Karnataka High Court
Mantri Developers Private Limited 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
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.20713 OF 2022 (GM - RES)
BETWEEN:
1. MANTRI DEVELOPERS PRIVATE LIMITED
INCORPORATED UNDER COMPANIES ACT, 1956
NO.41, VITTAL MALLYA ROAD
BENGALURU - 560 001
REPRESENTED BY IT'S
AUTHORISED SIGNATORY/DCFO
MR. GIRISH GUPTA H.S.,
2. CASTLES VISTA PRIVATE LIMITED
INCORPORATED PURSUANT TO RULE 29 OF THE
COMPANIES ACT, 2014
NO.41, VITTAL MALLYA ROAD
BENGALURU - 560 001
REPRESENTED BY IT'S
AUTHORISED SIGNATORY/DCFO
MR. GIRISH GUPTA H.S.,
3. BUOYANT TECHNOLOGY CONSTELLATIONS
PRIVATE LIMITED
INCORPORATED PURSUANT TO RULE 29 OF THE
COMPANIES ACT, 2014
NO.41, VITTAL MALLYA ROAD
BENGALURU - 560 001
REPRESENTED BY IT'S AUTHORISED
SIGNATORY/DCFO
2
MR. GIRISH GUPTA H.S.,
4. SUSHIL PANDURANG MANTRI
S/O PANDURANGA MANTRI
AGED ABOUT 59 YEARS
HAVING OFFICE AT "MANTRI HOUSE"
NO.41, VITTAL MALLYA ROAD,
BENGALURU - 560 001.
... PETITIONERS
(BY SRI UDAYA HOLLA, SENIOR COUNSEL FOR
SRI MAHESH S., ADVOCATE)
AND:
1. DIRECTORATE OF ENFORCEMENT
REP. BY ITS JOINT DIRECTOR
GOVERNMENT OF INDIA
MINISTRY OF FINANCE DEPT OF REVENUE
3RD FLOOR, B BLOCK, BMTC
SHANTHINAGAR, K.H.ROAD
BENGALURU - 560 027.
2. DEPUTY DIRECTOR OF ENFORCEMENT
3RD FLOOR, B BLOCK, BMTC
SHANTHINAGAR, KH ROAD
BENGALURU - 560 027.
... RESPONDENTS
(BY SRI MADHUKAR DESHPANDE, ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
IMPUGNED PROVISIONAL ATTACHMENT ORDER NO.6/2022,
BEARING NO.F.NO.ECIR/BGZO/31/2022 DTD 11 AUGUST 2020 OF
THE R2 PROVISIONALLY ATTACHING IMMOVABLE PROPERTIES IF
WORTH INR 300, 43, 93, 475 HELD BY PETITIONER NOS 2-3 IN
3
LIEU OF THE ALLEGED VALUE OF PROCEEDS OF CRIME OF AN
EQUIVALENT AMOUNT UNDER ANNEXURE-D AND ETC.,
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 02.12.2022, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The petitioners are before this Court calling in question provisional attachment order dated 11-08-2022 attaching immovable properties of the petitioners worth Rs.300,43,93,475 held by petitioners 2 and 3 in lieu of alleged value of proceeds of crime of an equivalent amount.
2. Heard Sri Udaya Holla, learned senior counsel appearing for the petitioners and Sri Madhukar Deshpande, learned counsel representing the respondents.
3. Facts in brief germane for consideration of the issue in the lis are as follows:
A crime comes to be registered against the petitioners and several others in Crime No.163 of 2020 for offences punishable under Sections 406, 415, 417, 420 read with Section 34 of the Indian Penal Code. The registration of said crime comes to be 4 challenged before this Court in Writ Petition No.10258 of 2020. This Court by different orders has stayed investigation in Crime No.163 of 2020. Long after the grant of the said interim order, the respondent/Enforcement Directorate registers an Enforcement Case Information Report ('ECIR') against petitioner No.4 arraigning him as accused No.2 on 22-03-2022. Pursuant to registration of the crime under the provisions of the Prevention of Money Laundering Act, 2002 ('the PMLA' for short) a show cause notice is issued to the 4th petitioner calling upon him to appear before the Investigating Officer to tender evidence. It is the claim of the petitioners that the 4th petitioner did appear before the Investigating Officer under the Act and produced all the documents that were called for.
4. The interim order granted earlier in Writ Petition No.10258 of 2020 was extended on 12-07-2022. A separate petition is filed seeking quashment of proceedings in registration of ECIR by the 4th petitioner which is pending consideration. With the above proceedings pending, a provisional attachment order comes to be passed under sub-section (1) of Section 5 of the Act provisionally attaching immovable properties held by petitioners 2 and 3 to the 5 tune of Rs.330,43,93,475/-. The provisional attachment order is what drives the petitioners to this court in the subject petition.
5. The learned senior counsel representing the petitioners would contend with vehemence that once the basis of registration of crime in the predicate offences under the IPC is stayed by this Court, it would not be open for any proceedings to be initiated by the Enforcement Directorate till the interim order gets vacated. He would contend that the very basis of registration of ECIR is the predicate offences. In the event the crime in Crime No.163 of 2020 gets quashed, the present order of attachment if permitted to continue would cause grave prejudice to the petitioners and, therefore, seeks quashment of entire proceedings and make it subject to the offences under the IPC being taken to their logical end.
6. On the other hand, the learned counsel representing the respondent/Directorate of Enforcement would contend that the two are entirely independent proceedings notwithstanding the fact that the offence under the ECIR would spring only from the predicate offences i.e., offences under the IPC. No purpose would be served 6 if the properties that are attached are directed to be released, as in the event the petitioners get convicted of the offences, the proceedings under the Act would become an empty formality if no attachment proceedings are permitted to continue.
7. I have given my anxious consideration to the submissions made by the respective learned counsel and perused the material on record.
8. The afore-narrated facts are not in dispute. A crime comes to be registered against the petitioners and several others in Crime No.163 of 2020 alleging that the petitioners entities/persons are involved in money laundering by collecting money from home buyers by delivery of flats constructed by them by inducing buyers by projecting certain apartments which were painted for the purpose of luring or deceiving the customers. Even after 10 years the flats were not delivered to the home buyers. Deposits taken by them were retained and it was suspected that the funds received from the home buyers which were meant for construction of the project have been diverted for personal use by the management of 7 the Company or for such other fraudulent purposes. It is therefore, the offences under Sections 406, 415, 417 and 420 of the IPC are alleged against the petitioners in Crime No.163 of 2020. These are the offences under the IPC which are predicate offences.
9. The petitioners call the registration of crime in Crime No.163 of 2020 before this Court in W.P.No.10258 of 2020. Long after the grant of an interim order, respondents 1 and 2 initiate proceedings invoking the provisions of the PMLA by registering an Enforcement Case Information Report (ECIR). Pursuant to registration of the proceedings under the PMLA, a show cause notice comes to be issued to the 4th petitioner calling upon him to appear before the Investigating Officer and tender evidence and also produce certain documents, after which, a provisional attachment order is passed under sub-section (1) of Section 5 of the PMLA provisionally attaching movable and immovable properties held by petitioners 2 and 3 which is to the tune of Rs.300,43,93,475. The provisional attachment order is passed by the Adjudicating Authority. The order of the Adjudicating Authority is what is called in question in the case at hand.
810. The contention is that the Enforcement Directorate has no right to attach the properties of the petitioners and continue with the attachment proceedings in the teeth of the interim order granted by this Court in W.P.No.10258 of 2020. Therefore, it becomes necessary to consider the contention as to whether the Authority had power to attach the properties and continue with the proceedings, notwithstanding an interim order of stay granted and subsisting in W.P.No.10258 of 2020, wherein the challenge was to the predicate offences under the IPC. To consider the said issue, it is germane to notice certain provisions of the PMLA. 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 or activities connected with proceeds of crime, namely--
(a) concealment; or 9
(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--
(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 10 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 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, 11 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 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.
1211. The facts that lead to registration of the crime and the ECIR are as narrated hereinabove. They need not be reiterated.
The foundation to the registration of the proceedings under the PMLA are the offences that are alleged in Crime No.163 of 2020.
Section 5 of the PMLA empowers the Enforcement Directorate, that the Deputy Director by recording reasons 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 concerned Court, the rider is that he has to formulate 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 have now called in question the provisional attachment order dated 11-08-2020 provisionally attaching the immovable properties of the petitioners.
A perusal at the order dated 11-08-2020 qua the power under 13 Section 5 would indicate that it does bear application of mind by the Adjudicating Authority to attach the immovable properties of the petitioners. Therefore, the contention that Section 5 does not empower the Competent Authority to pass orders on provisional attachment is without substance. Therefore, the power of attachment is always available and such power is held to be valid in the eye of law.
13. 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, but should it be permitted to be taken to its logical end or otherwise is the issue in the lis. Interdiction of attachment order is sought to be on the ground that there is an interim order of stay in the predicate offence i.e., offence 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:
14"CONCLUSION
467. In light of the above analysis, we now proceed to summarise our conclusion on seminal points in issue in the following terms:--
(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 15 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 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 16 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.
(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.
17The 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 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, 18 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.
(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 19 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 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.
20(xxi) The argument about proportionality of punishment with reference to the nature of scheduled offence is wholly unfounded and stands rejected."
(Emphasis supplied) 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.
14. In these circumstances the offence alleged under the provisions of the PMLA cannot be sustained and 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. Therefore, if the predicate offence is 21 not permitted to move forward, the impugned proceedings cannot.
It would have been altogether different circumstance, if the petitioners were all 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, however, the proceedings are stayed. 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.
15. It cannot be disputed, that at a later point in time if the petitioners are acquitted, no proceeding under 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 Crime 22 No.163 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 of attachment, in the considered view of this Court, cannot be permitted to continue failing which, it would run completely counter to the findings of the Apex Court.
16. 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 23 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 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 24 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 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:25
"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, 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 26 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.
27Therefore, 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 28 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 order passed by the Division Bench of Madras, but only to the extent of challenge to the impugned proceedings. There is no challenge to the proceedings under the ECIR. What is called in question is the provisional attachment order. In the light of judgments quoted hereinabove, the order passed under sub-section (1) of Section by the Enforcement Directorate cannot be termed to be illegal, however, those proceedings cannot be permitted to be taken to its logical conclusion.
2917. There are only three circumstances that the Court would indicate in VIJAY MADANLAL CHOUDARY's case that in the event the accused in the predicate offence is discharged, acquitted or the proceedings against him are quashed in exercise of jurisdiction under Section 482 of the Cr.P.C., it is only then all the proceedings under the Act would become a nullity. That situation has not yet arrived. Therefore, if the proceedings under the predicate offences are eclipsed and not extinguished, the same would become applicable to the proceedings under the ECIR. The same will have to be eclipsed and cannot be extinguished.
18. In the event the submission of the learned counsel for the petitioners is accepted, it would defeat the very power of attachment under sub-section (1) of Section 5 of the PMLA and if the Enforcement Directorate is permitted to move on with the attachment by seeking a confirmation order or proceeding to sell the attached properties, it would defeat the very proceedings pending before this Court in the predicate offences and the judgment of the Apex Court in the case of VIJAY MADANLAL CHOUDARY (supra). Therefore, to keep the right of the petitioners 30 and the respondent/Enforcement Directorate alive, I deem it appropriate to stall further proceedings in the impugned attachment order i.e., the provisional attachment order directing it not to be confirmed or it being taken any further, however, it would not mean that there can be release of the subjects of attachment in favour of the petitioners. If status quo has to be maintained in the proceedings under the IPC for the reason that there is an interim order; status quo has to be maintained in the proceedings of ECIR as well i.e., the impugned proceedings, all of which would mean that they are mutual to each other. The proceedings under the ECIR can continue once there is a determination by this Court in Writ Petition No.10258 of 2020 either in favour of the petitioners or against them. The impugned proceedings of attachment cannot continue as it would be subject to the final result of Writ Petition No.10258 of 2020. In the event the proceedings against the petitioners stand quashed, the attachment order or any other proceeding under the ECIR cannot continue. Till such time, the proceedings cannot be held to be illegal leading to its obliteration.
3119. 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 INDIA - 2018 SCC OnLine Del 6523, rendered by the High Court of Delhi holding that the proceedings under the PMLA and the proceedings under the IPC or predicate offences are 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. In the result, I pass the following:
ORDER
(i) The Writ Petition is allowed in part.
(ii) The Enforcement Directorate is restrained from proceeding further in ECIR No.ECIR/BGZO/31/ 2022 registered on 11-08-2002, the impugned 32 proceeding, till disposal of Writ Petition No.10258 of 2020 and Crime No.163 of 2020.
(iii) As a result of the aforesaid order (clause (ii)), grant of provisional attachment order dated 11-08-2022 shall be kept in abeyance till disposal of Writ Petition No.10258 of 2020 and Crime No.163 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.10258 of 2020 and Crime No.163 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 bkp CT:MJ