Writ Petition (L) No.1575 of 2014

20th June, 2014

Petitioner Counsel: Mr. MANOJ SINGH, Mr. VIJAY SINGH, Mr. VINAY BHANUSHALI
Respondent Counsel: Ms. BENEDICTA LOBO, Ms. PURNIMA KANTHARIA, Mr. M.S. BHARDWAJ, Mr. SANJAY KINJWADEKAR

Cases Cited:
Aslam Mohammad Merchant Vs. Competent Authority and Others, 2008 ALL MR (Cri) 2306 (S.C.) =(2008) 14 SCC 186 [Para 9]
Shashank Vyankatesh Manohar Vs. Union of India and Anr., 2013(5) ALL MR 551 [Para 10]

JUDGMENT

S. J. VAZIFDAR, J. :- The Petitioner seeks a writ to quash an order of provisional attachment dated 31.01.2014, passed by Respondent No.2 - Directorate of Enforcement, of its property, a show cause notice dated 29.04.2014 issued by Respondent No.3 - Adjudicating Authority constituted under Money Laundering Act, 2002 and a public notice dated 26.11.2013, issued by Respondent No.4 - Senior Inspector of Police, Economic Offence Wing. Alternatively, the Petitioner seeks to have the said order and notices quashed upon it creating a charge in favour of this court over the said premises (No.1102, Peninsula Business Park, Lower Parel, Bombay 400 013) over and above the charge of Respondent No.1 and to the extent of Rs.6.5 crores.

The alternative relief cannot even be considered as Respondent No.1 is not agreeable to the same.

2. The main contention is that the show cause notice dated 29.04.2014, issued to the Petitioner does not contain any reason for the Adjudicating Authority to believe that the petitioner has committed an offence under section 3 or is in possession of proceeds of crime as required by section 8 of The Prevention of Money Laundering Act, 2002. Section 8 reads as under :

"Section 8 : Adjudication. -

(1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under sub-section (10) of section 18, 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], he 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 under sub-section (1) of section 5, or, seized under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.

(2) The Adjudicating Authority shall, after-

(a) considering the reply, if any, to the notice issued under sub-section (1);

(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and

(c) taking into account all relevant materials placed on record before him,

by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering.

(3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of section 5 or retention of property or record seized under section 17 or section 18 and record a finding to that effect, such attachment or retention of the seized property or record shall-

(a) continue during the pendency of the proceedings relating to any scheduled offence before a court; and

(b) become final after the guilt of the person is proved in the trial court and order of such trial court becomes final.

(4) Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the attached property.

(5) Where on conclusion of a trial for any scheduled offence, the person concerned is acquitted, the attachment of the property or retention of the seized property or record under sub-section (3) and net income, if any, shall cease to have effect.

(6) Where the attachment of any property or retention of the seized property or record becomes final under clause (b) of sub-section (3), the Adjudicating Authority shall, after giving an opportunity of being heard to the person concerned, make an order confiscating such property."

3. The property which is subject matter of this writ petition was initially attached pursuant to the impugned provisional attachment order dated 31.01.2014. The attachment order was addressed to M/s. Aastha Minmet India Pvt. Ltd. (hereinafter referred to as "Aastha") and its director one Mohit Agarwal. The provisional attachment order refers in considerable detail to an FIR which included several offences under sections 120B, 467 and 471 of Indian Penal Code against M/s. National Spot Exchange Ltd., its Directors, key officials and certain defaulters. The FIR was registered on the basis of a complaint filed by certain persons who alleged that they had been cheated by NSEL. On the basis of the said information, the Enforcement Directorate registered a case against NSEL, its Directors and key officials. The order also refers to the investigation of the Directorate of Enforcement in respect of the defaulters M/s. Aastha Minmet India Pvt. Ltd. and another enterprise. It refers to the manner in which money had travelled from NSEL to various entities, including M/s. Aastha Minmet India Pvt. Ltd. and M/s. Juggernaut Projects. The order records the statements of the said Mohit Agarwal that Aastha had sold goods through NSEL without physical stock and had received funds from NSEL which were in turn diverted inter-alia to purchase various properties. Similarly, statements were recorded of a former MD of NSEL. The liability of the Aastha Group to NSEL was about Rs.242.66 crores. The order then records the money trail leading to properties, including the property which is the subject matter of this petition and of which the petitioner claims ownership. The order specifically records the petitioner's name in respect of the property stating also the purchase price of above Rs.27 crores. The order states as under : -

"6) On the basis of above material placed before me procured during the course of investigations by the Mumbai Zonal Office of the Directorate of Enforcement against the above said companies and persons and on its examination, I have reason to believe that M/s. Astha group have used the fraudulently obtained huge funds from NSEL against non-existent / fictitious stock of TMT rods for procurement of the said properties. It further appears that the proceeds of crime were invested in the various properties for the purpose of layering and projecting as untainted property. The money trail detailed above has revealed that the said properties have been obtained from proceeds of crime generated directly as a result of criminal activities alleged by the EOW, Mumbai Police vide FIR No.216/13 dated 20.9.2013. Thus, these assets and properties of M/s. Astha group appear to be proceeds of crime in terms of provisions of Section 2(1) (u) of PMLA, 2002. By their acts of using the funds received from NSEL settlement account fraudulently for acquisition of real estate and vehicles, projecting the same as untainted property, it appears that Astha group have indulged in money laundering activities in terms of Section 3 of PMLA, 2002.

7.1) Investigation has revealed that the monies have been transferred and layered and further invested in prime properties. The likelihood of selling and/or disposing of these expensive properties is extremely high. Therefore, I have reason to believe that the properties mentioned in para 5 supra i.e. the proceeds of crime are likely to be concealed, transferred or dealt with in such a manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under Chapter III of the Prevention of Money Laundering Act, 2002 (15 of 2003).

7.2) It is gathered that charge sheet in the matter has been filed by EOW, Mumbai Police on 06.01.2014, a certified copy of which is yet to be received.

8.) In view of above, I have reasons to believe that the properties mentioned at para 5 supra, are likely to be concealed, transferred or dealt with in such a manner that if no Provisional Attachment Order is passed in the case at this crucial stage, it may result in frustrating proceedings relating to confiscation under Chapter III of the Prevention of Money Laundering Act, 2002 (15 of 2003).

ORDER

9.) NOW, therefore, I order that the properties mentioned in the enclosed Schedule are provisionally attached under sub section (1) of Section 5 of Prevention of Money Laundering Act, 2002, for a period of 180 days from the date of this order. I further order that you shall not remove, part with or otherwise deal with such properties without my prior permission."

There are various other allegations also which are presently under investigation by the Economic Offences Wing. Accordingly, the properties stood attached under section 5(1) of the Act.

4. The Deputy Director on 27.02.2014 filed a complaint under section 5(5) before the Adjudicating Authority. Section 5 of the Act reads as under :

"Section 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 him 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;

(b) such person has been charged of having committed a scheduled offence; and

(c) 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, he may, by order in writing, provisionally attach such property for a period not exceeding 9 [one hundred and fifty days] from the date of the order, in the manner provided in the Second Schedule to the Income-tax Act, 1961 (43 of 1961) and the Director or the other officer so authorised by him, as the case may be, shall be deemed to be an officer under sub-rule (e) of rule 1 of that Schedule:

[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, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be:

Provided further that, notwithstanding anything contained in clause (b), any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised 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.]

(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 (2) 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.

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."

5. The complaint also deals in considerable detail with the alleged fraud and money laundering indulged in by various entities and individuals including NSEL and the Aastha group. It refers to the purchase of the property which is the subject matter of this writ petition. It is not necessary to refer to the details of this complaint. Suffice it to note that it states that the said Mohit Agarwal had also purchased shares worth Rs.50 lakhs in the petitioner and had invested about Rs.6 crores with the Petitioner by way of ICDs which was utilised to purchase the said property. From the complaint it is noticed that the record indicates that the property was purchased for Rs.27 crores out of which the Petitioner paid Rs.18 crores by availing a loan from Respondent No.1. That, however, may not be the end of the matter. Further investigation would be required as to source of funds. The wife of Mohit Agarwal was a Director in the Petitioner, although it is contended that she is only a housewife and all the activities were carried out by said Mohit Agarwal, a Director of the Petitioner, who has given a statement which is recorded in the complaint. The statement inter-alia seeks to explain the manner in which the present Directors joined the Petitioner and the manner in which they got acquainted with Mohit Agarwal. The complaint states that the voluminous evidence reveals that the funds received from the accounts of NSEL and Aastha group were utilised for procurement of real estate and the details of the properties including the properties claimed by the Petitioner. It is further alleged in the complaint that there were amounts that were siphoned out from NSEL and were utilised for purchase of properties.

The Deputy Director, therefore, prayed that the complaint be taken on record for the purpose of adjudication under section 8 of the Act and the provisional attachment order may be confirmed under section 8(3) of the Act.

6. Apparently, in view of various references to the Petitioner in the complaint, the impugned notice dated 29.04.2014 was issued. It is contended that the said notice does not furnish any reason to believe that the petitioner has committed an offence under section 3 or is in possession of proceeds of crime. In view of this contention it is necessary to set out the entire notice :

"You are called upon to indicate the source of your income, earning or assets out of which or by means of which you have acquired the property attached under sub-section (1) of section 5 of the Prevention of Money Laundering Act, 2002 the evidence on which you rely and other relevant information and particulars and show cause why all or any such property should not be declared to be the properties involved in money-laundering and consequently why the attachment order should not be confirmed.

You are called upon to show cause why the provisional attachment order in respect of properties should not be confirmed as representing proceeds of crime being value of properties involved in money laundering [Copy of the complaint and Annexure / relied upon documents thereto enclosed herewith].

You are directed to appear before the Hon'ble Chairman and Member. Adjudicating Authority (PMLA) in person or through an advocate / authorised representative duly instructed on 12.06.2014 at 11.00 a.m. at Adjucating Authority, Prevention of Money Laundering, 4th Floor, Court Room 2, Room No.20, Jeevan Deep Building, Parliament Street, New Delhi - 110001, failing which the complaint shall be heard and decided in your absence.

Given under my hand and the seal of the Adjudicating Authority, this 29th day of April, 2014."

7. The contention that the show cause notice does not state that the Adjudicating Authority has reason to believe that the petitioner has committed an offence under section 3 of the Act or is in possession of proceeds of crime is not well founded. The notice has, for all practical purposes, adopted, incorporated the complaint in toto. The notice, fairly read, indicates that the Adjudicating Authority, on the basis of the material in the complaint had reason to believe that the ingredients necessary for the attachment order existed. So read, it follows that the Adjudicating Authority stated in the show cause notice that he had reason to believe that there existed the factors necessary to serve the notice. The reasons, in turn, stand incorporated in the notice from the complaint. It is apparent that the notice has been issued based on the reasons to be found in the complaint and the documents which have been expressly referred to in the contention. The complaint itself expressly sets out the reason to believe. If, on the basis of the facts disclosed in the enclosures, the Adjudicating Authority had formed the opinion that there was no reason to believe the existence of the factors mentioned in section 8, he would not have issued the show cause notice. That he did indicates that he had reason to believe the existence of the said factors. In the facts and circumstances of the case this is sufficient compliance.

8. Assuming that it was necessary for the Adjudicating Authority to reproduce the contents of the complaint and the ingredients of section 8 in the notice, we would have permitted the Adjudicating Authority to issue a fresh notice and continued the order of attachment for a period of time to enable him to do so. In the circumstances, we are not inclined to exercise our extraordinary jurisdiction in any event.

9. The learned counsel relied upon the judgment of the Supreme Court in Aslam Mohammad Merchant Vs. Competent Authority and Others (2008) 14 SCC 186 : [2008 ALL MR (Cri) 2306 (S.C.)] and in particular paragraphs 50 to 59 thereof. The judgment refers to a case relating to reopening under section 147 and 148 of the Income Tax Act. The judgment does not hold that the reason to believe cannot be incorporated in the notice by reference to another document. The judgment is not an authority for the proposition that the reasons cannot be incorporated in a notice under section 147 in any manner whatsoever. Paragraph 58 indicates that in that case no reason was disclosed by the authority to the appellant. In the present case we have come to the conclusion that the show cause notice contains the reasons. The same have been incorporated in the show cause notice by reference to the the enclosures / annexures thereto.

10. The learned counsel then relied upon the judgment of a Division Bench of this court in a case of Shashank Vyankatesh Manohar Vs. Union of India and Anr. 2013(5) ALL MR 551. The case is clearly distinguishable.

In the case before us, the reasons were not merely kept on file and not communicated to the Petitioner. In fact, the show cause notice enclosed copies of the complaint and annexures.

11. As far as the petitioner is concerned, we are not inclined to set aside the order of attachment under section 5 passed by the Deputy Director on the ground that he has not recorded in writing, his reason to believe the existence of the factors mentioned in section 5. The said order dated 31.01.2014, was addressed to Aastha and the said Mohit Agarwal. That order clearly contained the reasons that satisfied all the ingredients of section 5. The attachment over the property, therefore, was levied in accordance with the provisions of the Act.

12. The above show cause notice was served upon the petitioner on its name as the said property is reflected in the complaint and attachment order. The final order on the show cause notice will determine the rights in the property qua the various persons concerned, including Aastha, the said Mohit Agarwal and the petitioner. The hearing on the show cause notice has proceeded. The petitioner has been heard. There is, any event, no warrant for exercising our extraordinary jurisdiction in setting aside the attachment order before the final orders which are due to be passed shortly.

13. We wish to clarify that we have expressed no opinion whatsoever regarding the merits of the Petitioner's case. We do not for a moment suggest that the Petitioner has no case whatsoever. There is much to be said on behalf of the Petitioner. For instance, a substantial part of the consideration was paid by availing a loan from Respondent No.1, the repayment whereof is secured by a charge on the property. There is no allegation, as far as we can see, against Respondent No.1. Prima facie, there is nothing on record that links Respondent No.1 to the alleged fraudulent transactions. That is not the end of the matter as far as the others are concerned. Various other aspects regarding the acquisition of the property will have to be investigated.

14. In the circumstances, we are not inclined to exercise our extra ordinary jurisdiction to quash the show cause notice or the provisional attachment order on the ground that show cause notice itself does not set out the reasons. In the circumstances, the writ petition is disposed of.

15. The final order shall not be passed against the Petitioner upto and including 28th July, 2014. The Petitioner is always at liberty to file any application before the Respondents.

Ordered accordingly.