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TMI Blog2022 (3) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... ct ECIR registered against the petitioner and others is liable to be quashed, as the ingredients of Section 3 of Prevention of Money Laundering Act, 2002 (for short, 'PMLA') are not made out. Sine qua non for Section 3 of PMLA is, firstly, it has to be connected to 'proceeds of crime', as defined under Section 2(u) of PMLA and secondly, it has to be projected as 'untainted property'. Further, to constitute offence under PMLA, three ingredients should be satisfied - (i) Placement, which surreptitiously injects the 'dirty money' into the legitimate financial system; (ii) Layering, which conceals the source of the money through a series of transactions and bookkeeping tricks; and (iii) Integration, where the laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals intend. There is distinction between commission of offence under PMLA and commission of scheduled offence. In the instant case, the CBI, ACB, Hyderabad, registered a case in FIR No.RC.01(A)/2013, dated 03.01.2013, against the petitioner and others for the offences under Sections 120B r/w 409, 420, 465, 471, 477A of IPC and Section 13(2) read with Section 13(1)(d) of The Preventi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in the schedule, which are alleged to be 'proceeds of crime'. In fact, all the said properties were acquired by MBS prior to 25.04.2011, which is the starting point of the crime, according to the Enforcement Directorate. Further, it is brought to the notice of this Court that since the interim stay granted by this Court was not extended for some time, during the interregnum period, the Provisional Order of Attachment was passed. On extension of interim stay granted by this Court, the said Provisional Order of Attachment was kept in abeyance. Further, the role of the petitioner is in the capacity of representative of the MBS, but not in his individual capacity. MBS filed Arbitration Application No.5 of 2013 seeking appointment of Arbitrator for redressal of disputes with MMTC qua rendition of accounts, which is presently sub judice before the Hon'ble Supreme Court of India. Further, the subject ECIR was registered on 25.02.2014 and the CBI filed charge sheet on 27.11.2014, i.e., after lapse of 9 months. Since none of the alleged scheduled offences are prima facie made out against the petitioner, registration of the subject ECIR, which is based on the scheduled offences, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed or even in case the accused is acquitted, it does not affect proceedings under PMLA. In a recent judgment in Dalmia Cement (Bharat) Ltd, New Delhi and another Vs. Assistant Director, Enforcement Directorate, Hyderabad 2016 (4) ALD 47, the erstwhile High Court for the State of Telangana and Andhra Pradesh, observed that "when ECIR is lodged with the Directorate of Enforcement, there is no Magisterial Intervention unlike a FIR and mere registration of ECIR against the suspects of offence under Section 3 of PMLA cannot go to mean that such persons are accused under Section 3 of PMLA. Consequently, the protection against testimonial compulsion as under Cr.P.C as well as under Article 20(3) of the Constitution of India, would not be available". In the instant case, unless the attachment of property is initiated under Section 5 of the PMLA, or arrest is made under Section 19 of PMLA, or complaint is made under Section 44(b) of PMLA before the designated Special Court, no cause of action arises for the petitioner to approach this Court. Directorate of Enforcement is not a recovery agent, but it is duty bound to investigate the fraud committed by the petitioner in active connivance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner to appear before the ED authorities, pursuant to the subject ECIR. Further, the so called One Time Settlement said to have been entered between the petitioner and MMTC would not absolve the criminal liability of the petitioner. No grounds, much less valid grounds, are made out by the petitioner to quash the subject ECIR and ultimately prayed to dismiss the criminal petition. In support of his contentions, learned Additional Solicitor General of India had relied on the following decisions. 1. Smt. Soodamani Dorai Vs. The Joint Director of Enforcement, Chennai and others Decided vide order dated 04.10.2018 in WP Nos.8383 and 8384 of 2013 by High Court of Madras 2. Mr.J.Sekar @ Sekar Reddy and another Vs. Directorate of Enforcement, Chennai Decided vide order dated 04.02.2021 in Crl.O.P.No.24200 & 24202 of 2017 by High Court of Madras 3. Babulal Verma and another Vs. Enforcement Directorate, Mumbai and another Decided vide order dated 16.03.2021 in Crl.Bail Application No.974 of 2021 by Bombay High Court 4. Mr.Radha Mohan Lakhotia Vs. Deputy Director, Directorate of Enforcement, Mumbai Decided vide order dated 05.08.2010 in First Appeal Nos.527 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain irregularities with regard to the gold transactions committed by the officials of MMTC in active connivance with the petitioner and other Directors of MBS, causing wrongful loss to MMTC to a tune of Rs. 194 crores. Basing on the said complaint, the CBI, ACB, Hyderabad, registered a case in RC No.1(A)/CBI/Hyd, dated 03.01.2013, for the offences under Sections 120B r/w 409, 420, 465, 471 & 477A of IPC and Section 13(2) r/w 13(1)&(d) of PC Act against the petitioner and the other persons, investigated the case and filed charge before the Principal Special Judge for CBI Cases, Hyderabad, against the petitioner and the other persons. The role of the petitioner, as alleged in the charge-sheet filed by CBI, is as follows: "The MBS Group of Companies consisting of MBS Jewellers Pvt. Ltd. and MBS Impex Pvt. Ltd. represented by Sri Sukesh Gupta, Managing Director has received gold from MMTC on Buyers Credit loan basis by keeping the forex position open without paying the additional 5% margin money because of which MMTC suffered exposure to the tune of Rs. 220 crores. He has also given a letter to MMTC asking them to keep the forex open and received the gold knowingly though the outst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been entered in between the petitioner and MMTC, which is not in dispute. Relevant clauses of the said MOU reads as under: 1. That the first party (MMTC) acknowledges the fact that the acceptance of liability by the second party (MBS), without prejudice, is based on the facts and circumstances of the case. 2. That the first party acknowledges and confirms without prejudice that it has, with due diligence fixed the total final liability of the second party to be Rs. 181.39 crores as on 31.3.2012, and the first party is hereby stopped from altering this liability any further. Interest thereon shall accrue from 1.04.2012 as per applicable rate of interest and the second party accepts the same. 11. While the matter stood thus, MMTC initiated OTS (One Time Settlement) scheme for resolving the disputes with its business associates. The settlement in each case was a onetime settlement, as a package. Vide letter, dated 30.09.2019, MMTC informed the petitioner about processing of OTS only upon receipt of unconditional payment of Rs. 11.45 crores. Though the OTS came to an end, upon the insistence of the petitioner, the MMTC Regional Office, Hyderabad, took the approval from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MLA and therefore, all the contentions raised on behalf of the petitioner, as if he is accused, are misconceived; The petitioner is required to appear before the ED authorities in relation to the subject ECIR to prove his innocence; If the petitioner could substantiate that he is innocent, he will not be charged with any offence under PMLA; A statutory duty is cast upon the petitioner to appear before the ED authorities, pursuant to the subject ECIR. 13. Here, it is apt to state that trial of money laundering offence is independent trial and it is governed by its own provisions and it need not get interfered with the trial of scheduled offence. The PMLA, being a special enactment, contemplates a distinct procedure at the initial stage and thereafter provides for initiation of prosecution, in order to achieve the special purpose envisaged under the Act and as such, it cannot be construed that proceedings under the PMLA are to be equated with prosecution initiated under the criminal proceedings for predicate/scheduled offences. Thus, initiation of action under the PMLA cannot have any implication or impact in respect of registration of other cases, either under the Indian Penal Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for consideration before the Hon'ble High Court of Madras in Smt.Soodamani Dorai's case (6 supra) relied by the respondents, wherein, it was held that adjudication, prosecution and trial under PMLA is independent of scheduled offence. It was held as follows: "In respect of the question whether criminal proceedings initiated by the police is a bar for proceedings under the Prevention of Money Laundering Act, the provisions of PMLA, 2002 are independent and having self-contained code. Before Amendment Act, 2012, the proceedings of PMLA, 2002 were fully depending upon the scheduled offence. However, after Amendment Act, 2012, with effect from 15.2.2013, the amendments were made in Sections 5(1), 8(3), 8(5), 8(6), 8(7) and 8(8) of the Act, which are very well evident that the proceedings are independent from scheduled offence proceedings. It would not be out of place to humbly submit herein that the provision of Section 5(1)(b) that "such person has been charged of having committed a scheduled offence and" was deleted by the Amendemnt Act, 2012, with effect from 15.2.2013. In the case of Samsuddin v. Union of India, it has been held that the offence of money laundering is independ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son the Authority or court, may presume that such proceeds of crime are involved in money-laundering. 17. In view of the aforesaid mandate, the requisite burden of proof in both the cases is different. Further, Section 71 of PMLA mandates that the provisions of PMLA have overriding effect on any other law for the time being in force. 18. Here, it is apt to extract Section 50 of PMLA, which reads as under: "50. Powers of authorities regarding summons, production of documents and to give evidence, etc.- (1) The Director shall, for the purposes of section 13, have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:- a) discovery and inspection; b) enforcing the attendance of any person, including any officer of a [reporting entity], and examining him on oath; c) compelling the production of records; d) receiving evidence on affidavits; e) issuing commissions for examination of witnesses and documents; and f) any other matter which may be prescribed. (2) The Director, Additional Director, Joint Director, Deputy Director or Assistant Director shall have pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer in the competent authority to summon any person whose attendance he considers necessary whether to give evidence or to produce any records during the course of any investigation or proceeding under the Act. 22. In M.Shobana Vs. The Assistant Director, Directorate of Enforcement CDJ 2013 MHC 4134, the Madras high Court held that initiation of proceedings like issuance of summons etc., in PMLA are self-contained, in-built and independent procedure, mainly to prevent the act of money laundering and connected activities. In paragraph Nos.59 and 60 of the said decision, it was held as follows: "59. To put it succinctly, the initiation of proceedings like issuance of summons etc. in Prevention of Money-Laundering Act are self-contained, in-built and independent procedure mainly to prevent the act of money-laundering and connected activities. Furthermore, the Respondent has issued only summons dated 10.04.2013 to the Petitioners and the issuance of summons cannot be categorized as an act of prosecuting the Petitioners twice. As such, the plea of 'double jeopardy' taken on behalf of the Petitioners is not acceded to by this court. 60. In the light of foregoing discussions and on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was held that any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution, should be deprecated and discouraged. The facts of the instant case and the facts of the cited decision are entirely different. In the instant case, the dispute is not between two private individuals. The petitioner is alleged to have caused wrongful loss to MMTC, a public sector enterprise, to a huge magnitude of Rs. 194 crores. Basing upon the complaint lodged by MMTC, the CBI registered a case against the petitioner and basing upon the case registered by CBI, the Enforcement Directorate registered the subject ECIR basing upon the scheduled offences registered by the predicate agency. In the given facts and circumstances of the case, in the subject dispute, it cannot be said that civil liability is converted into criminal liability. 24. In Rishipal Singh's case (2 supra), wherein, Bhajan Lal's case (3 supra) was also referred, the Hon'ble Apex Court, while reiterating the settled legal position with regard to exercise of inherent powers under Section 482 of Cr.P.C., held as follows: "It is no doubt true that the courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is necessary only for launching prosecution under PMLA. Once the crime is registered under PMLA, then the Enforcement Directorate has to take it to a logical conclusion, as contemplated under Section 44 of PMLA. So, after registration of crime, the Enforcement Directorate has to investigate into as to whether the offence, as enunciated under Section 3 of PMLA, has been committed or not. The Enforcement Directorate, after completion of investigation, detects that there are proceeds of crime, the criminal activity relates to scheduled offence/s, the petitioner is party to such crime and crime proceeds or actually involved in any proceeds of crime which includes its concealment, possession acquisition or use and projected or claimed as untainted property, would proceed against the petitioner under Section 3 of PMLA, by filing a complaint before the Designated Special Court. If no offence is made out in terms of Section 3 of PMLA, a 'closure report' would be filed before the Designated Special Court. Whether the petitioner has committed the offence under Section 3 of PMLA punishable under Section 4 of PMLA, it is a matter of investigation, which has not been concluded yet. The requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject ECIR to carry out investigation under PMLA against the petitioner. Moreover, the adjudicating authority/machinery under PMLA is designated to adjudge the breach of any statutory obligation and it is not a Court of Law or a Judicial Tribunal. Furthermore, the adjudicating authority under the PMLA is not trying a criminal case, but only decides the effect of breach of obligations by the concerned. Further, as mentioned above, ECIR registered by Enforcement Directorate cannot be equated with an FIR under Section 154 of Cr.P.C. The petitioner, instead of cooperating with the investigation, filed this quash petition, which is nothing but a premature attempt to escape from his criminal liability, if any. The modus operandi adopted by the petitioner in causing wrongful loss to MMTC in active connivance with MMTC officials is specifically mentioned in the complaint as well as in the charge sheet filed by the CBI. Though the petitioner was extended the benefit of One Time Settlement and was asked to prove his bona fides by paying 5% of the outstanding amount, he paid part amount and gave cheques for the remaining amount and those cheques were dishonoured. However, the payment d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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