Madras High Court
M/S.Prp Granite Exports vs /28 on 9 February, 2021
Author: P.N.Prakash
Bench: P.N.Prakash, V.Sivagnanam
CRL.O.P.(MD) No.11941 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 01.02.2021
PRONOUNCED ON : 09.02.2021
CORAM
THE HONOURABLE Mr.JUSTICE P.N.PRAKASH
AND
THE HONOURABLE Mr.JUSTICE V.SIVAGNANAM
CRL.O.P.(MD) No.11941 of 2019
AND
CRL.M.P.(MD) Nos.7507 & 7508 of 2019
1.M/s.PRP Granite Exports
Rep. by the Partner P.Palanichamy
Therkkutheru Village
Melur Taluk, Madurai District
2.P.Selvi
Former partner of M/s.PRP Exports & PRP Granites
No.379, Sarveshwarar Kovil Street
Anna Nagar, Madurai-20
3.S.Chandraleka
Former partner of M/s.PRP Exports
No.379, Sarveshwarar Kovil Street
Anna Nagar, Madurai-20
4.A.Sivaranjani
Former partner of M/s.PRP Exports
No.379, Sarveshwarar Kovil Street
Anna Nagar, Madurai-20 .. Petitioners
Vs.
1/28
https://www.mhc.tn.gov.in/judis/
CRL.O.P.(MD) No.11941 of 2019
Directorate of Enforcement
Rep. by its Assistant Director
Ministry of Finance
Department of Revenue
3rd Floor, C Block
Murugesa Naicker Complex
84, Greams Road
Chennai 6 .. Respondent
Criminal Original Petition filed under Section 482 Cr.P.C. to call for
the records in C.C.No.10 of 2018 pending on the file of the II Additional
District Judge (CBI Court), Madurai and quash the proceedings as against
the petitioners for an offence under Section 3 of the Prevention of Money
Laundering Act punishable under Section 4 of the Prevention of Money
Laundering Act
For Petitioners : Mr.A.Ramesh
Senior Counsel for
Mr.S.Ramesh
For Respondent : Mr.R.Sankaranarayanan
Additional Solicitor General
assisted by Mr.Rajnish Pathiyil
Special Public Prosecutor for ED
ORDER
P.N.PRAKASH, J.
For the sake of convenience, the parties will be referred to by their names.
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2. The facts in brief are as under:
2.1. P.Palanichamy is a mining baron and the founder of the partnership firms viz. M/s.PRP Exports, M/s.PRP Granites and M/s.PRP Granite Exports, engaged in granite mining in and around Madurai. The firms started by him obtained mining leases from the Government and it is alleged that these firms did not confine themselves to the areas licensed to them, but, went on a plunder spree, by illegally mining every possible landscape in and around Madurai.
2.2. When this came to light, there was a furore and the State law enforcement agencies woke up from their self-induced slumber and plunged into action by registering around 16 FIRs on the findings of the Deputy Director, Geology and Mining.
2.3. Similarly, the Public Works Department found that the PRP group had not spared even the water canals in that area, for which, 15 FIRs were registered.
2.4. The police also found that the PRP group had indulged in land grabbing by illegally encroaching into lands belonging to Temples, Government and innocent individuals, for which, 11 FIRs were registered.3/28
https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 2.5. The common thread that runs through most of the FIRs is Section 120-B read with 420, 465, 467, 468 and 471 IPC. Approximately, it was found that a sum of Rs.2830.98crores was earned by the PRP group via the aforesaid criminal activities. On coming to know of this, the Enforcement Directorate registered a case in ECIR No.CEZO/15/2013 and took up investigation under the Prevention of Money Laundering Act, 2002 (in short “the PML Act”).
2.6. After recording the statements of various persons and collecting materials, the Enforcement Directorate filed a complaint in C.C.No.10 of 2018 in the Court of the Principal Judge (Special Court under the PML Act), Madurai for the offences under Section 3 read with 4 and 8(5) of the PML Act against 10 accused including Palanichamy (A4), for quashing which, PRP Granite Exports (A3), Selvi (A7), Chandraleka (A8) and Sivaranjani (A10) are before this Court. Selvi (A7) is the wife of Palanichamy (A4); Chandraleka (A8) is his daughter-in-law; and Sivaranjani (A10) is his daughter.
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3. Heard Mr.A.Ramesh, learned Senior Counsel representing Mr.S.Ramesh, learned counsel on record for the petitioners and Mr.R.Sankaranarayanan, learned Additional Solicitor General assisted by Mr.Rajnish Pathiyil, learned Special Public Prosecutor appearing for the Enforcement Directorate.
4. At the outset, Mr.A.Ramesh submitted that he is withdrawing this petition in respect of PRP Granite Exports (A3) and recording the same, this Criminal Original Petition stands dismissed vis-a-vis PRP Granite Exports (A3).
5. It is beyond cavil that some of the offences registered by the State police against PRP group are schedule offences under the PML Act and therefore, the jurisdiction of the Enforcement Directorate to investigate under the PML Act was rightly not questioned across the Bar.
6. In the complaint in C.C.No.10 of 2018, the Enforcement Directorate has shown PRP Exports, PRP Granites and PRP Granite Exports 5/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 as A1, A2 and A3 respectively, apart from A4 to A10, who are natural persons and partners in the aforesaid firms during the relevant period.
7. Mr.A.Ramesh produced a copy of the order dated 14.12.2018 passed by the Special Court, while taking cognizance of the offence and submitted that the said order does not disclose application of mind at all. He placed strong reliance on the judgment of the Supreme Court in Sunil Bharti Mittal Vs. CBI [(2015) 4 SCC 609] and the judgment of the Karnataka High Court in S.C.Jayachandra Vs. Enforcement Directorate [MANU/KA/4893/2020] and submitted that the order of cognizance in this case deserves to be set aside and the matter to be remanded to the trial Court for passing cognizance order afresh.
8. In our opinion, though an order of taking cognizance should reflect application of mind by the Court, it is not a matter of thumb rule that in every case where the order of cognizance is cryptic, the same should have to be quashed. The requirement of passing an explicit order, while taking cognizance of an offence and issuing process is to ensure that frivolous 6/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 complaints are not taken on file and ordinary citizens are not harassed. This principle cannot be used as a sword by an accused to kill a prosecution, which cannot be said to be a frivolous one as in the present case. In State of Gujarat Vs. Afroz Mohammed Hasanfatta [(2019) 20 SCC539], the Supreme Court in paragraph 22 held as follows :
“22. In summoning the accused, it is not necessary for the Magistrate to examine the merits and demerits of the case and whether the materials collected is adequate for supporting the conviction. The court is not required to evaluate the evidence and its merits. The standard to be adopted for summoning the accused under Section 204 CrPC is not the same at the time of framing the charge. For issuance of summons under Section 204 CrPC, the expression used is “there is sufficient ground for proceeding…”; whereas for framing the charges, the expression used in Sections 240 and 246 IPC is “there is ground for presuming that the accused has committed an offence…”. At the stage of taking cognizance of the offence based upon a police report and for issuance of summons under Section 204 CrPC, detailed enquiry regarding the merits and demerits of the case is not required. The fact that after investigation of the case, the police has filed charge-sheet along with the materials thereon may be considered as sufficient ground for proceeding for issuance of summons under Section 204 CrPC.“ The above statement of law cannot be distinguished by contending that it would apply only for a police report because, all investigations culminate in the investigating agencies filing either a police report or a complaint with the materials collected by them, for the Court to take cognizance thereon.7/28
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9. In a simple private complaint case, the Magistrate may not have any materials dehors the sworn statement of the complainant to take cognizance of the offences alleged in the complaint. In such cases, it will be desirable, if the Magistrate passes an order giving reasons for taking cognizance of the offence and issuing process. In this case, along with the complaint, the Enforcement Directorate has filed 26 documents and also the statements recorded under the PML Act in support of the allegations in the complaint.
10. Superadded, we cannot lose sight of the following judgments of the Supreme Court, wherein, it has been held in no uncertain terms that the failure of the Magistrate to pass a detailed cognizance order, will not vitiate the act of taking cognizance:
➢ U.P. Pollution Control Board Vs.Mohan Meakins Ltd. and others [(2000) 3 SCC 745] ➢ Kanti Bhadra Shah and another Vs.State of West Bengal [(2000) 1 SCC 722] ➢ Dy. Chief Controller of Imports & Exports Vs. Roshanlal Agarwal and others [(2003) 4 SCC 139] ➢ Jagdish Ram Vs. State of Rajasthan and another [(2004) 4 SCC 432] 8/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 ➢ Bhushan Kumar and another Vs.State (NCT of Delhi) and another [(2012) 5 SCC 424] In Bhushan Kumar (supra), the Supreme Court has held in unequivocal terms that the summoning order under Section 204 Cr.P.C. requires no explicit reasons to be stated because, it is imperative that the Magistrate must have taken notice of the accusations and applied his mind to the allegations made in the police report and the materials filed therewith.
Illustration (e) to Section 114 of the Evidence Act says, "The Court may presume that judicial and official acts have been regularly performed". In view of the above discussions, the cognizance order in this case does not deserve to be quashed.
11. The gravamen of the allegation against the accused in C.C.No.10 of 2018 is available in paragraph 9 of the complaint, which is as under :
“9. In view of the foregoing investigation and the evidences available on records, it is reasonably believed that the said Shri/Smt.P.Palanisamy, P.Senthilkumar, P.Sureshkumar, A.Maharajan, P.Selvi, S.Chandraleka and M.Sivaranjani, partners of M/s.PRP Exports, M/s.PRP Granites and M/s.PRP Granite Exports, during the period from 2006-07 to 2012-13 have utilised funds aggregating to Rs.102.95 crores (Rupees one hundred and two crore and ninety five lakhs only) out of the proceeds derived from the above said criminal acts towards the acquisition/purchase of immovable properties having present market value of Rs.527 Crores (Rupees five hundred and twenty seven crore) in the name of M/s.PRP Exports, M/s.PRP Granites and M/s.PRP Granite Exports. Further, Rs.32,57,275/- (Rupees thirty two lakhs fifty seven thousand two hundred and seventy five only) in the form of fixed deposit (FDR) with State 9/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 Bank of India, Madurai in the name of M/s.PRP Exports. The trade proceeds of M/s.PRP Exports and M/s.PRP Granites derived thereafter as well as the business income/earnings gained out of the said investment, by relentlessly incubating the taint of the proceeds of crime had resulted in its accruals camouflaged in the organizational system and thus any investments made in the form of the acquisition of immovable and movable properties are involved in money laundering.”
12. Mr.A.Ramesh submitted that there are insufficient materials to mulct criminal liability on Selvi (A7), Chandraleka (A8) and Sivaranjani (A10). He placed strong reliance on the judgment of the Supreme Court in Sham Sunder and Others Vs. State of Haryana [(1989) 4 SCC 630] and laid emphasis on paragraphs 9 and 10, which are extracted hereunder :
“9. But we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not.
10. It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm.
There may be partners, better known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned 10/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 in sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted. We, therefore, reject the contention urged by counsel for the State.” We find it hard to apply this judgment because, in this case, we are dealing with a quash application under Section 482 Cr.P.C., whereas the aforesaid judgment was delivered in an appeal, challenging the conviction and sentence after a full-fledged trial.
13. Mr.A.Ramesh took this Court through Section 70 of the PML Act, and submitted that it is in pari materia with Section 141 of the Negotiable Instruments Act, 1881 (in short “the NI Act”) and placed strong reliance on the judgments in National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and another [(2010) 3 SCC 330]; Monaben Ketanbhai Shah and another Vs. State of Gujarat and others [(2004) 7 SCC 15] and SMS Pharmaceuticals Ltd. Vs. Neeta Bhalla and another [(2005) 8 SCC 89], wherein, the Supreme Court has laid down the rule for mulcting criminal liability vicariously on a person, when the main offender is not a natural person. On facts, he took this Court through paragraph 13.7 of the complaint, wherein, the following averments appear : 11/28
https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 “13.7. It is humbly submitted that Smt.P.Selvi (A7), W/o.Shri.P. Palanisamy knowingly assisted in the business as Partner of M/s.PRP Exports, PRP Granites and M/s.PRP Granite Exports to conduct the business and in the capacity of partner did not participated in the business of the companies. ... ...” (emphasis supplied) Thus, placing reliance on the aforesaid, Mr.A.Ramesh argued that Selvi (A7), Chandraleka (A8) and Sivaranjani (A10) cannot be prosecuted with the aid of Section 70 of the PML Act.
14. Per contra, Mr.R.Sankaranarayanan refuted the aforesaid contentions and stated that the amendment to Section 70 of the PML Act by which, explanation to Section 2 has been added, changes the very structure of the provision. He also submitted that the entire paragraph 13.7 itself reveals that there are sufficient materials to hold that Selvi (A7) and Chandraleka (A8) had sufficient knowledge about the properties that were acquired by the firms and in the teeth of the presumption under Section 23 and the reverse burden under Section 24 of the PML Act, the prosecution against them cannot be quashed.
15. This Court gave its anxious consideration to the rival 12/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 submissions.
16. At the outset, Section 141 of the NI Act cannot be said to be completely in pari materia with Section 70 of the PML Act. Section 141 of the NI Act confines itself to an offence under Section 138 of the NI Act. Whereas, Section 70 of the PML Act uses the expression “contravention” and not the expression “offence”. Of course, we do agree that there is great similarity between the two provisions as regards the kernel. The question is, will the judgments of the Supreme Court rendered under the NI Act can be simply applied to the PML Act ?
17. The NI Act offences are not economic offences, unlike offences under the PML Act. A prosecution under Section 138 of the NI Act stems from a civil dispute between the drawer and the drawee of a cheque. It gets a criminal colour, only when the drawer fails to pay the drawee within the stipulated period. Whereas, offences under the PML Act are economic offences and can by no stretch of imagination be equated to a prosecution between a drawer and a drawee under the NI Act. It is well settled that 13/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 statutes not dealing with the same subject matter cannot be said to be in pari materia. (See Sirsilk Ltd. Vs. Textile Committee and others [1989 Supp(1) SCC 168])
18. The following statement of law of a Constitution Bench of the Supreme Court in State of Punjab Vs. Okara Grain Buyers Syndicate Ltd., Okara and another (AIR 1964 SC 669) provides a complete answer to the issue at hand :
“ 33. We are clearly of the view that this argument does not deserve to be accepted. In the first place, we are concerned solely with the interpretation of the Act of 1951 and unless there was an ambiguity it would be impermissible to refer to any previous legislation for construing the words in it. The examination we have made of the Act read in conjunction with the purposes it seeks to achieve which are manifest in its various provisions have led us unmistakably to the conclusion which we have expressed earlier. In the circumstances, there is no scope for invoking this external aid to the construction of the expressions used in the Act. Secondly, the scope of the two enactments viz. the Act of 1948 and that of 1951 are widely different, and the latter has a definitely more extended scope and is designed to secure substantive advantages to displaced persons which were wholly foreign to the earlier law which was but of very limited scope. Therefore even if the language used in the two enactments were identical — which is not even the case here — the same conclusion would not necessarily follow having regard to the differing scopes of the two pieces of legislation. It could not therefore be said that the two Acts are in pari materia so as to attract the Rule relied on. Lastly, the Rule of construction which is certainly not one of a 14/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 compelling nature, is generally adopted in the construction of consolidating enactments where provisions which have appeared in earlier repealed statutes which have received an uniform and accepted judicial interpretation are re-enacted. Obviously that is not the case here. In the circumstances, we consider it unnecessary to examine whether this solitary decision on the construction of Section 4 of the Act of 1948, was correct. We have, therefore, no hesitation in rejecting the second point urged.“ (emphasis supplied) Thus, the Constitution Bench has held in no uncertain terms that, even if the language of two provisions of different statutes are identical, it does not follow that they are in pari materia if the scope of the two legislations are different. Section 141 of the NI Act confines itself to a prosecution under Section 138 of the NI Act. It is not a general provision like Sections 34, 107 and 120-A IPC to be applied to all offences. Comparing a prosecution under Section 138 of the NI Act to a prosecution under the PML Act would clearly amount to comparing chalk with cheese. Therefore, we have no hesitation in holding that the rulings under Section 141 of the NI Act would not be of any avail to the petitioners herein.
19. In this case, the allegation is that, the partners of the three firms 15/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 had purchased properties with the proceeds of the criminal activities and had projected those properties as untainted.
20. Coming to the case of Selvi (A7) and Chandraleka (A8), who were partners in some of the firms, the firms have also been shown as accused. To appreciate the rival contentions, it is necessary to extract paragraph 13.7 and 13.8 of the complaint (paragraph 13.8 has been wrongly typed as 13.7 at page 37) :
“13.7. It is humbly submitted that Smt.P.Selvi (A7), W/o.Shri.P.Palanisamy knowingly assisted in the business as Partner of M/s.PRP Exports, PRP Granites and M/s.PRP Granite Exports to conduct the business and in the capacity of partner did not participate in the business of the companies. Smt.P.Selvi admitted in her statement recorded under Section 50(2) and 50(3) of PMLA that she was house wife and admitted that she was partner of M/s.PRP Exports and PRP Granites from 2003 to 2010. The offence cases are registered against the partners of M/s.PRP Exports, M/s.PRP Granite by Madurai District Crime Branch Police Department and the same are under investigation. She (A7) was the Partner of PRP Exports and PRP Granites holding PAN number and her income from granite business were assessed by income tax department periodically. She can read and write in English very well and was aware that she was partner in the Granite business. Smt.Selvi (A7) had thorough knowledge about the movable and immovable properties acquired in the name of PRP Exports and PRP Granites. As such, she has knowingly assisted the other partners namely Shri.P.Palanisamy (A4), P.Senthil Kumar (A5) and P.Suresh Kumar (A6) in acquisition, possession in the name of M/s.PRP Exports, PRP Granites and PRP Granite Exports and used the proceeds of crime to acquire immovable property to project and claiming it as untainted and therefore, Smt.P.Selvi (A7), W/o.P.Palanisamy has been guilty of offence of Money 16/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 Laundering by virtue of Section 2(1)(p) read with Section 3 of the PMLA and is liable to be punished under Section 4 of the PMLA.
13.8. It is humbly submitted that Smt.S.Chandraleka (A8), W/o.Shri.P.Senthil Kumar knowingly assisted in the business as Partner of M/s.PRP Exports, PRP Granites and M/s.PRP Granite Exports to conduct the business and in the capacity of partner did not participate in the business of the companies. Shri.S.Chandraleka admitted in her statement recorded under Section 50(2) & 50(3) of the PMLA admitted that she was partner of PRP Exports and PRP Granites from 2003 to 2010. The offence cases are registered against the partners of M/s.PRP Exports, PRP Granite by Madurai District Crime Branch Police Department and the same are under investigation. She (A8) was the partner of PRP Exports and PRP Granites holding PAN number and she did not file her income tax return knowing very well that her income was within the exemption limit. She can read and write in English very well and was aware that she was partner in the Granite business. Smt.Chandraleka had thorough knowledge about the movable and immovable properties acquired in the name of PRP Exports and PRP Granites. As such, she has knowingly assisted the other partners namely Shri.P.Palanisamy (A4), P.Senthil Kumar (A5) and P.Suresh Kumar (A6) in acquisition, possession in the name of M/s.PRP Exports, PRP Granites and PRP Granite Exports and used the proceeds of crime to acquire immovable property to project and claiming it as untainted and therefore, Smt.S.Chandraleka (A8), W/o.P.Senthil Kumar has been guilty of offence of Money Laundering by virtue of Section 2(1)(p) read with Section 3 of the PMLA and is liable to be punished under Section 4 of the PMLA.” (emphasis supplied) A reading of the above appears that, Selvi (A7) and Chandraleka (A8) knowingly assisted in the business of the partnership firms, but, did not participate in the business of the companies.
21. Mr.A.Ramesh vehemently stated that apart from the three 17/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 partnership firms which are accused in this case, there is no other entity registered under the Companies Act to be categorized as a company.
22. Be that as it may, a further reading of paragraphs 13.7 and 13.8 of the complaint extracted above show that, Selvi (A7) and Chandrelekha (A8) were income tax assessees; they could read and write English very well; they were aware that they were partners in the granite business; that they had thorough knowledge about the movable and immovable properties acquired by the firms in which they were partners. Mr.A.Ramesh contended that mere knowledge of acquisition of properties is not tantamount to knowledge of commission of the offence under the PML Act.
23. Section 3 of the PML Act is indeed very wide. It begins with the expression “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 ... ...”. Money laundering simply means, to project tainted money as an untainted one. The allegation in this case is, by illegal mining and by commission of a schedule 18/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 offence, the three firms in which, Selvi (A7) and Chandraleka (A8) were partners, generated Rs.2830.98crores with which they had purchased the properties listed in the complaint and projected them as untainted ones. In the teeth of the statutory presumption under Section 23 and the reverse burden under Section 24 of the PML Act, the Court cannot give a finding in a petition under Section 482 Cr.P.C. that they did not know that they were indulging in money laundering. Ergo, this petition qua Selvi (A7) and Chandraleka (A8) stands dismissed.
24. Coming to the case of Sivaranjani (A10), she is the daughter of Palanichamy (A4) and Selvi (A7). She was born on 14.03.1993 and was inducted as a partner in PRP Exports on 22.10.2003. She resigned on 31.03.2010. It appears that most of the properties were purchased from the criminal activity in the name of Sivaranjani (A10), when she was a minor.
25. In the opinion of this Court, there are no sufficient materials to proceed against Sivaranjani (A10) for money laundering and hence, the proceedings in C.C.No.10 of 2018 on the file of the II Additional District 19/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 Court (CBI Court), Madurai against Sivaranjani (A10) is quashed.
26. Coming to the interesting question, that was raised across the Bar with regard to the interpretation of Explanation 2 to Section 70 of the PML Act that has been added by Act 2 of 2013, it would be useful to extract Section 70 of the PML Act :
“70. Offences by companies (1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to the company, for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
(2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or other officer of any company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.
Explanation 1—For the purposes of this section, 20/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019
(i)“company” means any body corporate and includes a firm or other association of individuals; and
(ii)“director”, in relation to a firm, means a partner in the firm. Explanation 2—For the removal of doubts, it is hereby clarified that a company may be prosecuted, notwithstanding whether the prosecution or conviction of any legal juridical person shall be contingent on the prosecution or conviction of any individual.”
27. To understand the true import of the 2nd Explanation, it is necessary to travel back in time to the early years of the 21 st century to examine the position of law as it then stood vis-a-vis corporate liability. In Assistant Commissioner, Assessment-II, Bangalore Vs. Velliappa Textiles Limited [(2003) 11 SCC 405], the Supreme Court held that where the offence complained of is punishable with a mandatory sentence of imprisonment, a company cannot be prosecuted as the sentence of imprisonment cannot be enforced against an artificial juristic entity i.e., a company. However, this view was subsequently overruled by a Constitution Bench (by a 3:2 majority) in Standard Chartered Bank Vs. Directorate of Enforcement, [(2005) 4 SCC 530], wherein it was held by the majority (K.G Balakrishnan, J. as he then was) as under:
“31. As the company cannot be sentenced to imprisonment, the 21/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 court cannot impose that punishment, but when imprisonment and fine is the prescribed punishment the court can impose the punishment of fine which could be enforced against the company. Such a discretion is to be read into the section so far as the juristic person is concerned. Of course, the court cannot exercise the same discretion as regards a natural person. Then the court would not be passing the sentence in accordance with law. As regards company, the court can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. This appears to be the intention of the legislature and we find no difficulty in construing the statute in such a way. We do not think that there is a blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake a series of activities that affect the life, liberty and property of the citizens. Large-scale financial irregularities are done by various corporations. The corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to a criminal law is essential to have a peaceful society with stable economy.”
28. Close on the heels of the aforesaid dictum was the decision in SMS Pharmaceuticals (supra), wherein in the context of prosecutions under Section 138 and 141 of the NI Act, it was held that criminal liability was primarily on the drawer company, and that the liability could be extended to the other officers only if the conditions under Section 141 were satisfied. A few years later, in Anita Hada Vs. Godfather Travels and Tours Private Limited [(2008) 13 SCC 703], the company was not arrayed 22/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 as an accused in a complaint under Section 138 of the NI Act. S.B Sinha, J. held that the complaint against the Directors could not be maintained as the primary offender i.e., the company was not before the Court. Sirpurkar, J. dissented and held that the prosecution was maintainable. The matter was referred to a larger bench in view of the difference of opinion between the two learned judges.
29. When matters stood thus, India joined the Financial Action Task Force (FATF), an international inter-governmental body formulating guidelines at the global level for action against money laundering and terrorist financing, as its 36th member in 2009. On 25th June 2010, a mutual evaluation report was submitted by the FATF evaluating the existing provisions of the PML Act, in line with the benchmarks set out by the FATF. In the context of the present case, the relevant recommendations of the FATF are as under :
“155. Section 70 of the PMLA and section 38 of the NDPS Act provide that where the violation of the Act is committed by a company, both the company and the individuals in charge of the company will be deemed to be guilty of that contravention unless they did not have the knowledge of contravention or they have exercised all due diligence to prevent it.23/28
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156. While the legal person is liable to be punished with a fine, imprisonment can obviously be imposed only on the natural persons in charge of and responsible for the conduct of the company. The combination of penalty provisions (PMLA S.4/NDPS Act S.32) with the company provisions of section 70 of the PMLA/section 38 of the NDPS Act is interpreted by some prosecutors in the sense that no charges can be brought against a company without concurrently prosecuting the responsible natural person for the ML offence.”
30. In the opinion of the FATF, Section 70 of the PML Act had been construed, or rather misconstrued, in some quarters to mean that a prosecution for an offence of money laundering against a company was not maintainable without concurrently prosecuting natural persons for offences under the Act. The FATF added:
“157. Parallel or additional proceedings can be initiated under other relevant statutes against a legal person being prosecuted under the PMLA. First of all, the assets of the company are liable to confiscation. Section 388B of the Companies Act provides for the possibility of destitution of managerial personnel of a company for indulging in e.g. fraudulent practices and money laundering that is found to have indulged in fraud etc. and against which company prosecution proceedings under relevant statutes including PMLA are likely to be initiated upon conclusion of investigations. Section 433 of the Companies Act provides for the dissolution of a company by the court. Also, licences of (financial) institutions can be revoked (see for instance s.10(3) of the FEMA).” The aforesaid recommendation of the FATF was incorporated into the PML (Amendment) Bill, 2011. The Bill was, thereafter, referred to a Standing Committee of the Ministry of Finance. The Committee submitted its 56th Report on the PML Amendment Act, 2011. For the present purposes, 24/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 the relevant observations are as under:
“3. Punishment for money-laundering: FATF Recommendation requires that “legal persons” also (and not just “natural persons”) should be subject to effective, proportionate and dissuasive criminal, civil or administrative sanctions for money laundering. In PMLA the punishment prescribed in section 4 is rigorous imprisonment not less than 3 years but which may extend to 7 years and also fine which may extend to Rs. 5 lakh. This amount appears disproportionately low, given the gravity of the offence of money laundering. It has therefore been proposed to amend Section 4 so as to provide for imposition of fine proportionate to the gravity of the offence which will be determined by the court. The limit of Rs. 5 lakh is therefore proposed to be deleted altogether. Further an explanation has been inserted in Section 70 that the prosecution or conviction of any legal juridical person shall not be contingent on the prosecution or conviction of any individual.” Explanation 2 to Section 70 was accordingly, inserted vide the PML (Amendment) Act, 2012 (Act 2 of 2013).
31. Quite evidently, the explanation is rather unhappily worded as it makes a reference to “company” followed by the words “legal juridical person” giving the impression that the explanation was intended for a company within a company as was sought to be pointed out at the Bar. Having considered the backdrop to the insertion of Explanation 2, vide the 2013 Amendment, in the light of the recommendations made by the FATF and the Standing Committee of the Ministry of Finance, we are satisfied that all it purports to do is to clarify that the prosecution of a legal juridical person (juristic person) for an offence under the PML Act is not contingent 25/28 https://www.mhc.tn.gov.in/judis/ CRL.O.P.(MD) No.11941 of 2019 upon the prosecution of natural persons. In plainer terms, the prosecution of juristic persons is not contingent upon the prosecution of natural persons for offences under the PML Act.
To sum up, this Criminal Original Petition stands i. dismissed as withdrawn qua PRP Granite Exports (A3); ii. dismissed qua Selvi (A7) and Chandraleka (A8) and iii. allowed qua Sivaranjani (A10).
Connected Crl.M.Ps are closed.
[P.N.P., J.] [V.S.G., J.]
09.02.2021
gya
To
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1.The Assistant Director
Directorate of Enforcement
Ministry of Finance
Department of Revenue
3rd Floor, C Block
Murugesa Naicker Complex
84, Greams Road
Chennai 6
2.The II Additional District Judge (CBI Court)
Madurai
3.The Public Prosecutor
High Court, Madras
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P.N.PRAKASH, J.
AND
V.SIVAGNANAM, J.
gya
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