Francis Chakkalamathaom Peter v. The Deputy Director, Directorate of Enforcement,Chennai

Central Bureau of Investigation, Anti-Corruption Branch, Chennai (the "CBI"). This complaint was registered by the CBI as FIR RC- MA1-2015-A-0012 dated 30.03.2015. The complaint alleged that certain officials of UCO Bank Limited had conspired with Shri L. Srinivasan (proprietor of VLS Mining) and Shri K. Saravanan (partner in VLS Exports) to fraudulently provide an overdraft facility to VLS Mining against insufficient security (which consisted of a credit balance of Rs. 11.00 Crores received as advance remittances for export to Iran) which resulted in an unpaid overdraft of Rs. 5.09 Crores. The complaint also alleged that such officials had improperly sanctioned a loan of Rs. 6.50 Crores to VLS Exports without obtaining proper security or payment of Rs. 2.18 Crores owed in relation to a devolved letter of credit on account of a difference in exchange rates. The above allegations indicated the commission of offences u/s 120B r.w.s. 420 of the Indian Penal Code, 1860 and also u/s 13(2) r.w.s. 13(1)(d) of the Prevention of Corruption Act, 1988 and substantive offences thereunder. The CBI investigated these allegations and, thereafter, filed a chargesheet (CC No. 05/2016 dated 29.12.2015) before the XI Additional City Civil & Sessions Judge for CBI cases. The charge sheet alleged that certain officials of UCO Bank Limited had conspired with Shri L. Srinivasan (proprietor of VLS Mining) and abused their official positions to fraudulently sanction a temporary overdraft of Rs. 10 crores to Shri L. Srinivasan/VLS Mining and allowed excess drawings of up to Rs. 19.96 crores and also sanctioned demand loan of Rs. 6.50 crores without any security or lien. The charge sheet further alleged that these acts constituted

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offences punishable u/s 120B IPC r.w.s. 420 IPC and also r/w U/s 13(2)/13(1)(d) of the PC Act, 1988 and substantive offences thereunder.

As the said offences alleged in the charge-sheet were scheduled offences under the PMLA and certain accused persons identified in the charge-sheet prima facie appeared to have committed an offence of money laundering as defined u/s 3 of the PMLA, the Enforcement Directorate (the "ED") decided to register ECIR No. CEZO/02/2016 on 12.02.2016 and pursue a detailed investigation.

In the course of its investigation, the ED discovered that Shri L. Srinivasan had received large inward remittances in the guise of export advances and had diverted these remittances for purposes other than exports. The ED also discovered that Shri L. Srinivasan had conspired with Shri K. Saravanan (partner in VLS Exports), Shri Jibu Paul, Shri Hanif Sheikh and other persons to divert these remittances through a complex chain of transactions. As part of its investigation, the ED summoned the appellants and the other suspects and persons and recorded their statements u/s 50(2) and Section 50(3) of the PMLA.Sh. Francis Peter in his statement dated 14.06.2017 has inter-alia stated that he was an NRI having NRO and NRE saving bank account with Federal Bank, Irinjalakuda branch, Trissur, Kerala.With regard to the payment received from Glandson, Jibu Paul, Ronson, Sudheer Radhakrishnan during 2014, he stated that he came down to India to start a restaurant for which he had borrowed money from the above mentioned persons.Jibu Paul was his childhood friend and

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was dealing with some petro products trading business from 2004.Jibu Paul supported him with Rs. 5 lakhs and Rs. 2 lakhs by transferring the money into his NRE account on 17.06.2014 & 24.07.2014 respectively.He does not know anything about VLS Mining and other companies or L. Srinivasan.He had met Hanif Sheikh, Basil and Ajay Gangadaran while meeting Jibu Paul either in India or in Dubai.

Thereafter, the respondent ED provisionally attached the aforesaid funds along with certain other movable and immovable properties under PAO No.20/2017 dated 25.10.2017. Thereafter, the respondent filed OC No.853/2017 dated 09.11.2017 before the Adjudicating Authority seeking confirmation of such provisional attachment.

The appellant appeared before the Adjudicating Authority and filed a reply to OC No.853/2017 in which the appellant explained the source of the attached funds in its reply. After going through the material on record, the Adjudicating Authority passed the impugned order dated 13.04.2018 confirming the provisional attachment of the funds and other movable and immovable properties vide PAO No. 20/2017 dated 25.10.2017. Aggrieved by the said order, appellants filed the present appeal.

3. During the arguments,Learned Counsel for appellant submitted that the Adjudicating Authority failed to consider the documents and records submitted by the Appellant to prove the source of the Attached Funds. The Adjudicating Authority noted the submission made by the Appellant that during 2012-13, when

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the Appellant and Shri Jibu Paul were residents of Dubai, Jibu Paul borrowed sum equivalent of Rs. 7,00,000/- of UAE Dirham from the Appellant as a personal loan. Towards the return of the said amount Jibu Paul had initially issued two cheques, but subsequently asked the Appellant not to present the same cheques. Subsequently, two bank transfers dt. 17.06.2014 and 24.07.2014 were received in the NRO account held by the Appellant. The Appellant has spent the funds available with him which included the funds received from Jibu Paul. The funds received from Jibu Paul were clearly exhausted by 20.09.2014. On 06.03.2017, the Appellant received Rs. 5,69,200/- from Sree Gokulam Chit and Finance Company P. Ltd. as final settlement. The amount attached comprised of funds unconnected to Sh. Jibu Paul and the other accused. Thus, the attached funds were not proceeds of crime.He pointed out that in support of this submission, the Appellant produced certain documents and records to prove the source of the Attached Funds. These documents and records were- (i) the bank statements of the Appellant; (ii) copies of the two cheques provided by Shri Jibu Paul; and (iii) a copy of the settlement receipt issued by Sree Gokulam Chit and Finance Co. Pvt. Ltd. These documents and records proved beyond doubt that the source of the Attached Funds was the investment made by the Appellant with Sree Gokulam Chit and Finance Co. Pvt. Ltd. Accordingly, the Attached Funds do not constitute proceeds of crime under the PMLA. He argued that the Adjudicating Authority failed to consider these documents and records and vide impugned order dated 13.04.2018 confirmed the provisional attachment of the Attached Funds by the

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Respondent under P.A.O. No. 20/2017 dated 25.10.2017. He pointed out that the Adjudicating Authority erroneously confirmed the provisional attachment of the Funds based on flawed reasoning that the Appellant "cannot be permitted to retain the advantage of proceeds of crime in his hands" and "[i] In view of the wide definition of the term 'proceeds of crime', even the value of the proceeds of crime is liable to be attached". The Adjudicating Authority failed to appreciate that the Appellant did not possess any proceeds of crime, because the funds received from Shri Jibu Paul had been exhausted as far back as 20.09.2014. Accordingly, there could be no question as to the Appellant being permitted to

"retain the advantage of proceeds of crime in his hands".

Furthermore, since the funds received from Shri Jibu Paul had been used to meet several expenses that included rental expenses, staff salaries, legal fees, raw material costs, etc., an attachment of

"the value of the proceeds of crime" could not be sought in such circumstances. The Attached Funds were received from Sree Gokulam Chit and Finance Co. Pvt. Ltd in connection with an investment made by the Appellant and it is clear that the Attached Funds had no connection to Shri Jibu Paul. Accordingly, there was no justification for confirming the provisional attachment of the Attached Funds.

4. On the other hand, Learned Counsel for respondent ED submitted that the defense of appellant that he utilized the amount of Rs. 7,00,000/- and the present balance of Rs. 5,73,859/- includes the amount of Rs. 5,69,200/- received by him from Sree Gokulam Chit and Finance Co. Pvt. Ltd. is no ground to allow the

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present appeal. He submitted that on account of admission of receipt of Rs. 7,00,000/- by appellant Francis C. Peter from Shri Jibu Paul, the other properties of the appellant for the equivalent sum can be attached as value thereof. In the present case only sum of Rs. 5,73,859/- was found in the account of appellant (as mentioned in para no. 1 above), the same was rightly attached, as value thereof, against the proceeds of crime of Rs. 7,00,000/-. Prayer is accordingly made to dismiss the present appeal being devoid of any merits.

5. After hearing the rival submissions, we have given our thoughtful consideration to the same. The appellant has admitted that he has received two bank transfers dt. 17.06.2014 and 24.07.2014 in his NRO account of a total amounting to Rs. 7,00,000/- from Jibu Paul. However, appellant failed to prove his contention that the said amount received in his account was in fact the return of loan amount which was stated to be given by appellant toJibu Paul in the form of Dirhams in 2012-13, when they were in UAE. In absence of any documentary proof regarding the loan to Jibu Paul, the said two transactions for sum of Rs. 7,00,000/- cannot be presumed to be the return of loan amount and are apparently proceeds of crime. On the other hand, we are in agreement with the Ld. Counsel for the respondent that in the absence of direct proceeds of crime, the respondents were well within their rights to attach the amount in question as „value" of proceeds of crime.Even otherwise, the appellant is at liberty to prove his defense in the trial of prosecution complaint under PMLA pending before Ld. Special Judge, PMLA Court.

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6. In the light of our observation in the preceding para, the present appeal is hereby dismissed, being devoid of any merits. However, it is made clear that nothing expressed herein will affect the right of any party in the criminal trials. Appellant is at liberty to stake its claim or the attached amount of Rs. 5,73,859/- before Ld. Special Judge at PMLA Court at appropriate stage.

Appeal dismissed. Pronounced on this 27^thDay of June, 2024.

RajeshMalhotra V.AnandarajanMember Member Member

„AB"

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