Former ASG and senior advocate Bishwajit Bhattacharya appeared as counsel for the appellants in the matter

In what is seen as a setback for the Enforcement Directorate, Justice Manmohan Singh, Chairman of the Appellate Tribunal for Prevention of Money Laundering Act and others allowed appeals by Omar Ali Obaid Balsharaf and Abdullah Ali Balsharaf, rice importers in Saudi Arabia, calling out the acts of Directorate of Enforcement mala fide and in misuse of power.

 The Tribunal held that ED had no jurisdiction to direct the Bombay Stock Exchange to remit money to the tune of Rs. 386 crores to Pabrai Investment, thus illegally reversing a concluded contract, while also depriving the appellants of the consequent shares against that sum of money. It also lambasted the BSE for “ignoring the law and sufferance of a party” despite a concluded a contract, handing over the amount to a third party pursuant to directions of ED without consulting a legal expert.

The PML Tribunal verdict is based on the three verdicts of the Delhi High Court . The ED charged that the Saudi Investors, investing in shares, now worth about Rs.900 crores, through the Bombay Stock Exchange, ED alleging them as proceeds of crime in AgustaWestland deal. It went through three rounds, first before a single bench and a second and third befopre a divisiojn bench of the Delhi HC.

The case: Total shares of 1,43,38,330 [78,38,330 + 65,00,000 ]were subscribed by the Appellants in November, 2003 by foreign inward remittances from Saudi Arabia to India through State Bank of India, Overseas Branch, New-Delhi. Approval of the Reserve Bank of India was obtained and is on record. These shares were held uninterrupted from 2003 to 2018 Jan/Feb.

The Enforcement Directorate was alleged to have illegally restrained the Bombay Stock Exchange from effecting a concluded transaction between M/S Pabrai Investment Fund and the appellants, thereby depriving the Appellants funds worth approx. Rs.386 crores.

ED further remitted the said funds to Pabrai without the knowledge of the appellants or the court. ED later released 64,94,891 shares to SMC and took an undertaking that the said funds would not be withdrawn without prior permission of ED. “Directorate of Enforcement, thus effectively froze INR.30,35,006.90 with ICICI Bank. Also on 14.06.2018 Directorate of Enforcement froze 64,94,891 shares u/s 17 (1A) of PMLA…”

ED also applied under Sec 17(4) of PMLA Act seeking continuation of freeze order on grounds that the money was tainted and it amounted to money laundering.

The appeal before the High Court was adjudicated in favour of the Balsharafs, “Even a perfunctory investigation would have revealed that the petitioners had acquired the shares of KRBL Ltd. in the year 2003, which was prior to allegation of any scheduled crime or any alleged kickbacks paid by AgustaWestland. Thus, the assumption/allegation that the said shares were acquired in the process of money laundering is perverse and without application of mind.” Court stated that CrPC does not empower a police officer to nullify a transaction. Court analyzed that the shares subscribed were paid through banking channels much prior to commission of any alleged crime and much prior to the PMLA coming into force. Court dismissed the petition.

The order which was pronounced by the Single Bench of the High Court, has been confirmed by the Division Bench, who dismissed the appeals filed by ED and BSE.

Calling ED’s actions as abuse of process of law, the High Court had observed, “had the proper material been available with the authorised officer, such situation could not have arisen apprehension and assumption and perception is a dangerous proposition. It is observed by the Hon’ble High Court that some material must be in hand of authorised officer who is duty bound to record the reason to believe pertaining to the party concerned whose property is to be seized and frozen.”

It was contended that the illegal remittance of the said amount outside India not only depleted India’s forex reserves but also caused wrongful loss to the Balsharafs, besides committing offences under Sec 418 and 420 of CrPC. In view of the mala fides in force, ED enjoys no protection u/s 67 of PMLA is available to them.

Since the shares were subscribed in November 2003, it precedes the implementation of the PMLA in July 2005. By virtue of restriction on ex-post facto laws under Article 20(1) of the Constitution, ED is precluded from intervening in the transaction pertaining to the said money and corresponding shares.

The Tribunal said, “Powers of seizure of properties is a draconian power. Grant of such authoritarian and drastic powers, without commensurate checks and balances, would militate against the principle of rule of law engrafted in the constitution of India. A police officer does not possess unfettered rights to freeze any asset without the same being reported immediately to a Magistrate.”

For making out such a case, the ED, first of all, has to prime facie establish that the appellants have committed the offences and they have a nexus or a link in relation to criminal activities which is constituting proceeds of crime and the property constituting the value of any such property.

The tribunal said, since the outer limit of 90 days to hold a seized property has expired, the freeze order can be said to have lapsed ipso facto. Moreover, in absence of a prosecution complaint, the freeze order may not be revived.

The Tribunal while admitting that the appellant’s claim, as put forth by former ASG, Sr. Advocate Bishwajit Bhattacharyya, that market value of the shares have substantially fallen due to the mala fide acts of ED and BSE and hence the amount of Rs. 386 crores must be returned with interest, held that though the appellant was entitled, the Tribunal was not empowered to grant the same and the same may be sought at an appropriate forum.

Justice Singh however directed that in the interest of justice, in view of investigation being sub-judice with respect to other parties for money laundering charges and the ledger entry in the books of accused RAKGT, appellants must “execute the indemnity bond by way of an undertaking to the tune of 111 crores within four weeks as a surety” should the appellants be charged and found guilty based on evidence produced in trial in the matter. Hence, partly allowing the appeal, the Tribunal said, “Once the compliance is made, all shares shall stand de-freezed as the same are admittedly not acquired from proceed of crime.”

Read the full Judgment

–India Legal Bureau