Telangana High Court
M/S. Karvy Stock Broking Limited And 9 ... vs The Adjudicating Authority on 28 June, 2022
Author: G. Radha Rani
Bench: G. Radha Rani
THE HONOURABLE DR. JUSTICE G. RADHA RANI
Writ Petition No.27051 of 2022
ORDER:
Heard Mr. Avinash Desai, learned counsel for petitioners and Mr.Anil Prasad Tewari, learned Standing Counsel for Enforcement Directorate, for respondent Nos.1 and 2.
2. With the consent of both parties, the Writ Petition is disposed of at the stage of admission.
3. This Writ Petition is filed by petitioners under Article 226 of the Constitution of India seeking extension of time to the show-cause notice dated 22.04.2022, issued by the 1st respondent-Authority under Section 8(1) of the Prevention of Money Laundering Act, 2002 (for short, 'the PMLA Act') to indicate the source of income, earnings or assets out of which the petitioners had acquired the immovable and movable assets, bank balance, Fixed Deposits, Term Deposits, intangible assets, etc., which were specified ::2:: Dr.GRR,J wp_27051_2022 in the Provisional Attachment Order (PAO) No.06/2022 dated 08.03.2022 in File No.ECIR/HYZO/14/2021 against the petitioners; and to show-cause why the PAO in respect of the property should not be confirmed as representing proceeds of crime being value of properties involved in money laundering.
4. It is the contention of the learned counsel for the petitioners that the Central Crime Station, Hyderabad had registered certain FIRs against 1st petitioner and its directors, as such, an investigation under PMLA Act was initiated by the Enforcement Directorate, Hyderabad Zonal Office vide File No.ECIR/HYZO/14/2021 dated 19.05.2021.
5. During the course of investigation against 1st petitioner with respect to various crimes registered on the basis of complaints given by various banks, the Central Crime Station, Hyderabad arrested Mr. C. Parthsarathy, Chairman and Managing Director of 1st petitioner, who is the 6th petitioner herein and he ::3:: Dr.GRR,J wp_27051_2022 is in judicial custody since 19.08.2021 at Chanchalguda Jail, Hyderabad.
6. During the pendency of investigation, 2nd respondent by way of provisional attachment order (arising out of Original Complaint No.1680/2022) provisionally attached the properties belonging to the petitioners and their group companies; on 06.04.2022, 2nd respondent filed a complaint providing the details of the attachment before the 1st respondent under Section 5(5) of the PMLA Act, 2002; vide letter dated 22.04.2022, the petitioners and their group companies received the show-cause notice issued by 1st respondent under Section 8(1) of the PMLA Act to indicate the source of income, earnings or assets out of which petitioners had acquired the movable and immovable assets, bank balance, fixed deposits, term deposits, intangible assets, etc., which were specified in the provisional attachment order and to show-cause why the PAO in respect of the properties should not be ::4:: Dr.GRR,J wp_27051_2022 confirmed as representing proceeds of crime being value of properties involved in money laundering.
7. The show-cause notice served on the petitioners along with the original complaint and annexures was voluminous and running into 5000 pages; petitioners received the show-cause notice on 09.05.2022; the 1st respondent, without taking into consideration the fact that 6th petitioner was in jail and the petitioners had to respond to the voluminous documents served on them, directed the petitioners to file their written replies on or before 05.06.2022 to the e-mail of 1st respondent; petitioners, through their counsel, vide e-mail dated 04.06.2022, sought an adjournment from 2nd respondent for a period of four (04) weeks that they would require additional time to file an effective reply to the show-cause notice as petitioners were expecting that 6th petitioner, who was their Chairman and Managing Director of 1st petitioner-Company and the group chairman of such associated companies, would ::5:: Dr.GRR,J wp_27051_2022 be released on bail and would be providing necessary instructions for preparation of reply; 1st respondent, vide e-mail dated 10.06.2022, granted an additional time of only two (02) weeks to file the reply, i.e., on or before 20.06.2022; as the 6th petitioner was not released on bail and was not even provided with access to the necessary documents for preparation of reply, petitioners once again vide e-mail dated 17.06.2022 sought for extension of time of at least two (02) months to submit their replies on the ground that 6th petitioner was the only person to have full and complete knowledge with respect to the allegations made in the show-cause notice, and he continued to remain in judicial custody and due to his incarceration for over 300 days, they were not having an opportunity to access the data which was required for preparation of a comprehensive and effective defence to the show- cause notice on his behalf as well as on behalf of 1st petitioner and its subsidiary and associated companies ::6:: Dr.GRR,J wp_27051_2022 which were named as the other petitioners in the show-cause notice; in order to establish the source of funds in respect of the alleged financial irregularities in the show-cause notice and to provide accurate responses, petitioners would require effective consultation and participation of 6th petitioner who continued to be incarcerated, and a thorough perusal of voluminous internal documents of 1st petitioner and its subsidiaries and associated companies; 6th petitioner did not have an opportunity to perform the above exercises and the other petitioners / authorized representatives were never provided an opportunity to consult the 6th petitioner who had full and complete knowledge about the alleged financial irregularities; in the application dated 17.06.2022, submitted to 1st respondent, petitioners clearly explained the reasons stated above and sought for extension of time for two (02) months. However, 1st respondent did not respond / extend the time period as sought for by the ::7:: Dr.GRR,J wp_27051_2022 petitioners; that the reply to the show-cause notice was important for the petitioners as it would be necessary for comprehensive adjudication by 1st respondent with respect to attachment of assets of the petitioners and any insufficiency / inadequate / improper reply would put the petitioners to irreparable injury; the reply to the show-cause notice was also significant for the group of companies whose assets had also been attached by way of provisional attachment order; that there were no authorized signatories in the said group companies of 1st petitioner, and as such, they were unable to file the necessary applications to seek extension of time; and therefore contended that not granting extension of time period to reply to the show-cause notice was in violation of principles of natural justice and in violation of Articles 14 and 21 of the Constitution of India, and prayed for allowing the Writ Petition.
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8. On the other hand, learned Standing Counsel for 2nd respondent contended that as required under Section 8(1) of the PMLA, the impugned show-cause notice was issued by the adjudicating authority; and the petitioners were required to file reply on or before 05.06.2022. Keeping in view the principles of natural justice and fair play, the adjudicating authority considered the e-mail dated 04.06.2022 of the petitioners and granted time to file reply on or before 20.06.2022. The proceedings were time-bound and order was required to be passed by the adjudicating authority within (180) days of issuance of provisional attachment order, which was passed on 08.03.2022.
9. He further contended that the 6th petitioner was produced on PT warrant before the Metropolitan Sessions Judge, Hyderabad from the Bangalore Central Jail on a petition moved by the Enforcement Directorate and he was remanded to judicial custody in the E.D. case on 20.01.2022. Subsequently, he was ::9:: Dr.GRR,J wp_27051_2022 remanded to E.D. custody from 27.01.2022 to 30.01.2022, and thereafter, he was again sent to judicial custody. In the meanwhile, the prosecution complaint was filed on 19.03.2022 within the statutory period of (60) days before the Metropolitan Sessions Judge, Court; 6th petitioner filed an application for default bail which was returned by the Metropolitan Sessions Judge, Hyderabad; thereafter, he preferred Criminal Petition No.3786 of 2022 before this Court and vide order dated 17.05.2022 the said petition was allowed; 6th petitioner, basing on the above order of this court dated 17.05.2022, filed a fresh statutory bail petition and he was granted bail vide order of the Metropolitan Sessions Judge, dated 20.05.2022; according to bail conditions, 6th petitioner had to provide two sureties; that the two sureties were also furnished by him before the Metropolitan Sessions Judge, Hyderabad; however, one surety had withdrawn subsequently and therefore he did not avail ::10:: Dr.GRR,J wp_27051_2022 the bail granted to him; that he apparently chose to stay in judicial custody for the reason best known to him and now the 6th petitioner was claiming that being in judicial custody he was unable to file an effective reply to the show-cause notice issued by the adjudicating authority, i.e., the PMLA, New Delhi on account of non-availability of various facilities as claimed by him; thus, the petitioner chose to remain in prison from 20.05.2022 and now he had sought various facilities and claimed that he should be given additional time to file reply to the show-cause notice issued by the adjudicating authority; that the grounds raised by him were with an ulterior motive to derail the adjudication proceedings pending before the adjudicating authority knowing well that these proceedings were time-bound and order was required to be passed within (180) days of issuance of provisional attachment order; 6th petitioner was served with the hard copies of the Original Complaint and the ::11:: Dr.GRR,J wp_27051_2022 documents relied upon on 10.05.2022 itself; therefore, the contention of the 6th petitioner that he was not provided with access to the documents was incorrect; the further contention of the petitioners that they were not provided with effective consultation of 6th petitioner for preparation of effective reply was also not correct as the petitioners had been representing themselves before various judicial fora even though 6th petitioner was in judicial custody; petitioners were claiming frivolous grounds to de-rail the adjudication proceedings before the Adjudication Authority (PMLA), New Delhi; the Karvy Group was a large corporate group consisting of around 30 companies and had access to services of whole-time directors, senior management employees, career professionals, Advocates and Chartered Accountants; it was being represented before several courts while its Chairman and Managing Director, i.e., 6th petitioner, was in jail;
with regard to non-availability of authorised
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signatories for various companies, he submitted that they were shell companies floated by the Karvy Group by making their employees as namesake directors and the companies were used for diversion of funds and for doing large-scale share-trading activities with such diverted funds; non-availability of any signatories / directors of the said entities in itself would establish the fact that they were shell companies created and controlled by the petitioners; 6th petitioner was released from judicial custody on 25.06.2022, and therefore, the writ petition would become infructuous to the extent of providing various infrastructural facilities within the jail premises; and prayed for dismissal of the writ petition as the same was premature and devoid of merit and was filed with an ulterior motive to derail the proceedings pending before the Adjudicating Authority (PMLA).
10. Perused the record.
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11. The powers of provisional attachment of the property is detailed under Section 5 of the Act. The said Act empowers the Director or Deputy Director authorized to provisionally attach a property for (180) days if he has reason to believe that it is pertaining to proceeds of crime.
12. Sections 5 and 8 of the PMLA, 2002 are extracted hereunder for better perusal, which are as under :
"5. Attachment of property involved in money- laundering :
(1) Where the Director or any other officer not below the rank of Deputy Director authorised by the Director 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; and
(b) 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, ::14:: Dr.GRR,J wp_27051_2022 he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed :
Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report complaint has been made or filed under the corresponding law of any other country :
Provided further that, notwithstanding anything contained in [first proviso], any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money- laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.] [Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is ::15:: Dr.GRR,J wp_27051_2022 stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted.] (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.
(3) Every order of attachment made under sub-
section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under [sub-section (3)] of Section 8, whichever is earlier.
(4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment.
Explanation - For the purposes of this sub- section, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. (5) The Director or any other officer who provisionally attaches any property under sub-section ::16:: Dr.GRR,J wp_27051_2022 (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority." ... ... ...
8. Adjudication - (1) On receipt of a complaint under sub-section (5) of Section 5, or applications made under sub-section (4) of Section 17 or under sub- section (10) of Section 18, if the Adjudicating Authority has reason to believe that any person has committed an [offence under Section 3 or is in possession of proceeds of crime], it may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of Section 5, or, seized [or frozen] under Section 17 or Section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government :
Provided that where a notice under this sub- section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person :
Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.
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(2) The Adjudicating Authority shall, after -
(a) considering the reply, if any, to the notice issued under sub-section (1);
(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and
(c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering :
Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering.
(3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-
laundering, he shall, by an order in writing, confirm the attachment of the property made under sub- section (1) of Section 5 or retention of property or [record seized or frozen under Section 17 or Section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property] or record shall -
(a) continue during [investigation for a period not exceeding [three hundred and sixty-five days] or] the pendency of the proceedings relating to any [offence ::18:: Dr.GRR,J wp_27051_2022 under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and]
(b) become final alter an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58-B or sub-section (2-A) of Section 60 by the Special Court.
Explanation - For the purposes of computing the period of three hundred and sixty-five days under clause (a), the period during which the investigation is stayed by any court under any law for the time being in force shall be excluded.] ... ... ..."
13. The Adjudicating Authority (PMLA) was a quasi- judicial authority established under the PMLA, 2002. The proceedings before the adjudicating authority were time-bound as per the provisions of PMLA, 2002. For passing order under Section 8(3) in connection with provisional attachment order, the Act prescribes a statutory time limit that the same had to be passed within (180) days from the date of provisional attachment order. The Adjudicating Authority in the ::19:: Dr.GRR,J wp_27051_2022 impugned show-cause notice provided a detailed note regarding the time limitation of the proceedings emphasising the necessity for adherence to the due dates prescribed. The 6th petitioner was in judicial custody since 19.08.2021 and was produced on P.T. warrant and was remanded to judicial custody in the E.D. case admittedly on 20.01.2022. The petitioners were served with show-cause notice under Section 8(1) of the PMLA Act on 22.04.2022 and the same was received by them on 09.05.2022. The original complaint and the documents relied upon were served on them on 10.05.2022.
14. The petitioners were directed to file their written replies on or before 05.06.2022. However, considering their representation sent through their counsel vide e- mail dated 04.06.2022, the Adjudicating Authority granted an additional time of two (02) weeks to file their reply on or before 20.06.2022. As 6th petitioner was not released on bail and considering the ::20:: Dr.GRR,J wp_27051_2022 representation of petitioners that he was the only person to have full and complete knowledge with respect to the allegations made in the impugned show- cause notice, and he was not been provided with opportunity to access to the data which was required for preparation of a comprehensive and effective defence to the show-cause notice on his behalf and its subsidiaries and associated offices, petitioner made an application on 17.06.2022 seeking extension of time for a period of two (02) months. As there was no response from 1st respondent for extending the time period, petitioners filed the present Writ Petition.
15. The respondents also admitted that 6th petitioner was released from judicial custody only on 25.06.2022. Admittedly, the original complaint and its annexures were voluminous running into almost 5000 pages and it needs time to peruse the voluminous documents served upon them and to comprehend them and to ascertain the facts in accordance with the internal ::21:: Dr.GRR,J wp_27051_2022 records and collate the supporting documents for preparation of reply. Any inadequate reply would affect the defence of petitioners. Therefore, not granting extension of time period to reply to the impugned show-cause notice would be depriving them of their right to put forth defense against the provisional attachment order and to present evidence in support of their defense. The same was in violation of principles of natural justice violating the opportunity of providing a fair hearing. Without hearing the petitioners, even if an order was passed confirming the provisional attachment, the same may not stand for legal scrutiny.
16. Learned Standing Counsel for the 2nd respondent relied on the decision of the High Court of Delhi in M/s. Vikas WSP Ltd. & ors. vs. Directorate Enforcement & anr.1 wherein petitioners had filed the said petition claiming that as the period of (180) days 1 W.P.(C)3551/2020 & 12626/2020, dated 18.11.2020.
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from the date of provisional attachment orders expired in terms of Section 5(3) of the Act, the said order ceased to have effect and the Adjudicating Authority had become functus officio and the proceedings in the complaint could not proceed. Accepting the said contention, the Court observed that the Adjudicating Authority would be rendered functus officio after the expiry of the period under Section 8(3) and could not proceed with the original complaint, pending before it.
17. The Court did not consider the third proviso to Section (5) in the above case and the facts of the said case are different from the facts of the present case. As such, the said judgment is not applicable to the facts of the present case, and the said decision is of no help to the respondents.
18. Therefore, in view of above and in the facts and circumstances of the case, it is considered fit to direct the 1st respondent to grant extension of time for one (01) month to the petitioners to prepare a proper ::23:: Dr.GRR,J wp_27051_2022 response to the impugned show-cause notice. For the purpose of computing the period of (180) days, the period during which the proceedings were extended shall be excluded as per the third proviso to Section 5 of the PMLA Act inserted by way of Amendment Act No.13 of 2018 w.e.f. 19.04.2018.
19. In the result, the Writ Petition is disposed of with the above directions. No order as to costs.
20. As a sequel, miscellaneous applications pending if any in this Writ Petition, shall stand closed.
________________________ Dr. G. RADHA RANI, J Date : 28.06.2022 Note : Issue C.C. today B/o.
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