1. This Criminal Petition, under Section 482 of the Code of Criminal Procedure, 1973, is filed by the petitioner, seeking to quash the complaint and
investigation in ECIR/05/HYZO/2014, dated 25.02.2014 on the file of Joint Director, Enforcement Directorate, Hyderabad Zonal Office, Hyderabad.
2. Heard the submissions of Sri M.P.Chandramouli, learned senior counsel and Sri Dil Jit Singh Ahluwalia, learned counsel, appearing on behalf of Sri
H.Rajesh Kumar, learned counsel for the petitioner, Sri T.Surya Karan Reddy, learned Additional Solicitor General of India appearing on behalf of
respondent No.1, Sri Manu, learned counsel for respondent No.2 and perused the record.
3. Learned senior counsel appearing on behalf of the petitioner would inter alia submit that the petitioner is the Director of M/s. MBS Group of
companies. The subject 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 â€" (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Integration, where the laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals intend.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 Prevention of Corruption Act, 1988 (for short, ‘PC Act’), for
allegedly causing wrongful loss to respondent No.2/MMTC Limited, a public sector enterprise, to a tune of Rs.194 crores. Though the CBI registered
FIR against ten accused persons, the subject ECIR was registered against nine accused persons only. A perusal of the subject ECIR would show that
there is no whisper about any property connected/acquired with ‘proceeds of crime’. On 25.11.2005, MMTC sent the first MOU for signatures
of MBS Impex Pvt. Ltd with the terms already agreed to be put into writing for its record. For the years 2005-11, gold was purchased by MMTC
from foreign buyers in USD, with a credit period of 90/180 days. As per the bullion drill, MMTC was mandated to hedge its exposure, subsequently
debiting the expenses from the account of the purchaser. It was also mandated to monitor all open rupee transactions on a daily basis and in case the
margin is reduced from 5% to 2%, then to either take more margin or to close the transaction. From the Financial Year 2005-11 to 2010-11, MBS
purchased gold amounting to over Rs.20,000 Crores from MMTC without any dispute, whatsoever. During July, 2011, Foreign Exchange fluctuation
occurred and the rupee value suddenly crashed up to 27%, due to which the alleged liability arose. On 05.10.2012, the second MoU was signed
between MBS & MMTC, whereby, the MMTC, after due diligence, fixed the total liability of MBS as Rs.181.39 crores as on 31.03.2012 and
estopped itself from altering the said liability further. Thereafter, MMTC engaged M/s.KPMG to conduct forensic audit to ascertain liability of MBS.
On 31.12.2012, the MMTC lodged a complaint with the CBI, which was registered as RC No.1(A)/CBI/Hyd, for the offences under Sections 120B
r/w 409, 420, 465, 471 & 477A of IPC and Section 13 of PC Act. Further, there was no rendition of accounts by MMTC. In fact, MMTC itself owes
nearly Rs.270 crores to MBS, as per Project Flash Report submitted by M/s.KPMG. Default on the part of MBS in making payments to MMTC due
to losses on account of rupee difference, does not, ipso facto, make its funds as ‘proceeds of crime’ under Section 3 of PMLA. Further, the
amount derived by the petitioner by selling gold cannot be termed as ‘proceeds of crime’. Further, the Enforcement Directorate has issued
provisional attachment order, wherein, 45 items of immovable property are 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, is unsustainable. Further, except the
offences under Sections 120B, 420 and 471 IPC, none of the remaining offences alleged against the petitioner are scheduled offences. Further, this
Court, vide order, dated 17.09.2019, was pleased to direct that no coercive steps shall be taken against the petitioner in the subject ECIR, including
lookout circular. Further, this Court, by order, dated 30.09.2019, was pleased to grant stay of all further proceedings in the subject ECIR. The
petitioner is innocent and did not commit any offence, much less offence under PMLA. Continuation of proceedings in the subject ECIR against the
petitioner is nothing but abuse of process of law. Registration of the subject ECIR and investigating into the same is liable to quashed to secure the
interests of justice and ultimately prayed to allow the Criminal Petition as prayed for. In support of his contentions, the learned senior counsel had
relied on the following decisions.
1. Binod Kumar and others Vs. State of Bihar and another 2014 (10) Supreme Court Cases 663
2. Rishipal Singh Vs. State of Uttar Pradesh and another 2014 (7) Supreme Court Cases 215
3. State of Haryana and others Vs. Bhajan Lal and others 1992 Supp (1) Supreme Court Cases 335
4. Naresh Prasad Agarwal and another Vs Inspector of Police, ACB, CBI, Chennai 2017 SCC Online Mad 21346
4. On the other hand, the learned Additional Solicitor General of India appearing on behalf of respondent No.1, while taking this Court through several
factual aspects involved in the matter, vehemently contended that though the commission of scheduled offence is a fundamental pre-requisite for
initiating proceedings under the PMLA, the offence of money laundering is independent of the scheduled offences. The scheme of the PMLA
indicates that it deals only with laundering of money acquired by committing the scheduled offence. In other words, PMLA deals only with the process
or activity of proceeds of crime, including its concealment, possession, acquisition or use and it has nothing to do with the launch of prosecution for
scheduled offence and continuation thereof. Scheduled offence is only a trigger point to initiate investigation under PMLA and once ECIR is recorded,
case registered under PMLA is independent, distinct and stand alone.
Even if the predicate/scheduled offences are compromised, compounded, quashed 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 availableâ€. 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 with MMTC officials. Section 2(1)
(y), 2(1)(u) & 2(1)(na) of the PMLA, Â Crl.P.No.5196 of 2019 mandates that once a predicate/scheduled offence is registered by the predicate
agency, the ‘proceeds of crime’ is required to be investigated under PMLA. As per Sec.2(1)(y)(ii), ‘scheduled offence’ means the
offences specified in Part-B of the schedule, if the total value involved in such offence is Rs.30 lakhs or more. Further, as per Technical Circular
No.03/2020, dated 13.02.2020, the money laundering investigation is to be done in cases where the amount involved exceeds Rs.25 Crores. Later, by
amendment of Finance Act, 2015, the amount of Rs.30 lakhs was substituted with Rs.1 crore. In the instant case, as on today, the petitioner is not
charged with any offence under Section 3 of the PMLA. On the basis of material available in predicate offence, the investigation under PMLA is
being undertaken, pursuant to which, the petitioner was summoned under Section 50 of PMLA for examination. 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. Till date, twelve summons
were issued to the petitioner, but however, he attended before the authorities only once. Since the petitioner obtained stay in this criminal petition, the
investigation is being stalled. ECIR is only step-in-aid to take up investigation and it cannot be compared or equated with FIR. The present stage of the
case is only at the summoning of the accused for the purpose of examination. After fulfilling the requirements under Section 3 of the PMLA, prima
facie the Enforcement Directorate registered the subject ECIR and is proceeding with the investigation. ECIR is an administrative document, which is
like a GD entry in police station. Further, as per Section 44(1)(b) of the PML Act, a Special Court may, upon a complaint made by an authority
authorised in this behalf under this Act, take cognizance of the offence for which, the accused is committed to it for trial. Section 3 of PMLA comes
into play when complaint is filed before the designated Special Court. 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. 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 & 529 of 2010 by Bombay High Court.
5. Usha Agarwala Vs. Union of India Decided vide order dated 29.08.2017 in WP(C) No.23 of 2015 by Sikkim High Court.
6. Dalmia Cement (Bharat) Ltd, New Delhi and another Vs. Assistant Director, Enforcement Directorate, Hyderabad 2016 (4) ALD 47.
5. Learned counsel for respondent No.2/MMTC, made similar submissions as made by the learned Additional Solicitor General of India appearing for
respondent No.1.
6. In view of the above submissions of both sides, the points that arise for determination in this Criminal Petition are as follows:
1. Whether the registration of subject ECIR/05/HYZO/2014, dated 25.02.2014, by the Enforcement Directorate, Hyderabad Zonal
Office, Hyderabad, is legally sustainable?
2. Whether the subject ECIR/05/HYZO/2014, dated 25.02.2014 on the file of Joint Director, Enforcement Directorate, Hyderabad
Zonal Office, Hyderabad, is liable to be quashed by exercising the inherent power of this Court under Section 482 of the Code of
Criminal Procedure, 1973?
POINTS:-
7. I have given anxious consideration to the submissions made by both the sides and carefully gone through the material placed on record. Before
proceeding further, it is apt to state that this Court, while exercising jurisdiction under Section 482 of Cr.P.C., has to only look at the uncontroverted
allegation in the complaint whether prima facie discloses an offence or not, but it should not convert itself to that of a trial Court and dwell into the
disputed questions of fact. When a prosecution is asked to be quashed at an initial state, the tests to be applied by the Court is as to whether the
uncontroverted allegations as made in the complaint prima facie establish the case. Though the powers of this Court under Section 482 Cr.P.C., are
very wide, those powers are required to be exercised sparingly and with abundant caution. The Courts have to see whether the continuation of
criminal proceedings would amount to abuse of process of law or would result in miscarriage of justice or that quashing of criminal proceedings would
secure ends of justice.
8. The material placed on record and the submissions made reveal that on 31.12.2012, Mr.T.S.Rao, General Manager of MMTC, lodged a complaint
with the Deputy Inspector General of Police, Central Bureau of Investigation, Anti Corruption Zone, Sultan Bazar, Hyderabad, alleging certain
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 outstanding dues were there, in connivance with the public
servants. He also gave cheques for Rs.10 crores for resumption of business knowingly that there was no balance in his bank account for
receiving the gold. His company dues were paid by public servants using the MMTC funds/FDs without the approval of the Corporate Office
of MMTC, New Delhi.â€
9. Further, the material placed on record reveals that MMTC has sent a letter along with the Memorandum of Understanding, dated 25.11.2005, to
MBS Impex Pvt. Ltd., requesting the petitioner to sign the original MoU and return the same to MMTC. While it is the case of the petitioner that the
said MOU dated 25.11.2005 was validly executed at the instance of MMTC, it is the case of MMTC that the said MOU has not emanated from their
office, much less signed by an authorized official of MMTC. However, a perusal of the copy of the MOU dated 25.11.2005 filed as material papers
reveal that it contains only the signature of the petitioner and there is no signature of any official of the MMTC on the same. Whether the said MOU,
dated 25.11.2005, was validly executed or not is a disputed question of fact, which cannot be gone into in this criminal petition. However, there is an
arbitration clause in the said MOU, which reads as follows:
12. Arbitration: In case of dispute arising out of the construction or meaning of any of the clauses of this Memorandum of Understanding, the matter
shall be referred to a sole arbitrator to be appointed by General Manager, Hyderabad. The decision of the arbitrator so appointed shall be final and
binding on both the parties and the venue of the arbitration is at Hyderabad.â€
10. Pursuant to the disputes that arose between the petitioner and the MMTC, the petitioner filed Arbitration Application No.5 of 2013 before this
Court invoking the aforementioned arbitration clause in the MOU, dated 25.11.2005, seeking appointment of sole arbitrator for adjudicating the
disputes between the petitioner and the MMTC. MMTC filed counter and contested the said Arbitration Application. This Court, vide order, dated
29.04.2020, dismissed the said Arbitration Application No.5 of 2013. Aggrieved by the same, the petitioner preferred SLP before the Hon’ble
Supreme Court of India and the same is at the stage of admission and no interim orders have been passed in the said SLP. While so, another MOU,
dated 05.10.2012, 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 the Corporate office for providing OTS facility to the petitioner, as the petitioner
promised to remit the initial amount by letter, dated 14.10.2019, towards upfront payment of 5% of the outstanding amount, i.e.,11.45 crores. However,
the petitioner paid Rs.2 crores, i.e., Rs.1 crore on 08.11.2019 and another Rs.1 crore on 25.11.2019 and issued two postdated cheques for Rs.1.5
crore each towards non-refundable deposit money, before proceeding further with the OTS negotiations. When MMTC presented those two cheques
for payment, they got dishonoured stating the reason ‘payment stopped by the drawer’. Further, there is record to show that summons were
issued to the petitioner by the Enforcement Directorate to appear before it and offer explanation with regard to the subject ECIR taken on record
against the petitioner. There is also record to show that provisional order of attachment attaching the properties of the petitioner was also issued by the
Enforcement Directorate. Further, since the interim relief granted in favour of the petitioner in this criminal petition was extended after issuance of
provisional order of attachment, the said order was kept in abeyance.
12. Various contentions have been raised by both the learned counsel with regard to the factual matrix of the matter. The core contentions raised on
behalf of the petitioner are that 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, is unsustainable; continuation of proceedings against the petitioner in the subject ECIR amounts to
abuse of process of law and that the registration of the subject ECIR against the petitioner and investigating into the same is liable to be quashed in the
interest of justice. On the other hand, the prime contentions raised on behalf of the respondents are that commission of scheduled offence is only a
trigger point to initiate investigation under PMLA and once ECIR is recorded, case registered under PMLA is independent, distinct and stand alone;
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; The petitioner is not an accused, but only a suspect of commission of offence
under Section 3 of PMLA 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
or any other penal laws. The offence of money laundering contemplated under Section 3 of the PMLA is an independent offence. A reference to
criminal activity relating to offence under PMLA has a wider connotation, and it may extend to a person, who is connected with criminal activity
relating to scheduled offence, but may not be the offender of scheduled offence. It is in this background that it has to be necessarily held that offence
under PMLA is a stand-alone offence. Keeping in view the same, if we look at sub-section (b) of Section 44 of the PMLA, it would clearly indicate
that the Special Court may take cognizance of the offence upon a complaint by authorized signatory, which means that cognizance would be taken of
an offence, which is separate and independent. Even in case of a person who is initially not booked for a scheduled offence but booked later, and
subsequently acquitted of the said scheduled offence, still such person can be proceeded under PMLA. It is not necessary that a person has to be
prosecuted under the PMLA only in the event of such person having committed scheduled offence. Prosecution can be independently initiated under
PMLA only for the offence of money laundering.
14. Further, a careful perusal of Section 2(1)(u) of PMLA and the explanation thereof makes it clear that a wider definition is given to ‘proceeds of
crime’ including property not only derived or obtained from the scheduled offence, but also any property which may directly or indirectly be
derived or obtained as a result of criminal activity relatable to a scheduled offence. Section 3 of PMLA further clarifies that a person shall be guilty of
offence of money laundering, if such person is found to have directly or indirectly attempted to indulge or knowingly assists or knowingly is a party or
is actually involved in concealment, possession, acquisition, use, projecting as untainted property, claiming as untainted property and the process or
activity connected with the proceeds of crime is a continuing activity, which itself shows the offence of money laundering is a continuing offence.
Thus, a bare reading of Sections 2(1)(u), 3 and 44(1)(d) of PMLA along with explanations thereof makes it clear that the offence of money laundering
is a stand-alone offence and the trial proceedings are completely different to that of the scheduled offence.
15. Similar question came 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
independent of scheduled offences and it has been further held that the time of commission of the scheduled offence is not relevant to the
context of the prosecution under the Act.
The offence of money laundering is not covered under any other provisions of law. Section 3 enacted by 2002 Act is a new offence and
stands by itself. Section 44(1)(c) of the Prevention of Money Laundering Act, 2002, it is provided that if the Court which takes cognizance of
the scheduled offences is other than the Special Court under the PMLA, the Authority should move an application for tr4ansfer of the
scheduled offence to the Special Court and the Special Court, on receipt of such case, proceed to deal with it from the stage at which it is
committed. Therefore, it is clear from the provisions of the Act that the offence of money laundering stands by itself. As evident from Section
8(6) of the Act, the Court will release the property only if it is found on the conclusion of trial under PMLA that the offence of money
laundering has not taken place or if the property is not involved in money laundering. Therefore, adjudication, prosecution, trial under
PMLA is independent of scheduled offence. This is also clear in view of Section 24 of the PMLA, 2002, which deals with burden of proof as
it clearly stated that the burden of proof relating to proceeds of crime involved in money laundering is on the accused whereas the burden of
proof in the scheduled offences is on the prosecution. Therefore, though the ECIR may have been registered following a scheduled offence,
the property in possession of the person, against whom allegations are made, is found to be involved in money laundering, then he can be
punished independently of the scheduled offence. Therefore, mere stay of the predicate offence is not a ground for preventing the
Directorate of Enforcement from proceeding under the PMLA, 2002.
16. Further, the burden of proof in the predicate/Scheduled offences and the offence under PMLA is different. Section 24 of the PMLA reads as
follows:
24. Burden of proof: In any proceeding relating to proceeds of crime under this Actâ€
a) In the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is proved,
presume that such proceeds of crime are involved in money-laundering; and
b) In the case of any other person 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.â€
(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:â€
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 power 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 this
Act.
(3) All the persons so summoned shall be bound to attend in person or through authorised agents, as such officer may direct, and shall be bound to
state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required.
(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of
the Indian Penal Code, 1860 (45 of 1860).
(5) Subject to any rules made in this behalf by the Central Government, any officer referred to in sub-section (2) may impound and retain in his
custody for such period, as he thinks fit, any records produced before him in any proceedings under this Act:
Provided that an Assistant Director or a Deputy Director shall notâ€
a) impound any records without recording his reasons for so doing; or
b) retain in his custody any such records for a period exceeding three months, without obtaining the previous approval of the Director.â€
19. In a recent judgment in Dalmia Cement (Bharat) Ltd’s case (11 supra), 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.
20. The above judgment of Dalmia Cement (Bharat) Ltd’s case (11 supra) has been upheld by a Division Bench of this Court in Writ Appeal
Nos.198 and 199 of 2016, vide order dated 27.01.2022.
21. Further, as rightly contended by the learned Additional Solicitor General of India appearing on behalf of respondent No.1, mere registration of
ECIR and issuance of summons does not give raise to any cause of action. A person who is called upon to make statements before the authorities
cannot be said to be an accused of an offence and he is bound to comply with such direction. Section 50(2) of PMLA vests power 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 appreciation of the entire gamut of the facts and circumstances relating to the subject matters in issue,
this Court comes to an inevitable conclusion that the present Writ Petitions filed by the Writ Petitioners are not maintainable because of the simple
reason that through the summons dated 10.04.2013 they were directed to appear before the Respondent/Assistant Director, Directorate of
Enforcement, Chennai with records mentioned therein for the purpose of enquiry/investigation under the Prevention of Money-Laundering Act to
ascertain the proceeds of crime, in the considered opinion of this Court. The proceedings under the Prevention of Money-Laundering Act are deemed
to be judicial proceedings within the meaning of Section 193 and under Section 228 of the Indian Penal Code. However, the charge sheet filed by the
Police in C.C.No.88 of 2011 relates to investigation for predicate offences under Sections 419, 420 read with Section 34 I.P.C. for criminal offences.
However, since the charged offences under Sections 419 and 420 I.P.C. are the Scheduled Offences under clause I of sub-section (y) of 2 of the
Prevention of Money-Laundering Act 2002, the Respondent registered an Enforcement Case Information Report (ECIR) bearing No.CEZO/2/2013
dated
25. 03.2013 to carry out investigation under the Prevention of Money-Laundering Act against the Petitioners. Moreover, the summons issued to the
Petitioners is a preliminary one relating to the investigation under the Prevention of Money- Laundering Act by the authority concerned. The fact of
the matter is that the Adjudicating Authority/machinery under the Prevention of Money-Laundering Act is designated to adjudge the breach of any
statutory obligation and it is not a Court of Law or a Judicial Tribunal, in the considered opinion of this Court. Moreover, the Adjudicating Authority
under the Prevention of Money-Laundering Act is not trying a criminal case. But only decides the effect of breach of obligations by the concerned.â€
(emphasis supplied)
23. I have gone through the decisions relied upon by the learned senior counsel for the petitioner. The petitioner relied on Binod Kumar’s case (
2014 (10) Supreme Court Cases 663 supra) for the preposition that civil liability cannot be converted into criminal liability. In the cited decision, the
Hon’ble Apex Court referred to a decision in Indian Oil Corpn. v. NEPC India Ltd., {(2006) 6 SCC 736}, wherein, 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 ( 2014 (7) Supreme Court Cases 215 supra), wherein, Bhajan Lal’s case ( 992 Supp (1) Supreme Court Cases
335 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 have to be very careful while exercising the power under Section 482 CrPC. At the same time we should not
allow a litigant to file vexatious complaints to otherwise settle their scores by setting the criminal law into motion, which is a pure abuse of process of
law and it has to be interdicted at the threshold. A clear reading of the complaint does not make out any offence against the appellant Branch
Manager, much less the offences alleged under Sections 34, 379, 411, 417, 418, 420, 467, 458 and 477 IPC. We are of the view that even assuming
that the Branch Manager has violated the instructions in the complaint in letter and spirit, it all amounts to negligence in discharging official work, at
the maximum it can be said that it is dereliction of duty.â€
25. There cannot be any dispute with regard to the preposition of law laid down by the Hon’ble Apex Court in the above cited decision. However,
the facts of the above cited decision are distinguishable from the facts of the case on hand. In view of the seriousness of the offence allegedly
committed by the petitioner and the modus operandi adopted by him in committing the alleged offence, this Court is of the considered opinion that it is
not a fit case to quash the subject ECIR registered against him by exercising the inherent power under Section 482 of Cr.P.C.
26. Naresh Prasad Agarwal’s case ( 2017 SCC Online Mad 21346 supra) is also a MMTC case. The petitioner therein sought to quash the
charge-sheet filed against him in C.C. No.3 of 2014, on the file of the learned Special Judge for CBI cases (XII Judge, City Civil Court), Chennai
under Section 482 of the Code of Criminal Procedure. The Hon’ble Madras High Court, adverting to the facts of the case, the law applicable and
various case laws, ultimately quashed the charge-sheet against the petitioner therein. In the instant case, charge-sheet filed by the predicate agency is
not yet quashed. Moreover, the subject ECIR is registered to investigate into as to whether the petitioner has committed an offence under Section 3 of
PMLA. Column 8 of the subject ECIR demonstrates the same. So, the facts of the case on hand cannot be equated with the facts of the case in the
aforementioned decision.
27. Here, it is apt state that PMLA is a special enactment, enacted with a specific purpose and object, i.e., to track and investigate the cases of money
laundering. The predicate/scheduled offence 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 requirement under Section 154 of Cr.P.C. to issue FIR and requirement
to register an ECIR under PMLA stand on different footings.
28. In the instant case, the allegations against the petitioner are that the petitioner, as the Director of the MBS group of companies, has received the
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 given a letter to MMTC asking them to keep the forex open and received the gold
knowing that there are outstanding dues, in connivance with the public servants; He also gave cheques for Rs.10 crores for resumption of business
knowingly that there was no balance in his bank account for receiving the gold; His company dues were paid by public servants using the MMTC
funds/FDs without the approval of the Corporate Office of MMTC, New Delhi; The petitioner accepted his liability and gave three cheques in
discharge of liability and those cheques were dishonoured, which is borne by the record.
29. Furthermore, the Enforcement Directorate has issued only summons under Section 50(3) of PMLA to the petitioner. Summons are issued to a
person under Section 50(3) of PMLA requiring his attendance to give evidence or to produce any records during the course of investigation or
proceedings. Hence, issuance of summons to the petitioner can neither be categorized as an act of prosecuting him, nor would make him an accused
under PMLA. As rightly contended by the learned Assistant Solicitor General of India, if the petitioner proves his innocence before the ED authorities,
he would not be charged with any offence under PMLA. Even otherwise, Section 50(3) mandates that all the persons so summoned ‘shall’ be
bound to attend in person or through authorized agents, as such officer may direct, and ‘shall’ be bound to state the truth upon any subject
respecting which they are examined or make statements, and produce such documents as may be required. Further, the proceedings under PMLA are
deemed to be judicial proceedings within the meaning of Section 193 and under Section 228 of the Code of Criminal Procedure, 1973. Further, since
the offences under Sections 120B, 420, 471 of IPC charged against the petitioner are Scheduled Offences under clause I of sub-section (y) of 2 of
PMLA, the Respondent registered 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 done by the petitioner under OTS is only a small fraction of total dues. The
allegation against petitioner is that he has caused a massive loss of Rs.194 crores to MMTC, a public sector enterprise. Such economic frauds
adversely affect the financial and economic well-being of the Nation and have implications which lie beyond the domain of a mere dispute between
the petitioner and MMTC. The Apex Court, in a catena of judgments, held that in economic offences, it is not proper for the High Court to exercise its
inherent powers under Section 482 of Cr.P.C., which is nothing but stalling investigation/enquiry initiated by the authorized officer under the provisions
of PMLA. At the initial stage of issuance of process, it is not open to the Courts to stifle the proceedings by entering into the merits of the case.
Hence, enquiry has to be necessarily held to find out the truth or otherwise of the said allegations. Under these circumstances, there is prima facie
case for the Enforcement Directorate to register the subject ECIR/05/HYZO/2014, dated 25.02.2014, against the petitioner and investigate into.
30. In view of the material available on record, this Court is of the considered opinion that continuation of proceedings in the subject ECIR against the
petitioner would not amount to abuse of process of law. In the interests of justice also, the proceedings against the petitioner in the subject ECIR
cannot be quashed. No grounds, much less valid grounds, are made out by the petitioner to quash the complaint and investigation in
ECIR/05/HYZO/2014, dated 25.02.2014 on the file of Joint Director, Enforcement Directorate, Hyderabad Zonal Office, Hyderabad. The Criminal
Petition is devoid of merit and is liable to be dismissed.
31. Accordingly, the Criminal Petition is dismissed. It is needless to state that the interim relief granted by this Court and extended from time to time,
stands vacated.
Miscellaneous petitions, if any, pending in this Criminal Petition, shall stand closed.
