Allowed

Sri Mahaveer Jain v. Directorate of Enforcement

Karnataka HC27 Nov 2023WP/2053/2023

Case brief

AI extract

What is this about?

High Court quashed summons in money laundering proceedings when the underlying predicate offences were already quashed by a co-ordinate bench, citing settled precedent that money laundering cases collapse if the predicate offence is extinguished.

What did the court decide?

The proceedings pending in ECIR No.ECIR/BGZO76/2022 stands quashed qua the petitioner accused No.1 only. Liberty reserved for Enforcement Directorate to revive proceedings in future if circumstances r

Sri Mahaveer Jain Vs Directorate of Enforcement — Money Laundering | Karnataka HC (2023)

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NC: 2023:KHC:42698 WP No. 2053 of 2023

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27^TH DAY OF NOVEMBER, 2023

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BEFORE

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THE HON'BLE MR JUSTICE M.NAGAPRASANNA WRIT PETITION NO. 2053 OF 2023 (GM-RES)

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BETWEEN:

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SRI. MAHAVEER JAIN, S/O. INDERCHAND D JAIN, AGED ABOUT 28 YEARS, RESIDING AT NO.18, G.B. LANE, NEXT TO MEDI SURGE COTTONPET CROSS, CHICKPET, BENGALURU - 560 053.

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…PETITIONER

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(BY SRI. ABHISHEK KUMAR, ADVOCATE)

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AND:

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Digitally signed by PADMAVATHI B K Location: HIGH COURT OF KARNATAKA

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DIRECTORATE OF ENFORCEMENT, MINISTRY OF FINANCE, GOVERNMENT OF INDIA, OFFICE AT 3^RD FLOOR 'B' BLOCK, BMTC - TTMC BUILDING, K.H. ROAD, SHANTINAGAR, BANGALORE - 560 027. REPRESENTED BY ITS ASSISTANT DIRECTOR PARAMESH.

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…RESPONDENT

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(BY MS. RAMULA K., ADVOCATE FOR SRI. P. PRASANNA KUMAR, ADVOCATE)

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THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA READ WITH SECTION 482 OF THE CR.P.C. PRAYING TO QUASH THE SUMMON BEARING NO.PMLA/SUMMON/BGZO/2022/872 DATED 14/11/2022 (ANNEXURE-A) ISSUED BY THE RESPONDENT IN PURSUANT PROCEEDINGS IN ECIR/BGZO76/2022 AND ALL OTHER PROCEEDING AND ETC.

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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The petitioner is before this Court calling in question the summons issued by the Enforcement Directorate in ECIR No.ECIR/BGZO76/2022.

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Heard Sri. Abhishek Kumar, learned counsel appearing for the petitioner and Ms. Ramula K., Learned counsel for Sri. P. Prasanna Kumar, learned counsel appearing for the respondent and have perused the material on record.

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The acts of the petitioner resulted in two proceedings. One, the scheduled offence under the Indian Penal Code – the predicate offence. The offence alleged against the petitioner was the one punishable under Sections 406 and 420 of the IPC read with Section 66 of the Information

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Technology Act, 2000. The petitioner along with the other petitioners had knocked at the doors of this Court in W.P.No.14524/2022 connected with Crl.P.No.4393/2022. A Co-ordinate Bench of this Court by an order dated 15.12.2022 had quashed the proceedings against the petitioner, who was the petitioner in Crl.P.No.4393/2022, thus comes to be quashed the proceedings in predicate offence i.e. the offences under Sections 406 and 420 of the IPC in Crime No.21/2022.

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During the pendency of the crime, in Crime No.21/2022, as an offshoot, the proceedings under the Prevention of Money Laundering Act, 2002 (for short 'PML Act') qua Section 3 of PML Act was initiated by registering an Enforcement Case Information Report (ECIR). In the ECIR, summons were being issued to the petitioner. This was called in question before this Court and the interim order of stay was granted. The circumstance now is that the petitioner is absolved of all allegations by virtue of quashment of the proceedings in Crime No.21/2022. The issue is whether the proceedings could continue under the PML Act is what is required to be answered. The answer need not detain this Court

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for long and delve deep into the matter. The Apex Court in the

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case of VIJAY MADANLAL CHOUDHARY AND OTHERS v.

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UNION OF INDIA AND OTHERS¹ at paragraph 467 has held

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as follows:

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"CONCLUSION

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467. In light of the above analysis, we now proceed to summarise our conclusion on seminal points in issue in the following terms:—

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(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 Mathe w⁷⁰⁵ .

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(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.

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(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.

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(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.

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(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

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1 2022 SCC OnLine 929

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property in the formal economy. The Explanation inserted to Section 3 by way of amendment of 2019 does not expand the purport of Section 3 but is only clarificatory in nature. It clarifies the word “and” preceding the expression projecting or claiming as “or”; and being a clarificatory amendment, it would make no difference even if it is introduced by way of Finance Act or otherwise.

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(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.

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(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.

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(d) The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property, which constitutes the offence of money-laundering. The Authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or any one claiming such property being the property linked to stated scheduled offence through him.

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(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

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delineated by us hereinabove are effective measures to protect the interests of person concerned.

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(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.

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(viii) The challenge to deletion of proviso to subsection (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.

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(ix) The challenge to deletion of proviso to subsection (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.

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(x) The challenge to the constitutional validity of Section 19 of the 2002 Act is also rejected. There are stringent safeguards provided in Section 19. The provision does not suffer from the vice of arbitrariness. (xi) Section 24 of the 2002 Act has reasonable nexus with the purposes and objects sought to be achieved by the 2002 Act and cannot be regarded as manifestly arbitrary or unconstitutional.

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(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.

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(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.

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(xiii)(a) The reasons which weighed with this Court in Nikesh Tarachand Sha h⁷⁰⁶ 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

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this Court so as to revive the same provision in the existing form.

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(b) We are unable to agree with the observations in Nikesh Tarachand Sha h⁷⁰⁷ distinguishing the enunciation of the Constitution Bench decision in Kartar Sing h⁷⁰⁸ ; and other observations suggestive of doubting the perception of Parliament in regard to the seriousness of the offence of money-laundering, including about it posing serious threat to the sovereignty and integrity of the country. (c) The provision in the form of Section 45 of the 2002 Act, as applicable post amendment of 2018, is reasonable and has direct nexus with the purposes and objects sought to be achieved by the 2002 Act and does not suffer from the vice of arbitrariness or unreasonableness.

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(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.

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(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.

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(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.

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(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.

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(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.

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(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.

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(xviii)(a) In view of special mechanism envisaged by the 2002 Act, ECIR cannot be equated with an FIR under the 1973 Code. ECIR is an internal document of the ED and the fact that FIR in respect of scheduled offence has not been recorded does not come in the way of the Authorities referred to in Section 48 to commence inquiry/investigation for initiating “civil action” of “provisional attachment” of property being proceeds of crime.

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(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.

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(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.

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(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.

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(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.

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(xxi) The argument about proportionality of punishment with reference to the nature of scheduled offence is wholly unfounded and stands rejected."

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(emphasis supplied)

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5. The Apex Court in the case of VIJAY MADANLAL

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CHOUDHARY (supra) at paragraph 467(v)(d) holds that there

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are three circumstances under which the proceedings under the PML Act cannot sustain; one, if it is quashed by a competent court of law under Section 482 of the Cr.P.C., the second, if the accused gets acquitted in the predicate offence i.e. the scheduled offence and the third that, the competent court of law would discharge the accused in the predicate offence.

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The first of the instance has happened in the case at hand, as the proceedings against the petitioner has been quashed by a competent court of law. Therefore, the judgment would completely stands covered by what the Three Judge Bench of the Apex Court in the case of VIJAY MADANLAL CHOUDHARY (supra) has held as quoted. The said judgment of the Apex Court is yet again reiterated in the case of PARVATHI KOLLUR AND ANOTHER V. STATE BY DIRECTORATE OF ENFORCEMENT² . Therefore, it is now a settled principle that, if in the predicate offence in the three circumstances narrated hereinabove, if the accused gets acquitted, the proceedings under the PML Act would tumble down like a pack of cards. Therefore, the petition deserves to succeed on the score that the proceedings against him are 2 2022 SCC OnLine SC 1975

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quashed by the Co-ordinate Bench. However, if the order of the Co-ordinate Bench is tossed and such tossing would result in an order in favour of the prosecuting agency and against the petitioner, the liberty is reserved to the Enforcement Directorate to revive the proceedings in accordance with law.

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For the aforesaid reasons, the following:

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ORDER

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i. The petition is allowed.

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ii. The proceedings pending in ECIR No.ECIR/BGZO76/2022 stands quashed qua the petitioner - accused No.1 only.

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iii. The liberty as observed in the course of the order is reserved to the Enforcement Directorate to revive the proceedings in accordance with law, the circumstance would be against the petitioner in future.

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Sd/JUDGE

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SJK List No.: 1 Sl No.: 32 CT:SNN

Sri Mahaveer Jain v. Directorate of Enforcement

Case brief

What is this about?

What did the court decide?

Sri Mahaveer Jain v. Directorate of Enforcement

Case brief

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