Rajendra Kumar Jain vs Deputy Director Directorate Of Enforcement, Mumbai

FPA-PMLA-2532/MUM/2017

The Appellant has filed the present Appeal under Section 26 of the Prevention of Money Laundering Act, 2002, (hereinafter referred to as the

“Actâ€) against Order dated 01.12.2016 passed by the Adjudicating Authority in O.C. No. 612/16 titled “Enforcement Directorate V/s

Kingfisher Airlines Ltd &Orsâ€​ (hereinafter referred to as the “Impugned Order.

By the impugned order, the Adjudicating Authority has confirmed the Provisional Attachment Order No. 11/2016 dated 16.06.2016 with respect to,

inter-alia, “Under construction Flats in Kingfisher Tower, Bangalore to the extent of the remaining POC†(hereinafter referred to as

“Kingfisher Towersâ€​).

This Tribunal is only concerned with the validity of attachment of orders with regard to Apartmentbearing no. 7A (8321 sq. ft.) of the Kingfisher

Towers (“thePropertyâ€​) which was booked by the appellant.

The appellant is not arrayed in the FIR or charge sheeted. He was not involved in schedule offence. No prosecution complaint is pending against

the appellant.

The Original Complaint No. 612/2016 was filed against Shri Vijay Mallya, M/s Kingfisher Airlines Ltd. &Ors., under Section 5(5) of the PMLA,

2002, wherein certain properties (movable & immovable properties) have been attached provisionally under Provisional Attachment Order No.

11/2016 dated 11.06.2016, under Section 8(3) of the PMLA, 2002.

The Enforcement Directorate, Mumbai has registered a case against Shri Vijay Mallya, M/s Kingfisher Airlines Ltd. (KAL) and others under

Prevention of Money Laundering Act (PMLA), 2002, in the matter of IDBI Loan of Rs. 900 Crores.

The properties mentioned in the aforesaid Provisional Attachment Order have been provisionally attached under Section 5(5) of PMLA, and the

same has been duly confirmed by the Adjudicating Authority in its order in Original Complaint No. 612/2016 dated 01/12/2016, which also includes the

property as mentioned by the Appellant.

It is submitted on behalf of respondent that the impugned provisional attachment has been made by invoking provision of Section 2(1)(u) of PMLA,

2002, which empowers the Complainant (an authority under PMLA) to attach properties of equivalent value of Proceeds of crime to the offender.

Hence, during the course of investigation, various properties held/owned/acquired by Shri Vijay Mallya, including those through various companies

and/or special purpose vehicle, which were controlled directly or indirectly by him, through dummy Directors appointed by him were identified, which

included the subject property held in the name of M/s United Breweries (Holdings) Ltd.

It is admitted by the respondent that the appellant was not impleaded as Defendant in the proceedings before the Adjudicating Authority, despite of

having knowledge about the transaction.

There is no denial on behalf of respondent during hearing that no notice was issued to the Appellant by the Adjudicating Authority nor was the

Appellant given any opportunity to be heard, as mandated under the Proviso to Section 8(2) of the PMLA, despite the fact that Appellantsays that he

is “claimant†for the purposes of the said Proviso, being bona fide innocent purchasers of the Property and the existence of the claim of the

Appellantas bona fide innocent purchaser was within the knowledge of both, Respondent and also Adjudicating Authority before passing of the

Impugned Order. It is argued on behalf of appellant that the mandatory provisos of Section 5 and 8 have not been followed by both authorities.

It is submitted by the Appellants that he is not involved in the commission of the scheduled offences nor any prosecution complaint has been filed.

The source of the money utilized for purchase of the Property in question is not “proceeds of crime†for attachment of properties by the

Respondent and the Adjudicating Authority under PMLA, was a clean money which was paid through banking system as claimed by the appellant.

The brief facts as per pleading of the appellant are that â€

12.1 Joint Development Agreement entered into between M/s United Breweries (Holdings) Ltd. (“UBHLâ€)/Respondent No. 5 and M/s Prestige

Estates Projects Pvt. Ltd. (“Prestigeâ€)/Respondent No. 8 on 26.04.2010 whereby inter alia the parties distributed their shares in the proportion of

55% and 45% respectively

12.2 The Agreement entered into between UBHL and Prestige whereby inter alia apartments falling into the respective shares of each party were

identified and earmarked on 4.11.2010.

12.3 The Appellant paid the initial booking amount of Rs. 1,00,00,000/- on 5.1.2011 and is allotted Apartment No. 7A (8321 sq. ft.).

12.4 Letter of Allotment dated 12.4.2011 executed by the Appellant and Respondent No. 5 and 8 herein confirming the receipt of Rs. 1,00,00,000/-.

Entire sale consideration remitted by the Appellant to UBHL (Bank Account Statement.

12.5 1st Consideration: Rs. 1,00,00,000/-(Cheque No. 021540) on dated 5.1.2011.

2nd Consideration: Rs. 17,38,79,000/-(Banker Cheque No./D.D. No. 793499) on dated 22.9.2011.

3rd Consideration: Rs. 1,00,00,000/-(Banker Cheque No./D.D. No. 793500) on 22.9.2011.

Receipt issued by UBHL to Deccan Mining Syndicate Pvt. Ltd. Acknowledging receiving of Rs. 18,38,79,000/- on dated 30.09.2011.

12.6 Agreements executed on 21.05.2012 among the Appellant, Respondent no. 5 and Respondent No. 8 for sale of Flat No. 7A and proportionate

undivided area in the underlying land:-

• Agreement to sell

• Construction Agreement

12.7 The FIR was registered for predicate offence on 29.07.2015.No allegation against the Appellant, to the best of Appellantâ€​s knowledge.

12.8 ECIR No. ECIR/03/MBZO/2016 was registered on 29.01.2016. No allegation against the Appellant, to the best of Appellantâ€​s knowledge.

12.9 The Provisional Attachment Order No. 11/2016 passed on 11.06.2016. There is no role attributed to the Appellant in the PAO. Appellant not

made a Defendant.

12.10 On 01.12.2016, the confirmation order was passed by the by the Adjudicating Authority. No role has been attributed to the Appellant in the

Confirmation Order. Adjudicating Authority did not issue SCN to the Appellant.

12.11 The Appellant addressed various communications to Respondent No. 8 regarding the possession of the Flatbetween June, 2017 â€" March, 2018

on having knowledge of the confirmation order on 13.7.2018. The appellant applied for certified copy of the same. The certified copy of the

confirmation order was received by the appellant on 18.7.2018. The appellant filed the captioned appeal before this Tribunal on 4.9.2018. This Tribunal

condoned the delay in filing the appeal on 29.04.2019.

Two major issues are involved in the present case:

Issue 1 - Whether the Appellant has committed any offence under Section 3 of the Prevention of Money Laundering Act, 2002 (“Actâ€​)?

Issue 2-Whether the subject property is proceeds of crime and the Appellant is in possession of proceeds of crime?

The appellant submission is as under:-

a) In respect of Issue 1, it is submitted that it is not even the case of the Respondent that the Appellant has committed any offence under Section 3 or

is in any manner involved in the commission of the same. The Appellant has already demonstrated (in the instant Appeal) that the Appellant is a mere

innocent bona fide purchaser of the subject property, for which he paid the complete consideration through duly documented legal banking channels,

even prior to the date of registration of the FIR or the ECIR.

b) As far as Issue II is concerned, admittedly the subject property has been attached as “value thereofâ€; however, since the Appellant has

demonstrated that he is the beneficial owner of the subject-property and had vested rights in the subject property prior to the attachment by

Respondent-ED, therefore, the same could never have been attached as “value thereofâ€​ of the proceeds of crime.

Particularly since, UBHL has no right or interest in the subject-property at the time of issuance of the Provisional Attachment Order in the captioned

matter. It is also relevant to mention that there is no finding in the PAO or the Confirmation Order that any proceeds of crime have flowed to UBHL.

c) In the proceedings referred by the ED, neither the Appellant nor the Respondent-ED is a party and as such also, the said proceedings can never

have any bearing on the adjudication of the instant Appeal. However, it is clarified that the Appellant has filed the two applications before the

Honâ€ble Karnataka High Court being Interlocutory Application No. 7 and 8 of 2018 seeking impleadment and directions, which are still pending. The

same have no bearing on these proceedings.

d) It is submitted that there is no overlap in the jurisdiction of the Honâ€ble High Court or this Tribunal in deciding the respective proceedings pending

before them. In the event there was any overlap, the Honâ€ble High Court, which is cognizant of pendency of these proceedings, would have directed

that these proceedings should not continue till disposal of the proceedings before the Honâ€​ble High Court, which is not the case herein.

e) It is further submitted that the proceedings before the Debt Recovery Tribunal were inter alia between the secured creditor banks and M/s United

Breweries [Holdings] Ltd., under a special enactment for recovery of dues.

f) The present Appeal is a statutory appeal under Section 26 of the PMLA. It is reiterated that the Appellant is not seeking any determination on the

Appellantâ€s right, title or interest in respect of the subject Property by way of the instant Appeal but is only seeking to show that the subject Property

is not involved in money-laundering.

As per material, it has come on record that it is evident that the Appellant purchased the Apartment/Flat bearing number 7A, alongwith the

proportionate undivided area in the underlying land in a real estate project being jointly developed by Respondent No. 5 (M/s United Breweries

(Holdings) Ltd.) and Respondent No. 8 (M/s Prestige Estates Projects Pvt. Ltd.) (hereinafter, collectively, referred to as the “said Propertyâ€​).

As per the case of appellant, there were arms-length discussions and negotiations between the parties for the aforesaid purchase were initiated in

2011, payments were made in the year 2011 and the relevant Agreement to Sell and Construction Agreement were executed on 21.05.2012.

The purchase consideration (Rs. 19,38,79,000/-) was paid by the Appellant by 22.09.2011, through normal/legal banking channels by the Appellant.

By this date, there was no FIR or ECIR. There is no evidence on record that the appellant has any direct or indirect link and nexus with Vijay Mallya

and its company in relation to criminal activities.Therefore, as on 21.05.2012, the Appellant was a purchaser and beneficial owner of the said Property

and had acquired proprietary rights and title over the said Property.

As such, 21.05.2012 onward, the Appellant was a “claimant†to the said Property in terms of the Proviso to Section 8(2), Prevention of Money

Laundering Act, 2002 (“PMLAâ€​).

It appears that the Appellant is an innocent bona fide purchaser of the said Property, as evidenced by the following undisputed facts â€

i. The complete transaction pertaining to the purchase of the said Property stood concluded much prior to the registration of the FIR pertaining to the

predicate offence and the registration of the ECIR.

ii) The Appellant is not even named/ mentioned in the FIR or the ECIR or the captioned Original Complaint.

iii) It is not even the case of the Enforcement Directorate/Respondent that the Appellant is involved or connected in any manner with the alleged

offence under PMLA or the predicate offence.

iv) In fact, at the time of issuance of the captioned Provisional Attachment Order, the ED/Respondent was aware of the purchase of the said

Property by the Appellant; however, the ED, either consciously did not investigate the same or if it did investigate it, then the same did not result in any

inculpatory findings.

There is no material on record to show that the Appellant has any link, association or relation with any of the Defendants in the captioned Original

Complaint.

The entire purchase consideration was funded from the Appellantâ€s own income/personal funds obtained from legitimate and fully documented

sources, as supported by the Appellantâ€s Bank Statement. Therefore, it cannot be said that the Appellant and the Respondents 5 and 8 acted in

concert or that the purchase of the said Property, was part of any conspiracy related to the predicate offence or the alleged offence under the PMLA.

It appears from the Impugned Confirmation Order that the Enforcement Directorate/Respondent and the Adjudicating Authority were aware that

the Appellant was a “Claimant†to the said Property in terms of proviso to Section 8(2), PMLA, in view of material available on record. Despite

the above, Respondent and the Adjudicating Authority did not issue notice to the Appellant or to afford a hearing to him, during the adjudication

proceedings. Thus, the mandatory statutory requirement of the Proviso to Section 8(2), PMLA, the Respondent was cognizant of the details regarding

the purchase of the said property and was in possession of the relevant documents. A bare perusal of the same shows that the said Property could not

have been attached as “proceeds of crimeâ€​, even if one were to invoke the concept of “equivalent valueâ€​.

Locus standi

The Appellant has the locus standi to file the present Appeal as the Appellant has already shown that he is an innocent bona fide purchaser of the

subject Property, for which the Appellant had paid the entire purchase consideration by way of normal legal banking channels.As on 21.05.2012 (i.e.

the date of execution of the agreements), the Appellant was a purchaser and beneficial owner of the subject Property and had acquired proprietary

rights and title over the said Property. As such, 21.05.2012 onwards, the Appellant was a “claimant†to the subject Property in terms of the

Proviso to Section 8(2), Prevention of Money Laundering Act, 2002 (“PMLAâ€​).

It has come on record as per material available that at the time of issuance of the subject Provisional Attachment Order, the Respondent ED as

well as the Adjudicating Authority were aware that the Appellant was a “Claimant†to the subject Property in terms of proviso to Section 8(2),

PMLA; despite which the Respondent ED and the Adjudicating Authority failed to issue notice to the Appellant or to afford him a hearing, during the

adjudication proceedings. Non issuance of notice which is mandatory within the meaning of Section-8(1) to the aggrieved party after having

knowledge itself amounts breach of act. Any order passed by the Adjudicating Authority is liable to be quashed.

The Respondent EDâ€s allegation that the Appellant has attempted to help the accused Vijay Mallya and has connived with him by entering into

the Agreements to Sell are completely without any substance and without an iota of evidence or material on record as the Respondent ED has failed

to show that the Appellant has any link, nexus or connection whatsoever with the Accused Vijay Mallya. Thus, the allegation of connivance is nothing

but mere conjectures and surmises, being made by the Respondent ED only with a view to prejudice this Tribunal against the Appellant and defeat the

valuable property rights of the Appellant herein.

The Respondent EDâ€s submission that if the present Appeal is entertained by this Tribunal, it would result in according priority to the

Appellantâ€s claims over the claims of other secured creditors is wholly misconceived.It is reiterated by the Appellant that he is neither seeking any

direction from this Tribunal that the Appellant be handed over the possession of the subject Property nor that the sale deed(s) in respect of the subject

Property be executed by M/s UBHL in favour of the Appellant. The scope of the present Appeal is limited to the determination as to whether the

subject Property is involved in money-laundering or not. In respect of other reliefs which are beyond the scope of PMLA, the Appellant has filed

relevant applications before the Honâ€​ble Karnataka High Court seeking impleadment and directions.

It is settled law that the rights in any asset of a company acquired by any person prior to initiation of the winding-up proceedings against the said

company are absolute and cannot be defeated by the winding-up proceedings, subject to the transaction being an arms-length transaction.

It is submitted by the appellant that the right acquired by an Agreement to Sell holder prevails over a subsequent statutory attachment. Reliance is

placed upon Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan & Anr., reported in (1990) 3 SCC 291.

In the present case, the Agreement to Sell entered into by the Appellant with M/s UBHL is dated 21.05.2012 and the entire purchase

consideration was duly paid in advance by 22.09.2012 i.e. prior to even the initiation of the winding-up proceedings and much prior to the subject

Provisional Attachment Order. Further, it is not even the Respondent EDâ€s case that the purchase of the subject Property videinter alia the

Agreement to Sell dated 21.05.2012 is not an arms length transaction. As such, the rights of the Appellant would prevail over the rights of the other

secured creditors and the Respondent ED.

The main issue at this stage of adjudication under Section 8, PMLA and the onus upon any Claimant is only to show that the attached property is

not involved in money laundering. Thus, the issue of right, title and interest may only be relevant to the limited extent of, and in the context of, showing

that the property is not involved in money laundering.

It is submitted on behalf of the appellant that apart from the above, the test/issue of right, title and ownership is otherwise alien to the PMLA. The

test at the stage of adjudication under 8(1) PMLA is to only to show that the property is not involved in money-laundering. The record shows that the

subject-property is not involved in money-laundering and the following is relevant:

a. It is not even the Respondentâ€s case that the subject property is involved in money laundering, rather it is the “value thereof†(see pg. 95 of

the impugned Confirmation Order)

b. It is also not the case of the Respondent that the Appellant is involved, in any manner, in the offence of money laundering or the predicate offence.

No such contention has been raised in the Reply.

c. The Appellant has purchased the property from his own independent income/personal funds, earned and accumulated from legitimate and fully

documented sources, at the prevalent market-rate, consequent to above-board arms-length, duly documented negotiations. As such, it cannot be said

that the Appellant acted in concert with the Defendants in the Original Complaint.

d. The Appellant has executed Agreement to Sell, Construction Agreement and has also paid the full purchase consideration. Furthermore, all these

documents were executed much prior to the registration of ECIR and FIR in the captioned Original Complaint. Additionally, it is submitted that the

Appellant has paid sufficient Stamp Duty on the Agreement to Sell and the Construction Agreement. This too, shows that the subject-property is not

involved in money-laundering.

It is further submitted that even at the stage of Section 8(8), PMLA, that is, confiscation, the only requirement upon a claimant to seek restoration

of the subject-property is only to show that he has a “legitimate interest†in the subject-property. In other words, the test of title/ownership, which

the Respondent is seeking to now invoke in the captioned appeal, is not relevant even at the stage of confiscation under Section 8(8), PMLA, which is

a stage much advanced to the stage at which the instant proceedings are pending.

The proceedings relied upon by the ED in its Reply are the following:

a. O.A. No. 766/2013 before the Debts Recovery Tribunal;

b. Writ Petition No. 38870/2013, 39048-39052/2017 and 39053/2017;

c. COP No. 57/2012

d. Extradition proceedings of Vijay Mallya in UK and declaration as Fugitive and Economic Offender (details of which are not given)

It is also pertinent to mention that three appeals on similar facts have been allowed.

From the entire gamut of the matter, it is evident that the appellant was the claimant in the flat. By making the entire payment, the appellant is

become stake-holder as the amount paid by the appellant was not proceed of crime. The appellant is also not involved in the money laundering. The

question of link and nexus in the criminal activities directly or indirectly does not arise.

As far as the impugned order dated 1.12.2016 is concerned, the same is not sustainable in law as per facts of the present case. The same is set-

aside against the appellant with regard to flat in question. The provisional order is also quashed accordingly by allowing the appeal.

However, it is clarified that this Tribunal has decided the appeal pertaining to the order passed on the attachment of flat allegedly purchased by the

appellant. The finding shall have no bearing with regard to merit of other proceedings pending against the accused parties including extradition

proceedings. It is alleged that the flat in question is one of the assets in which the Official Liquidator is appointed, therefore, the appellant, the

respondent nos. 3, 5 and 8, unless the final order is passed in his favour, shall not create third party interest directly or indirectly.

No costs.