Karnataka High Court
Ms C Uma Reddy vs Directorate Of Enforcement on 14 December, 2022
Author: M. Nagaprasanna
Bench: M. Nagaprasanna
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 14TH DAY OF DECEMBER, 2022 R
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.19337 OF 2022 (GM - RES)
BETWEEN:
1. MS.C.UMA REDDY
AGED ABOUT 62 YEARS
D/O C.V.REDDY
RESIDING AT NOS.31-36, II FLOOR
1ST MAIN ROAD, 2ND STAGE
AREKERE MICO LAYOUT
BANNERGHATTA ROAD
BENGALURU - 560 076.
2. MR.SHIVAKUMAR REDDY
AGED ABOUT 59 YEARS
S/O C.VEERA REDDY
RESIDING AT NO.14
RAMANASHREE
29TH MAIN ROAD
BTM LAYOUT II STAGE
BENGALURU - 560 078.
3. R.H.KASTURI
AGED ABOUT 54 YEARS
W/O C.SHIVAKUMAR REDDY
RESIDING AT NO.14, RAMANASHREE
29TH MAIN ROAD
BTM LAYOUT II STAGE
BENGALURU - 560 078.
2
4. KAVVERI TELECOM PRODUCTS LIMITED
REGISTERED AS PRIVATE LIMITED COMPANY
REPRESENTED BY C.SHIVAKUMAR REDDY
31-36, I MAIN, II STAGE
AREKERE MICO LAYOUT
BANNERGHATTA ROAD
BENGALURU - 560 078.
5. M/S KEONA
PROPRIETARY CONCERN.
REPRESENTED BY MS.C.UMA REDDY
1ST FLOOR, 31-36, 1 MAIN, 2ND STAGE
AREKERE MICO LAYOUT
BANNERGHATTA ROAD
BENGALURU - 560 078.
6. M/S SMR TELECOM HOLDING PVT. LTD.,
REGISTERED AS
PRIVATE LIMITED COMPANY
REPRESENTED BY MR.SHIVA REDDY
31-36, 1 MAIN, 2ND STAGE
AREKERE MICO LAYOUT
BANNERGHATTA ROAD
BENGALURU - 560 078.
7. MR.C.ROHIT REDDY
AGED ABOUT 30 YEARS
S/O C.SHIVAKUMAR REDDY
NO.14, RAMANASHREE
29TH MAIN ROAD, BTM LAYOUT
II STAGE, BENGALURU - 560 078.
8. MR.C.MOKSHITH REDDY
AGED ABOUT 25 YEARS
S/O C.SHIVAKUMAR REDDY
NO.14, RAMANASHREEE
29TH MAIN ROAD
BTM LAYOUT II STAGE
3
BENGALURU - 560 078.
9. MR.SANKETHRAM REDDY
AGED ABOUT 23 YEARS
S/O C.SHIVAKUMAR REDDY
NO.14, RAMANASHREE
29TH MAIN ROAD
BTM LAYOUT II STAGE
BENGALURU - 560 078.
... PETITIONERS
(BY SRI SANDESH J.CHOUTA, SR.ADVOCATE A/W
SRI SAMPREETH V., ADVOCATE)
AND:
1. DIRECTORATE OF ENFORCEMENT
GOVERNMENT OF INDIA
BANGALORE ZONAL OFFICE
3RD FLOOR, BLOCK-B
BMTC BUILDING
SHANTHINAGAR
K.H.ROAD
BENGALURU - 560 027.
2. THE ASSISTANT DIRECTOR
DIRECTORATE OF ENFORCEMENT
GOVERNMENT OF INDIA
BANGALORE ZONAL OFFICE
3RD FLOOR, BLOCK-B
BMTC BUILDING
SHANTHINAGAR
K.H.ROAD
BENGALURU - 560 027.
3. THE DEPUTY DIRECTOR
DIRECTORATE OF ENFORCEMENT
GOVERNMENT OF INDIA
4
BANGALORE ZONAL OFFICE
3RD FLOOR, BLOCK-B
BMTC BUILDING
SHANTHINAGAR
K.H.ROAD
BENGALURU - 560 027.
4. THE REGISTRAR/ADMINISTRATIVE OFFICER
ADJUDICATING AUTHORITY
PREVENTION OF MONEY LAUNDERING ACT
AND PMLA, ROOM NO.26, 4TH FLOOR
JEEVAN DEEP BUILDING
PARLIAMENT STREET
NEW DELHI - 110 001.
... RESPONDENTS
(BY SRI MADHUKAR DESHPANDE, ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO CALL FOR THE RECORDS
PENDING ON THE FILE OF R4 WHICH IS PERTAINING TO THE
IMPUGNED ORDER PASSED BY THE R3 IN PAO NO.5/2022 IN ECIR
NO.ECIR/BGZO/04/2019/AD-ACV/1541; QUASH THE PROVISIONAL
ORDER OF ATTACHMENT IN PAO.NO.5/2022 DTD 1.8.2022, ECIR
NO.ECIR/BGZO/04/2019/AD-ACV/1541 WHEREIN THE IMMOVABLE
AND MOVABLE PROPERTIES OF THE PETITIONERS HAVE BEEN
PROVISIONALLY ATTACHED BY THE R3 ALLEGEDLY IN EXERCISE
OF HIS POWERS U/S 5(1) OF THE PREVENTION OF MONEY
LAUNDERING ACT AND ALL SUCH FURTHER STEPS ARISING OUT
OF THE SAID IMPUGNED PROVISIONAL ATTACHMENT ORDER
WHICH IS PRODUCED AS ANNEXURE - A.
5
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 03.11.2022, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The petitioners call in question a provisional attachment order in order No.5/2022 dated 01.08.2022, whereby, the movable and immovable properties of the petitioners are provisionally attached in exercise of powers conferred under Section 5(1) of the PMLA.
2. Shorn of unnecessary details, facts in brief, that leads the petitioners to this Court, are as follows:
The 1st petitioner runs certain businesses and manages supply and marketing of flowers purchased from farmers and circulates it into retail market through her establishment in the name and style of 'M/s Keona'. The other business of the 1st petitioner concerns telecom infrastructure, through a company established for the purpose by name Kavveri Telecom Infrastructure Limited (hereinafter referred to as 'the Company' for short). A loan was availed by the Company at the hands of Dena Bank, J.C.Road Branch. Alleging that the loan had been used for purposes other than for which it had been taken, certain proceedings come to be 6 initiated against the petitioners and several others by the Central Bureau of Investigation on 27.07.2017 in R.C.No.10 of 2017, against the Directors of the Company and arraigning some of the petitioners as accused in the said case. Pending investigation, the Assistant Director of Enforcement Directorate communicates to the Bank in which the petitioners had their accounts to be frozen on account of allegations against the 1st petitioner, in particular.
3. On completion of investigation, the CBI filed a final report in the case and the said case is pending as C.C. No.11606 of 2020 before the Special Court for offences punishable under Sections 420, 468, 471 and 120B of the IPC. Being aggrieved by the order of the Special Court taking cognizance of the offences and issuance of summons, petitioner Nos.1 to 4 and 6 preferred a writ petition before this Court in Writ Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020. This Court by its order dated 10.12.2020 stayed all further proceedings against petitioner Nos.1 to 4 and 6 who are arrayed as accused.
4. On the basis of the case registered by the CBI in the aforesaid R.C. and in C.C.No.11606 of 2020, the Enforcement 7 Directorate registers an Enforcement Case Information Report ('ECIR') in ECIR No.ECIR/BGZO/04/2019/AD-AKV/1541 for offences punishable under Sections 3 and 4 of the PMLA. In those proceedings on 01-08-2022, the Deputy Director of Enforcement Directorate passes a provisional order in Provisional Order No.5 of 2022 ordering provisional attachment of movable and immovable properties of the petitioners to the total value of Rs.40,14,26,327/-.
The order of attachment so made by the 3rd respondent is what drives the petitioners to this Court in the subject petition.
5. Heard the learned senior counsel Sri Sandesh J.Chouta, appearing for the petitioners and Sri Madhukar Deshpande, learned counsel for the respondents/Enforcement Directorate.
6. The learned senior counsel would contend that registration of ECIR against the petitioners is wholly on the basis of the case registered by the CBI and the charge sheet so filed in those proceedings. Therefore, there is a link with the offences under the IPC as alleged in C.C.No.11606 of 2020. He would contend that the order taking cognizance in the aforesaid C.C.No.11606 of 2020 and all further proceedings are stayed by this Court. In the light of the 8 interim order granted, the basis itself is stayed and, therefore, consequent action of attachment of movable and immovable are all required to be stayed, till the conclusion of the case pending in C.C.No.11606 of 2020.
6.1. He would place reliance upon a judgment of the Apex Court in the case of VIJAY MADANLAL CHOUDARY v. UNION OF INDIA1 and a judgment rendered by the High Court of Madras following the judgment of the Apex Court in the case of B.SHANMUGAM AND OTHERS v. KARTHIK DASARI, DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT2, to contend that the Apex Court has clearly held that if the accused are acquitted in the predicate offence, the offence under the PMLA cannot be sustained. Therefore, in the light of the link, the order of attachment by the 3rd respondent is erroneous and requires to be obliterated.
7. On the other hand, the learned counsel Sri Madhukar Deshpande, who has filed the statement of objections takes this Court through the statement of objections and submits that there is 1 2022 SCC Online SC 929 2 2022 SCC OnLine Mad.4417 9 a clear case of money laundering against the petitioners.
Therefore, the registration of crime for the scheduled offences under the PMLA cannot be quashed merely because there has been an interim order of stay in the predicate offence, against the petitioners. The two are independent offences. He would contend that against the order of attachment, writ petition would not be maintainable and they have to approach the appropriate Court by challenging the said order of attachment. He would submit that on the ground that there is an interim order operating in the predicate offence, if the impugned proceedings were to be quashed, it would defeat the very object of the Act and would submit that the petition be dismissed and further proceedings be permitted to be continued in terms of the proceedings impugned.
8. I have given my anxious consideration to the submissions made by the respective learned counsel and perused the material on record.
9. The afore-narrated facts of trail of money that comes into the accounts of the petitioners and its spending for the purposes other than for which it was taken from Dena Bank, need not, at this 10 juncture, be gone into. The questions that arise for consideration qua the contentions in the case at hand are:
(i) Whether the Enforcement Directorate had the right to attach the properties of the petitioners? and
(ii) Whether the proceedings under PMLA in ECIR No.ECIR/BGZO/04/2019/AD-AKV/1541 should be permitted to be continued in the teeth of the interim order of stay of further proceedings granted in the offences relating to IPC i.e., predicate offences?
10. Before embarking upon consideration of the points at hand, I deem it appropriate to notice the provisions of the PMLA that are germane to be considered. Sections 3, 4 and 5 of the PMLA read as follows:
"3. OFFENCE OF MONEY-LAUNDERING-- Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.
Explanation.--For the removal of doubts, it is hereby clarified that,--
(i) a person shall be guilty of offence of money laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes 11 or activities connected with proceeds of crime, namely--
(a) concealment; or
(b) possession; or
(c) acquisition; or
(d) use; or
(e) projecting as untainted property; or
(f) claiming as untainted property, in any manner whatsoever;
(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.
4. PUNISHMENT FOR MONEY-LAUNDERING.--
Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine:
Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words "which may extend to seven years", the words "which may extend to ten years" had been substituted.
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--
12(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, 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 stayed by the 13 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 (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority."
(Emphasis supplied) Section 3 of the PMLA deals with offence of money laundering, Section 4 makes the offences of money laundering punishable and 14 Section 5 which comes under Chapter-III, deals with attachment of property, adjudication and confiscation with attachment of property involved in money laundering. Section 5 of PMLA is what is germane to be considered, in the case at hand.
11. Point No.i : Whether the Enforcement Directorate had the right to attach the properties of the petitioners?
The afore-narrated facts that lead registration of ECIR against the petitioners are not in dispute. The registration of the case comes about on account of CBI registering a case against the petitioners in RC No.10 of 2017. The CBI after investigation filed its final report in C.C.No.11606 of 2020. It is then, based upon those offences so registered against the petitioners, the impugned ECIR comes to be registered. Therefore, the link or the foundation lies in the offences alleged in C.C.No.11606 of 2020 and as such, it becomes a predicate offence. Section 5 of the PMLA empowers the Enforcement Directorate, that if the Deputy Director has reasons to believe and such reasons are recorded in writing, may order attachment of the property for a period not exceeding 180 days from the date of said order, which could be extended before the 15 concerned Court, where he has reasons to believe, that any person is in possession of any proceeds of crime, and 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.
12. The other provision in sub-section (5) of Section 5 of the PMLA deals with procedure for such attachment and what would become after the attachment. The petitioners challenging the order of the Special Court taking cognizance of offences in C.C.No.11060 of 2020 approached this Court in Writ Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020. This Court has by its order dated 10-12-2020, stalled further proceedings and the interim order is in subsistence even as on date. Therefore, the offences alleged against the petitioners which forms the foundation of the offences registered against them in the ECIR have been stayed, which would mean that they have been eclipsed. After granting stay of the said order, the proceedings under the PMLA did not stop. The 3rd respondent/Competent Authority passes an order on 01.08.2022, issuing a provisional attachment order in Provisional 16 Order No.5 of 2022 under sub-Section (1) of Section 5 of the PMLA.
To arrive at passing of the order, statements of all the petitioners have been recorded under Section 50 of the PMLA and several documents are scrutinized. A detailed order is passed in terms of Section 5 of the PMLA and arriving at a conclusion albeit prima facie that he has reason to believe that proceeds of crime are the result of properties standing in the names of the petitioners either movable or immovable.
13. It is this attachment order that drives the petitioners to this Court. Therefore, the power under Section 5 being executed and the considered finding that he has reason to believe to pass the said order cannot be found fault with. It is in tune with Section 5 of the PMLA. Therefore, the first point that has arisen for consideration is answered against the petitioners, holding that the 3rd respondent has the power to attach the properties. What is required is 'there should be reasons to believe'. The order passed does reflect application of mind and records reasons to believe that they were proceeds of crime.
1714. Point No.ii: Whether the impugned proceedings under PMLA in ECIR No.ECIR/BGZO/04/2019/AD-AKV/1541 should be permitted to be continued in the teeth of the interim order of stay of further proceedings granted in the offences relating to IPC i.e., the predicate offences?
The issue now is, in the teeth of the preceding analysis that the order of attachment cannot be found fault with, as it is in tune with the PMLA, should it be permitted to be taken to its logical end or otherwise. Interdiction of attachment order is sought on the ground that there is an interim order of stay in the predicate offence i.e., offences under the IPC. The link between the two is, what is considered by the Apex Court in the case of VIJAY MADANLAL CHOUDARY (supra). The Apex Court in the case of VIJAY MADANLAL CHOUDARY (supra) considers the entire spectrum of PMLA and at paragraph 467 of the judgment draws up the conclusions. Paragraph 467 reads as follows:
"CONCLUSION
467. In light of the above analysis, we now proceed to summarise our conclusion on seminal points in issue in the following terms:--18
(i) The question as to whether some of the amendments to the Prevention of Money-
laundering Act, 2002 could not have been enacted by the Parliament by way of a Finance Act has not been examined in this judgment. The same is left open for being examined along with or after the decision of the Larger Bench (seven Judges) of this Court in the case of Rojer Mathew.
(ii) The expression "proceedings" occurring in Clause (na) of Section 2(1) of the 2002 Act is contextual and is required to be given expansive meaning to include inquiry procedure followed by the Authorities of ED, the Adjudicating Authority, and the Special Court.
(iii) The expression "investigation" in Clause (na) of Section 2(1) of the 2002 Act does not limit itself to the matter of investigation concerning the offence under the Act and is interchangeable with the function of "inquiry" to be undertaken by the Authorities under the Act.
(iv) The Explanation inserted to Clause (u) of Section 2(1) of the 2002 Act does not travel beyond the main provision predicating tracking and reaching upto the property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence.
(v)(a) Section 3 of the 2002 Act has a wider reach and captures every process and activity, direct or indirect, in dealing with the proceeds of crime and is not limited to the happening of the final act of integration of tainted property in the formal economy. The Explanation inserted to Section 3 by way of amendment of 2019 does not expand the purport of Section 3 but is only clarificatory in nature. It clarifies the word "and" preceding the expression projecting or claiming as "or"; and being a clarificatory amendment, it would make no 19 difference even if it is introduced by way of Finance Act or otherwise.
(b) Independent of the above, we are clearly of the view that the expression "and" occurring in Section 3 has to be construed as "or", to give full play to the said provision so as to include "every"
process or activity indulged into by anyone. Projecting or claiming the property as untainted property would constitute an offence of money- laundering on its own, being an independent process or activity.
(c) The interpretation suggested by the petitioners, that only upon projecting or claiming the property in question as untainted property that the offence of Section 3 would be complete, stands rejected.
(d) The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property, which constitutes the offence of money-laundering. The Authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or any one claiming such property being the property linked to stated scheduled offence through him.
20 (vi) Section 5 of the 2002 Act is constitutionally valid. It provides for a balancing
arrangement to secure the interests of the person as also ensures that the proceeds of crime remain available to be dealt with in the manner provided by the 2002 Act. The procedural safeguards as delineated by us hereinabove are effective measures to protect the interests of person concerned.
(vii) The challenge to the validity of sub-section (4) of Section 8 of the 2002 Act is also rejected subject to Section 8 being invoked and operated in accordance with the meaning assigned to it hereinabove.
(viii) The challenge to deletion of proviso to sub-section (1) of Section 17 of the 2002 Act stands rejected. There are stringent safeguards provided in Section 17 and Rules framed thereunder. Moreover, the pre-condition in the proviso to Rule 3(2) of the 2005 Rules cannot be read into Section 17 after its amendment. The Central Government may take necessary corrective steps to obviate confusion caused in that regard.
(ix) The challenge to deletion of proviso to sub-section (1) of Section 18 of the 2002 Act also stands rejected. There are similar safeguards provided in Section 18. We hold that the amended provision does not suffer from the vice of arbitrariness.
(x) The challenge to the constitutional validity of Section 19 of the 2002 Act is also rejected. There are stringent safeguards provided in Section 19. The provision does not suffer from the vice of arbitrariness.
(xi) Section 24 of the 2002 Act has reasonable nexus with the purposes and objects sought to be 21 achieved by the 2002 Act and cannot be regarded as manifestly arbitrary or unconstitutional.
(xii)(a) The proviso in Clause (a) of sub-section (1) of Section 44 of the 2002 Act is to be regarded as directory in nature and this provision is also read down to mean that the Special Court may exercise judicial discretion on case-to-case basis.
(b) We do not find merit in the challenge to Section 44 being arbitrary or unconstitutional. However, the eventualities referred to in this section shall be dealt with by the Court concerned and by the Authority concerned in accordance with the interpretation given in this judgment.
(xiii)(a) The reasons which weighed with this Court in Nikesh Tarachand Shah for declaring the twin conditions in Section 45(1) of the 2002 Act, as it stood at the relevant time, as unconstitutional in no way obliterated the provision from the statute book; and it was open to the Parliament to cure the defect noted by this Court so as to revive the same provision in the existing form.
(b) We are unable to agree with the observations in Nikesh Tarachand Shah distinguishing the enunciation of the Constitution Bench decision in Kartar Singh; and other observations suggestive of doubting the perception of Parliament in regard to the seriousness of the offence of money- laundering, including about it posing serious threat to the sovereignty and integrity of the country.
(c) The provision in the form of Section 45 of the 2002 Act, as applicable post amendment of 2018, is reasonable and has direct nexus with the purposes and objects sought to be achieved by the 2002 Act and does not suffer from the vice of arbitrariness or unreasonableness.
22(d) As regards the prayer for grant of bail, irrespective of the nature of proceedings, including those under Section 438 of the 1973 Code or even upon invoking the jurisdiction of Constitutional Courts, the underlying principles and rigours of Section 45 may apply.
(xiv) The beneficial provision of Section 436A of the 1973 Code could be invoked by the accused arrested for offence punishable under the 2002 Act.
(xv)(a) The process envisaged by Section 50 of the 2002 Act is in the nature of an inquiry against the proceeds of crime and is not "investigation" in strict sense of the term for initiating prosecution; and the Authorities under the 2002 Act (referred to in Section 48), are not police officers as such.
(b) The statements recorded by the Authorities under the 2002 Act are not hit by Article 20(3) or Article 21 of the Constitution of India.
(xvi) Section 63 of the 2002 Act providing for punishment regarding false information or failure to give information does not suffer from any vice of arbitrariness.
(xvii) The inclusion or exclusion of any particular offence in the Schedule to the 2002 Act is a matter of legislative policy; and the nature or class of any predicate offence has no bearing on the validity of the Schedule or any prescription thereunder.
(xviii)(a) In view of special mechanism envisaged by the 2002 Act, ECIR cannot be equated with an FIR under the 1973 Code. ECIR is an internal document of the ED and the fact that FIR in respect of scheduled offence has not been recorded does not come in the way of the Authorities referred to in Section 48 to commence 23 inquiry/investigation for initiating "civil action" of "provisional attachment" of property being proceeds of crime.
(b) Supply of a copy of ECIR in every case to the person concerned is not mandatory, it is enough if ED at the time of arrest, discloses the grounds of such arrest.
(c) However, when the arrested person is produced before the Special Court, it is open to the Special Court to look into the relevant records presented by the authorised representative of ED for answering the issue of need for his/her continued detention in connection with the offence of money- laundering.
(xix) Even when ED manual is not to be published being an internal departmental document issued for the guidance of the Authorities (ED officials), the department ought to explore the desirability of placing information on its website which may broadly outline the scope of the authority of the functionaries under the Act and measures to be adopted by them as also the options/remedies available to the person concerned before the Authority and before the Special Court.
(xx) The petitioners are justified in expressing serious concern bordering on causing injustice owing to the vacancies in the Appellate Tribunal. We deem it necessary to impress upon the executive to take corrective measures in this regard expeditiously.
(xxi) The argument about proportionality of punishment with reference to the nature of scheduled offence is wholly unfounded and stands rejected."
(emphasis supplied) 24 In clause (d) of the aforesaid conclusion, the Apex Court considers Section 3 of the Act and later upholds the constitutional validity of Section 5 of the Act in terms of clause (vi) (supra).
Section 5 of the Act is what deals with the attachment of the properties. Clause (v)(d) of paragraph 467 (supra) establishes the link between the two. The Apex Court holds that in the event the accused in the PMLA or whose allegations are linked to any persons in the predicate offence, such accused in the predicate offence gets a clean chit on three circumstances - one by acquittal after a full blown trial; two on discharge by the competent Court and three on the proceedings being quashed by the High Court in exercise of its jurisdiction under Section 482 of the Cr.P.C.
15. In these circumstances the impugned action under the provisions of the PMLA cannot be permitted to be continued.
Therefore, if the allegations in the predicate offences are considered to be the flesh, the offences under the PMLA is the blood, they are impregnable. Therefore, if the predicate offences are not permitted to move forward, the impugned proceedings cannot. It would have been altogether different circumstance, if the petitioners were all 25 acquitted of the offences under the IPC or any other predicate offence to which the offence under the PMLA is linked. The situation in the case at hand is not with regard to acquittal, but the stay of the proceedings. Therefore, they are eclipsed and not extinguished. The Apex Court does not deal with a circumstance as to what should happen in a case, where it is eclipsed. The Apex Court only dealt with a situation where there is extinguishment of predicate offences. Therefore, it is necessary to consider taking cue from the findings of the Apex Court as to whether attachment order should be permitted to be confirmed or otherwise.
16. It cannot be disputed, that at a later point in time if the petitioners are acquitted, no proceeding under the ECIR can continue. In the event they are convicted, it is always open to the Enforcement Directorate to pass any order of attachment or conviction as the case would be. If that be the right of the Enforcement Directorate, since there is no determination in C.C.No.11606 of 2020 in the light of the interim order being granted by this Court, so long as the interim order is in operation, the impugned proceedings, in the considered view of this Court, 26 cannot be permitted to continue, failing which, it would run completely counter to law as enunciated by the Apex Court.
17. In somewhat similar circumstance, a Division Bench of the High Court of Madras in B. SHANMUGAM'S case (supra) considers this very point as to what is the effect of the stay order and has held as follows:
"What is the effect of a stay order?
17. The effect of an order of stay means that the operation of the impugned order is stayed or stands stalled as if the impugned order does not exist. Therefore, to bring the parties to the proceedings from taking further action in relation to the subject matter pending the final adjudication, stay order is granted in the interest of both parties. During the currency of stay order, if any proceedings are permitted to go on and in the meanwhile, if any damage has been caused to the reputation or the goodwill of the parties, the same cannot be compensated. Whereas if the Department waits for the final outcome of the proceedings, no prejudice would be caused to them. In all these cases, the admitted case of the respondent Department is that the ECIR has been initiated based on the three First Information Reports in Crime Nos. 441 of 2015, 298 of 2017, 344 of 2018, which culminated in the proceedings in C.C. No. 24 of 2021, C.C. No. 19 of 2020 and C.C. No. 25 of 2021 respectively and the proceedings in C.C. No. 25 of 2021 culminating from Crime No. 344 of 2018 have been quashed. The calendar cases arising out of the other two First Information Reports have been stayed. As stated supra, since the ECIR itself was only on the basis of the said three First 27 Information Reports, when the proceedings pursuant to the said First Information Reports have been stayed by the High Court, whether the ECIR, which is also pursuant to the First Information Reports, can be proceeded with, is a question that stares at open. Our considered answer is in the negative.
18. Because, it is not the case of the respondent that apart from the above three First Information Reports, there are other materials based upon which they have initiated the proceedings under the Prevention of Money-laundering Act. Hence, in our view, when the calendar cases which culminated from the said two First Information Reports also have been stayed, the respondent Department should also refrain itself from proceeding any further, as it is their admitted case that the summons issued to the petitioners are pursuant to the initiation of ECIR based upon the three First Information Reports.
19. Learned Senior Counsels appearing for the petitioners in extenso argued that there is no jurisdictional facts to initiate the proceedings under the Prevention of Money-laundering Act. According to them, the following jurisdictional facts have to be there for initiating proceedings under the Prevention of Money-laundering Act.
20. Firstly, there must be predicate/scheduled offence.
21. Secondly, there must be a criminal activity.
22. Thirdly, there must be proceeds of crime which is quintessential to connect the first and second i.e. Scheduled offence and criminal activities.
23. According to them, except for the three First Information Reports indicating commission of scheduled offence, there is no document or pleading on the side of the respondent to substantiate that there are proceeds of crime as per Section 2(l)(u) of the Prevention of Money- laundering Act and that proceeds had a link with the scheduled offence. According to them, out of three calendar cases, one has been quashed and two Calendar Cases have 28 been stayed. Therefore, in the eye of law, firstly, there is no scheduled offence as per section 2(y) of the Prevention of Money-laundering Act, 2002 as on this date for the respondent to proceed under the said Act.
24. On the contrary, Mr. R. Sankaranarayanan, learned Additional Solicitor General strenuously contended that it is true that the proceedings have been stayed, but that does not mean the offence has been wiped out. Till it is quashed by a competent Court or the person is discharged or acquitted, the offence continues to be alive and the respondent has the authority to proceed under the Act.
25. Let us see what is the jurisdictional fact to be taken into account by a Court before assuming jurisdiction over a particular matter. The Hon'ble Supreme Court explaining the above facts in Arun Kumar v. Union of India, (2007) 1 SCC 732, has held as follows:--
"74. A "jurisdictional fact" is a fact which must exist before a court, tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority. It is the fact upon which an administrative agency's power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess.
75. In Halsbury's Laws of England, it has been stated:
"Where the jurisdiction of a tribunal is dependent on the existence of a particular state of affairs, that state of affairs may be described as preliminary to, or collateral to the merits of, 29 the issue. If, at the inception of an inquiry by an inferior tribunal, a challenge is made to its jurisdiction, the tribunal has to make up its mind whether to act or not and can give a ruling on the preliminary or collateral issue; but that ruling is not conclusive."
76. The existence of jurisdictional fact is thus sine qua non or condition precedent for the exercise of power by a court of limited jurisdiction."
26. Further, the Apex Court in the case of State of Punjab v. Davinder Pal Singh Bhullar, (2011) 14 SCC 770, has held that if a foundation is being removed, structure/work falls.
27. A mere perusal of the above judgment clearly shows that the existence of jurisdictional fact is a condition precedent for the exercise of power by a Court of limited jurisdiction. Therefore, in the cases on hand, when there is no cause of action, since the proceeding in one of the calendar cases was quashed by the order dated 30.07.2021 in Criminal Original Petition No. 13374 of 2021 and the proceedings in two other calendar cases have been stayed by this Court, there is no jurisdictional fact or cause of action for the respondent/department to initiate any proceedings during the period of order of stay operating against the two FIRs. Viz. C.C. No. 19/2020 and C.C. No. 24 of 2021.
28. Secondly, as already held by us, when the basis, namely, the proceedings which culminated through the First Information Reports had been stayed, the respondent should await the result of such proceedings before continuing any further under the Prevention of Money- laundering Act. It is the further case of the learned Additional Solicitor General that the Hon'ble Supreme Court in Vijay Madanlal Choudhary has held that the summons 30 issued to the individual is to collect factual evidence as regards to the offence of money-laundering. It is his further case that only after concluding such inquiry, the authorities under the Prevention of Money-laundering Act could proceed any further as provided under the Act, that is, after ascertaining the proceeds of crime and its nexus with the scheduled offence. Till the First Information Report is quashed, the scheduled offence continues to be alive.
29. In our view, the grant of stay of any particular proceedings would amount to eclipsing the proceedings initiated. An order of stay is interim in nature pending the final proceedings. The Hon'ble Apex Court in State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335, in paragraph-5 stated thus:
"Everyone whether individually or collectively is unquestionably under the supremacy of law. Whoever he may be, however high he is, he is under the law. No matter how powerful he is and how rich he may be."
30. Therefore, the Apex Court has given the guidelines to be followed by the Courts while exercising the extraordinary power under Article 226 or the inherent powers under Section 482 of the Code that where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not constitute any offence or make out a case against the accused, based on which, when the orders of stay are granted, the parties to the proceedings bound by the rule of law, should abide by the orders of stay. In this background, when the learned Additional Solicitor General appearing for the respondent fairly conceded that in view of the order of quash passed in Criminal Original Petition No. 13374 of 2021 dated 30.07.2021, the respondent Department would not proceed against the accused therein, the same analogy would equally apply to the other cases, where orders of stay granted are operating against the C.C. No. 19/2020 and C.C. No. 20 of 2020 based on which the ECIRs are recorded and summons are issued till the cases are decided.
31Therefore, the impugned proceedings/summons do not have any legal sanctity. Interim order of stay granted will be subject to the final orders in the main proceedings, after which the eclipse would also wane away. In such circumstances, we are not inclined to enter upon the merits and demerits of the proceedings initiated by the Department, as it is at the stage of budding. It may either blossom into a full flower or wither away. Hence, we leave open all the questions that are raised on the merits and de-merits of the proceedings initiated by the respondent, to be dealt with in appropriate proceedings.
31. Generally, the summons are issued for appearance of a party on a particular date. If a party does not appear on the given date, fresh summons demanding the appearance of the person have to be issued. In the present cases, in view of the reasonings and the findings as stated supra, the last of the summons issued to the petitioners for their appearance on 09.05.2022 have elapsed. Therefore, as we have concluded that in view of the quashing of the proceedings in C.C. No. 25 of 2021 and staying of the proceedings in C.C. No. 19 of 2020 & C.C. No. 24 of 2021 as highlighted above, the scheduled offence for the present is eclipsed, suspended or stop operating during the period of stay, the respondent Department has to await the finality of the said proceedings. Needless to mention, if the proceedings in C.C. No. 19 of 2020 and C.C. No. 24 of 2021 are quashed pursuant to the orders in the applications filed by the respective persons to quash the proceedings, in which event, the respondent cannot step in or initiate any proceedings under the Prevention of Money-laundering Act, as held by the Hon'ble Supreme Court in Vijay Madanlal Choudhary and in Parvathi Kollur v. State by Directorate of Enforcement, 2022 Live Law (SC) 688 cited supra. Therefore, the respondent is hereby refrained from proceeding any further pursuant to the impugned proceedings in ECIR/MDSZO/21/2021, till 32 the disposal of the Criminal Revision Case No. 224 of 2021, Criminal Original Petition No. 15122 of 2021 and the SLP (Crl) Diary No. 9957 of 2022 (SLP (Crl) No. 3841 of 2022)."
(Emphasis supplied) A Division Bench of the High Court of Madras holds that in the light of the link between the two and the judgment of the Apex Court in VIJAY MADANLAL CHOUDARY (supra) further proceedings under the PMLA should not be permitted to be continued, till the disposal of the case pending before the competent Court in the predicate offence, where there is an interim order of stay operating. I am in respectful agreement with the judgment rendered by the High Court of Madras only to the extent of the challenge laid with regard to the impugned proceedings of attachment.
18. In the light of the judgments rendered by the Apex Court in the case of VIJAY MADANLAL CHOUDARY and that of the Division Bench of the High Court of Madras interpreting judgment of the Apex Court in the case of VIJAY MADANLAL CHOUDARY, I deem it appropriate to stall all further action in the impugned proceedings till conclusion of Writ Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020. If the proceedings in the 33 predicate offence are stayed, the impugned proceedings of attachment under the ECIR cannot be permitted to continue. If the proceedings move on in the predicate offence, the offence under the ECIR should also be permitted to continue, failing which, it would defeat the proceedings under the PMLA or the IPC and would fall foul of the judgment of the Apex Court. Therefore, in the event the proceedings in C.C.No.11606 of 2020 are permitted to continue, the interjection of the proceedings in ECIR in this case would stand automatically vacated and the proceedings would be permitted to be continued. Wherefore, there cannot be any of the order of attachment as is prayed. These proceedings will have to be kept in the oblivion, awaiting the result of the proceedings in Writ Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020.
19. Insofar as the judgments relied on by the learned counsel appearing for the Enforcement Directorate particularly with reference to the case in J.SEKAR v. UNION OF INDIA3, rendered by the High Court of Delhi holding that the proceedings under the PMLA and the proceedings under the IPC or predicate offences are 3 2018 SCC OnLine Del 6523 34 completely different and they can go hand in hand is concerned, there can be no qualm about the principles so laid down at the relevant point in time. With the judgment of the Apex Court in the case of VIJAY MADANLAL CHOUDARY (supra), the judgment in J.SEKAR would not become applicable to the facts of the case. The other judgments relied on would also follow suit in the light of the judgment of the Apex Court rendered in the case of VIJAY MADANLAL CHOUDARY (supra).
20. For the praedictus reasons, the following:
ORDER
(i) The Writ Petition is allowed in part.
(ii) The Enforcement Directorate is restrained from proceeding further in No.ECIR/BGZO/04/2019/ AD-
AKV/1541 qua the order dated 01-08-2022 with regard to provisional attachment, till disposal of Writ Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020.
(iii) As a result of the aforesaid order (clause (ii)), grant of provisional attachment order dated 01-08-2022 shall be kept in abeyance till disposal of Writ 35 Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020, which would mean the properties subject to attachment cannot be released in favour of the petitioners nor can be confirmed or sold by the Enforcement Directorate.
(iv) It is made clear that no particular order from the Court hearing Writ Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020 is required, to continue these proceedings. Once those proceedings are permitted to continue, the continuation of impugned proceedings then becomes axiomatic.
Ordered accordingly.
Sd/-
JUDGE nvj CT:MJ