1. The present appeal is directed against the order of the Adjudicating Authority dated 1st April 2009 confirming the provisional attachment (Original Complaint no. 27/2009) under Section 5 of the Prevention of Money Laundering Act, 2002 (hereinafter referred to as Act). Brief facts: Initial Public Offerings (hereinafter referred to as IPO), is an established financial system through which companies enter the Capital Market, to raise funds from the investors by issuing authorized shares, as per guidelines issued by Securities and Exchange Board of India (hereinafter referred to as SEBI). The entire IPO process has to conform to the Disclosure and Investors Protection Guidelines, 2000, issued by SEBI.

1.1 Investors subscribe to the IPO in the prescribed application form. To subscribe to the IPO, an applicant must have bank account and the demat account, whose numbers are to be mentioned in the application. Demat account is an electronic account of a beneficiary, opened and maintained with any of the approved Depository Participants (hereinafter referred to as DP). Shares allotted to successful applicants in the IPO, are electronically credited to their respective demat accounts. Demat accounts are opened by the DPs only for those applicants who hold an account with a bank also. Opening of a bank account and the demat account has to be in compliance with "Know Your Customer" (KYC) norms prescribed by the Reserve Bank of India and SEBI, respectively.

1.2 During the year 2005, Infrastructure Development Finance Company Ltd. (hereinafter referred to as IDFC) came out with an IPO-opened for subscription from dt. 15.07.2005 to dt. 22.07.2005. In this IPO 40,36,00,000 (forty crore thirty six lakh) shares were on offer, out of which 14,12,60,000 (fourteen crore twelve lakh sixty thousand) shares were reserved for Retail Individual Investors (hereinafter referred to as RII). The price band for subscription was between Rs. 29/- to Rs. 34/-. The final issue price was fixed at Rs. 34/- per share and shares were allotted in first week of August, 2005.

1.3 As a part of ongoing surveillance activity by SEBI into the various aspects of working of securities market, SEBI had initiated probe and advised Bombay Stock Exchange (hereinafter referred to as BSE) and National Stock Exchange (hereinafter referred to as NSE) to look into the dealings in the shares issued through Initial Public Offerings before the shares are listed on the stock exchanges. In October, 2005, the stock exchanges submitted their preliminary observations on the IPO of Yes Bank Ltd., which hinted at the possibility of large scale off market transactions immediately following the date of allotment and prior to the listing on the stock exchange. SEBI, therefore, carried out a preliminary scrutiny by calling for data from the Depositories and the Registrar to the Issue. It was found, that large number of multiple dematerialized accounts with common address were opened by a few entities. SEBI also examined the dealings in the IPO of IDFC wherein the very same players were suspected to have played a major role in cornering the shares. Consequent to the preliminary scrutiny, SEBI found that certain entities had cornered IPO shares reserved for retail applicants by making applications in the retail category through the medium of thousands of fictitious/benami IPO applicants with each of the application being for small value so as to be eligible for allotment under the retail category. Subsequent to the receipt of IPO allotment, these fictitious/benami allottees had transferred shares to their principals who in turn transferred the shares to the financiers that had originally made available the funds for executing the game plan. The financiers in turn sold most of these shares on the first day of listing thereby realising the windfall gain of price difference between IPO price and the listing price.

1.4 SEBI conducted detailed investigation of the matter and it was found that there were various individuals/entities who were involved in opening fictitious/benami bank and demat accounts, filing applications in retail category for subscription of shares in an IPO, receiving allotted shares in fictitious/benami demat accounts, pooling these shares in one demat account by off market transfers before the listing of shares and transferring these shares to financiers in off market transaction. These individuals/entities including Sh. Parag Priyakant Jhaveri, Sh. Dipak Jashvantlal Panchal, Sh. Purshottam Ghanshyamdas Budhawani, Sh. Manoj Gokulchand Seksaria, Sh. Kantilal Jitmal Jain were referred to as "key operators" by the SEBI in its report. The persons who provided the finance for IPO subscription and were the ultimate beneficiaries in the scheme of cornering of retail allotment were referred to as financiers by SEBI in its report.

1.5 During the investigation it was found that based upon fraudulently prepared/forged documents, a large number of bank accounts and demat accounts were clandestinely opened by the key operators in fictitious/benami names, and using the identity of the said bank accounts and demat accounts, the key operators put in applications in the said fictitious/benami names while subscribing to the IPO and thus predatorily cornered a large number of shares, which were actually reserved for allotment to genuine RIIs. The investigation revealed that Sh. Parag P. Jhaveri, one of the directors of M/s. Sugandh Estates and Investment Private Ltd. (hereinafter referred to as SEIPL) having his account with Vijaya Bank, Ambawadi Branch, Ahmedabad opened 40 current accounts in his name, and in the name of his brother Sh. Kamal P. Jhaveri and his employees bearing nos. 2026 to 2035, 2037 to 2046, 2051 to 2060 and 2071 to 2080, in the same bank branch. He procured data from internet to create purportedly legitimate identity in respect of the said demat account holders, which were otherwise held in fictitious names. Thereafter, he added a list of 10 fictitious names to 30 out of 40 of the said accounts as joint account holders, so as to increase the number of demat accounts and subscribe to the IPO of IDFC on a much larger scale. After fraudulently creating the aforementioned identities and forging the identification documents, as aforesaid, he opened 13,200 demat accounts by submitting applications in the names of fictitious persons, along with forged bank introduction letters using their forged signatures and used aforesaid demat accounts to subscribe to the IDFC IPO and in this manner with the help of fraudulently prepared documents, clandestinely cornered 35,14,392 shares, which were actually reserved for allotment to genuine Retail Individual Investors. The shares, so allotted to the said demat account holders, were first transferred to the demat accounts of i) M/s. Sugandh Estate and Investment Pvt. Ltd., (Demat Account Client ID No. 14405199) with the Depository Participant Karvy (DP ID No. IN300394), ii) Sh. Kamal P. Jhaveri, his brother (Demat Account Client ID No. 10004626), iii) Sh. Parag P. Jhaveri (i.e. his own Demat Account Client ID No. 10004600). In turn, these shares were finally transferred through off market transactions to respective beneficiaries/financiers.

1.6 Similar modus operandi was adopted by other key operators to subscribe and corner the shares offered in IPOs which were reserved for RII category and in the various demat accounts, opened on the basis of fraudulently prepared documents by the aforesaid Key Operators, 266 nos. of equity shares of IDFC against each application, were credited on dt. 05/06-08-2005 which were subsequently transferred to demat accounts owned/controlled/operated by the aforesaid Key Operators, from where most of the so fraudulently cornered shares were transferred, prior to the listing of issue i.e. prior to dt. 12.08.2005, as off-market transactions, to the demat accounts of beneficiaries/financiers, who had provided funds for acquiring the said shares. The said entities have thus fraudulently deprived the genuine RIIs, of their right to purchase/acquire shares, which were legitimately reserved for them.

1.7 Sh. Jitender Kumar Lalwani purchased 23,79,772 RII category IDFC shares from Sh. Parag P. Jhaveri, Sh. Kamal P. Jhaveri, Jayesh P. Khandwala HUF, Sugandh Estate Investment Pvt. Ltd. and Amadhi Investments and others in off market transactions and out of these, 22,21,808 shares were transferred to his demat account on dt. 11.8.2005 i.e. prior to date of listing of IDFC shares on stock exchange, 1,37,020 shares were transferred to his demat account on dt. 12.8.2005 and remaining shares were transferred in the month of September and October 2005. Most of the above shares were sold on 12th August 2005 i.e. the date of listing and thereby Sh. Jitender Kumar Lalwani made financial gain of Rs. 7,00,57,692/-.

1.8 Consequent to the investigation conducted, SEBI, Mumbai office through its Chief General Manager, Sh. R. Ravichandran, filed a written complaint dt. 20.2.2006 against key operators/financiers etc. including the appellant Sh. Jitender Kumar Lalwani on the fraud committed in the Initial Public Offer of shares of Infrastructure Development Finance Company Ltd. with the Central Bureau of Investigation, Bank Securities & Fraud Cell (BS & FC), Mumbai and a Criminal Case No. RC. 4(E)/2006/BS&FC/Mumbai was registered on dt. 21.02.2006 under Section 120-B r/w. Sections 420, 467, 468 and 471 of Indian Penal Code (IPC) and under Section 13(2) r/w. Section 13(1)(d) of the Prevention of Corruption Act, 1988 (PC Act) and under Section 68-A of the Companies Act, 1956 against the key operators, financiers and others. After investigation, the Central Bureau of Investigation (CBI), Mumbai filed a charge sheet under section 173 of Cr. P.C. in the court of the Hon'ble Special Judge, Greater Mumbai against the key operators and some other accused persons. The appellant Sh. Jitender Kumar Lalwani, though shown as accused in the FIR filed by SEBI, was not sent up for trial as the CBI did not found any evidence to show his knowledge of forgery and other offences committed by the key operators and CBI also found that shares of IDFC were purchased by the appellant in a legal manner.

1.9 However, as the offence committed by the key operators was a scheduled offence under the Act, authorities also started proceedings under Section 5 of the Act for provisional attachment of the properties standing in the name of Sh. Jitender Kumar Lalwani. The properties were attached and a complaint was filed with the Adjudicating Authority under Section 5(5) of the Act. The matter was placed before the Adjudicating Authority and the order of provisional attachment was confirmed by a detailed order which is now being assailed before us in the present proceedings.

2. In the appeal memorandum/court proceedings, Learned Counsel for the appellant assailed the order on various grounds. He vehemently contended that the appellant is not involved in any scheduled offence covered under the Act. The counsel drew our attention to section 2(u), 2(y) and 5 of the Act which reads thus:

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 such property.

2(y)- "scheduled offence" means-

(i) the offences specified under Part A of the Schedule; or

(ii) the offences specified under Part B of the Schedule if the total value involved in such offences is thirty lakh rupees or more;

5. Attachment of property involved in money laundering-

(1) Where the Director, or any other officer not below the rank of Deputy Director authorized by him 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-

(a) any person is in possession of any proceeds of crime;

(b) such person has been charged of having committed a scheduled offence; and

(c) such 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 this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding ninety days from the date of the order, in the manner provided in the Second Schedule to the Income Tax Act, 1961 (43 of 1961) and the Director or the other officer so authorized by him, as the case may be, shall be deemed to be an officer under sub-rule (e) of rule 1 of the Schedule:

.....................

2.1 It was contended that for initiating provisional attachment proceedings under the Act, any person must be in possession of any proceeds of crime and such person must have been charged of having committed a scheduled offence. Fulfilment of both the conditions as laid down in section 5(1)(a) & (b) of the Act are sine qua non for initiation of any proceedings for provisional attachment of any property. He argued that the expression "such person" in sec. 5(1)(b) of the Act has reference to persons referred to in Sec. 5(1)(a) of the Act and therefore the person in possession of the property must be the person charged of having committed a scheduled offence. He further argued that the appellant has not been charged of having committed a scheduled offence and as such only for this reason, the provisional attachment order vis a vis order of the Adjudicating Authority confirming the provisional attachment order is void ab-initio. He relied on the judgment of the Bombay High Court in the bail application no. 3338 & 3360 of 2009 in the case of Om Prakash Nogaja and Others vs. K. Nageshwar Rao & Others and contended that it is only when property is derived or obtained as a result of criminal activity relating to a scheduled offence, then and then alone the offence under section 3 of the Act could be committed by indulging in any process or activity connected with the proceeds of crime and by projecting it as untainted property.

2.2 The Counsel argued that the facts of the case in Radha Mohan J. Lakhotia & Others vs. Dy. Director, PMLA in FPA-PMLA-2/MUM/2007 are distinguishable from the facts of the present case and contended that in Radha Mohan Lakhotia (supra) the scheduled offence committed was under The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS) and where as in the present case the scheduled offence charged with is of forgery i.e. u/s. 467 of the Indian Penal Code. Reliance was placed on Uttaranchal Road Transport Corp. & Others vs. Mansaram Nainwal ; AIR 2006 SC 2840 .

2.3 The Counsel stated that the appellant was not having any knowledge of the forgery committed by the key operators and the appellant has not provided any finance to Sh. Parag P. Jhaveri, M/s. Sugandh Estate & Investments Pvt. Ltd. or any other key operator for subscribing shares in IDFC IPO. He also stated that the transactions of purchase of IDFC shares in off market transaction, transfer of IDFC shares in appellant's demat account and sale of IDFC shares by the appellant on the day of listing are perfectly legal and did not involve contravention of any law. He argued that the statement of Sh. Parag P. Jhaveri was taken behind the appellant's back and was never confronted to him. He further argued that Sh. Parag P. Jhaveri neither provided any details like when and how the alleged funds of Rs. 4.76 crore were provided by the appellant for making 1000 applications in subscribing IDFC IPO against which 2,66,000 shares were cornered nor any corroborating material was brought on record by the defendant to prove the same.

2.4 The Counsel argued that the CBI, in its charge-sheet filed in the case, has given its finding that the appellant was not charge-sheeted as no evidence of criminal involvement was found against him during the investigation and Sh. Jitender Kumar Lalwani has purchased the shares of IDFC in a legal manner. He submitted that majority of the shares were purchased from Jayesh P. Khandwala HUF (9,49,818 shares), Amadhi Investments (2,65,468 shares) who have not even been charge sheeted by the CBI and CBI, in its charge sheet filed in the case, has given its finding that no evidence has come to show their knowledge of forgery and other offences committed by the key operators. He drew our attention to para 33 on page 70 of the charge sheet which reads thus:

That, M/s. Seer Finlease Pvt. Ltd., M/s. Excell Multitech Ltd., M/s. Zenet Software Ltd., M/s. Tauras Infosys Ltd., Sh. H.N. Vora, M/s. Welvet Financial Advisory Pvt. Ltd. Sh. Jayesh P. Khandwala, Sh. Gautem N. Jhaveri, Shari Rajan V. Dapki, M/s. Sujal Leasing & Finance Pvt. Ltd., Sh. Dushyant N. Dalal, M/s. Amadhi Investments Ltd., Mrs. Ritaben R. Thakkar and Sh. Dhiren H. Vora, who were shown as accused in the FIR. They had financed A-1 to A-3. But no evidence has come to show their knowledge of forgery and other offences committed by A-1 to A-3. Further Sh. Bhanuprasad Trivedi, Sh. Vinod Modha and Sh. Jitender Kumar Lalwani, named in the FIR had purchased the shares of IDFC from A-1 and A-2, in a legal manner. Similarly, investigation did not reveal the involvement of Sh. Jayantilal Jain in the conspiracy, whose name has been shown in the FIR as accused. For want of evidence, these entities/persons are not being sent up for trial in this chargesheet.
2.5 The Counsel submitted that following portion of the impugned order of the Adjudicating Authority in para 15 is incorrect and has been wrongly attributed to the submissions made on behalf of the appellant and stated that no such argument was presented on behalf of the appellant before the Adjudicating Authority.

Para 15 (last four lines) of the impugned order:

The Ld. Counsel for the defendant vehemently argued defendant no. 1 was in know of the things that such transactions were taking place for allotment of shares. Hence defendant no. 1 was well aware about the crime committed under the Prevention of Money Laundering Act.
2.6 The Counsel submitted that the CBI in its charge sheet has clearly identified the persons/entities who committed the crime including forgery and made profits and the profit earned by these persons would fall in the category of proceeds of crime as these persons have been charged for committing a scheduled offence. He drew out attention to the following paras of the CBI charge sheet:

Para 16 on page 16 of the CBI charge sheet:

That the fictitious applications put in by Shri Dipak Panchal (A-1) were allotted with 266 shares each and in all he could corner 73,00,104 shares of IDFC out of 14.12 crore shares meant for RII, which amounts to 5.16%. Further, with the help of Shri Aditya Gupta (A-9) and Shri Phanindra Kumar (A-11), he transferred the illegally cornered shares to his Demat account by issuing forged Delivery Instructions Slips (DIS). He disposed off all the shares cornered in that illegal manner for a profit of about Rs. 8.63 crores.
Para 24 on page 19 of the CBI charge sheet:

That the fictitious applications put in by Shri Parag Jhaveri (A-2) were allotted with 266 shares each and in all he could corner 35,14,392 shares of IDFC out of 14.12 crore shares meant for RII, which amounts to 2.48%. Further, with the help of Shri Aditya Gupta (A-9) and Shri Phanindra Kumar (A-11), he transferred the illegally cornered shares to his Demat account by issuing forged Delivery Instructions Slips (DIS). He disposed off all the shares cornered in that illegal manner for a profit of about Rs. 15 lacs.
Para 26 on page 20 of the CBI charge sheet:

That Shri Purshottam Budhwani (A-3) submitted 5,590 applications in the names of fictitious persons in whose names demat accounts were fraudulently opened by him. For arranging funds for the application, he had availed loan from KCL, Hyderabad by forging the signatures of his relatives in whose name he availed such loans. Each of the applications submitted by him in the names of fictitious persons were allotted with 266 shares and got credited to the respective fictitious Demat accounts. By forging transfer slips, he got transferred 15,92,980 illegally cornered shares into his own Demat accounts, and made a profit of Rs. 2.50 crore.
Para 28 on page 20 of the CBI charge sheet:

That, Shri Manoj Sekseria (A-4) submitted 2,000 applications in the names of fictitious persons in whose names demat accounts were fraudulently opened by him. For arranging funds for the application, he had availed loan from KCL, Hyderabad by forging the signatures of his relatives in whose name he availed such loans. Each of the applications submitted by him in the names of fictitious persons were allotted with 266 shares and got credited to the respective fictitious Demat accounts. By using forged transfer slips, he got transferred 5,30,304 illegally cornered shares into his own Demat accounts and made a profit of Rs. 1.64 crore.
Para 29 on page 21 of the CBI charge sheet:

That, Shri Kantilal Jain (A-14) an associate of Shri Dipak Panchal (A-1) opened 75 demat accounts with DP KCL, Ahmedabad in the names of his family members by forging their signatures. In the IPO of IDFC, Shri Kantilal Jain (A-14) applied in such names, for 1,400 shares each, finance for which was provided by Shri Bakul N. Desai (A-8) of IOB, Stadium Road Branch, Ahmedabad and margin money for which was provided by Shri Dipak Panchal (A-1). Shri Kantilal Jain (A-14) cornered 12,236 shares by submitting fictitious applications forging the signatures of his family members which were sold by Shri Kantilal Jain (A-14) making a wrongful gain of Rs. 3.80 lakh.
2.7 The Counsel for the appellant submitted that the appellant belongs to a business family and he is a bona fide purchaser/transferee of shares of IDFC in good faith for consideration. He states that in first week of August, 2005, the appellant was told by a family friend Sh. Yashwant Thakkar of M/s. Amrapali Industries Ltd., Ahmedabad that there was an opportunity of making profit by investing in the recently closed IPO of IDFC and the appellant also came to know that the shares could be purchased in off market transaction, which was a permissible activity under the SEBI guidelines. He further states that the appellant found the proposal attractive and asked his friend Sh. Yashwant Thakkar to purchase the shares with the condition that the payment will be made after the shares were transferred in appellant's demat account. Sh. Yashwant Thakkar arranged purchase of shares in off market transaction on different rates and on different dates and the shares were transferred to appellant's demat account on dt. 11.8.2005, dt. 12.8.2005, dt. 2.9.2005, dt. 8.9.2005 and dt. 5.10.2005. He further submitted that the appellant was short of funds at that point of time, therefore, the appellant requested Sh. Yashwant Thakkar to make payment for purchase of shares and for which, appellant agreed to pay interest to Sh. Yashwant Thakkar. He further states that the appellant thought that the listing of IDFC shares may not be at a very high premium, therefore, the appellant asked his broker to sell all his shares on the day of listing. He submitted that all these transactions of purchase, sale and payments are reflected in the appellant's books of accounts and the appellant has paid income tax on the gain arising out of these transactions. The Counsel took us through such documents filed in the paper book. The Counsel further submitted that the appellant had purchased a total of 23,79,772 shares of IDFC and contended that if, for the sake of argument, the contention of the defendant that the appellant provided funds for cornering 2,66,000 shares is accepted then these 2,66,000 share are only 11.17% of the total no. of shares (23,79,772 shares) purchased by the appellant and in view of the finding of the CBI with reference to financiers, the gains from sale of even these 2,66,000 shares can not be termed as proceeds of crime.

2.8 The Counsel submitted that for peace of mind, the appellant without admitting the charges levied by the SEBI, remitted a sum of Rs. 9,62,40,761 (Rupees nine crore sixty two lakh forty thousand seven hundred sixty one only) vide demand draft dated December 28, 2009 bearing no. 730496 drawn on Syndicate Bank payable at Mumbai which includes Rs. 7,40,31,355/- towards disgorgement amount and Rs. 2,22,09,406/- towards settlement charges and SEBI vide its order dated 31st December, 2009 has disposed off all the actions initiated against the appellant under the SEBI Act, 1992. He argued that the actions initiated against the appellant under the SEBI Act, 1992 are not scheduled offences under the Act and after the above settlement order by SEBI, there are no charges against the appellant in respect of irregularities relating to initial public offerings.

3. The Ld. Counsel for defendant controverted the contentions of the appellant and made elaborate submissions. He argued that the property which is proceeds of crime and is in possession of any person, even though he is not charged of having committed a scheduled offence, can be attached and thus, appellant is covered under the provisions of section 5(1)(a) & 5(1)(b) of the Act. He placed reliance on judgment of this Tribunal in the case of Radha Mohan Lakhotia ... (supra).

3.1 The Counsel narrated the facts and circumstances of the case and drew our attention to the copy of Complaint u/s. 5(5) of the Act sent by the defendant to the Adjudicating Authority, order of the SEBI and charge sheet filed by the CBI in the Court of Special Judge, Greater Mumbai against the key operators and others for commission of offences punishable under Indian Penal Code and other Acts including section 467 of Indian Penal Code, which is a scheduled offence, in terms of Section 2(y) of the Act. He also drew our attention to the modus operandi adopted by these key operators for opening of fictitious/benami bank and demat accounts, submitting applications for subscription of share of IDFC IPO in the name of fictitious/benami persons, cornering of shares reserved for RII category, transfer of shares from demat account of fictitious/benami allottees of shares to one demat account of key operator, transfer of shares from key operator's demat account to financiers and sale of shares on the day of listing.

3.2 The Counsel submitted that the said Sh. Parag P. Jhaveri, key operator and director of M/s. Sugandh Estate & Investment Pvt. Ltd., in his statements dt. 9.2.2008 and dt. 2.4.2008, recorded u/s. 50 of the Act, stated, inter alia, that he is one of the directors of SEIPL holding majority shares 99.95% in the company and under specific arrangements, utilized funds on behalf of certain entities/financiers by deploying the same in the specific IPOs. He further states that while explaining the specific arrangement, Sh. Parag P. Jhaveri stated as under:

a. That, whenever any party (financier) wanted to subscribe to IPO in Retail Individual Investor category, he would provide the necessary amount of funds to SEIPL by way of cheques/banking channels only;

b. That, these funds were then deposited in SEIPL's Vijaya Bank, Ambawadi Branch Current Account No. 2036 and HDFC Bank, Navrangpura Branch Current Account no. 0062000026467; that subsequently cheques were issued from HDFC, Navrangpura Branch Current Account no. 0062000026467 to SEIPL's Vijaya Bank Current A/c no. 2036 which was used as a main account for receiving/refunding funds from/to different financiers with respect to different IPOs;

c. That, after the receipt of amount in this Vijaya Bank, Ambawadi Current A/c no. 2036, cheques were drawn for making application in these particulars IPOs through different demat accounts, all of which were held with M/s. Karvy Stockbroking Ltd., Ahmedabad/Hyderabad (hereinafter referred to as KSBL);

d. That on allotment of shares, the allotted shares were credited to respective demat accounts which were then transferred to the demat a/c no. 14405199 of SEIPL with KSBL, demat a/c no. 10004600 of Parag P. Jhaveri with KSBL and demat a/c no. 10004626 of his brother Sh. Kamal P. Jhaveri with KSBL;

e. That in turn these shares were finally transferred through 'off market' transactions to respective beneficiaries/financiers;

f. That in most of the cases all these transfer of shares took place before date of listing of shares of respective IPOs;

g. That approximately more than 10000 demat accounts were held with KSBL;

h. That he had opened 50 to 60 current bank accounts with Vijaya Bank, Ambawadi Branch with initial account opening deposit of Rs. 500/- to Rs. 1000/-, which amounts were transferred either from SEIPL's bank account or by way of cash deposit;

i. That all these accounts were opened by him as individual account holder only, but to manage funds of different financiers, he subsequently added 10 names of different persons in each of the above account so as to facilitate the maximum subscription to the IPOs in RII category;

j. That 13000 demat accounts were opened by furnishing the address of his office i.e. 803/804, Abhijit I, Mithakhali Cross Road and for the balance 225 demat accounts, he had furnished the residential address of his cousin Mr. Sh. pal M. Jhaveri A/3, Vishal Flat, Ambawadi, Ahmedabad;

k. That 35,17,850 shares of IDFC were got allotted against 13225 applications;

1. That while giving details about the financiers who had been providing funds for the aforesaid activity i.e. acquiring IDFC shares fraudulently from RII category, he, inter-alia, furnished the said details which among others also included Sh. Jitender Kumar Lalwai, the present appellant;

m. That he also disclosed that besides the demat a/c of SEIPL, demat account no. 10004600 and demat account no. 10004626 of himself and of his brother Sh. Kamal P. Jhaveri respectively, were also used by him to transfer shares of IDFC to the appellant.

3.3 The Counsel further submitted that the appellant provided funds to the tune of Rs. 4.76 crores for making 1000 applications for subscribing shares reserved for RII category in the IDFC IPO, to the key operator Sh. Parag P. Jhaveri. He drew our attention to the copy of the order of SEBI, para 10.6 on page 34 to 36 which is detail of financiers of M/s. Sugandh Estates & Investments Pvt. Ltd. and para 10.7 on page 37 which is detail of profit made by the financiers of M/s. Sugandh Estates & Investments Pvt. Ltd. and stated that the name of the appellant finds place in these details. He further drew our attention to the copy of the order of SEBI, para 10.9 on page 38 which is detail of financiers of other Master Account Holders and para 10.10 on page 40 which is detail of gains made by the financiers of Master Account Holders and stated that the name of the appellant finds place in these details. The counsel further submitted that as a result of appellant's role of financier to master account holders/key operators, SEBI vide its order dt. 27.4.2006 directed the appellant not to buy, sell or deal in securities market including in IPOs, directly or indirectly, till further directions.

3.4 He drew our attention to following paras of the statements of Sh. Parag P. Jhaveri recorded by the defendant u/s. 50 of the Act on dt. 9.2.2008 and dt. 2.4.2008 and argued that Sh. Parag P. Jhaveri in his statements has confirmed that the appellant was known to him and the appellant provided funds to the tune of Rs. 4.76 crore for 1000 applications for IDFC Ltd. IPO subscription in RII category and cornered 2,66,000 shares:

Statement dt. 9.2.2008:

Q. 6 Please furnish the names of financiers who have been providing funds for the aforesaid activity

A. 6 the details of such financiers/entities who have been providing funds for subscribing to IPOs through SEIPL to the best of my memory are as under:

(i)---------

(vii) Mr. Jitender Kumar Lalwani, New Delhi

(viii)--------

Q. 8 How did you came into contact with these financiers

A. 8 Except Mr. Jitendra Lalwani I know all other financiers through social/professional circle and Mr. Jitendra Lalwani was introduced by Mr. Yashwant Thakkar some time before opening of IDFC Ltd. IPO for subscribing to the IPOs.

Q. 9 what was the basis of financing by these financiers for subscribing to IPO of IDFC in particular and other IPO in general

A. 9 whenever any IPO was announced the interested financiers had extended the funds based on application money required for each application under RII category. At that time for RII category application money per application had upper ceiling of Rs. 50000/-. This was also the case for IDFC Ltd. IPO.

I further furnish the details of funds received from respective financier as under:

Q. 18 In your answer to question no. 9 above, you have furnished the details of funds received from different financiers for subscribing to IPO of IDFC in RII category. Please furnish the details of shares received/allotted against respective funds received from each financiers which were subsequently transferred to the common demat account of SEIPL for further transfers to each financiers

A. 18 The details of IDFC shares transferred are as under:

All these shares were transferred to respective financiers before the date of listing as off market transaction.

Statement dt. 2.4.2008:

Q. 1 In your statement dated 9.2.2008 you had stated that shares of IDFC were transferred to many financiers including Jitendra Lalwani as off market transaction from the demat accounts of Sugandh Estate & Investments Pvt. Ltd., Parag P. Jhaveri & Kamal P. Jhaveri, Kamal P. Jhaveri & Bela K. Jhaveri. In this regard please furnish the details of shares transferred to Jitendra Lalwani alongwith dates, transaction nos. & other relevant details from the demat account of Sugandh Estate & Investments Pvt. Ltd. (SEIPL) no. 14405199 with Karvy Stockbroking Ltd. (no 300394)

A. 1 The details of IDFC Ltd. shares transferred from demat a/c no. 14405199 of SEIPL to Jitendra Lalwani are as under:

As detailed above total 266000 shares of IDFC Ltd. were transferred as off market transaction between 11/8/2005 to 2/9/2005.

3.5 The Counsel further submitted that the appellant made a gain of Rs. 7,00,57,692/- from sale of 23,79,772 shares of IDFC which is proceeds of crime and this was utilized for purchase of 50% share in immovable property at A-9/31, Vasant Vihar, New Delhi and invested in other movable properties which has been attached under the Act. In this regard, the counsel drew our attention to the copies of income tax return papers filed by the appellant and copy of the statement of appellant recorded u/s. 50 of the Act on dt. 22.12.2008 which reads thus:

Q. 3 During the last 3 years i.e. since August-September, 2005 till date, which have been your new investments in immovable properties

A. 3 I have purchased only one new immovable property i.e. at A-9/31, Vasant Vihar, New Delhi ................

Q. 4 As per the Annexure to your above mentioned letter date 26-03-2008, you have made the following payments in respect of the above mentioned property at A-9/31, Vasant Vihar, New Delhi:-

Further as per the ledger statement of your account with Union Bank of India there is a payment of Rs. 64,00,010/- in the date 06-06-2007 vide cheques no. 609043 for pay order towards stamp fee in respect of A-9/31, Vasant Vihar, New Delhi.

What have you to state with regard to the source of funds out of which the above mentioned payments/expenses to the extent of Rs. 8,64,00,010/- were made/met

A. 4 I have affixed my dated signatures on the particular entry of 06-06-2007 in token of having seen the said document. I have to state that the funds utilized by me for making the above mentioned payments/expenditures in respect of purchase/acquisition of property at A-9/31, Vasant Vihar, New Delhi have been out of profits derived from the sale of around 22 lakh RII category shares of IDFC which had been acquired during August, 2005 followed by sale thereof, almost simultaneously on the date of listing itself. However, the said profits were intermixed with my available funds, and thereafter utilized, temporarily for other various investments/disbursements, and after a chain of payments/receipts, were finally utilized for acquiring the above mentioned property.

3.6 The Counsel submitted that the appellant has without admitting or denying the charges initiated by SEBI, has remitted a sum of Rs. 9,62,40,761/- vide demand draft dated December 28, 2009 which included Rs. 7,40,31,355/- towards disgorgement amount and Rs. 2,22,09,406/- towards settlement charges to SEBI for settlement of the proceedings initiated against the appellant and argued that the settlement order shows admission of guilt on the part of the appellant.

3.7 The Counsel further argued that the attachment order is only a prohibitory order so that the proceeds of crime are not 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 and prayed for the dismissal of the appeal.

4. We have heard both the parties at length and perused the material on record. This Tribunal in its judgment in the appeal of Radha Mohan Lakhotia ...(supra) has held that the property which is proceeds of crime and is in possession of any person, even though he is not charged of having committed a scheduled offence, can be attached. Following the above judgment, we are of the view that if the financial gain from sale of 23,79,772 shares of IDFC by the appellant is proceeds of crime in the hands of appellant, then appellant is covered under the provisions of section 5 of the Act and the attachment proceedings commenced by the authorities under the Act would be valid proceedings. Therefore, what needs to be determined is whether or not the financial gain from sale of 23,79,772 shares of IDFC by the appellant is proceeds of crime in the hands of appellant.

5. The main contention of the defendant is that key operator Sh. Parag P. Jhaveri and others opened bank accounts and demat accounts in fictitious/benami names and made applications for subscription of shares in the IDFC IPO and cornered shares which were reserved for RII category. Further, substantial no. of applications were made on behalf of financiers who provided money for the funding of application money for subscribing IDFC IPO in RII category and on allotment of shares, these shares were transferred to the financiers in off market transaction before listing of shares on stock exchange and these financiers sold the shares on the day of listing in stock exchange and made huge profits there from. And, since the offence committed included offence u/s. 467 of the Indian Penal Code which was a scheduled offence under the Act, the gains made from the above offence are proceeds of crime and as the same has been projected as untainted property, an offence u/s. 3 of the Act has been committed and the property is liable for attachment under the Act. Other contentions of the defendant are that the appellant was in the know of the illegal modus operandi of the key operators, the appellant provided funds to the tune of Rs. 4.76 crore for 1000 applications for subscribing IDFC IPO in RII category, the thus illegally cornered shares of IDFC IPO, which were reserved for RII category, were transferred to appellant in off market transaction before listing of the shares on stock exchange.

6. To unravel the complexity of the facts of the case, it is important to understand the following facts of the case:

The IDFC IPO was open for subscription from dt. 15.7.2005 to dt. 22.7.2005, the shares were allotted and credited to demat accounts of investors on dt. 5/6.8.2005, shares so allotted/credited were transferred as off market transactions to financiers prior to listing of the issue i.e. prior to dt. 12.8.2005. The appellant purchased 23,79,772 shares of IDFC and out of this, 22,21,808 shares were transferred to his demat account on dt. 11.8.2005, 1,37,020 shares were transferred to his demat account on dt. 12.8.2005 and remaining shares were transferred to his demat account in the month of September and October 2005. The defendant has contended that the appellant was in the know of the illegal modus operandi of the key operator, the appellant provided funds to the tune of Rs. 4.76 crore for 1000 applications for subscribing IDFC IPO in RII category to Sh. Parag P. Jhaveri, the thus illegally cornered shares of IDFC IPO, which were reserved for RII category, were transferred to appellant in off market transaction before listing of the shares on stock exchange.
7. The defendant has not adduced any documentary evidence to prove its contention that appellant provided Rs. 4.76 crore for IDFC IPO to Sh. Parag P. Jhaveri except the oral testimony of Sh. Parag P Jhaveri in the form of his statement dt. 9.2.2008, which also happens to be self contradictory. Sh. Parag P. Jhaveri has also not given any details as to how and when (details like cash/cheque/draft no., particulars of bank on which cheque/draft were drawn, date of cheque/draft, particulars of bank in which funds were deposited etc.), the funds of Rs. 4.76 crore were provided by the appellant. Further, the statements of Sh. Parag P. Jhaveri recorded by the defendant u/s. 50 of the Act are self contradictory. In his statement dt. 9.2.2008, he has stated that the appellant provided Rs. 4.76 crore for 1000 applications for subscribing IDFC IPO in RII category and against these 1000 applications, 2,66,000 shares were allotted which were transferred to the appellant. But in his statement dt. 2.4.2008, Sh. Parag P. Jhaveri has stated that payment of Rs. 98,44,000/- against transfer of these 2,66,000 shares of IDFC was received by him on dt. 13.8.2005 and on dt. 26.8.2005 and he has also explained the source of Rs. 4.76 crore being Rs. 1.19 crore received from SEIPL and Rs. 3.57 crore received as loan from M/s. Karvy Stock Broking Ltd., which is contrary to his earlier statement. The relevant paras of statement of Sh. Parag P. Jhaveri reads thus:

Statement dt. 2.4.2008

Q. 2 When & how you received payments against transfer of these 266000 shares of IDFC Ltd. from Jitendra Lalwani

A. 2 The details of payments received against these shares are as under:

The above 2 cheques were deposited in SEIPL's HDFC Bank Ltd. account no. 0062000026467 with Navrangpura Branch, Ahmedabad.

Q. 3 From whom you received the aforesaid 2 cheques for an aggregate amount of Rs. 98,44,000/-

A. 3 SEIPL had received above referred 2 cheques from Jitendra Lalwani, through office of Yashwant Thakkar, having its office at 319-320, Narayan Chambers, Ashram Road, Ahmedabad.

Q. 4 It is observed that the payments against the 266000 shares of IDFC transferred from demat account of SEIPL were received much late after the actual transfer of shares as off market transactions to Jitendra Lalwani. In this regard please state as to how and when the funds were arranged for the aforesaid shares

A. 4 As regards to the applications for IDFC Ltd. IPO subscription in RII category SEIPL had arranged margin money to the tune of Rs. 1,19,00,000/-(being 25% of application money) and balance 75% of application money i.e. Rs. 3,57,00,000/- was taken as loan from M/s. Karvy Stock Broking Ltd. for 1000 applications for Jitender Lalwani.

Q. 5 Please state about the source of funds for the above margin money of Rs. 1,19,00,000/- paid by SEIPL for 1000 IDFC Ltd. IPO applications in RII category

A. 5 Margin money of Rs. 1,19,00,000/- was paid by SEIPL out of funds of Rs. 1,70,00,000/- received from M/s. Amadhi Investment Ltd. having its office at 13/14, Radha Kunj Society, Behind Kamdhenu Hall, Drive in Road, Ahmedabad, through Dhruv Patel.

8. The contentions of the appellant that his family friend Sh. Yashwant Thakkar advised him to invest in IDFC shares, payment for purchase of IDFC shares were made through Sh. Yashwant Thakkar after transfer of shares in his demat account are also not controverted by the defendant. Further, the purchase of 2,66,000 shares against alleged financing of Rs. 4.76 crore to Sh. Parag P. Jhaveri is only 11.17% of total no. 23,79,772 shares of IDFC purchased by the appellant. The appellant has provided complete details of transactions of purchase and sale of shares, copies of ledger accounts, bank accounts, demat account, balance sheet, statement of gain from sale of shares along with income tax computation and income tax return. The appellant has also stated that for peace of mind, he, without admitting any charges, paid disgorgement amount and settlement charges to SEBI for settlement of various actions initiated by SEBI against him and the actions which were initiated by the SEBI against appellant under the SEBI Act, 1992 are not in any case scheduled offences under the Act. The contentions raised by the appellant and documents filed by him, have not been disproved by the defendant. On the other hand, the arguments of the defendant lack force in proving that the transactions for acquiring 23,79,772 shares of IDFC are not at arm's length considering the provision of The Prevention of Money Laundering Act 2002.

9. The CBI also in its charge sheet filed in the case has given its finding that no evidence has come to show that appellant was in the knowledge of forgery and other offences committed by the key operators. The CBI findings further states that the appellant had purchased IDFC shares from key operators in a legal manner. The CBI has, in its charge sheet, gave a detailed list of entities/individuals, who provided finance to key operators and this list does not include the name of appellant as financier to key operators. The CBI, in its charge sheet, has also identified the amount of profit made by different individuals/entities which would fall in the category of proceeds of crime. This detail also does not include the name of the appellant.

10. In view of the facts of the case as discussed above coupled with the charge sheet filed by the CBI and self contradictions in the statements of Sh. Parag P. Jhaveri, the appellant's contentions that he was not in the know of illegal activities of the key operators for cornering shares; he was not a financier for subscribing shares of IDFC IPO; the shares were acquired by him in a legal manner and the payment for purchase of shares were explained by him etc., have substantial force and appears convincing. We are therefore of the considered opinion that the appellant was a bona fide purchaser/transferee of shares of IDFC in good faith for consideration. We accordingly hold that the financial gain from sale of 23,79,772 shares of IDFC in the hands of the appellant are not proceeds of crime and hence not involved in money laundering. Resultantly, the appellant is not covered under the provisions of the Act.

For the reasons aforesaid, the appeal is allowed and impugned order of Adjudicating Authority confirming attachment is set aside.