Bharathi Cement Corporation Pvt. Ltd. v. Joint Director, Directorate of Enforcement, Hyderabad, Appellate Tribunal- Prevention Of Money Laundering Act, Judgment, Law, casemine.com

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FPA-PMLA-1035/HYD/2015

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Prevention of Money Laundering Act, 2002. FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 12 of 18
Sections 120-B r/w 420, 409, 420 & 477-A Indian Penal Code, 1870 and Sections 13(2) r/w 13(1)(c ) & (d), Prevention of Corruption Act, 1988.
Sections 120B r/w Sections 420, 409, 420 & 4772-A of the IPC and Section 13(2) r/w Section 13(1) & (d) of the PC Act
Sections 120-B read with 420 I.P.C. and Section 12 of the Prevention of Corruption Act,
PREVENTION OF MONEY LAUNDERING ACT 2002

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Smart Summary

Factual and Procedural Background

The appeals FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015, and FPA-PMLA-1035/HYD/2015 challenge an order dated 04.08.2015 by the Adjudicating Authority which confirmed attachments made under Provisional Attachment Order No. 04/2015 dated 25.02.2015 in ECIR/09/HZO/2011 corresponding to CC No. 24 of 2013 before the Special Judge for CBI Cases, Hyderabad.

The attachments relate to various properties and investments held by entities including M/s Jagati Publications Ltd, M/s Carmel Asia Holdings Pvt Ltd, M/s Janani Infrastructure Pvt Ltd, M/s India Cements Ltd, and M/s Bharathi Cements Corporation Pvt Ltd, amounting to substantial sums and assets such as shares, land, buildings, and movable and immovable properties.

The factual matrix involves allegations that Shri N. Srinivasan, Managing Director of M/s India Cements Ltd, invested large sums in group companies controlled by Shri Y.S. Jagan Mohan Reddy as quid pro quo for undue favours received from the Government of Andhra Pradesh. These alleged favours included allocation of additional water, extension of land leases, and priority in cement supply schemes.

It is further alleged that inflated valuations and antedated reports were used to justify high share premiums in companies controlled by Y.S. Jagan Mohan Reddy, and that investments by India Cements Ltd into these companies were bribes disguised as equity participation. The case also involves complex transactions and share transfers involving a French multinational, M/s PARFICIM SAS.

The appellants contest the attachments and allege that the investments were bona fide commercial transactions, challenging the characterization of the amounts as proceeds of crime. The matter has proceeded through various appeals, including a related judgment by the High Court of Hyderabad, which is currently under challenge before the Supreme Court of India.

Legal Issues Presented

Whether the investments made by M/s India Cements Ltd and others into companies controlled by Y.S. Jagan Mohan Reddy constitute proceeds of crime under the Prevention of Money Laundering Act (PMLA).
Whether the attachments confirmed by the Adjudicating Authority were justified, including the question of double attachment and nexus between the property and alleged proceeds of crime.
Whether Shri N. Srinivasan, as Managing Director of India Cements Ltd, can be held personally liable under Sections 120-B and 420 IPC and Section 12 of the Prevention of Corruption Act, either vicariously or personally.
Whether the cognizance taken by the Special Judge without specifying vicarious or personal liability is sustainable.
Whether the penal provisions alleged were scheduled offences under PMLA at the relevant time.
Whether the attachments were made without legitimate reasons to believe and without satisfying the conjunctive conditions under Section 5(1) of PMLA.
Whether the findings of the High Court in Criminal Petition No. 7584 of 2015, which quashed proceedings against Shri N. Srinivasan, affect the present attachments and appeals.

Arguments of the Parties

Appellants' Arguments

All investments made into M/s Bharathi Cements Corporation Pvt. Ltd., M/s Jagati Publications Ltd., and M/s Carmel Asia Holdings Pvt Ltd. were genuine and bona fide commercial transactions.
Investors in Bharathi Cements made profits after sale to M/s PARFICIM, negating allegations of undervaluation or quid pro quo.
Allegations of overvaluation and antedating of valuation reports concerning M/s Jagati Publications Ltd. are baseless; share premiums are justified by commercial analysis and market conditions.
Investments/advances by M/s Carmel Asia Holdings Pvt Ltd. into other entities are genuine and already under scrutiny; attachment of properties constitutes double attachment.
Share application money invested by M/s Carmel Asia Holdings Pvt Ltd. into M/s Saraswati Power Pvt Ltd. was returned prior to attachment, making such attachment factually incorrect.
Penal provisions alleged in the charge sheet were not scheduled offences under PMLA at the relevant time, as they were included only by amendment effective 01.06.2009.
Attachment was made without legitimate reasons to believe and without proper nexus to proceeds of crime, failing the conjunctive requirements of Section 5(1) of PMLA.
Attachment of fixed deposits in Vijaya Bank by Enforcement Directorate is not traceable to proceeds of crime but arises from regular business operations.

Respondent's Arguments

The investments by India Cements Ltd. into companies controlled by Y.S. Jagan Mohan Reddy were quid pro quo transactions for undue government favours.
Valuation reports were inflated and antedated to justify exorbitant share premiums.
Amounts held in fixed deposits by Bharathi Cement are proceeds of crime and subject to attachment.
The sale proceeds from shares sold to PARFICIM are proceeds of crime and have been attached accordingly.
The Adjudicating Authority found sufficient prima facie case and facts justifying attachment under PMLA.
The appellate tribunal must give final findings on property calculation and vesting of properties with the State if allegations are proved.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Paresha G Shah v. State of Gujarat, 2016 GLH (1) 329	Requirement of legitimate reasons to believe under Section 5(1) of PMLA for attachment.	The court noted that the Adjudicating Authority did not adequately consider whether the parameters for reasons to believe under Section 5(1) were met, highlighting the need for a nexus between property and proceeds of crime.
Maharaja Sir Pateshwari Prasad Singh v. State of UP (1963) 50 ITR 731	Interpretation of Section 5(1)(a) & (b) of PMLA as conjunctive conditions for attachment.	The court emphasized that both conditions must be satisfied for attachment, which was argued to be lacking in the present case.
M. Satyanarayana v. State of Karnataka and Anr. (1986) 2 SCC 512	Legal standards for attachment and reasons to believe under PMLA.	Supported the principle that attachment requires a proper nexus and satisfaction of statutory conditions, relevant to the appellants' contention.

Court's Reasoning and Analysis

The court reviewed the facts and submissions without entering into the merits of the appeals, primarily because the related judgment of the High Court of Hyderabad, which dealt with the personal and vicarious liability of Shri N. Srinivasan and the nature of the alleged quid pro quo transactions, is under challenge before the Supreme Court.

The court acknowledged the detailed allegations of quid pro quo investments by India Cements Ltd. into companies controlled by Y.S. Jagan Mohan Reddy, including inflated valuations and antedated reports. It also noted the appellants' arguments concerning bona fide commercial transactions, double attachment, and procedural deficiencies such as failure to establish reasons to believe under Section 5(1) of PMLA.

Given the pendency of the Supreme Court proceedings challenging the High Court judgment, the court refrained from adjudicating on the merits or clarifying the status of movable and immovable properties attached. It held that final orders should await the Supreme Court's decision.

Holding and Implications

The appeals are adjourned and listed for hearing on 09.07.2018 to await the decision of the Supreme Court of India.

The court did not decide on the merits of the attachments or the characterization of the investments as proceeds of crime. The direct effect is that no final order on the appeals is passed at this stage, pending the Supreme Court's ruling. No new precedent is established by this order, and the case remains sub judice.

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Bharathi Cement Corporation Pvt. Ltd. v. Joint Director, Directorate of Enforcement, Hyderabad

FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA- PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015

1. The above mentioned appeals have been filed against the order dated 04.08.2015 by Adjudicating Authority made in Original Complaint No. 424 of 2015 confirming the attachments made vide Provisional Attachment Order No. 04/2015 dated 25.02.2015 (PAO) in ECIR/09/HZO/2011. PAO passed corresponding to CC No. 24 of 2013 before the Special Judge for CBI Cases, Hyderabad (CBI Case). FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 3 of 18

2. Attachments effected in the entire O.C. 276 of 2014 totaling to Rs. 232,27,55,806/- M/s Jagati Publications Ltd: Shares of M/s Indira Television Pvt Ltd valued at Rs. 10,20,00,000/- M/s Carmel Asia Holdings Pvt Ltd.: Share application money purportedly pending with M/s Saraswat Power Pvt Ltd: Rs.3,20,00,000/- and shares of M/s Indira Television Pvt Ltd valued at Rs. 25,00,000/- M/s Janani Infrastructure Pvt Ltd.: Land and Buildings valued at Rs. 2,95,74,251/- M/s India Cements Ltd.: Immovable Property valued at Rs.3,34,82,000/- M/s India Cements Ltd.: Movable Property valued at Rs.116,99,35,700/- M/s Bharathi Cements Corporation Pvt. Ltd: movable property valued at Rs. 95,32,63,855/-

3. The confirmation was challenged by the following parties on filing of following appeals: - FPA-PMLA-1053/HYD/2015: M/s Jagati Publications Ltd. FPA-PMLA-1054/HYD/2015: M/s Janani Infrastructure Pvt Ltd. FPA-PMLA-1055/HYD/2016: M/s Carmel Asia Holdings Pvt Ltd. FPA-PMLA-1045/HYD/2016: M/s Bharati Cement Corporation Pvt Ltd. FPA-PMLA-1065/HYD/2016: M/s India Cements Ltd.

4. The facts of the case as they emerge from the records are as under:

i) Shri N. Srinivasan is the Managing Director of M/s. The India Cements Limited, Chennai and has major stake in the company. During the period from January, 2007 to January 2009, he invested an amount of Rs. 140,32,63,855/- in the group companies of Shri Y.S. Jagan Mohan Reddy apart from Inter Corporate Deposits of Rs. 8.5 Cr. and Rs. 13 Cr. to M/s. Sandur Power Corporation Limited and M/s. R.R. Global Enterprises Limited, respectively, and as quid pro quo against the undue favours received from the Government of Andhra Pradesh in the form of * Allocation of additional quantity of water FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 4 of 18 * Extension of lease of land for period of 20 years arbitrarily and * Priority in supply of Cement under Indiramma Scheme. The instances of quid pro quo as per the impugned order dated 04.08.2015 - are that: ii) Shri V. Vijay Sai Reddy got the valuation of M/s Jagati Publication Private Limited (subsidiary of M/s Carmel Asia Holdings Private Limited), from M/s Jagadisan & Co., and the report is antedated, valuing the business range from Rs. 136-149 Cr. In order to solicit bribes in the form of investments, Shri V. Vijaya Sai Reddy in conspiracy with Shri Y.S. Jagan Mohan Reddy had fixed the premium at Rs. 350/- per share in respect of M/s Jagati Publications Limited and at Rs. 252/- per share in respect of M/s Carmel Asia Holding Pvt. Ltd. To justify these huge premiums, the companys value has been inflated in the valuation reports. In pursuance of conspiracy, the inflated value report got prepared subsequently by M/s Jagadisan & Co., for M/s Jagathi Publications Limited and antedated as 12.07.2007, though this was completed in January, 2008 to justify the high premiums already received by M/s Jagati Publications Ltd. Sri V. Vijaya Sai Reddy got valuation report from M/s Deloitte Touche Tohmtsu India Pvt. Ltd., in respect of M/s Jagati Publications Limited inflated and also got inflated credit worthiness of M/s Carmel Asia Private Limited and got this antedated as in November, 2007, though the same was prepared in April, 2008. The benefits received by M/s The India Cements Limited are (i) Renewal of Land Lease in Kadapa District vide GO Ms. No. 865 dated 11.07.2008 of Revenue (ASN.IV) as well as permission to draw 10 Lakh Gallons of water from Krishna River vide GO Ms No. 146 dated 22.07.2008 of Irrigation and Command Area Development Department (CAD) and 13 FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 5 of 18 million Cubic Feet of water from Kanga River vide GO Ms. No. 94 dated 12.08.2009 of Irrigation and Command Area Development Department (CAD) Department. iii) The brief facts of the case are that in the year 1999, Shri C. Ramachandran had got the registration certificate in the name of M/s. Raghuram Cements & Minerals Pvt. Ltd. from the registrar of Companies and the name M/s. Raghuram Cements Pvt. Ltd. was changed during the year 2005. Subsequently on 08.12.2005 M/s. Raghuram Cements Private Ltd. was changed as M/s. Raghuram Cements Limited and on 06.08.2008, M/s. Raghuram Cements Limited was changed as M/s. Bharathi Cement Corporation Limited. Lastly during the course of 2010 a French Multinational company M/s. Parficim had acquired 51% of the share- holding in M/s. Bharathi Cement Corporation Limited and the name of the company was changed to M/s. Bharathi Cement Corporation Private Limited. A perusal of Balance Sheet of Bharathi Cement Corporation Pvt. Ltd. for the year 2006-07 till the period ending 31.12.2013 showed fixed deposit in various banks as under: Year ending Amount (Rs.) 31.03.2007 105,42,43,343 31.03.2008 43,72,43,557 31.03.2009 22.92Cr. (Advance receivable Rs. 108.36 Cr.) 31.03.2010 78,46,69,354 (Advance receivable Rs. 143.23 Cr) 31.03.2011 409,87,04,432 (Advance receivable Rs. 145.69 Cr.) 31.12.2011 482.88 Cr. (Advance receivable Rs. 158.22 Cr.) 31.12.2012 554.12 Cr. (Advance receivable Rs. 137.22 Cr.) 31.12.2013 583.57 Cr (Advance receivable Rs. 133.08 Cr.) FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 6 of 18 During the year 2006-07, M/s. Jagati Publication raised share capital of Rs. 50.04 Cr. by way of allotting share at the rate of Rs. 10/- each at a premium during this year though it yet have to commence the commercial operations. Subsequently, they launched Sakshi, a Telugu Daily Newspaper on 24.03.2008 and allotted 3,18,72,201/- equity shares of Rs. 10/- each at a premium during this year. An amount of Rs. 324.02 Cr. including premium of Rs. 292.15 Cr. was received by the Company by way of Private Placement of equity shares. While the accumulated loss as on 31.03.2008 was Rs. 7.23 Cr., the earning per share and dividend was declared Nil in the balance sheet. It has been observed by the respondent that investigations revealed that the companies which had been favoured illegally by the Government of Andhra Pradesh at the behest of Shri Y.S. Jagan Mohan Reddy and others had paid the consideration for favours to the companies owned and controlled by Y.S. Jagan Mohan Reddy and that the said payments were made under the cover of Financial Transactions by way of equity participation in Bharathi Cement Corporation Pvt. Ltd, M/s. Jagati Publication Pvt. Ltd. and M/s. Carmel Asia Holding Pvt. Ltd. The said details are as under:

i) An amount of Rs. 95,32,63,855/- had been paid by M/s. India Cement Ltd. to M/s. Bharathi Cement Corporation pvt. Ltd. as equity participation as per details below: Date Bank Name Amount (Rs.) Beneficiary 05.02.2007 Centurion Bank (Now HDFC Bank), A/c No. 100605000000121 HDFC Bank, 5,00,00,000 M/s. Bharathi Cement Corporation Ltd. A/c No. 111010114082 23.04.2007 5,00,00,000 5,00,00,000 09.05.2007 2,50,00,000 11.04.2008 FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 7 of 18 15.04.2008 Begumpet, Hyderabad 00040310006816 (New) 2,50,00,000 OBC, Jubilee Hills, Hyderabad 16.04.2008 2,50,00,000 17.04.2008 2,50,00,000 21.04.2008 3,32,63,855 28.05.2008 3,00,00,000 02.06.2008 3,00,00,000 04.06.2008 3,00,00,000 18.07.2008 2,00,00,000 21.07.2008 2,00,00,000 23.07.2008 2,00,00,000 25.07.2008 2,00,00,000 27.01.2009 Bank of India, Mount Road, Chennai A/c 8000130110000007 10,00,00,000 29.01.2009 3,50,00,000 31.01.2009 7,50,00,000 12.01.2009 10,00,00,000 30.01.2009 SBH, Chennai A/c. No. 52097613611 12,50,00,000 Total Amount 95,32,63,855 ii) Similarly, an amount of Rs. 40 Cr. was paid by M/s. India Cement Limted to M/s. Jagati Publication Ltd. on account of investment as equity participation as per details below: Date Bank Name Amount (Rs.) Beneficiary 08.08.2007 Centurion Bank (Now HDFC Bank), A/c No. 100605000000121 HDFC Bank, Begumpet, Hyderabad 00040310006816 (New) 3,00,00,000 M/s. Jagati Publication Pvt. Ltd. [A/c No. 1110109000026 Oriental Bank of Commerce, Jubilee Hills, Hyderabad] 4,00,00,000 09.08.2007 3,00,00,000 10.08.2007 08.01.2008 3,00,00,000 11.01.2008 2,00,00,000 29.01.2008 2,00,00,000 30.01.2008 1,00,00,000 31.01.2008 2,00,00,000 05.02.2008 1,50,00,000 06.02.2008 1,50,00,000 07.02.2008 2,00,00,000 14.02.2008 2,00,00,000 FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 8 of 18 15.02.2008 2,00,00,000 18.02.2008 1,00,00,000 05.03.2008 1,60,00,000 07.03.2008 1,60,00,000 10.03.2008 1,80,00,000 19.05.2008 1,50,00,000 21.05.2008 1,75,00,000 23.05.2008 1,75,00,000 Total Amount 40,00,00,000

(iii) Similarly, an amount of Rs. 5 Cr. was paid by M/s India Cement Limited to M/s. Carmel Asia Holding Pvt. Ltd. on account of investment as equity participation as per details below: Date Bank Name Amount (Rs.) Beneficiary 24.01.2007 Centurion Bank (Now HDFC Bank), A/c No. 100605000000121 HDFC Bank, Begumpet, Hyderabad 00040310006816 (New) 5,00,00,000 M/s. Carmel Asia Holdings Pvt. Ltd. A/c No. 11181090043950 Oriental Bank of Commerce, Koramangala, Banglore FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 9 of 18 INVESTMENTS MADE BY P.R ENERGY HOLDINGS PVT LTD.

5. It has been argued by the Appellants that all the investments made into M/s Bharati Cements Corporation Pvt. Ltd., M/s Jagati Publications Ltd and M/s Carmel Asia Holdings Pvt Ltd are genuine investments made in course of bona fide commercial transactions.

6. With respect to the investment made in M/s Bharati Cements Corporation Pvt Ltd, it has been pleaded by the Appellants that all investors actually made profits after sale to M/s PARCIFIM; and, therefore, allegations of undervaluation or quid pro quo in this regard are ex facie erroneous. It was also contended alleged that the allegations as to overvaluation and ante- dating of valuation reports with respect to M/s Jagati Publications Ltd. are completely baseless and erroneous. The premium fixed for the shares of M/s Jagati Publications Ltd. is based on sound commercial analysis, including cogent valuation. The premium fixed contemporaneously by other market Rs 5 cr Caramel invested 5 cr into Rs 3 Cr in M/s Janani on 24.01.2007 Rs 25 lacs in M/s Indira and Rs 76 lacs and Rs 99 lacs as advance towards purchase in M/s Marvel and M/s Sandur on 21.02.2007 India Cements M/s India Cements Rs 140.32 cr January 2007 to 2009 M/s Caramel Rs 5 cr received by Caramel as from India Cements as investment. Shares of Caramel bought at Rs

252 share premium on 24.01.2007 by India Cements. M/s BCCL Rs 95.32 cr received by BCCL from India Cements as investment between 05.02.2007 to 30.01.2009 BCCL shares were bought at Rs 110 and Rs1440 per share between the period 2007 to 2009 by India Cements and subsequently sold on 27.04.2010 to PARCIFIM and realized Rs 121.08 cr as sale proceeds BCCL made fixed deposits of Rs. 134.30 Rs 95.32 Jagati Rs 40 cr received by Jagati from India Cements as investment between 08.08.2007 to 23.05.2008 Jagati shares were brought at Rs 350 share premium Utilized for the purchase of printing machinery. Rs 40 cr Rs 5 cr Rs 5 cr FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 10 of 18 participants would evince that the premium of M/s Jagati Publications Ltd. shares is justified. The record circulation achieved by the new paper sakshi as soon as it commenced its operations would evidently show the market capabilities of M/s Jagati Publications Ltd.

7. It was further pleaded by the Appellants that that all the investments/advances by M/s Carmel Asia Holdings Pvt Ltd, into M/s Janani Infrastructure Pvt Ltd. and M/s Indira Television Pvt Ltd. are genuine investments made in course of bona fide commercial transactions and as on 30.09.2014, M/s Carmel Asia Holdings Pvt Ltd. invested a total amount of Rs.11,54,87,968/- in M/s Janani Infrastructure Pvt Ltd. The said investment is already in EDs notice and has been accepted in PAO NO.4 of 2015 dated 15.12.2014. In fact, the Respondent already attached several properties as value of the investments made by M/s P.R. Energy Holdings Ltd. into M/s Carmel Asia Holdings Pvt Ltd.in PAO NO.4 of 2015 dated 15.12.2014. Therefore, attachment at the hands of M/s Janani Infrastructure Pvt Ltd constitutes double attachment.

8. The entirety of share application money (Rs.3,20,00,000/-) initially invested by M/s Carmel Asia Holdings Pvt Ltd into M/s Saraswati Power Pvt Ltd has been returned even before the impugned attachment. Therefore, the same is factually incorrect.

9. It is submitted by all the appellants that the penal provisions alleged in charge sheet were not included in the Schedule to the PMLA during the relevant time. They were included in the Schedule only by way of amendment to PMLA vide Act No. 21 of 2009 w.e.f. 01.06.2009. Thus, even according to the allegations made in the charge sheet, no scheduled offence FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 11 of 18 was committed, and no proceeds of crime were generated, for the purposes of PMLA (as defined thereunder).

10. In its appeal filed by Bharathi Cement Corporation Private Limited (hereinafter referred to as Bharathi Cement) formerly known as Raghuram Cements Limited, there is no denial that company was Accused No. 9 in RC No. 19A/2011-HYD under sections 120-b r/w 420, 409, 420 & 477-a indian penal code, 1870 and sections 13(2) r/w 13(1)(c ) & (d), prevention of corruption act, 1988. It was alleged that, during the period between May 2004 to August 2009, YS Jagan Mohan Reddy, (Accused No. 1 in the CBI case) had along with his deceased father, YS Rajashekhara Reddy (the then Chief Minister of Andhra Pradesh), entered into a conspiracy to cause benefit to private individuals/companies such as India Cements and, as quid pro quo, received large tranches of money as investments in entities owned/controlled by him. At that time, Bharathi Cement was controlled by YS Jagan Mohan Reddy.

11. It was also alleged that between 05.02.2007-30.01.2009, India Cements made investments and acquired shares of Bharathi Cement at amounts varying from Rs. 110/- to Rs. 1440/-. At the time, the par value of these shares was Rs. 10. After this acquisition, shares of the company were sold by Jagan Mohan Reddy and his associates at Rs. 671/- per share to a French Corporation called PARFICIM SAS.

12. Admittedly, PARFICIM is neither accused of an offence in the CBI Charge Sheet, nor is it proceeded against under the Prevention of Money Laundering Act, 2002. FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 12 of 18

13. It was also alleged that the valuation of shares by PARFICIM at Rs. 671/- per share, the highest price paid (Rs. 1440/-) by India Cements for shares in Bharathi Cement, as also the fact that Bharathi Cement began commercial operations only on 28.09.2009, became of PMLA.

14. The allegations in the ECIR, PAO, and Complaint are that, the amounts held in Fixed Deposits by Bharathi Cement in Vijaya Bank, Road No. 12, Banjara Hills, Hyderabad totaling Rs. 95,32,63,855 is bribe money paid by India Cements in the guise of an investment. This amount is sought to be attached as Proceeds of Crime.

15. The amount from India Cements came in three tranches, i.e.;

(i) up till 31.03.2007 - Rs. 5 Crore;

(ii) up till 31.03.2008 Rs. 10 Crore;

(iii) up till 31.03.2009 Rs. 82,32,63,855

16. It is the case of Bharathi Cement that out of the total amount of Rs.95,32,63,855/- lying in fixed deposits in Vijaya Bank, Banjara Hills, Hyderabad, only a sum of Rs.25 crores has been received from Oriental Bank of Commerce. The source of this 25 crores is operations of the company as the amount maintained in Vijaya Bank is funds maintained from the operations of the company and not from investment. Yet, the Joint Director, Enforcement Directorate, has attached the entire sum lying in Vijaya Bank. This attachment was confirmed by the Adjudicating Authority observing as under: Fixed Deposits held in the name of M/s. Bharathi Cement Corporation Private Limited to the tune of Rs.95,32,63,855/- in VIJAYA BANK, BANJARA HILLS, HYDERABAD, being the proceeds of crime with M/s Bharathi Cement Corporation Limited. FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 13 of 18

17. It is alleged by Bharathi Cement that admittedly in Para 9.1 of the PAO that the amount in Vijaya Bank was Rs.66 crores only. The other amount stated to be proceeds of crime was Rs.29.32 crores in Axis Bank, which amount has not been attached Vijaya Bank Fixed Deposits identified and attached by the Enforcement Directorate and confirmed by the Adjudicating Authority cannot be traced to the alleged proceeds of crime and arise from regular business dealings of the company. It is reflected from the stand taken in the PAO and the complaint by the ED as also from the relevant documents on record viz. (a) Balance Sheets of Bharathi Cement for the years 2006-07 to 2010-

11 and for the period ending 31.12.2011, 31.12.2012 and 31.12.2013. (b) Balance Sheet of India Cements for the years 2006-07 to 2013-14. (c) Bank Statements of (a) India Cements held in HDFC Bank Limited, Bank of India, State Bank of India and State Bank of Hyderabad (b) Bank statements of Bharathi Cement in the Oriental Bank of Commerce.

18. Thus, the amounts that have been attached have absolutely no connection with the amounts received from India Cements. Since this is a case of attachment of proceeds of crime and not equivalence, it is pertinent to note that: (1) Firstly, the money has not flown from the Bharathi Cement account in OBC to the Bharathi Cement account in Vijaya Bank. (2) Secondly, a bare perusal of the Account Statements reveals that the amounts available with Bharathi Cements at the time the account in Vijaya Bank was opened was far less than the amounts originally received from India Cements and have been expended in the due course of business and are not available for attachment. FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 14 of 18

19. The following main submissions are made by the Senior Counsel appearing on behalf of Bharathi Cement: -

i) SCHEDULED OFFENCES The offences under sections 120b r/w sections 420, 409, 420 & 4772-a of the ipc and section 13(2) r/w section 13(1) & (d) of the pc act were listed in the FIR against Bharathi Cement. However at the time of the alleged commission of the office (i.e. from 05.02.2007 to 30.01.2009), the Sections had not been notified as scheduled offences under the Prevention of Money Laundering Act, 2002 and were only notified vide notification dated June 1, 2009. ii) DOUBLE ATTACHMENT ii) While the sale proceeds of Rs.121,08,26,678/- arising out of shares of Bharathi Cement by India Cements Limited to PARFICIM have been held to be proceeds of crime received by India Cements and have been attached vide PAO dated 25.02.2015 in OC. No.424/2015, the amount of Rs.95,32,63,855/- invested by India Cements in Bharathi Cements has also been held to be proceeds of crime and has been attached, which constitutes double attachment.

(iii) Reason to believe It is contended on behalf of the appellant that the Adjudicating Authority in the impugned order has failed to consider, firstly that the attachment was without legitimate Reasons to Believe and there is no nexus between the proceeds of crime and property sought to be FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 15 of 18 attached. [See Paresha G Shah v. State of Gujarat, 2016 GLH (1) 329 at Para 32-34] The Adjudicating Authority holds at page 114-115 of the impugned order that the OC/PAO disclose facts justifying a prima facie case and sufficiently convey what the Defendants have to meet. However, the Adjudicating Authority has not considered whether the parameters for reasons to believe under Section 5(1) have been adequately met. While in para 62 at page 115, the Adjudicating Authority had held that under Section 5 & 8 of the PMLA there is no requirement that reasons be conveyed to the Defendants.

20. It is also submitted that the Adjudicating Authority fails to note that section 5(1)(a) & (b) are conjunctive and not disjunctive, being joined by and and therefore have to be read together. The conditions of both 5(1)(a) and (b) have to be satisfied, which is not so in the present case. [See Maharaja Sir Pateshwari Prasad Singh v. State of UP, (1963)

50 ITR 731 at Para 10 and M. Satyanarayana v. State of Karnataka and Anr. (1986) 2 SCC 512 at para 5].

21. While going through the record, it has come to our notice that CBI in the OC 424/2015 has challenged the final judgement and order dated 18.03.2016 in CRLP No. 7584/2015 passed by High Court of Judicature at Hyderabad by filing of Special Leave to appeal (Crl.) no. 7621/2016 in the Supreme Court of India and the same appeal is still pending. The said proceedings were arisen from the O.C. which is also the subject matter of present appeals.

22. The Honble High Court of Hyderabad has passed the judgment on 18th March, 2016 on the following points: FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 16 of 18

9. Now the points for consideration are:

I. Whether the petitioner/A-3-Srinivasan, being the Vice Chairman and Managing Director of M/s India Cements Limited (A-7), be made personally liable for any acts of India Cements Ltd. with vicarious liability for the offences punishable under Sections 120-B read with 420 I.P.C. and Section 12 of the Prevention of Corruption Act, by virtue of any statutory liability or legal fiction?

II. If not, whether petitioner/A-3-Srinivasan, other than of his status or position as Vice Chairman and Managing Director of India Cements Limited, be made personally liable for any acts and if so on what basis for the final report to accuse and for the learned special judge to take cognizance without specifying as to on vicarious liability or personnel liability?

III. Whether the cognizance taken by the learned special judge without specifying as to on vicarious liability or personnel liability, is outcome of non-application of judicial mind and same is otherwise unsustainable for not reflecting any reasons or otherwise and is liable to be quashed?

IV. To what result? All the above said points were decided in favour of the petitioner who filed the Criminal Petition No. 7584 of 2015. The operative part of the Judgement passed by the Honble High in said para 53 of the judgement read as under:

53. Point No. IV: In the result the petition is allowed and the proceedings in CC No. 24 of 2013 from the cognizance of the offences under sections 420 & 120b ipc & section 12 of pc act, taken by the Principal Special Judge for C.B.I Cases, Red Hills, Nampally, Hyderabad so far as the petitioner/A3-Sri N. Srinivasan concerned are quashed for no basis to sustain. The bail bonds of the petitioner/A3-Sri N. Srinivasan if any shall stand cancelled. The miscellaneous petitions pending if any stand closed. The India Cements Ltd and their directors were the petitioners in the said matters. The instances of illegal gratification in the guise of investment as quid-pro-quo by India Cements Ltd. (A-7) into the companies of Sri Y.S. Jagan Mohan Reddy are detailed in para 2(ii) of FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 17 of 18 the said Judgement. The allegations inter-alia against India Cements Ltd are referred in para of 2(ii) (j) of the Judgement which are re- produced here below: (j) India Cements Limited (A-7) had invested 12,50,000 of preference shares at a premium of Rs. 110/- for a sum of Rs. 15,00,00,000/-. Thereafter India Cements Limited (A-7) had invested a sum of Rs. 80.31 crores at a premium of Rs. 1440/-. There was no explanation available in the minutes of the meeting or the statements recorded from the top management of the company with regard to the necessity to increase the premium from Rs. 110/- to Rs. 1440/- (sudden raise of almost 12 times within a small time span of 9 to 10 months), except a simple statement that it is a bouquet of investments. The company which is having public funds with it, never bothered to get the due diligence on the required premium neither from their own technical team nor from an outside agency. Thus, it is clearly construed as a quid pro quo transaction between the India Cements Limited (A-7) and Sri Y.S. Jagan Mohan Reddy (A-1). India Cements Limited (A-7) sold the shares at Rs. 671/- to M/s PARFICIM, SAS, FRANCE on 14.04.2010 on the directions of Sri Y.S. Jagan Mohan Reddy undergoing a loss of Rs. 26,85,50,489/-. This clearly shows that the investment into M/s Raghuram Cements Limited, M/s Bharathi Cement Corporation Limited by M/s India Cements Limited (A-7) was nothing but a quid-pro-quo investment. In April, 2010 M/s. Pani & Associates, Bangalore evaluated the share price of M/s Raghuram Cement Corporation Private Limited and arrived at the value of share at Rs. 221.17 Ps. That the Board Resolution of India Cements Limited (A-7) dated 14.04.2010 resolved to invest up to Rs. 125 crores by way of Inter Corporate Loans/Advance/Investment in M/s. Bharathi Cement Group whereas on the same day India Cements Limited (A-7) had sold their stake 1803973 shares of Rs. 10/- each in M/s Bharathi Cements Corporation Limited at a total price of Rs. 121.00 crores to M/s PARFICIM, SAS, FRANCE.

23. During the course of the hearing, the learned counsel appearing on behalf of the respondent has stated that as far as the calculation of the Judgement of property is concerned this Appellate Tribunal has to give the final findings and incase the allegations against the appellants are proved in the complaint under the scheduled offence in Prevention of Money Laundering Act then the movable and immovable property would be vested with the state. Incase we go through the Judgement of FPA-PMLA-1053/HYD/2015, FPA-PMLA-1054/HYD/2015, FPA-PMLA-1055/HYD/2015 & FPA-PMLA-1035/HYD/2015 Page 18 of 18 Hyderabad High Court which is sub-judice before the Honble Supreme Court, it would not be appropriate for us to give the final findings about the merits of the case as well as the clarification of the movable and immovable properties.

24. Under these circumstances, we are of the view that without going into the merit of the appeals and without expressing opinion about the rival submissions of the parties on merit, it would be appropriate to await the decision of the Supreme Court. After the said decision, an appropriate order would be passed in the light of the said judgment.

25. The appeal filed by the India Cement Ltd. is already adjourned to 09.07.2018 for awaiting the decision of the Apex Court. List these matters also on 9th July, 2018 for awaiting the orders of the Honble Supreme Court. (Justice Manmohan Singh) Chairman (Anand Kishore) Member New Delhi, 13th March, 2018

Bharathi Cement Corporation Pvt. Ltd. v. Joint Director, Directorate of Enforcement, Hyderabad

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Bharathi Cement Corporation Pvt. Ltd. v. Joint Director, Directorate of Enforcement, Hyderabad

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