Karnataka High Court
Sri. H M Malthesh vs The Director Of Enforcement on 18 December, 2020
Author: John Michael Cunha
Bench: John Michael Cunha
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 18TH DAY OF DECEMBER, 2020
BEFORE
THE HON'BLE MR. JUSTICE JOHN MICHAEL CUNHA
CRIMINAL PETITION No.584/2018
C/W
CRIMINAL PETITION No.9373/2016
Crl.P.No.584/2018
BETWEEN:
1. SRI H M MALTHESH
S/O LATE MALLAPPA,
AGED ABOUT 58 YEARS,
PROPRIETOR OF
M/S. MALLAPPA MINERAL INDUSTRIES LTD.,
NO.193, B.M. ROAD, HUNSUR - 571 105,
MYSORE DISTRICT,
CAMPING AT BENGALURU.
2. SMT. K.S. NANDHINI,
W/O H M MALTHESH,
AGED ABOUT 45 YEARS,
NO.193, B.M. ROAD, HUNSUR - 571105,
MYSORE DISTRICT,
CAMPING AT BENGALURU. ... PETITIONERS
(BY SRI SHAKEEL AHMED, ADVOCATE)
AND:
THE DIRECTOR OF ENFORCEMENT,
REP. BY ITS DEPUTY DIRECTOR,
GOVT. OF INDIA, MINISTRY OF FINANCE,
DEPT. OF REVENUE, 3RD FLOOR,
'B' BLOCK, BMTC, SHANTINAGAR,
K.H. ROAD, BENGALURU - 560 027. ... RESPONDENT
(BY SRI M.B. NARGUND, ASG A/W
SRI P. KARUNAKAR, STANDING COUNSEL)
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THIS CRIMINAL PETITION IS FILED UNDER SECTION 482
OF CR.P.C., PRAYING TO QUASH THE PROCEEDINGS PENDING
BEFORE THE PRINCIPAL CITY CIVIL AND SESSIONS JUDGE
CCH-1 AT BENGALURU IN SPL.C.NO.126/2017 UNDER SECTION
45/1, P/U/S 3, 4 AND 8(5) OF PREVENTION OF MONEY
LAUNDERING ACT.
CRL.P. NO.9373/2016
BETWEEN:
1. H.M. MALTHESH,
SON OF LATE H.S. MALLAPPA,
AGED ABOUT 57 YEARS.
2. SMT. K.S. NANDINI,
WIFE OF H.M. MALTHESH,
AGED ABOUT 46 YEARS.
3. MS. RANJANI-MAL,
DAUGHTER OF SRI H.M. MALTESH,
AGED ABOUT 29 YEARS.
ALL THE PETITIONERS ARE RESIDING AT
'MALTESH SADAN', B.M. ROAD,
NEAR HUNSUR GAS AGENCY,
KALKUNIKE, HUNSUR,
MYSORE - 571 105.
... PETITIONERS
(BY SRI S. SUSHANT VENKATESH PAI, ADVOCATE)
AND:
1. UNION OF INDIA,
MINISTRY OF FINANCE,
DEPARTMENT OF REVENUE,
ROOM NO.46, NORTH BLOCK,
NEW DELHI - 110 001.
REPRESENTED HEREIN BY ITS
REVENUE SECRETARY.
2. DIRECTORATE OF ENFORCEMENT,
DEPARTMENT OF REVENUE,
MINISTRY OF FINANCE,
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UNION OF INDIA, 6TH FLOOR,
LOK NAYAK BHAWAN,
KHAN MARKET,
NEW DELHI - 110 003.
REPRESENTED HEREIN BY ITS
JOINT DIRECTOR (ADMIN).
3. DEPUTY DIRECTOR,
DIRECTORATE OF ENFORCEMENT,
3RD FLOOR, BMTC BUILDING,
K.H. ROAD, SHANTINAGAR,
BENGALURU - 560 027.
4. HON'BLE ADJUDICATING AUTHORITY
(UNDER THE PREVENTION OF MONEY
LAUNDERING ACT, 2002),
4TH FLOOR, JEEVAN DEEP BUILDING,
PARLIAMENT STREET,
NEW DELHI - 110 001.
REPRESENTED HEREIN BY ITS
REGISTRAR/ADMINISTRATIVE OFFICER.
... RESPONDENTS
(BY SRI M.B. NARGUND, ASG A/W
SRI P. KARUNAKAR, STANDING COUNSEL FOR R2 AND R3;
R1 AND R4 ARE SERVED)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482
OF CR.P.C., PRAYING TO QUASH THE PROCEEDINGS BEARING
O.C. NO.648/2016 ON THE FILE OF THE ADJUDICATING
AUTHORITY (UNDER THE PREVENTION OF MONEY LAUNDERING
ACT, 2002) NEW DELHI (4TH RESPONDENT HEREIN) VIDE
ANNEXURE-C AND QUASH THE IMPUGNED ORDER OF
PROVISIONAL ATTACHMENT DATED 22.09.2016 BEARING
PROVISIONAL ATTACHMENT ORDER NO.18/2016 PASSED BY
THE 3RD RESPONDENT VIDE ANNEXURE-B AND QUASH THE
ECIR NO.ECIR/BGZO/05/2016 DATED 22.03.2016 PREPARED
BY THE 3RD RESPONDENT VIDE ANNEXURE-A.
THESE CRIMINAL PETITIONS COMING ON FOR
DICTATING ORDERS THROUGH PHYSICAL HEARING/VIDEO
CONFERENCE THIS DAY, THE COURT MADE THE FOLLOWING:
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ORDER
Criminal Petition No.584/2018 is filed by accused Nos.1 and 2 challenging the prosecution instituted against them for the alleged offence punishable under Section 3 of the Prevention of Money-laundering Act, 2002 ('PML Act' for brevity). Criminal Petition No.9373/2016 is filed by the very same accused Nos.1 and 2 alongwith their daughter (defendant No.3) challenging the proceedings initiated by respondent Nos.2 and 3 under Section 5 of the PML Act.
2. The case of the respondents is that a charge sheet was filed against accused No.1 Sri H.M.Maltesh in FIR No.41/2010 by Cubbon Park Police Station for the offences punishable under Sections 406 and 420 of IPC inter alia alleging that under two agreements dated 13.11.2009 and 17.11.2009, accused No.1 agreed to supply 50,000 metric tons of iron ore to a Government Undertaking (M/s.Mysore Sales International Limited). Pursuant to the said agreements, letter of credit was opened and a sum of Rs.1.15 crore and another sum of Rs.1.00 crore were transferred to the bank account of accused No.1; but after transfer of the said amount, 5 accused No.1 failed to supply iron ore and thereby committed breach of trust and caused loss to M/s. MSIL Company.
3. Based on the above charge sheet/report, a complaint was filed by respondent No.3 in Enforcement Case Information Report (ECIR) bearing No.ECIR/BGZO/05/2016 seeking prosecution of accused Nos.1 and 2 under Section 3 of the PML Act. The material allegations levelled against accused Nos.1 and 2 find a place in para-47 of the complaint, which read as under:
"47. Investigations so far revealed that Sri H.M.Maltesh criminally conspired to obtain advance of Rs.2.15 crores by avoiding having a registered mortgage of the properties offered as security, not keeping the sufficient funds in the Bank when his cheque was presented for payment, constantly thereafter entering into agreement to sell the property and to gift the property to his daughter and wife, and thus the funds so advanced are the proceeds generated out of criminal activity related to the scheduled offence under PMLA and hence, these are proceeds of crime in terms of section 2(1)(u) of PMLA, 2002."
(underlining supplied) 6
4. In order to lay a foundation for attachment of the properties of accused Nos.1 and 2 and their daughter, it is averred in the complaint at para-28 as under:
"28. Investigations under the PMLA, 2002 revealed that the property bearing No.119/1, Dodda Hunsur, Hunsur Taluk, Mysore District offered as security by Sri H.M.Maltesh was the family property among three brothers and his portion as per the Partition deed is only (a) 0.33 guntas in Sy.No.119/1A..."
5. In the light of the above facts, the immediate question that arises for consideration is:
"Whether the advance amount of Rs.2.15 crore received by accused No.1 in terms of agreements dated 13.11.2009 and 17.11.2009 from M/s. MSIL could be termed as "proceeds of crime" making out the ingredients of the offence under Section 3 of PML Act?"
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6. Section 3 of the PML Act reads as under:
"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 and projecting 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."
7. The expression "proceeds of crime" is defined in Section 2(1)(u) of the Act. As per this definition, "proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country.
8. The allegation made in the complaint would only go to show that accused No.1 had failed to honour the terms of agreements and had failed to return the advance amount to M/s. MSIL and the cheques issued by 8 him have been dishonoured. These allegations may give rise to the prosecution under Sections 406 and 420 of IPC, but by the said acts, it cannot be said that accused No.1 was involved directly or indirectly in any process or activity connected with the "proceeds of crime". For constituting an offence of money-laundering, the offender must directly or indirectly attempt to indulge or knowingly assist or knowingly is a party or is actually involved in any activity connected with the "proceeds of crime.''
9. In the instant case, there is nothing in the complaint or in the charge sheet filed against accused No.1 to suggest that either accused No.1 or any other accused persons were involved in the criminal activity connected with the failure to return the advance amount of Rs.2.15 crore. Resultantly, I hold that the facts alleged in the complaint do no attract the ingredients of Section 3 of the PML Act rendering accused Nos.1 and 2 liable for prosecution for the said offence.
10. Coming to the proceedings initiated against the petitioners-accused Nos.1 to 3 in Criminal Petition 9 No.9373/2016 are concerned, a reading of the averments made therein would go to show that the properties sought to be attached are the family properties of accused No.1. There is no material to show that the said properties were acquired out of the "proceeds of crime" or in any way related to alleged "proceeds of crime". As per the definition in Section 2(1)(u) of the PML Act, only the tainted properties could be termed as "proceeds of crime." In other words, all and every property which are derived or obtained directly or indirectly as a result of criminal activity relating to scheduled offence can be termed as "proceeds of crime."
11. The respondents appear to have proceeded to attach the ancestral properties of the petitioners on the assumption that 'any such property' means any property held by the offenders which could be appropriated towards the value of "proceeds of crime". The expression 'any such property', in my view, could only relate to such property which is tainted by "proceeds of crime". A property which is in no way connected to "proceeds of crime" cannot fall within the ambit of Section 2(1)(u) of 10 the Act. The expression, 'any such property' used in the definition cannot be given such a wider meaning, so as to confer right on the adjudicating authority to proceed against all and every assets standing in the name of the alleged offenders.
12. A reading of the provisions of Section 5 of the PML Act makes it clear that a Director or any other Officer not below the rank of Deputy Director authorized by the Director could proceed to attach the property only when he has a reason to believe that any person is in possession of any "proceeds of crime" and not otherwise. Therefore, the only meaning that could be ascribed to 'any such property' employed in Section 2(1)(u) of the PML Act is that it should necessarily relate to tainted properties or the properties derived or obtained by the result of criminal activity. In the instant case, there being no material to show that the ancestral properties held by the petitioners were tainted as "proceeds of crime", in my view, the power under Section 5 of the Act cannot be resorted to by the respondent in respect of the attached properties. 11
13. The argument of the learned A.S.G. that perforce of Section 2(1)(u) of the Act, respondent is entitled to attach any property of the value of any such properties also cannot be countenanced. In the absence of any prima facie material to show that the petitioner was in possession of "proceeds of crime" derived or obtained as a result of criminal activity, the question of attaching his/her other properties of the value of "such" properties does not arise at all. Therefore, I am of the clear view that the action initiated against the petitioners is without jurisdiction, arbitrary and contrary to Sections 3 and 5 of the PML Act.
14. The Submission of learned A.S.G. that an alternative remedy is available to the petitioners by way of appeal provided under Section 26 of the PML Act, in the circumstances of the case cannot be a reason to deny the relief to the petitioners since, the impugned action is held to be without jurisdiction. In this context the principles laid down by the Hon'ble Supreme Court in WHIRLPOOL CORPORATION vs. REGISTRAR OF TRADE MARKS, MUMBAI & 12 Ors., AIR 1999 SC 22 may be apt to be extracted. They read as follows:
"14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of Habeas Corpus, Mandamus, prohibition, Quo Warranto and Certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose".
15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the Writ Petition has been filed for the enforcement of any of the Fundamental rights or where there has been a violation of the principle of the natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged..."
For the above reasons, the impugned proceedings are liable to be quashed.
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15. In the result, I proceed to pass the following:
ORDER
(i) Criminal Petition No.584/2018 and Criminal Petition No.9373/2016 are allowed.
(ii) Petitioner No.1/accused No.1 (Sri H.M.Maltesh) having died during the pendency of these petitions, the proceedings initiated against accused No.1 are dismissed as abated.
(iii) The prosecution instituted against
petitioner No.2/accused No.2
Smt.K.S.Nandhini under Section 3 of the PML Act, pending before the Prl.
City Civil and Sessions Judge,
Bangalore (CCH1) in Spl.C.C.
No.126/2017 is quashed.
(iv) The attachment proceedings under
Section 5 and Section 8 of the PML Act
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in Criminal Petition No.584/2018 in respect of family properties belonging to petitioners in Sy.No.119/1A, Dodda Hunsur, Hunsur Taluk, Mysore District, are set aside.
(v) The proceedings in the complaint bearing No.ECIR/BGZO/5/2016/1321 and consequent provisional attachment order dated 22.09.2016 at Annexure-B in Criminal Petition No.9373/2016 are quashed insofar as the properties comprised in Sy.No.119/1A, Dodda Hunsur, Hunsur Taluk, Mysore District belonging to the petitioners.
Sd/-
JUDGE VGR