TMI Blog2022 (10) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... no scope of lifting the legal fiction of corporate veil in the present case, since, in their capacity as mere shareholders of the petitioner no. 1-company, the accused persons have no right, title and/or interest whatsoever in the assets of the company. It seems a mere childish whim and paranoid fancy of the respondent no. 2 agency and its officials to apprehend a ghost where there is none to attach a fraction of the assets of the company in proportion with the shares held by the accused person in the company, without considering the rudiments of Company Jurisprudence - Even if only the shares in the name of the accused persons in the company (although acquired much prior to the alleged crime) were sought to be attached provisionally under Section 5 of the PMLA, some reason could be laboriously attributed to the same. Here, the respondent no. 2 goes one step further and calculates the share of the company s assets in ratio with the number of shares held in the company by the accused and attaches the said share in the property provisionally. This would tantamount not to law enforcement but unwarranted muscle-flexing by the respondent no. 2-agency. In the present case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of grant of interim orders. 2. The facts, in a nutshell, are as follows: 3. The petitioner no. 1 is a company which granted lease in respect of a land to the petitioner no. 2- company. Petitioner no. 3 is the director of both petitioner nos. 1 and 2. His son, petitioner no. 4, is a director of petitioner no. 2. Petitioner no. 3 Ramesh has a brother by the name of Mahesh. 4. The petitioner no. 1-company owns a land of about 20 acres at Fuleshwar in Howrah district, where it has allegedly erected a factory shed, office building and other structures. The entire property is hereinafter referred to as the said property . 5. The present writ petition has been preferred against an order of provisional attachment dated March 31, 2022 under Section 5 (1) of the Prevention of Money Laundering Act, 2002 (in short, the PMLA ) as well as proceedings initiated under Section 8 (1) of the PMLA by issuing a show cause notice dated May 5, 2022. 6. According to the petitioners, copies of the show cause notice dated May 5, 2022 were served on the petitioners together with the order dated March 31, 2022 and the original complaint of April, 2022. 7. On March 30, 2013 an FIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said property at Fuleswar was purchased. As such, it is argued that none of the attached properties could be proceeds of crime as envisaged in the PMLA, to justify provisional attachment under Section 5 (1) thereof. 13. Learned counsel for the petitioners further argues that there is no material in the possession of the respondents to show that the petitioners are in possession of proceeds of crime, no belief has been recorded in writing or otherwise that the petitioners are in possession of proceeds of crime and there is nothing to show that proceeds of crime are likely to be transferred, concealed or dealt with. Placing reliance on Opto Circuit India Ltd. V. Axis Bank Ors., reported at (2021) 6 SCC 707 , it is argued that the above ingredients, missing in the present case, are necessary for exercise of jurisdiction under Sections 5 and 8 of the PMLA. 14. Next relying on Suman Chattopadhyay Ors. v. Directorate of Enforcement, Govt. of India Ors., reported at 2022 SCC Online Cal 1807, learned counsel contends that, as held therein, the chain of reasons to believe, expressed in writing, must indicate, in specific terms, that the proceeds of crime/ the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed and the first hearing took place before the AA on August 26, 2022. The final hearing was scheduled on September 15, 2022. All parties allegedly made detailed submissions and arguments, but the defendants sought time to file written submission, which was granted by the AA for five days. However, on September 20, 2022 the defendants sought more time and final hearing was fixed on September 23, 2022 at 4:15 pm. Thus, it is submitted by the ED, the petitioners seek to intentionally drag the matter on various pretexts. 21. Learned counsel appearing for the ED cites several judgments in support of his proposition that that if a statutory remedy is available, a writ petition is not maintainable. The said judgments are as follows: I. Commissioner of Income Tax and others Vs. Chhabil Dass Agarwal [(2014) 1 SCC 603] Ref. Para 15 and 16; II. Raj Kumar Shivhare Vs. Directorate of Enforcement [(2010) 4 SCC 772] Ref. Para 31; III. M/s. Rose Valley Real Instates Constructions Pvt. Ltd. anr. Vs. Securities and Exchange Board of India ors. [(2011) 4 CHN 91] Ref. Para 24, 30, 31 and 32; IV. A John Kennady Vs. Joint Director, Directorate of Enforceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... colluding between themselves to escape the net of investigation on money laundering. 26. On merits, the primary questions which essentially fall for consideration, even at the ad interim stage, are as follows:- (i) Whether the present challenge is maintainable/ entertainable under Article 226 of the Constitution of India; (ii) Whether a third party property, having no nexus with the proceeds of crime, can be provisionally attached under Section 5 (1) of the PMLA; and (iii) What is the effect of quashing of an order under Section 5 (1) on a connected adjudication under Section 8 of the PMLA? 27. Taking first things first, as settled by the Supreme Court in several cases, including the ones cited by counsel in the present case, a patent jurisdictional error can be interfered with by this court even if an alternative remedy is available. Whirlpool s case has summed up the limited windows for such interference. Even as per Chhabil Das s case, as rightly argued by the petitioners, where a statutory authority has failed to act in accordance with the statute in question or without jurisdiction, the same comprises an exception to the alternative remedy bar. The distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of the company. The ratio of the said judgment has been followed in Electronics Corporation (supra), Pesticides Brewers (supra) and a series of other judgments of the Supreme Court, our court and other High Courts as well. 34. It is nobody s case that any of the accused persons are directors of the petitioner no. 1-company. The respondents best case is that they are shareholders in the company. Hence, there is no scope of lifting the legal fiction of corporate veil in the present case, since, in their capacity as mere shareholders of the petitioner no. 1-company, the accused persons have no right, title and/or interest whatsoever in the assets of the company. 35. The respondents have cited certain decisions in support of their contention that even third party properties can be attached. The first of such judgments is Vijay Madanlal (supra). The relevant paragraph in this context, which is relied on by the respondent no. 2, is paragraph 65 thereof. The Supreme Court holds therein that The sweep of Section 5 (1) is not limited to the accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being accused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of the petitioner no.-1 company with the commission of the crime long thereafter. Secondly, the petitioners are in no way even remotely connected with the alleged crime, apart from committing the unintentional crime of being relatives of the accused persons. 40. It seems a mere childish whim and paranoid fancy of the respondent no. 2 agency and its officials to apprehend a ghost where there is none to attach a fraction of the assets of the company in proportion with the shares held by the accused person in the company, without considering the rudiments of Company Jurisprudence. Even if the corporate veil is pierced to shreds and lifted beyond recognition, a holder of certain shares of a company, acquired much prior to the alleged date of crime, cannot have an iota of right whatsoever over the assets of the company, also acquired much before such date. The argument that the company may deal with or encumber its assets, thereby denuding the value of its shares, is too remote to carry any weight. 41. Even if only the shares in the name of the accused persons in the company (although acquired much prior to the alleged crime) were sought to be attached provisionally unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets and the alleged scheduled offence in any manner whatsoever, the respondent no. 2 acted in gross abuse of the process of law in passing the provisional attachment order in respect of the company s property. Hence in the present case, the second question is also answered prima facie in favour of the petitioners. 45. With regard to the third question, the last argument of the respondent no. 2 is that the proceeding initiated under Section 8 of the PMLA is independent of the order of provisional attachment under Section 5 of the said Act. Learned counsel has cited the Supreme Court judgment rendered in M/s Kaushalya Infrastructure (supra) in support of the said proposition. 46. Even upon a repeated reading of the said judgment, comprised of about ten paragraphs, I fail to tint myself in the hue of the respondents argument. The said judgment does not lay down a blanket proposition of law that in no case, the adjudication under Section 8 would not be nullified due to invalidation of the order of provisional attachment under Section 5 of the PMLA. Rather, in paragraph 4 thereof, it is held that, going by the scheme of Sections 5 and 8 of the PMLA, the fact that the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l proceeding and adjudication under Section 8 of the PMLA regarding the self-same property and alleged crime and on the self-same grounds stands vitiated and is required to be quashed as well. 50. In this context, with utmost respect, we may remind ourselves of the subtle distinction between Section 5(5) on the one hand and Sections 17(4) and 18 (10) on the other, any of which may be the trigger to set in motion a proceeding under Section 8 of the PMLA. 51. While the latter two provisions envisage filing of an application requesting either for retention or continuation of the freezing of seized records or property, Section 5(5) contemplates filing of a complaint stating the facts of such attachment before the Adjudicating Authority by the Director or other officer who provisionally attaches any property under sub-section (1) of Section 5. 52. Whereas, for invocation of Sections 17(4) and 18 (10), the property or records may, in the perception of the authorities, be useful for or relevant to any proceedings under the PMLA, in the case of Section 5(5), the standard is much stricter, as the complaint, unlike the applications contemplated in the other two provisions, relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahesh Kumar Kejriwal is concerned, as mentioned in Serial no. 2 of Table 8 of the impugned order [being Office Room No. 12, measuring about 612.49 sq. ft. (super built-up) approximately and False Ceiling on the 5th Floor of the building situated at Premises No. 12A, N.S. Road, Kolkata 700 001] is concerned, nothing in this order shall prevent the respondents from acting in terms of and/or in pursuance or implementation of the impugned order and show cause notice and/or of any adjudication under Section 8 of the PMLA. 57. The respondents shall file their affidavit(s)-in-opposition by November 11, 2022. affidavit(s)-in-reply within November 25, 2022. The matter shall be enlisted for final hearing on November 28, 2022. 58. Parties shall act on the server copy of this order without insisting upon prior production of a certified copy for the purpose of compliance. (Sabyasachi Bhattacharyya, J.) Later After the above order is passed, it is pointed out by learned counsel for the respondent no.2 that in the event the petitioners alienate the land standing in the name of the respondent no.1-company, regarding which the respondent no.2 has been restrained from proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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