IN THE HIGH COURT OF MADRAS (MADURAI BENCH)

C. Chellamuthu vs. The Deputy Director, Prevention of Money

Laundering Act, Directorate of Enforcement (14.10.2015 - MADHC) :
MANU/TN/4087/2015

Hon'ble Judges/Coram:

V.M. Velumani, J.

Relevant Section:

PREVENTION OF MONEY-LAUNDERING ACT, 2002 - Section 5

Acts/Rules/Orders:

Code of Criminal Procedure, 1973 (CrPC) - Section 173; Constitution Of

India - Article 14, Constitution Of India - Article 21, Constitution Of India -
Article 226, Constitution Of India - Article 300-A, ; Indian Penal Code 1860,
(IPC) - Section 120(B); Indian Penal Code 1860, (IPC) - Section 120-B, ;
Indian Penal Code 1860, (IPC) - Section 420; Indian Penal Code 1860, (IPC) -
Section 467; Indian Penal Code 1860, (IPC) - Section 468; Indian Penal Code
1860, (IPC) - Section 471; Narcotics Drugs And Psychotropic Substances Act
1985 - Section 36(1); Prevention Of Corruption Act, 1988 - Section 13(1)(d),
Prevention Of Corruption Act, 1988 - Section 13(2); Prevention Of Money-
laundering Act, 2002 - Section 17, Prevention Of Money-laundering Act,
2002 - Section 18, Prevention Of Money-laundering Act, 2002 - Section
2(1)(u), Prevention Of Money-laundering Act, 2002 - Section 2(1)(y),
Prevention Of Money-laundering Act, 2002 - Section 2(7), Prevention Of
Money-laundering Act, 2002 - Section 2(p), Prevention Of Money-laundering
Act, 2002 - Section 2(s), Prevention Of Money-laundering Act, 2002 - Section
2(u), Prevention Of Money-laundering Act, 2002 - Section 2(v), Prevention Of
Money-laundering Act, 2002 - Section 23, Prevention Of Money-laundering
Act, 2002 - Section 24, Prevention Of Money-laundering Act, 2002 - Section
26, Prevention Of Money-laundering Act, 2002 - Section 3, Prevention Of
Money-laundering Act, 2002 - Section 4, Prevention Of Money-laundering

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Act, 2002 - Section 5, Prevention Of Money-laundering Act, 2002 - Section
5(1), Prevention Of Money-laundering Act, 2002 - Section 5(1)(a), Prevention
Of Money-laundering Act, 2002 - Section 5(2), Prevention Of Money-
laundering Act, 2002 - Section 5(5), Prevention Of Money-laundering Act,
2002 - Section 50, Prevention Of Money-laundering Act, 2002 - Section
50(2), Prevention Of Money-laundering Act, 2002 - Section 50(3), Prevention
Of Money-laundering Act, 2002 - Section 8, Prevention Of Money-laundering
Act, 2002 - Section 8(1)

Cases Referred:

Mr. Radha Mohan Lakhotia vs. The Deputy Director, PMLA, Department of
Revenue MANU/MH/1011/2010; L. Chandra Kumar vs. Union of India and
others MANU/SC/0261/1997; B. Rama Raju, S/o B. Ramalinga Raju vs.
Union of India (UOI), Ministry of Finance, Department of Revenue,
represented by its Secretary, (Revenue) and Ors. MANU/AP/0125/2011

Case Note:

Criminal - Attachment of property - Confirming of order - Section 5 of

Prevention of Money-Laundering Act, 2002 - Present appeal filed against
order passed by Appellate Authority dismissing Appellants' appeals and
confirming provisional attachment order of Adjudicating Authority -
Whether property in hands of persons prosecuted for criminal offences
and/or scheduled offence alone can be attached - Held, no restriction in
respect of person in possession of proceeds of crime -Section 5 does not
restrict that property in hands of persons involved in Money Laundering
alone can be attached pending confiscation - As per precedents, person
referred to in Section 5 is not restricted to person accused of crime or
involved in Money Laundering - Provisional attachment of property is not
restricted in hands of Accused persons alone- Impugned orders were set
aside - Appeal allowed. [13] and[14]

Criminal - Bone fide purchasing -Whether property in hands of

subsequent bona fide purchaser without knowledge of crime purchased

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by legal consideration can be attached?? - Held, presumption that
property in hands of Appellants was proceeds of crime - But Appellants
had right to rebut said presumption - Respondent had not produced
any document or material to disprove statement of vendor - Nothing to
show that transaction in favour of vendor, was not genuine -
Respondent did not verify Bank statement produced by Appellants to
ascertain genuineness of transaction - Admitted by Complainant that
Appellants had no knowledge that properties in hands of their vendor
was proceeds of crime - Respondent failed to prove that Appellants did
not have sufficient financial capacity to buy property or that money
paid by them as sale consideration was not legitimate money derived
by agricultural activities - Impugned orders were set aside - Appeal
allowed. [19],[21],[22],[24] and[26]

Disposition:

Appeal Allowed

V.M. Velumani, J.

1. These appeals are filed challenging the order dated 05.09.2014, passed by
Appellate Authority dismissing the appeals filed by appellants and
confirming the provisional attachment order of adjudicating authority, dated
07.09.2012, made in complaint No. 144/2012. The appeals are against the
common order, dated 05.09.2014 passed in FPA-PMLA-Nos. 399 to 402, 406
to 408/MUM/2012 and the issue involved is one and the same. Hence, all
the appeals are heard together and disposed of, by this common order.

2. Relevant Facts:

(i) One Mr. R. Manoharan projected himself as proprietor of M/s. Bhagavathi

Textiles Mills. He produced bogus and fabricated documents in connivance
of one S. Arivarasu, the then Business Development Manager of M/s. Global
Trade Finance Limited, Coimbatore, availed loan facilities to the tune of
Rupees Fifteen Crores. On coming to know of this fraud, one B. Surendran,
Vice President and Branch Head of M/s. SBI Global Factors Limited,
Coimbatore lodged a complaint against the said R. Manoharan, Proprietor of

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M/s. Bhagavathi Textiles Mills, G. Srinivasan, S. Arivarasu and others. The
said complaint was registered on 07.10.2010 in FIR No. R.C. 09(E)2010-BS
& FC/BLR under Sections 120-B r/w. Sections 420, 467 and 471 of IPC and
Section 13(2) r/w. Section 13(1)(d) of the Prevention of Corruption Act, 1988.
After investigation by concerned Police, CBI, BS & FC Bangalore, filed
charge sheet in C.S. No. 6 of 2011 dated 26.07.2011, before the Court of
Special Judge, CBI against R. Manoharan, Proprietor of non-existent M/s.
Bhagavathi Textiles Mills, G. Srinivasan, S. Arivarasu, K. Vignesh and
others for the offences committed under Sections 120(B) r/w. Sections 420,
467, 468 and 471 of IPC and Section 13(2) r/w. Section 13(1)(d) of
Prevention of Corruption Act, 1988 before the Court of Special Judge, CBI
cases, Coimbatore.

(ii) In the investigation, one G. Srinivasan was found to be main accused

and he only availed the loan projecting R. Manoharan as Proprietor of M/s.
Bhagavathi Textiles Mills Limited. After availing the loan, he purchased
about 165 acres of land in Pudukkottai Village from One K. Gunasegaram,
G. Selvarani, R. Sivkumar, ShriChinnakkannu in the names of his
Benamies viz., K. Vignesh, P. Venkatachalapathy and P. Rajendran. The sale
deeds were registered as Document Nos. 853 to 855 of 2008, dated
12.06.2008 and Document No. 1344 of 2008, dated 02.09.2008 and
Document No. 1559 of 2009 dated 09.09.2009. These three persons, as per
instructions of G. Srinivasan appointed one P. Ayyappan, as their power of
attorney, registered as Document Nos. 137 and 138 of 2009, dated
07.09.2009 and Document No. 807/2009, dated 12.09.2009 and Document
No. 186 of 2009, dated 22.09.2009. All the four power of attorneys were
registered in the office of Sub Registrar of Assurances, Chathirapatti.

(iii)CRIMINAL ISSUE The said P. Ayyappan, Power of Attorney of these

persons sold this 165 acres to one Gunaseelan, S/o. KuppusamiGounder,
by four sale deeds registered as Document Nos. 187 to 190 of 2010. The

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said Gunaseelan sold the entire 165 acres to the appellants, by four sale
deeds and registered as Document Nos. 379 to 382 of 2010. The said 165
acres was purchased by G. Srinivasan in Benami names from and out of
monies obtained by fraud. Hence, the said property is proceeds of crime.

(iv) The Directorate of Enforcement initiated proceedings, on the basis of FIR

dated 07.10.2010 and CBI letter dated 19.11.2010. An Enforcement case
Information Report (ECIR) Vide F. No. ECIR/06/CZ/PMLA/2011 was
registered on 03.01.2011, by Directorate of Enforcement, Chennai. The
statements of G. Srinivasan, P. Manoharan, K. Vignesh, P.
Venkatachalapathy, P. Rajendiran, R. Ayyappan, K. Gunaseelan, the
appellants and others were recorded under Sections 50(2) and 50(3) of
Prevention of Money Laundering Act, 2002 (herein after referred as PMLA,
2002).

(v) During investigation G. Srinivasan admitted on 29.09.2011 that R.

Manoharan is looking after his all financial transaction and other activities.
In his statement he stated that in the name of M/s. Bhagavathi Textile Mills
by submitting bogus bills and documents he obtained Rupees Fifteen Crores
as loan. He utilized the said amount to purchase the lands referred to above
and also movie rights etc., R. Manoharan, in his statement corroborated this
statement of G. Srinivasan. P. Venkatachalapathy, P. Rajendiran and K.
Vigneshin their statement stated that the lands referred to above belonged
to G. Srinivasan and they are Benami owners. As per the instructions of G.
Srinivasan, they executed power of attorney appointing P. Ayyappan as
then-power agent. They did not receive any money from G. Srinivasan and
did not pay any money to G. Srinivasan or anybody else.

(vi) G. Srinivasan filed a complaint against P. Ayyappan, Gunaseelan and

appellants, which was registered as FIR No. 57/11, dated 30.08.2011, by
District Crime Branch, Dindigul, alleging that P. Ayyappan and his men,
came to his office at Udumalpet and took all the documents and forced him
to give power to P. Ayyappan, with regard to 165 Acres at

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ChathirappattiVillage. K. Vignesh, P. Venkatachalapathy and P.
Rajendiranalso gave power to Ayyappan who using the power sold the lands
to Gunaseelan. The said Gunaseelan in turn sold the property to the
appellants.

(vii) The Deputy Director of Prevention of Money Laundering Act,

Directorate of Enforcement, respondent herein considering all the
materials before him held that there are reasons to believe that
property measuring 165 acres in the hands of appellants is part of
proceeds of crime as defined under Section 2(1)(u) of Provision of
Money Laundering Act and is involved in the offence of Money
Laundering and is liable for adjudication and confiscation in terms of
Section 8 of PMLA, 2002. The properties are liable to attachment under
Chapter III of PMLA, 2002.If the properties are not attached will frustrate
further proceedings under the Act and by order dated 10.05.2012, ordered
Provisional Attachment of the properties.

(viii) The respondent filed a complaint under Section 5(5) of the PMLA, 2002
against the appellants and G. Srinivasan, viz., [original complaint] OC No.
144/2012. As per Section 5(2) the respondent sent copies of attachment
order to appellants and to adjudicating authority.

(ix) According to the respondent, the said G. Srinivasan involved in

scheduled offences in terms of Sections 2(7) of PMLA and the properties are
involved in offence of Money Laundering under Section 3 of PMLA, 2002 and
prayed to, Adjudicating Authority to confirm the attachment of properties,
made under Sub-Section 1 of Section 5 of PMLA, 2002.

(x) The appellants filed replies denying all the averments and complaints
made by respondent in the complaint. They contended that they are

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agriculturists.They purchased the property from and out of their
agricultural income from Gunaseelan by registered sale deeds after
satisfying themselves. They purchased the property without having
knowledge that the property bought by them was proceeds of crime.
They are bona fide purchasers and the sale consideration paid by them
were earned through legal activities like selling lands etc. The sale
considerations were paid through the bank, received from purchasers of
agricultural products through bank and paid to vendor. The sale
consideration were paid through legal source of income through agricultural
operations and transactions were carried out through bank and hence, they
are bona fide purchasers of the land for value. The respondent attached
the property under misconception that property would fall under the
provisions of Section 2(u) of the said Act.

(xi) The Adjudicating Authority considering the contentions of appellants

and respondent and relying on the judgment of Bombay High Court in the
case of Mr. Radha Mohan Lakhotia vs. The Deputy Director, PMLA,
Department of Revenue reported in MANU/MH/1011/2010 : 2010 (5) Bom
CR 625, held that property represent the proceeds of crime and are involved
in Money Laundering and consequently up-held and confirmed the
attachment of the properties.

(xii) The appellants challenged the order of adjudicating authority dated

07.09.2012 by filing 7 appeals before Appellate Tribunal, Prevention of
Money Laundering Act at New Delhi.The Tribunal by the judgment dated
05.09.2014 dismissed all the appeals.

(xiii) Against the said order, the appellants have filed the Civil Miscellaneous
Appeals.

3. At the time, the appeals were taken up for hearing, the learned counsel
for the respondent raised a preliminary objection that the appeals can be
heard and decided only by a Division Bench of this Court. The learned

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counsel for the Respondent relied on the judgment reported in
MANU/SC/0261/1997 : 1997 (3) SCC 261 [L. Chandrakumar Vs. Union of
India and others].

4. Per contra, the learned Senior Counsel appearing for appellants

contended that appeals are filed as per Section 26 of the Prevention of
Money Laundering Act, 2002. The said Section does not contemplate
that only Division Bench can decide the appeal. When the intention of
Legislature is that appeal has to be decided by a Division Bench or by
Full Bench, the same has been incorporated in the Appeal provisions
itself. In the absence of such provisions, the appeal can be decided by single
judge. The learned Senior Counsel also contended that the judgment relied
on by the counsel for the respondent is not applicable to the facts of the
present case. The issue in that case was appeal to Supreme Court from the
order of Debt Recovery Tribunal. The Hon'ble Apex Court held that the order
of Debt Recovery Tribunal can be challenged in High Court under Article
226 of Constitution of India.

5. The preliminary objection raised by learned counsel for the respondent

was already considered at the time of numbering the appeals itself. The
Registry raised the issue and it was placed before the Hon'ble Administrative
Judge. After orders, it was posted before the learned Single Judge for
admission. All the appeals were admitted and Status Quo was granted on
05.02.2015 by the learned Single Judge. Therefore, the contention of
learned counsel for the respondent is unsustainable.

6. The learned Senior Counsel for the appellants contended that:--

(i) The action of the joint Director attaching provisionally the property in
question in the hands of the appellants is without jurisdiction and is un-
sustainable on facts.The confirmation of attachment by Adjudicating
Authority as well as dismissal of Appeals filed by Appellate Authority are
also contrary to facts and law.

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(ii) The Appellants are not accused of being involved in criminal activities.
They are not accused in Crime No. RCO 9/E/2010 and charge sheet in C.C.
No. 6 of 2011.

CONTENTION:They are not accused of Money Laundering under Section 3

of the Prevention of Money Laundering Act, 2002. Only property in the
hands of persons, who are accused of Money Laundering, charged for
criminal activities and of having committed scheduled offence as mentioned
in the Act can be attached."Any person" mentioned in Section 5(1)(a) of the
Act relates only to person charged with having committed criminal and or
scheduled offence. The property in the hands of others cannot be attached.
In view of this provisions of Act and facts, the attachment order itself is
invalid and all the consequential proceedings are void ab initio.

(iii) The appellants are not connected in any criminal activities of G.

Srinivasan and not his Benamies. They were un-aware of the alleged fraud
committed by G. Srinivasan and that the property in question is proceeds of
crime. They are bona fide purchasers for valuable consideration. They
verified the title of the property in the hands of Gunaseelan and then only,
they purchased the property.The Appellants are agriculturists for
generations owning lands and cultivating it.They were regularly getting
income from cultivation.The sale consideration paid by them is legally
obtained from the agricultural activities, sale of their lands acquired by
inheritance and by partition. They also borrowed monies from friends and
relatives. They are no way connected with G. Srinivasan. They are not
Benamies or relatives or employees or Benamies of Manoharan and G.
Srinivasan.There is nothing on record to show that their vendor Gunaseelan
is Benami of G. Srinivasan and that he did not pay any sale consideration to
G. Srinivasan through power of attorney Ayyappan. The respondent did not
dispute the statement of Gunaseelan recorded under Section 50(2) of the
PMLA 2002. Having accepted the purchase by Gunaseelan, it cannot be said
that the property in question continued to be proceeds of crime. The
respondent can only proceed against the sale consideration as the property

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in question lost its character of proceeds of crime. The appellants have
proved that the property in their hand is untainted property and they
purchased the property by sale consideration acquired through legal
means and paid through Bank. The learned Senior Counsel relied on the
following judgments.

(i) MANU/MH/1011/2010 : 2010 (5) Bom. CR 625, Mr. Radha Mohan

Lakhotia vs. The Deputy Director, PMLA, Department of Revenue wherein
in paragraphs 17, 17h and 19, it has been held as follows:--

"17. The next grievance of the appellant is that the provisional attachment
and its confirmation by the Adjudicating Authority is founded on
assumption and presumption only. No live link or nexus has been
established by the Authorities to prove that the properties attached are
proceeds of crime and gifts/money received by the Appellants are not from
legitimate sources. This ground may require us to consider the factual
aspects of the matter. The action of provisional attachment was resorted to
against the appellants under Section 5, on account of reference made by
NCB, Mumbai to the Director of Enforcement for investigation under the Act
of 2002.The reference was the consequence of the reported scheduled
offence in respect of which complaint was filed by the NCB, Mumbai before
the Court of Special Judge for NDPS cases. Greater Mumbai on 8th
December, 2006. The said case pertains to seizure of 200 kgs of cocaine on
1/2 June, 2006 from a container originated from Ecuador, South America
declared to contain teak wood imported by M/s. OPM International Pvt. Ltd.
The importer placed the order for supply of the said consignment with M/s.
Megha International Pvt. Ltd., Singapore and the consignment was shipped
from Ecuador. When consignment was intercepted, 200 kgs. Cocaine was
recovered. In this connection, NCB, Mumbai arrested Shri O.P. Nogaja,
Umesh Bangur, both directors of M/s. OPM International Pvt. Ltd. Ant Vijay
A. Throve, Managing Director of M/s. Mayur clearing Agency, the Customs
House Agent under NDPS Act, 1985. The department initiated investigation
in the case when it was revealed that there were four firms involved in the
smuggling of cocaine, namely, (ik) M/s. OPM International Pvt. Ltd.,

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Mumbai. (ii) M/s. Megha International Pvt. Ltd., Singapore, (iii) M/s. Royal
Global Exports Pvt. Ltd., Singapore and (iv) M/s. S.S.M.S. Exports, Ecuador,
S.A. it was revealed that all the three foreign based companies at Sr. Nos. (ii)
to (iv) above were held by another holding company based in Singapore. It
was further revealed that persons behind the said firms were not only
common, but close relatives having interests in each others business."

17(h) That Shri Rajendra Prasad Modani (R.P. Modani) is the brother-in-law
of said Umesh Bangur and real brother of the appellant. He and his wife
Smt. Trupti Modani (sister of Shri Umesh Bangur) both resident of Bangkok,
found to have remitted a total amount of Rs. 8.45 crores on different
occasions in to the NRE account No. 6.104.1181 (old A/c. No. 10233/4) with
Bharat Overseas Bank) and the entire amount was found to have been
transferred to various individuals including relatives and firm for no
economic reasons by placing the funds at the disposal of Shri Umesh
Bangur in the form of signed blank cheque leaves. The modus operandi
adopted by way of handing over signed blank check leaves to him. Part of
the said checks along with some pay-in slips and signed blank check leaves
of SB NRO A/c. No. 6.106.197 (old A/c. No. 27) jointly held by said Shri R.P.
Modani and his wife Smt. Trupti Modani with M/s. Bharat Overseas Bank,
Fort Mumbai were recovered from the residence of Shri Umesh Bangur
during the search of his residence by NCB. Thus the said Shri Umesh
Bangur was found to be in possession and control over the money lying in
the said accounts.The details of transfer of the said money to different
individuals and firms have been detailed in the complaint.It is evident that
proceeds of crime has been transferred by Shri R.P. Modani and placed at
the disposal of Shri Umesh Bangur which was further transferred in the
guise of gift to close relatives viz., Shri Radha Mohan Lakhotia, Smt. Asha
Lakhotia. Shri Shyam Sunder Modani and Shri Niwas Modani and also in
the guise of purchase of shares of unlisted company, viz., M/s. ShubhLaxmi
Syntex, for creating further layers to facilitate laundering of money.

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19. Besides, it is held that the Appellants were not in a position to rebut the
presumption about the interconnected transactions. Moreso, of the fact
that the appellants were involved in projecting the proceeds of crime as
untainted properties.That burden was on the appellants. The fact that
the Respondent could have acted only if there was reason to believe
that a person is in possession of proceeds of crime does not mean that
the Authorities at this stage are obliged to prove the fact beyond doubt
that the property in possession was in fact proceeds of crime.All that
the Authority is required to show is that there was "substantially probable
cause" to form opinion that the property under attachment is proceeds of
crime. The circumstances adverted to by the Authorities below do indicate
that there was substantially probable cause to form such opinion. At this
provisional attachment stage as well when the matter goes before the
Adjudicating Authority, by virtue of Section 24 of the Act of 2002 the
burden of proving that the property possessed by the notices was not
proceeds of crime and were untainted properties would be on them. As
has been found by the Authorities below, except stating that the amount has
come in the bank account of the appellants disbursed from NRE account of
R.P. Modani by way of gift, no other justification is offered. The fact that the
amount has been disbursed from NRE Account and such remittance is
permissible in law does not and cannot legitimize the transaction, until it is
established that the amount so gifted by R.P. Modani itself was not tainted
funds.The real question is whether the funds in the account of R.P. Modani
were tainted or otherwise. The burden to prove that fact is on the
appellants themselves, by virtue of Section 24 of the Act.

The argument of the appellants that the provisions regarding

presumption and burden of proof will have no application as the said
Shri R.P. Modani or for that matter M/s. Royal Global Exports Pte. Ltd.,
has still not been charged of having committed a scheduled offence, is
of no avail. In as much as, the fact whether R.P. Modani has still not been
charged of having committed a scheduled offence will not extricate the
appellants who have been named as accused in offence under Section 3 of

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the Act of 2002. The burden of proof that properties in their possession
are untainted properties, as per Section 24 is on the person accused of
having committed offence under Section 3 of the Act of 2002. The
appellants cannot absolve themselves by saying that the amount received by
them was from the NRE account of Shri R.P. Modani. That is not enough. It
was necessary for the appellants to further establish that the amount
so disbursed from the account of R.P. Modani was equally untainted
amount."

(ii) MANU/AP/0125/2011 : [2011] 164 Comp Cas 149 (AP) : [2011] 108 SCL
491 (AP) B. Rama Raju vs. Union of India (UOI) Ministry of Finance,
Department of Revenue, represented by its Secretary, (Revenue) and
others, wherein in paragraphs 37, 38 and 40, it has been held as follows:

"37. Section 8(1) clearly postulates affording of an opportunity to a person in

possession of proceeds of crime to indicate the sources of his income,
earnings or assets; out of which or by means of which he has acquired the
property attached, under Section 5(1) or seized under Sections 17 or 18 the
evidence on which he relies and other relevant information and particulars.
Principle in Ramalinga Raju : It is therefore clear that where a property
is provisionally attached under Section 5, the person in possession of
such property may avail the opportunity under Section 8 to
indicate/establish that he has acquired the property attached (prima
facie the proceeds of crime) out of his lawful earnings or assets, that he
has the means to do so, and that his acquisition is therefore legitimate,
bona fide and at fair market value of such property;and that the value
paid for acquisition of the property and not the property in his
possession that constitutes proceeds of crime, if at all.On such showing,
to the satisfaction of the adjudicating authority, it would perhaps be not the
property in possession of a person but the fair value for which he has
acquired the property and paid to the transferor that constitutes proceeds of
crime and the authorities may have to proceed against the property or value
in the hands of the transferor.

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38. In the illustration proffered on behalf of the Petitioners; since the
dividend, the higher dividend or the value of the shares sold would be
relatable to illegal conduct of a company or its officers (if such illegality is a
scheduled offence and the company or a person in management or control of
the company is accused of an offence under Section 3) and would be
proceeds of crime,so much of the quantum of the dividend received or
the value of a share sold as constitutes proceeds of crime could be
liable to attachment and confiscation.This in our considered view is the
true and fair construction of the provisions of the Act. At this stage of the
proceedings we cannot be oblivious of the fact that the Petitioners and
others, whose assets are being subjected to the processes under Chapter III
of the Act, are alleged to be closely related to or employees of the individual
(s) who orchestrated the massive scam and that these persons had traded in
the shares of SCSL (with a presumptive insider information) when those
shares had a peak value, achieved on account of the criminal conduct of Sri
Ramalinga Raju, and others.

40. Section 24 inheres on a person accused/charged of having committed

an offence under Section 3, the burden of proving that proceeds of crime are
untainted property.Section 23 of the Act enjoins a presumption in inter-
connected transactions that where money-laundering involves two or more
inter-connected transactions and one or more of such transactions is or are
proved to be involving in money-laundering, then for the purposes of
adjudication or confiscation under Chapter-III, the Act enjoins a rebuttable
presumption that the remaining transactions form part of such
interconnected transaction."

7. Per contra, the learned counsel for the respondent contended that;

(i)ED CONTENTION: The Proceeds of Crime in possession of the hands of

persons can be attached pending conclusion of criminal proceedings. It is

14
not correct to state that the property in the hands of persons prosecuted for
criminal offences and/or scheduled offence can only be attached. Section
2(p) and (u) defines "Money Laundering" and "Proceeds of Crime". Section 3
of the Act deals with the offence of Money Laundering and in Section 4 of
the Act, the punishment for offence of Money Laundering has been stated.

(ii) In the present case, the relevant provision is Section 5 of the Act. Only
this Section deals with attachment of Proceeds of Crime. It does not confine
the attachment of the property in the hands of persons prosecuted for
criminal offences and/or scheduled offence only. Section 5(1)(a) of the Act
empowers the authorized officer to attach any proceeds of crime in
possession of any person. Therefore, the contention of the learned Senior
Counsel only when a person is prosecuted the property in his possession
can be attached is contrary to Section 5(1)(a) of the Act.

(iii) The prosecution and attachment are two different aspects dealt by
different sections namely sections 3, 4, and 5 of the Act. The property in
question in the hands of appellants is proceeds of crime. The property was
purchased from and out of loan of Rs. 15 crores obtained by G. Srinivasan
by fraud. The property was purchased in Benami names.The subsequent
transactions will not convert the tainted proceeds of crime as
untainted property.The appellants have not substantiated their claim that
they purchased the property without knowing that the same is tainted
proceeds of crime.They have not proved that the sale consideration paid by
them is from income accrued by agricultural activities. They have not
furnished the details of names of persons and amounts borrowed by them.
The bank account through which the amounts were received by them and
paid through their vendor were opened and operated for this transaction
only.

(iv) The learned counsel for the respondent relied on the same two
judgments relied on by the learned Senior Counsel appearing for the

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appellants. The learned counsel for the respondent relied on the following
Judgments.

(i) MANU/MH/1011/2010 : 2010 (5) Bom CR 625 [Mr. Radha Mohan

Lakhotia vs. The Deputy Director, PMLA, Department of Revenue]
wherein in paragraphs 11, 12 and 13, it has been held as follows:--

"11. The question is whether Section 5 can be invoked against a person who
is not named as an accused in the commission of a scheduled offence? Sub-
Section (1) of Section 5 will have to be read as a whole conjointly with the
other provisions of the Act already referred to hitherto, including Section 8
thereof. Section 5 authorizes the Director or any other officer not below the
rank of Deputy Director authorized by Director for the purposes of the said
section to resort to action of "attachment of property" if he has reason to
believe and the reason of such belief has been recorded in writing arrived at
on the basis of material in his possession.That action is intended to freeze
the proceeds of crime, which property, is derived or obtained directly or
indirectly as a result of criminal activity relating to a scheduled offence or
value of any such property until the criminal action for the scheduled
offence is taken to its logical end against the accused name therein. The
proceeds of crime means any property or assets of every description,
whether corporeal or incorporeal, movable or immovable, tangible or
intangible and includes deeds and instruments evidencing title to, or
interest in, such property or assets, wherever located which has been
derived or obtained, directly or indirectly, as a result of criminal activity
relating to a scheduled offence or the value of such property. The proceeds
of crime may be or can be in possession of "any person".Be it a person
charged of having committed a scheduled offence "or otherwise".In the case
of any other person in possession of proceeds of crime,if it is also
found that he has directly or indirectly attempted to indulge or
knowingly assisted or knowingly is a party or is actually involved in
any process or activity connected with the proceeds of crime and
projecting it as untainted property, he shall be liable to be prosecuted
for offence under Section 3 read with Section 4 of the Act of 2002-in

16
addition to suffering the action of attachment of the proceeds of crime
in his possession. Attachment of proceeds of crime in possession of any
person (other than the person charged of having committed a scheduled
offence) will, therefore, be legitimate within the sweep of Section 5 of the Act
of 2002. In our opinion, the thrust of Section 5 is to attach every
property involved in money-laundering irrespective of whether it is in
possession of the person charged of having committed a scheduled
offence or any other person-provided however it must be shown to be
proceeds of crime and further, that 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 the Act.

12. Going by the definition of "person" occurring in Section 2(s) and on

conjoint reading of Section 2(u), which also refers to "any person";
coupled with the purpose and intent for which the enactment has been
brought into force,accepting the argument of the appellants would
result in a pedantic approach and limiting the plenitude of action of
attachment and confiscation of proceeds of crimes only in the hands of
the persons who have been charged of having committed a scheduled
offence and non else. Whereas, the Act has come into being to prevent
money laundering and to provide for confiscation of property derived from or
involved in, money laundering and for matters connected therewith or
incidental thereto.

....The term "money-laundering" has the same meaning assigned to it in

Section 3 of the Act of 2002. It essentially refers to the tainted property
which is derived from criminal activity relating to a scheduled offence. Such
tainted property may travel at different levels or by way of circular
transactions for being eventually projected as untainted property in the
hands of or possession of person other than the person charged of having

17
committed a scheduled offence.That involves direct or indirect involvement
of person or persons other than the person(s) accused of having committed a
scheduled offence.Such other person(s) may directly or indirectly
attempt to indulge or knowingly assist or knowingly is a party or is
actually involved in any process or activities connected with the
proceeds of crime and projecting it as untainted property.If such is the
nature of activity, the Act of 2002 is intended to deal with the same
sternly.

In a given case a person can be in possession of any proceeds of crime

without his knowledge that the property held by him is tainted. That
person may not face prosecution under Section 3 of the Act of 2002.
But even in his case, an order of attachment of the proceeds of crime
can be invoked and later end up with confiscation thereof depending on
the outcome of the criminal action against the person charged of
having committed a scheduled offence.The action of attachment is not
in relation to a person as such but essentially to freeze the proceeds of
crime. The interpretation given by the Appellants, if accepted would be
destructive of the said legislative intent.

Suffice it to observe that the term "person" appearing in Clause (a) of

the of Section 5(1) of the Act cannot be limited to the person who has
been charged of having committed a scheduled offence. If that was the
intent of the legislature, there was no reason to insert Clause (a). In that
case, the Legislature would have simply provided for any person who has
been charged of having committed a scheduled offence and in possession of
any proceed of crime, such proceeds of crime can be attached and
confiscated, subject to fulfilment of the specified conditions.

13. The Appellants however, have placed emphasis on the expression "such
person" used in Clause (b) of Section 5(1) of the Act. According to them, the
word "such" is prefix to the word "person" in Clause (b). That is not
superfluous, but is ascribable to the person referred to in Clause (a). Which

18
means that even Clause (a) deals with person who has been charged of
having committed a scheduled offence. It is not possible to countenance this
submission. We are conscious of the fact that penal provisions should be
strictly construed. At the same time, we cannot overlook the language of
Section 5 as applicable at the relevant time. In our opinion, Clause (a)
refers to "any person"-Whether he has been charged of having
committed a scheduled offence "or otherwise". The only requirement is
that person should be in possession of any proceeds of crime.The
governing factor is possession of any proceeds of crime by a person.
Taking any other view may defeat the legislative intent. In as much as,
a person who has been charged of having committed a scheduled
offence can successfully defeat the object of the enactment of
attachment and confiscation of the proceeds of crime by transferring it
to some other person who is not so involved with him in commission of
stated scheduled offence.In our opinion, on fair reading of Section 5(1)
read with Section 8 of the Act, it postulates two categories of persons
against whom action of attachment of property can be proceeded with.
The first category is any person who is in possession of any proceeds of
crime. A person falling in this category need not be a person, charged
of having committed a scheduled offence. The second category is of a
person who has been charged of having committed a scheduled offence.
Besides, being charged of having committed a scheduled offence, that
person is found to be in possession of any proceeds of crime. In either
case, it is open to take recourse to Section 5 of the Act if the specified
Authority has reason to believe and reason for such belief is recorded
in writing that the 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.
Indeed, the proviso to Sub-section (1) as was applicable at the relevant time
envisaged that no order of attachment can be made unless, in relation to the
offence under paragraph 1 of Part A and Part B of the Schedule, a report has
been forwarded to a Magistrate under Section 173 of the Code of Criminal
Procedure, 1973; or paragraph-2 of Part A of the Schedule, a police report or

19
a complaint has been filed for taking cognizance of an offence by the Special
Court constituted under Section 36(1) of NDPS Act, 1985. This proviso
essentially is directed against the second category of person covered by Sub-
section (1), namely, person who has been charged of having committed a
schedule offence. In other words, action of attachment of proceeds of crime
in possession of the person charged of a scheduled offence can be proceeded
only on forwarding of a report to Magistrate under Section 173 of the Code
or a complaint has been filed for taking cognizance of offence by the Special
Court constituted under the NDPS Act. In so far as the person who is not
named in the scheduled offence, there can be no question of filing of any
report or complaint for taking cognizance. That stipulation has no
application to the person who is not a person having been charged of a
scheduled offence. The view that we propose to take is reinforced from the
purport of Section 3 and 4 of the Act of 2002. The same deal with the
offence of money-laundering and punishment for money-laundering
respectively.Both these provisions, even on strict construction, plainly
indicate that the person to be proceeded for this offence need not
necessarily be charged of having committed a scheduled offence. For,
the expression used is "whosoever". The offence of money-laundering
under Section 3 of the Act of 2002 is an independent offence.It is
committed if "any person" directly or indirectly attempts to indulge or
knowingly assists or knowingly is a party or is actually involved in any
process or activity connected with the proceeds of crime and
projecting it as untainted property. Further, it would create a piquant
situation as a person who is not charged of having committed a scheduled
offence even if can be proceeded for offence of money laundering and even if
such person is in possession of any proceeds of crime, no action of
attachment and confiscation of the proceeds of crime can be resorted to qua
him-albeit the proceeds of crime are in his possession. If the argument of
the appellants were to be accepted, even the expression "whosoever"
appearing in Section 3 and 4 of the Act will have to be limited to
person who has been charged of having committed a scheduled offence.
The object of the enactment of 2002 would be completely defeated by

20
such approach. Besides, the view that we propose to take is reinforced also
from the purport of Section 8 of the Act of 2002. It provides that the
Adjudicating Authority if has reason to believe that "any person" has
committed an offence under Section 3, may serve notice upon such
person calling upon him to indicate his source of his income, earning
or assets, out of which or by means of which he has acquired the
property attached under Section 5(1) of the Act. Once again, the
legislature has unambiguously used the term "any person" and not
person charged of having committed a scheduled offence. Indeed, any
person referred to in this provision is a person who has committed an
offence under Section 3 of the Act of 2002. He may not necessarily be a
person charged of having committed scheduled offence. The proviso to
Sub-section (1) thereof stipulates that where a notice under the said
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. Suffice it to observe that even Section 8 contemplates
adjudication to be done by the Adjudicating Authority after provisional
attachment order is passed under Section 5 of the Act and upon receipt of
complaint under Section 5(5) of the Act. We are not referring to other
provisions mentioned in the said Section 8(1), as we are dealing only with
the case arising under Section 5 of the Act. Considering the above, we are
of the considered opinion that there is no merit in the argument of the
appellants that action under Section 5 of the Act could not have
proceeded against them, as they were not charged of having committed
a scheduled offence."

(ii) MANU/AP/0125/2011 : [2011] 164 Comp Cas 149 (AP) : [2011] 108 SCL
491 (AP) [B. Rama Raju vs. Union of India (UOI) Ministry of Finance,
Department of Revenue, represented by its Secretary, (Revenue) and others],
wherein in 32 to 34 and 39, it has been held as follows:

21
"32. On the aforestated scheme the provisions of the Act, the
prosecution under the Act; and attachment and eventual confiscation
proceedings are distinct proceedings. These two sets of proceedings may
be initiated against the same person if he is accused of the offence of money-
laundering. Even when a person is not so accused, the property in his
possession may be proceeded against for attachment and confiscation, on a
satisfaction by the appropriate and competent authority that such property
constitutes proceeds of crime.

33. In our considered view, the provisions of the Act which clearly and
unambiguously enable initiation of proceedings for attachment and
eventual confiscation of property in possession of a person not accused
of having committed an offence under Section 3 as well, do not violate
the provisions of the Constitution including Articles 14, 21 and 300-A
and are operative proprio vigore.

34. While the offence of money-laundering comprises various degrees of

association and activity with knowledge and information connected with the
proceeds of crime and projection of the same as untainted property; for the
purposes of attachment and confiscation (imposition of civil and
economic and not penal sanctions) neither mens rea nor knowledge
that a property has a lineage of criminality is either constitutionally
necessary or statutorily enjoined. Proceeds of crime (as defined in Section
2(u) is property derived or obtained directly or indirectly as a result of
criminal activity relating to a scheduled offence or the value of any such
property. "Property" is defined in Section 2(v) include property of every
description corporeal, incorporeal, movable, immovable, tangible, and
intangible and includes deeds and instruments evidencing title to or interest
in such property or assets wherever located.

39. The contention by the Petitioners that attachment and confiscation of

proceeds of crime in possession of a person who is not charged of an offence

22
under Section 3 or who has no knowledge or information as to the
antecedent criminality are arbitrary and unfair legislative prescriptions in
misconceived."

8. I have heard the learned Senior Counsel appearing for the Appellants and
learned counsel appearing for respondent and carefully perused all the
materials on record, the judgments relied on by the learned Senior Counsel
appearing for the appellants and the learned counsel for the respondent and
their arguments.

9. The following issues arise for consideration in these appeals:--

(i) Whether the property in the hands of persons prosecuted for criminal
offences and/or scheduled offence alone can be attached;

(ii) Whether the property in the hands of subsequent bona fide purchaser
without knowledge of crime purchased by legal consideration can be
attached.

(iii) Whether property purchased bona fide with legal sale consideration
looses the character of proceeds of crime and the sale proceeds in the hands
of vendor only can be attached.

10. Point No. 1:--

The learned Senior Counsel for appellants contended that the proceedings
initiated against appellants for provisional attachment of property in
question is without jurisdiction and void ab initio. The appellants are not
accused of having committed any criminal offence and or scheduled offence.
The property in the hands of those accused persons alone can be attached.
The appellants are bona fide purchasers for valuable consideration without
knowledge of any criminal activities of their predecessors in title. They paid
the sale consideration out of their legitimate agricultural activities. The
learned Senior counsel referred to Sections 2(p), 3, 4 and 5 of the said Act.
According to the learned Senior Counsel, the person mentioned in Section 5
refers only to persons, who are accused of criminal activities or having
committed scheduled offence.

23
11. Per contra, the learned counsel for the respondent contended that
person referred to inSection 5 of the Act includes all the persons, who are in
possession of proceeds of crime. Section 5 has to be read along with
Section 2(u) of the Act. Sections 2(p), 3 and 4 relates to money laundering
and punishment for the same. Punishment for Money Laundering is
distinct and different from provisional attachment. The learned counsel
relied on paragraphs 11 to 13 of the judgment reported in : 2010 (5) Bombay
CR 625 [supra] and paragraphs 32 to 34 and 39 of the Judgment reported
in MANU/AP/0125/2011 : [2011] 164 Comp Cas 149 (AP) extracted supra.

12. The Sections 2(p), (s), (u), 3, 4, & 5 are extracted for reference.

"2(p) :- "money-laundering" has the meaning assigned to it in section 3;

2(s)" person" includes:--

(i) an individual,

(ii) a Hindu individed family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated

or not,

(vi) every artificial juridical person, not falling within any of the preceding
sub-clauses, and

(vii) any agency, offence or branch owned or controlled by any of the above
persons mentioned in the preceding sub-clauses;

2(u) "proceeds of crime" means any property derived or obtained, directly or

indirectly, by any person as a result of criminal activity relating to a
scheduled offence or the value of any such property.

Section 3. Offence of money-laundering-Whosoever directly or indirectly

attempts to indulge or knowingly assists or knowingly is a party or is

24
actually involved in any process or activity connected [proceeds of crime
including its concealment, possession, acquisition or use and projecting or
claiming] it as untainted property shall be guilty of offence of money-
laundering.

Section 4. Punishment for money-laundering-Whoever commits the

offence of money-laundering shall be punishable with rigorous
imprisonment for a term which shall not be less than three years but which
may extend to seven years and shall also be liable to fine

Provided that where the proceeds of crime involved in money-laundering

relates to any offence specified under paragraph 2 of Part A of the
Schedule, the provisions of this section shall have effect as if for the words
"which may extend to seven years", the words "which may extend to ten
years" had been substituted.

Section 5. Attachment of property involved in money-laundering -

Whether the Director or any other officer not below the rank of Deputy
Director authorized by the Director for the purposes of this section, has
reason to believe (the reason for such belief to be recorded in writing), on the
basis of material in his possession, that.

13. There is no restriction in respect of person in possession of proceeds of

crime. Section 5 does not restrict that property in the hands of persons
involved in Money Laundering alone can be attached pending confiscation.
This issue was considered by two Division Benches of Bombay High Court
and Andra Pradesh High Court referred to above. Both the Courts after
elaborately considering this issue referring to relevant Sections of Act
referred to above held that proceeds of crime in the hands of persons
not involved in Money Laundering or accused of criminal offence can
also be attached.Both the Courts have held that person referred to in
Section 5 is not restricted to a person accused of crime or involved in
Money Laundering. The judgments squarely apply to facts of this case.

25
14. For the reasons stated above, the provisional attachment of property
is not restricted in the hands of accused persons alone.

15. Points Nos. 2 & 3:--

The learned Senior Counsel for appellants contended that the property in
question in the hands of appellants is not the proceeds of crime. The
appellants are bona fide purchasers without knowledge of any fraud being
committed and that, the property was purchased from and out of monies
obtained by playing fraud on Financial Institution. The appellants paid the
sale consideration from and out of their agricultural income. The appellants
have proved that they belong to agricultural families owning lands and
cultivating them. They cultivated GloriosaSuperba seeds which has
considerable demand and yields huge income per acre. The appellants have
produced acceptable documents to show the sale and given the names of
their purchasers. The Authorities without properly considering the
documents had passed the impugned orders. In any event, the property lost
its character of proceeds of crime in the hands of their vendor Gunaseelan
as the respondent failed to prove that he did not purchase the property out
of legitimate income or he is a relative, employee or Benami of persons, who
had committed fraud.

16. The learned Senior Counsel relied on paragraphs 37, 38 and 40 of the
judgment reported in : [2011] 164 Comp Cas 146 (AP] [supra] and
paragraphs 17, 17h and 19 of the judgment reported in
MANU/MH/1011/2010 : 2010 (5) Bom CR 625 [supra], as extracted above.

17. Per contra, the learned counsel for the respondent contended that by
subsequent transactions, the property will not lose its character of 'proceeds
of crime'. The persons, who purchased the property out of amounts obtained
by fraud try to project the property as untainted property by subsequent
transactions. In the present case, the appellants failed to prove that sale
consideration paid by them was obtained by legitimate means. The
appellants failed to file any application for filing additional documents at

26
Appellate stage and has not given any reason for not filing those documents
before Adjudicating Authority.

18. Considering the rival contentions and the judgment relied on by the
learned Senior Counsel, I am inclined to accept the contentions of the
learned senior counsel.

19. As per the Sections 23 and 24 of PMLA, 2002, there is a

presumption that property in the hands of Appellants is proceeds of
crime. But the appellants have a right to rebut the said presumption.

20. The said sections read as follows:--

"23. Presumption in inter-connected transactions Where money-laundering

involves two or more inter-connected transactions and one or more such
transactions is or are proved to be involved in money-laundering, then for
the purposes of adjudication or confiscation (under section 8 or for the trial
of the money-laundering offence, it shall unless otherwise proved to the
satisfaction of the Adjudicating Authority or the Special Court), be presumed
that the remaining transactions form part of such inter-connected
transaction.

24. Burden of proof

In any proceeding relating to proceeds of crime under this Act,

27
(a) in the case of a person charged with the offence of money-laundering
under Section 3, the Authority or Court shall, unless the contrary is proved,
presume that such proceeds of crime are involved in money-laundering; and

(b) in the case of any other person the Authority or Court, may presume that
such proceeds of crime are involved in money-laundering.

21. In the present case, one G. Srinivasan is accused of having played fraud
and obtained a loan of Rs. 15,00,00,000/- by producing bogus and
fabricated documents. From and out of the said amount, the property in
question was purchased by him in the names of his Benamies. One
Ayyappan was appointed as their Power Agent. One Gunaseelan purchased
the property through the Power Agent Ayyappan. The said Gunaseelan was
examined and his statement was recorded Under Section 50 of the Act. He
had stated that he purchased the property for cultivation. He developed the
property but geologist gave opinion that property will not yield proper
income. In the circumstances, he sold the property to appellants. The
respondent has not produced any document or material to disprove the
statement of Gunaseelan. There is nothing on record to show that the
transaction in favour of the said Gunaseelan, is not genuine. It is not the
case of respondent that the said Gunaseelan is a Benami or employee of G.
Srinivasan and that Gunaseelan did not pay any amount as sale
consideration or the sale consideration paid by Gunaseelan was not
legitimate money.There is no material to show nexus and link of Gunaseelan
with G. Srinivasan and his Benamies.

In the absence of any verification or investigation by respondent with

regard to genuineness or otherwise of the purchase by Gunaseelan;
whether he was connected with G. Srinivasan or the sale consideration
is legitimate or not the property in the hands of Gunaseelan cannot be
termed as proceeds of crime.

22. Further, the appellants have given statements under Section 50 of the
Act. They have categorically stated that they possess agricultural lands,

28
cultivate GloriosaSuperba seeds and sell the same and derive considerable
income. They have named the persons to whom they have sold the
GloriosaSuperba seeds and produced Bank statements. Some of the
Appellants have stated that they sold their lands and borrowed monies to
purchase the property in question. There is nothing on record to show that
the respondent had verified these statements. Especially, the respondent
has not verified the Bank statement produced by the Appellants to ascertain
the genuineness of the same and whether the money deposited came from
genuine purchasers or from the persons involved in fraud and Money
Laundering. The respondent does not allege that Appellants are Benamies of
G. Srinivasan or no sale consideration passed to the vendor.

23. Considering the materials on record and judgments reported in

MANU/MH/1011/2010 : 2010 (5) Bom CR 625 [supra] and : [2011] 164
Comp Cas 146 (AP) [supra], I hold that appellants have rebutted the
presumption that the property in question is proceeds of crime. The
respondent failed to prove any nexus or link of Appellants with G.
Srinivasan and his benamies.Once a person proves that his purchase is
genuine and the property in his hand is untainted property, the only
course open to the respondent is to attach sale proceeds in the hands
of vendor of the appellants and not the property in the hands of
genuine legitimate bona fide purchaser without knowledge.

24. Before the Adjudicating Authority it was admitted by complainant that

appellants had no knowledge that properties in the hands of their vendor
was proceeds of crime. It was also not disputed by complainant that the
appellants did not have financial capacity to buy properties. Paragraphs 21,
22, 23 and 24 of order of Adjudicating Authority is extracted herein for
better appreciation.

"21. The CBI BS & FC (BLR) has filed a chargesheet in the court of Spl.
Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan,

29
Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Murtha Muthu, Sh. V.
InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan,
for the offences punishable under Section 120-B read with 420, 467, 471
IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences
punishable under section 120-B, 420, 471 are schedule offence under
Section 2(1)(y) of the PMLA and therefore one of the condition for issuing
provisional attachment order is satisfied. The other important point to be
determined is whether the properties attached vide Provisional attachment
order are involved in money-laundering. The only defense or explanation
raised by Defendants, particularly Def No. 2 to 8 is that the landed
properties attached by the complainant are not proceeds of crime. These
properties were purchased by these defendants without having any
knowledge, whatsoever, that these properties were derived or obtained
through criminal activities relating to schedule offence. It has been
demonstrated by them that they verified the title deeds relating to the
properties and after due verification of every details entered into the sale
transactions as such these are bona fide deals entered by them against
proper sale consideration and the money paid to the seller is also well
explained.

22. Against the above arguments vehemently raised by the defendants, the
complainant without disputing that the deals are bona fide heavily relied on
the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha
Mohan Lakhotia Vs. Deputy Director, PMLA, Directorate of
Enforcement, Mumbai in first appeal No. 527/2010. In this case it held
by the Bombay High Court that the property bought without the knowledge
that the same is tainted could be subjected to Provisional Attachment Order.

23. In the instant case the only point to be decided is whether the properties
bought by any person against clean money and without any knowledge that

30
properties have been acquired directly or indirectly through scheduled
offence could be subject matter of provisional attachment order.

24. It is an admitted position that the Defendants (D-2 to D-8) had no

knowledge that the properties in the hands of the vendor was proceeds of
crime. They have also verified the papers relating to these properties before
the deal. No point has been raised with regard to the financial capability of
these Defendants to buy these properties.

However, the Bombay High Court decision in Radha Mohan Lakhotia has
been pressed into service to make out a plea that the properties could be
attached in such circumstances under the PMLA."

Provisional attachment was sought to be continued only based on the

judgment of Bombay High Court in Radha Mohan Lakhotia's case.

25. A reading of paragraphs 21 to 24 clearly reveals that both the

Adjudicating Authority as well as Appellate Authority failed to properly
appreciate the facts and findings in Radha Mohan lakhotia's case. In
that case, the Department had placed substantial and acceptable facts
to prove that the property in the hands of third party was proceeds of
crime. It is pertinent to note that in Mr. Radha Mohan Lokatia's case,
Department had proved the nexus and link between the person
possessing the property and person accused of having committed an
offence. All the persons involved in that case were close relatives.

26. In the present case, the respondent failed to prove that the
appellants did not have sufficient financial capacity to buy the
property or that the money paid by them as sale consideration was not
legitimate money derived by agricultural activities. No material was
produced to show that the appellants are close relatives of person, who
involved in criminal activities and the person, who sent monies to

31
purchase the property did not possess financial capacity to provide
such huge amounts and that they are not genuine purchasers of
agricultural products of appellants. The respondent has not made any
such investigation and has not produced any such material. Further, the
Appellate Authority in fact considered the additional documents produced
before it, but rejected the same on the ground that Appellants have not
given any valid reasons for not filing the same before the Adjudicating
Authority. Having considered the Additional documents, the appellate
authority failed to give any finding on merits after verifying with the
concerned Bank.

27. In view of these facts, the judgment in Radha Mohan lakhotia's case is
in favour of the appellants as they have rebutted the presumption that the
property in question is proceeds of crime. In the result, all the Civil
Miscellaneous Appeals are allowed and the impugned orders are set aside.
No costs.

32