money Laundering Act.

In view of the aforementioned Order of the Hon’ble High Court of Madras of quashing the Criminal Complaint No. 70/2016, the Ld. Principal Sessions Court at Chennai vide its Order dated 04.03.2021 closed the cases against the two Appellants herein.

In view of the findings of the Hon’ble High Court of Madras that the proceeds of crime have not flowed to Shri Dilliraj as salaries and perquisites that were paid to him in employment with M/s First Leasing Company of India Ltd. the attachment of the fixed deposit of Rs. 75 lakhs in HDFC Bank in his name cannot stand. The attachment of the three immovable properties acquired by him which he settled in the name of his wife Smt. Kotieswari also cannot stand for the same reasons.

Therefore, the Provisional Attachment Order No. 17/2016 and the impugned Adjudication Order dated 02.02.2017 are set aside. Appeals No. 1688 & 1689/CHN/2017 and Applications No. MP- PMLA -12981 &12980 /CHN/2023 (Misc.) are allowed. Other applications are also accordingly disposed of. Ld. Counsel for the respondent has informed that they have filed SLP(S) No. 7714 to 7716/2021 which are pending before the Hon’ble Supreme Court. In case, the Hon’ble Supreme Court passes a judgement in the said SLPs which have a bearing on these appeals, the respondent would be at liberty to take appropriate remedies, which may include a Review Petition before this Tribunal.

Appeals No. 1688 & 1689/CHN/2017 are allowed.

The Registry is directed to send the copy of the Order to the parties. The record be consigned to the record room after due compliance.