HYDERABAD: In a significant ruling, Justice R Raghunandan Rao of the AP high court has held that the Enforcement Directorate (ED) cannot call assets acquired by an accused as proceeds of crime if they were bought before the commission of such an offence.
The judge gave this ruling and ordered the release of the attached assets of an accused, which were bought before the commission of the alleged offence, on March 20. The judge pronounced this order after hearing Kumar Pappu Singh, a resident of Erramanzil Colony in Hyderabad, and some of his companies that challenged the ED attachment.
In March 2018, the CBI had registered an FIR against Pappu Singh and his companies for allegedly defrauding IDBI Bank’s Palangi branch in West Godavari district to an extent of Rs 75 crore.
CBI alleged that he availed kisan credit card (KCC) loans in the names of various borrowers and re-routed all the money into his savings account before siphoning of the same. The bank gave KCC loans to 101 borrowers. Bank officials, who processed the loan papers, too were at fault because the loans were sanctioned and disbursed without obtaining proper loan documents and conducting pre-sanction and post-sanction inspections. Worse still, they did not even bother to verify the end-user of the loan.
These loan amounts were disbursed to savings accounts of the beneficiaries, from where the money was transferred to the accounts of Pappu Singh, who later misused it. CBI charged Papu Singh with cheating the bank. Since cheating is a scheduled offence that attracts the provisions of the Prevention of Money Laundering Act (PMLA), ED later entered the scene and unearthed the siphoned money trail.
According to the ED, all money made through a crime is crime money or proceeds of crime. It can attach such money or equivalent worth of assets bought with such money. ED had identified that Pappu Singh diverted 70 crore to various other businesses. It identified some of his current properties and had attached them in December 2019. They were two sets of properties, one set was acquired prior to September 2010 and the other after. The second set was acquired with proceeds of crime, while the former set of properties have got nothing to do with the crime or its proceeds. Most of the proceeds of crime were exhausted owing to losses suffered by Pappu Singh in aquaculture.
ED opposed any relief for Pappu Singh on the ground that he has an alternative remedy under PMLA wherein he could approach the adjudicating authority if he has any objection. Petitioner’s counsel Vimal Varma Vasireddy brought to the notice of the Hyderabad high court judgment in Satyam Computers case that said that mere existence of an alternative remedy was no bar for a party to approach a high court. The judge agreed with him and brushed aside ED’s objection on the issue of maintainability of the case before a high court.
Coming to the issue of attachment, ED contended that it had attached the old assets of the accused because he exhausted all the fraud money in pisciculture and suffered huge losses there. The judge did not agree with this interpretation and said that even the legislature did not intend this way while amending the Act in 2019 and said that ED might have a case for attaching equal worth of assets if the accused diverted the money to foreign shores. In the instant case, however, the accused had lost the money. Hence, the attachment of his pre-2010 assets cannot be justified, Justice Raghunandan said in his order.