Bombay High Court
Amar Sadhuram Mulchandani vs Directorate Of Enforcement Througth … on 29 August, 2024
Author: Bharati Dangre
Bench: Bharati Dangre
2024:BHC-AS:36486-DB 1/76 WP 612-23 AND ORS.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION WRIT PETITION NO. 612 OF 2023 Amar S. Mulchandani .. Petitioner Versus Directorate of Enforcement through its .. Respondent Deputy Director and ors WITH INTERIM APPLICATION NO. 305 OF 2024 AND INTERIM APPLICATION NO. 2466 OF 2023 IN WRIT PETITION NO. 612 OF 2023 WITH WRIT PETITION NO. 646 OF 2023 Vinay V. Aranha .. Petitioner Versus The State of Maharashtra and anr .. Respondents WITH INTERIM APPLICATION NO. 1749 OF 2023 AND INTERIM APPLICATION NO. 1748 OF 2023 AND INTERIM APPLICATION NO. 1747 OF 2023 IN WRIT PETITION NO. 646 OF 2023 WITH WRIT PETITION NO. 743 OF 2023 Sagar M. Suryawanshi .. Petitioner Versus Directorate of Enforcement and ors .. Respondents WITH Tilak ::: Uploaded on - 11/09/2024 ::: Downloaded on - 27/09/2024 21:36:07 ::: 2/76 WP 612-23 AND ORS.doc INTERIM APPLICATION NO. 917 OF 2023 WITH INTERIM APPLICATION NO. 918 OF 2023 AND INTERIM APPLICATION ST NO. 15945 OF 2023 IN WRIT PETITION NO. 731 OF 2023 WITH WRIT PETITION NO. 690 OF 2023 Sadhana M. Mulchandani and anr .. Petitioners Versus Directorate of Enforcement and ors .. Respondents WITH INTERIM APPLICATION NO. 2330 OF 2023 AND INTERIM APPLICATION NO. 1118 OF 2023 AND INTERIM APPLICATION NO. 1120 OF 2023 IN WRIT PETITION NO. 690 OF 2023 WITH WRIT PETITION NO. 711 OF 2023 Ashok S. Mulchandani and ors .. Petitioners Versus Directorate of Enforcement and ors .. Respondents WITH INTERIM APPLICATION NO. 1117 OF 2023 AND INTERIM APPLICATION NO. 1122 OF 2023 IN WRIT PETITION NO. 711 OF 2023 WITH WRIT PETITION NO. 746 OF 2023 Tilak ::: Uploaded on - 11/09/2024 ::: Downloaded on - 27/09/2024 21:36:07 ::: 3/76 WP 612-23 AND ORS.doc Sheetal K. Tejwani .. Petitioner Versus The State of Maharashtra and anr .. Respondents WITH INTERIM APPLICATION NO. 1755 OF 2023 AND INTERIM APPLICATION NO. 1753 OF 2023 IN WRIT PETITION NO. 746 OF 2023 WITH WRIT PETITION NO. 1030 OF 2023 Girish K. Tejwani .. Petitioner Versus The State of Maharashtra and anr .. Respondents WITH INTERIM APPLICATION NO. 1751 OF 2023 AND INTERIM APPLICATION NO. 1750 OF 2023 IN WRIT PETITION NO. 1030 OF 2023 WITH WRIT PETITION NO. 961 OF 2023 Rajesh P. Sawant .. Petitioner Versus Directorate of Enforcement and ors .. Respondents Mr.Ravi Kadam, Senior Advocate with Mr.Karan Kadam, Mr.S.R. Phanse and Mr.S.S. Bedekar for the petitioner in WP No. 612/690/711 of 2023. Mr.Sanjeev Kadam with Mr.Shantanu Phanse for the petitioner in WP 961/2023. Tilak ::: Uploaded on - 11/09/2024 ::: Downloaded on - 27/09/2024 21:36:07 ::: 4/76 WP 612-23 AND ORS.doc Mr.Ajay Bhise with Deepali Kedar, Sagar Kursija for the petitioner in WP 731/2023, WP 746/2023 and WP 1030/2023. Ms.Minal Chandnani, Prashant Kenjale, for Intervenor in IA No.917/2023. Mr.Shekhar Mane for the petitioner in WP 646/2023. Mr.H.S. Venegavkar for respondent nos.1 and 2 (ED). Mr.Anil Anturkar, Senior Advocate a/w Ms.Minal Chandnani, Prashant Kenjale, Mr.Harshvardhan Suryavanshi, Ms.Kashish Chelani for the Intervenor in IA No. 1747 of 2023. Mr.Anil Anturkar, Senior Advocate a/w Ms.Minal Chandnani, Prashant Kenjale, for respondent no.5 in IA NO.305/2024 in WP 612/2023. Mr.Vivek Muglikar, ACP Crime-I, Pimpri Chinchwad. Mr.Kadir Deshmukh, API, Vimantal police station, Pune. CORAM : BHARATI DANGRE & MANJUSHA DESHPANDE,JJ. RESERVED ON : 9th JULY, 2024 PRONOUNCED ON : 29th AUGUST, 2024 JUDGMENT :
(Per Bharati Dangre, J)
1 On 17/5/2018, FIR No. 163/2018 is registered at
Vimantal police station on the complaint filed by one Sagar M.
Suryawanshi, an account holder in Seva Vikas Co-operative Bank
(for short ‘Seva Bank’), Pimpri. The complainant, who is also a
shareholder in the Bank made a grievance, that the Bank had
advanced a loan of Rs.Seven crores in March 2018 and loan of
Rs.4.5 crores in April 2018 to one Rosary Education Group. On
inquiry, it was revealed to the complainant that Vivek Aranha and
Vinay Aranha were the partners of Rosary Education Group and
some property was mortgaged with the Bank, but it was sold by the
accused persons vide a registered agreement on 29/12/2014. On
the very same day, Leave and Licence agreement was executed
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between the purported owners and the accused nos.1 and 2, the
Aranhas, leasing out 95% area of the said property. As far as 5%
area of the subject property is concerned, a separate Leave and
Licence agreement was executed in favour of one Aslam Kamiruddin
Furniturewalla.
The complainant, therefore, alleged that the accused
persons hand-in-glow with the officers in-charge of the Seva Bank,
systematically siphoned off crores of rupees deposited by innocent
depositors of the Bank. It was also alleged that the accused persons,
in conspiracy with the office bearers of the Bank hatched a
conspiracy to misappropriate crores of rupees by mortgaging the
property by offering it as security for the huge loan amount, which
was disbursed in their favour.
This FIR arraigned four persons as accused, being the
members of Aranha family.
The members of Board of Directors of the Bank were
impleaded as accused in the said C.R, which invoked Section 420
r/w Section 34 of the IPC.
THE BACKGROUND FACTS OF THE ECIR/MBZO-II/10/2021
2 FIR No. 163/2018 was the source for registration of
ECIR/MBZO-II/10/2021 and the proceeds of crime, suspected to be
raised was Rs. 11.5 crores, GIVING a reason to believe, that an
offence of money laundering has been committed.
ECIR registered by Assistant Directorate of Enforcement,
Mumbai Zonal Office-II, referred to the offence invoking Section 420
and 34 of IPC, and considering that Section 420 IPC, is in paragraph
1 of Part ‘A’, a scheduled offence under the Schedule to the
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Prevention of Money Laundering Act, 2002, on recording that prima
facie a case for Money Laundering under Section 3 of the Prevention
of Money Laundering Act, 2002, punishable under Section 4 of the
Act, appears to have been made out, which required investigation by
the Directorate of Enforcement, the subject ECIR under the
provisions of Prevention of Money Laundering Act, 2002 was
registered.
3 In the interregnum, an audit report was submitted by
Rajesh Jadhawar, Joint Registrar (Audit), Commissionerate of Sugar,
Pune, in terms of Section 81 of the Maharashtra Co-operative
Societies Act, as by order dated 14/2/2019, passed by the
Commissioner Co-operation and Registrar Co-operative Societies,
Maharashtra State, Pune, he was appointed as a test auditor to
conduct the audit of loan accounts of Seva Bank.
The Audit Report dated 6/8/2021 reported in respect of
124 loan accounts of the Seva Bank and permission was sought from
the Commissioner, Co-operation to register FIRs in respect of
separate groups of borrowers identified in the audit report.
4 On 10/8/2021, the Commissioner of Co-operation
accorded permission to Mr.Rajesh Jadhawar to register separate FIRs
on the basis of the audit report in relation to 124 loan accounts as
the Audit Report had pointed out irregularity to the tune of
Rs.429.57 crores.
This permission resulted in registration of three FIRs by
Rajesh Jadhawar being registered as FIR No. 525/2021, 526/2021
and 527/2022 with Pimpri police station.
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FIR No. 525/2021 invoked Sections 406, 408, 409, 420,
467, 468, 471, 109, 120B r/w Section 34 IPC and arraigned Shri
Amar S. Mulchandani and 27 other persons as accused, whereas FIR
No.526/2021 arraigned 45 persons as accused which included Amar
S. Mulchandani as prime accused and in FIR No.527/2021, along
with Amar S. Mulchandani, 35 other persons were arraigned as
accused; the cumulative gist of all the three FIRs being, causing
financial loss to the Bank, on account of the irregularities in sanction
of loan to three distinct groups.
5 On 13/8/2021, on a Writ Petition filed by Ashok
Mulchandani and others, (Writ Petition St No.12345/2021 and Writ
Petition St No.12404/2021) directed that though the Investigating
Officer may proceed with the investigation, no coercive steps be
taken against the petitioners.
The Writ Petition filed, raised a specific ground that the
very same transaction which was the subject matter of FIR
No.806/2009 in respect of which the Court had granted interim
relief, the subject FIR was lodged and it was urged that the FIR
dated 18/7/2019 was lodged against the same group of borrowers
based on the test audit report conducted by the respondent no.2,
pursuant to the permission granted u/s.81(5)(b) of the Maharashtra
Co-operative Societies Act, 1960.
Similar orders were passed in Writ Petition No.
2896/2021 and 2897/2021 on 17/8/2021 in connection with FIR
No. 163/2018, directing that in case the Investigating Officer
deemed it necessary to arrest the accused persons, 72 hours advance
notice shall be given.
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6 At this juncture, it is necessary to refer to registration of
FIR 806/2019 on 19/7/2019 at the instance of one Dhanraj Aswani,
alleging commission of offences punishable under Section 420, 406,
409, 465, 467, 468, 471 r/w Section 34 of IPC with Pimpri
Chinchwad police station against the Bank and its officials. The said
FIR No.806/2019 was premised on a purported report of
investigation conducted by the Bank through Assistant Registrar, Co-
operative Bank (Audit), Sugar Commissionerate, Maharashtra State,
Pune, Shri Rajesh Jadhawar. The FIR inter alia alleged that there
were improprieties in about 104 loans that were disbursed from
different branches of the Bank, which were declared Non
Performance Account (NPA) as on 31/3/2018 and it was alleged that
the loans were granted without appropriate mortgage/
hypothecation and in some cases, without verifying repayment
capacity of the borrowers and since the accounts were declared NPA,
it had caused heavy financial loss to the Bank depositors and the
shareholders.
7 Aggrieved by the registration of this FIR, the Chief
Executive Officer of the Bank Mr.Amarjeetsingh Mohindersingh Basi,
filed a Criminal Writ Petition (WP No.4134/2019) for quashing of
the said FIR and by order dated 27/8/2019, the Court stayed the
further investigation in relation to the said FIR and also directed that
no coercive action shall be taken, till the petition was heard finally.
The said order was passed in the backdrop that in Writ
Petition No. 4828/2019, the Division Bench had stayed the order
dated 14/02/2019, appointing the auditor and it was urged that
despite the stay order, the audit was carried out in the month of May
and June 2019 and based on which the FIR was registered.
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8 On 16/11/2021, the Division Bench heard Writ Petition
No. 4134/2019 along with the Interim Applications for Intervention
filed by the complainant Sagar Suryawanshi and Dhanraj Aswani
and by a detailed judgment, allowed the Writ Petition by quashing
and setting aside C.R.No. 806/2019. A pertinent observation of the
Division Bench recorded thus:-
“(5) By way of abundant caution, it is clarified that we have not at
all entered into the merits of the allegations in the instant FIR.
Neither, we have delved into the aspect of legality of subsequently
lodged FIRs, nor the merits of the allegations in those FIRs. The
investigation and prosecution in the subsequently lodged FIRs shall
proceed in accordance with law.”
9 However, in the interregnum i.e. after the stay of the
investigation and till the quashing of C.R.No. 806/2019, nine FIRs
were registered in different police stations involving loan accounts of
different groups and it was one of the contention advanced that the
FIR No. 806/2019, was overlapping the other CR’s registered.
To continue the narration, the decision of this Court
delivered on 24/11/2021 was challenged in a Writ Petition before
the Apex Court, and on 5/12/2022, the Apex Court set aside the
order passed by this Court:
10 On 18/4/2022, on completion of investigation in C.R.
No.163/2018 registered with Vimantal police station, ‘C’ summary
was filed, reporting that the title of the property which was the
subject matter of the C.R was never transferred by the proposed
accused to Prakashchandra Vyas, Jayshree Vyas and Khairunisa
Aslam Furniturewalla, but the registered document dated
29/12/2014 was only an agreement to sale and the alleged accused
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persons received only Rupees One crore as the earnest money, but
the transaction between the parties was never completed.
Recording that, even today, the alleged accused persons
are owners of the above property and accordingly, they have
mortgaged the same with the Bank. The Investigating Officer
concluded that informant had filed false complaint against the
alleged accused and also attributing imputations to the Officers of
Seva Bank, so that he could avoid repayment of loan. He therefore,
concluded that no offence has been committed by the alleged
accused and therefore, ‘C’ Summary was filed.
The 13th Judicial Magistrate First Class, Pune, by order
dated 18/4/2022, accepted the ‘C’ Summary by recording thus :-
“From the registered documents on record, 7/12 extract of the
property, statement of officials of Seva Vikas Co-operative
Bank, and the documents regarding loan of alleged accused
with Seva Vikas Co-operative Bank, it appears that the alleged
accused had all the right to mortgage the property with the
Bank. Accordingly, the loan had been disbursed to them. There
is nothing on record to indicate that the alleged accused
persons had any intention to cheat or has cheating the Seva
Vikas Co-operative Bank or its shareholders.
11 As far as the Petitioner, Amar Mulchandani is concerned,
he was released on bail in connection with the FIR registered by
Enforcement Directorate and he received summons to attend the
office of Enforcement Directorate on 13.02.2023.
When he approached the High Court on 21.02.2023, the
Court directed that prior to his arrest in connection with the said
ECIR, he shall be given 72 hours notice, but this direction was stayed
by the Supreme Court vide its order dated 21.02.2023.
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12 Another development which occurred, was that the
State Government (Minister of Co-operation) quashed the Audit
Report and Special Audit Report dated 06.08.2021 submitted by
Rajesh Jadhawar, while allowing the Revision Application
No.330/2022 filed by Daya Mulchandani.
The Petitioner came to be arrested in connection with
ECIR/MBZO-II/10/2021 on 01.07.2023 and it is his specific
contention that at the time of his arrest, the subsequent FIRs bearing
Nos.525, 526 and 527 of 2021 were rendered otiose since they were
founded upon the Audit Report dated 06.08.2021, which was
quashed by the State Government on 31.05.2021.
13 In August, 2023 a supplementary complaint was filed in
PMLA Special Case No. 673/2023 by Enforcement Directorate and
Mr. Mulchandani was shown as accused No.4 therein. On
14.12.2023 the Special Judge, PMLA, took cognizance and issued
process against Mr.Mulchandani.
14 It is, in this background, Mr. Mulchandani has filed WP
No.612/2023, seeking following reliefs :-
“a. Issue a writ of certiorari and/or writ in the nature of
certiorari and/or any other writ/order/direction, calling for
records and proceedings of ECIR/MBZO-II/10/2021 registered
by the Directorate of Enforcement (Respondent no. 1 herein) and
all consequent actions taken thereafter and after satisfying itself
as to its legality, veracity and propriety, be pleased to quash and
set aside the said ECIR/MBZO-II/10/2021 registered with the
Directorate of Enforcement (Respondent no. 1 herein) and all
consequent actions taken thereafter.
b. Issue a writ of certiorari and/or writ in the nature of
certiorari and/or any other writ/order/direction, calling for
records and proceedings of summons dated 07.02.2023 and
dated 13.02.2023 issued to the Petitioner under S. 50 of the
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as to its legality, veracity and propriety, be pleased to quash and
set aside the said summons dated 07.02.2023 and all and any
further summons issued by the Respondents against the present
Petitioner in connection with ECIR/MBZO-II/10/2021.
c. Issue a writ of certiorari and/or writ in the nature of
certiorari and/or any other writ/order/direction calling for
records and proceedings of letter/order/permission dated
10.08.2021 issued by the Commissioner of Co-operation and
Registrar of Co-operative Societies and after satisfying itself as
to its legality, veracity and propriety, be pleased to quash and set
aside the same.
d. Issue a writ of mandamus and/or writ in the nature of
mandamus and/or any other writ/order/direction directing the
Respondents herein and their instrumentalities to not take any
coercive action against the present Petitioner on the basis of Test
Audit Report, Special report and Specific Report dated
06.08.2021 submitted by the Jt. Registrar Audit,
Commissionerate of Sugar, to the office of the Commissioner of
Co-operation and Registrar of Co-operative Societies.”
Seven other Petitions are filed by different accused, the details
of which are as under:-
Writ Petition No. Party Name 612/2023 Amar Mulchandani 690/2023 Sadhana Manohar Mulchandani 711/2023 Ashok Mulchandani 1030/2023 Girish Tejwani 731/2023 Sagar Maruti Mulchandani 746/2023 Sheetal Tejwani 646/2023 Vinay Vivek Aranha 961/2023 Rajesh P Sawant
The above Chart would reveal the details of the Petitioners in
respective Petitions, which seek relief of quashing of ECIR/MBZO-
II/10/2021 registered by the Directorate of Enforcement, and all the
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consequent actions taken thereafter. The stay of the proceedings in
the aforesaid file is also sought by way of interim relief in each
Petition.
COUNTER ARGUMENTS ADVANCED
15 We have heard the learned senior counsel Mr.Ravi
Kadam representing the Petitioner in WP No.612/2023 whereas, the
learned counsel Mr.Bhise has represented the Petitioner in WP
No.731/2023, 746/2023 and 1030/2023. We have also heard
Mr.Shekhar Mane for the Petitioner in WP No.646/2023.
The Enforcement Directorate is represented by Mr.
Hiten Venegaonkar, the Public Prosecutor. We have also deemed it fit
to hear learned senior counsel Mr. Anturkar for the intervenor,
Mr.Shrichand Aswani.
16 Since WP No.612/2023 is the lead Petition, we have
assimilated the facts from the same, and noted the argument of
learned senior counsel Mr. Kadam for the Petitioner therein.
Mr. Kadam has rested the reliefs in the Petition, on the
following broad grounds :-
i) On acceptance of Closure Report in a predicate offence, an
ECIR is rendered a dead letter and it is non est. In a non est ECIR,
no FIR can be subsumed;
ii) There is no power or provision in PMLA to subsume
subsequent FIRs into a preexisting ECIR;
iii) Even assuming for the sake of it, if subsumption s
permissible, there must be a causal link between the subsumed
FIRs and the existing ECIR;
iv) The subsumed FIRs did not exist on the date and they are
liable to be quashed on the ground of :
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a) Audit Report which form the basis of these FIRs, itself
is quashed and set aside;
b) Sanction order accorded mechanically, vitiate the
subsumed FIRs.
c) Even otherwise, no predicate scheduled offence is
made out on the face of the subsumed FIRs and hence the
ECIR which is based on such FIRs is liable to be quashed
and set aside.
17 Mr. Kadam has urged before us that the basis of
ECIR/MBZO-II/10/2021 registered on 31.03.2021 was FIR
no.163/2018 registered with Vimantal Police Station on 17.05.2018.
On completion of the investigation, in this FIR, C-summary Closure
Report was filed before the 13th Judicial Magistrate, 1st Class, Pune,
which was accepted on 18/04/2022.
It is, therefore, the contention of Mr. Kadam that as on
18.04.2022 the impugned ECIR ceased to exist and it was, therefore,
rendered a dead letter and no further action would have been taken
under it.
18 In support of this proposition, he would rely upon the
following decisions :-
i) Naresh Goyal vs. The Directorate of Enforcement & Anr.1 .
ii) Emta Cola Limited & Ors. vs. The Deputy Director,
Directorate of Enforcement2.
iii) Harish Fabiani & Ors. Vs Enforcement Directorate & Ors 3.
iv] Prakash Industries Limited vs. Union of India & Anr.4 .
1 Criminal WP No.4037 of 2022 2 WP (C) No.2821/2022 3 WP (CRL) No.408/2022 4 2023 SCC Online Del 336 Tilak ::: Uploaded on - 11/09/2024 ::: Downloaded on - 27/09/2024 21:36:07 ::: 15/76 WP 612-23 AND ORS.doc
He has urged before us that on the curtains being drawn
upon FIR No.163/2018 which was the foundation of ECIR/MBZO-
II/10/2021, the subsequent subsuming of FIR bearing Nos.525, 526
and 527 of 2021, registered with Pimpri Chinchwad Police Station
on 11/12.08.2021, by Rajesh Jadhawar, into the subject ECIR
ought not to be permitted, since on the Closure Report being
accepted in the subject FIR, the ECIR was a dead letter and it could
not have absorbed any fresh actions including subsuming of the
FIR’s.
19 Mr.Kadam, by inviting our attention to the scheme of
Act of 2012, has urged before us that it being a penal statute, it shall
be construed strictly and the Directorate of Enforcement ought to
have acted within its confines and shall exercise only the specific
powers conferred under the same.
In absence of an enabling provision to permit subsuming of FIR into an ECIR, the Respondent has erred in subsuming the FIRs into a dead ECIR.
Mr. Kadam has relied upon the Affidavit in Rejoinder
filed by the Petitioner on 10.04.2023 and he would submit that on
27/01/2023 a search and seizure was carried out with the
Petitioner by Respondent Nos. 1 and 2 and some valuables were
seized. Thereafter, he received a show cause notice under Section 8
of the PMLA to which the copy of the ECIR has been annexed which
clearly reflected that it was solely based on FIR No.163/2018 in
which ‘C’ summary was filed, which was even accepted.
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Alongwith the Affidavit, a copy of the ECIR is annexed
at Exh.C, which reveal that the source of the information for the said
ECIR is FIR No.0163/2018.
In addition, it is the contention of Mr. Kadam that the
allegations in the ECIR have no proximate nexus with the allegations
now sought to be levelled and investigated by Respondent Nos.1 and
2 and once C summary report is accepted in April, 2022,
Respondent Nos.1 and 2 have maliciously sought to rely on some
other FIRs, by contending that the same have been subsumed in the
present ECIR, in an attempt to keep it alive and continue its
investigation. It is his contention that there is no provision which
permit subsuming of FIRs, particularly if the same are registered at
a later point of time and there is a brazen malice on the part of the
Respondent/ED, particularly when the allegations reflected in the
impugned ECIR of money laundering and of dealing with proceeds
of crime under Section 3 of PMLA have no causal connection with
the purported loan fraud forming the subject matter of the
subsumed FIRs.
It is the contention of Mr. Kadam that in connection
with the two FIRs, no scheduled offence is made out and though the
said FIRs have invoked Section 420 of the IPC, on perusal of the case
of the prosecution reflected from the statement of complainant, it is
evident that no allegations of cheating are comprised therein and the
allegation is about criminal breach of trust, which is a totally
distinct offence.
In addition, he submit that the criminal breach of trust
is not a scheduled offence under the PMLA and, therefore, the
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Respondent, cannot rely on FIR nos.525, 526 and 527 of 2021,
which has failed to make out an offence under Section 420 of the
IPC. It is his further contention that the accusation in the two FIRs
is as regards the loan disbursed by Seva Bank to Vinay Arhana and
Sagar Suryawanshi and their connected entities and it is alleged
that it has been misappropriated and the funds are siphoned off and
embezzled. The said FIR contain an accusation that the transactions
have been done in an environment of irregularities and ambiguities,
and this at the most, according to Mr. Kadam, would make out an
offence under Section 406 and 409 of the IPC, but not an offence
under Section 420 of the IPC, and in any case, it is his submission
that since the petitions for quashing of FIR Nos.526/2021 and
527/2021 are pending before this Court, this Court will not go into
the merits of the allegations made in the predicate offence and come
to a particular conclusion as to whether the particular provisions
attracted in the predicate FIR, are made out or not.
In support of his submission that the subsumed FIRs
were not existing on date of ECIR, Mr. Kadam would place reliance
upon the decision in the case of Prakash Industries Ltd. Union of
India & Anr.,5
20 In short, the submission of Mr.Kadam is, that the subject
ECIR is liable to be quashed, as its very basis, the FIR No.163/2018
do not exist, and as the Audit Report itself is now set aside by the
State Government, even the subsumed FIRs do not continue to hold
any force as the underlined Audit Report no longer survive.
He would place reliance upon the decision of Delhi High
5 2023 SCC OnLine Del, 336.
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Court in the case of Dr.R.P. Gupta vs. CIT, 1996, 6 and the decision
of the Apex Court in the case of G.L.Didwania & Ors. vs. Income
Tax Officer & Ors.7 to support his contention.
In addition, it is his submission that the Registrar, Co-
operative Societies, has mechanically, without application of mind
and in great haste, has granted sanction to Mr. Jadhawar to file the
said subsumed FIRs on 10.08.2021, as looking to the Inspection
Report running into 1000 pages, it was impossible for a person to
have gone through the lengthy and voluminous Inspection Report
alongwith its accompaniments, to have any application of mind
within the short period of time, and, therefore, when the sanction
for registration of the said FIR was defective, on this ground itself
the FIR was liable to be set aside.
21 Mr. Bhise, the learned counsel representing Mr. Sagar
Suryavanshi in WP No.731/2023, has joined hands with Mr. Kadam
in raising a challenge to the ECIR, and in addition, he would submit
that on 27/01/2023, almost after two years from the registration of
ECIR and 8 months after the closure of predicate offence, the
respondent for the first time, carried out search at the petitioner’s
house and served him a copy of the summons under Section 50 of
PMLA, directing him to appear before the Authority on 31.01.2023.
It is also his submission that, there is no link between
the scheduled offence and the alleged subsumed FIR i.e. the FIR
Nos.525, 526 and 527 of 2021, registered with Pimpri Police Station,
as the ECIR even today is squarely based on the scheduled offence
and the allegations are reflected in the impugned ECIR of money
6 SCC OnLIne Delhi 331
7 1995 Supp. 2 SCC 724.
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laundering and on dealing with the proceeds of crime under Section
3 of the PMLA, as there is no connection with the purported loan
fraud, forming the subject matter of the subsumed FIRs.
Relying upon the decision of this Court in case of
Naresh Goyal (supra), Mr. Bhise has urged before us that the
existence of the scheduled predicate offence is a prerequisite for an
ED investigation and the impugned ECIR is dated 31/03/2021,
whereas, the subsumed FIRs are subsequence to the registration of
the ECIR, and according to him, after the ‘C’ summary was excepted,
no new complaint came to be lodged. He would place reliance
upon the decision of the Apex Court in case of Pavana Dibbur vs.
Directorate of Enforcement,8 in submitting that it is the intention of
the legislature which must be assimilated for ascertaining the
‘Purpose and Object’ or ‘ Reason and Spirit’ prevailing through the
statute and the words of a statute are to be read in their entire
context and in their grammatical and ordinary sense harmoniously
with the scheme and object of the Act and the intention of the
Parliament is to be given effect to.
Mr. Bhise has placed before us a chart reflecting the
allegations of the loan accounts mentioned in the subsumed FIRs,
and according to him, in respect of the same, the Enforcement
Directorate has already registered an ECIR/MBZO-II/32/2021 based
upon the predicate offence in form of FIR No. 806/2019.
He would submit that Enforcement Directorate had
registered two ECIRs in the year 2021 with respect to Seva Vikas Co-
operative Bank, which were based on different set of facts and
causes of action and according to him, there is no causal link
8 2023 SCC Online SSC 1586
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between the predicate offence FIR No.163/2018 and the three
subsumed FIR Nos.525, 526 and 527 of 2021. He would submit that
the three subsumed FIRs were registered prior to the quashing of
predicate offence FIR No.806/2019, and these FIR’s can be
considered as a subsequent information discovered by the
prosecution during the course of investigation of
ECIR/MBZO-II/32/2021, as these FIRs contain the causal link with
the predicate offence FIR No.806/2019, since this FIR, and the three
subsumed FIRs were registered based upon the Inspection Report
and the Audit Report respectively prepared by Mr. Jadhawar.
However, the subsumption of three FIRs into the impugned ECIR is
without any basis, as there is no causal link between the predicate
offence FIR No.163/2018 and the three subsumed FIRs.
22 Mr. Venegavkar, the learned Public Prosecutor
representing Respondent Nos.1 and 2 has invited our attention to an
internal noting from the department in relation to
ECIR/MBZO-II/32/2021, and pursuant to the quashing of the FIR
No.806/2019 by the High Court on 16/11/2011, EOW, Pune had
appealed before the Apex Court, which by order dated 25/07/2023,
quashed the decision of the High Court and ordered to investigate
the offence in FIR No.806/2019, which was registered on
19/07/2019.
Noting that ECIR/MBZO-II/10/2021 which relates to
the Seva Bank involving the same management, office bearers and
which involved the same modus operandi, with the main accused in
the Bank having been arrested, and the properties having been
attached being proceeds from crime under Section 5 of the PMLA,
in order to ensure synchronized and comprehensive examination of
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the inter connected entities/elements in both ECIRs, it was proposed
to merge ECIR/MBZO-II/32/2021 with ECIR/MBZO-II/10/2021.
This internal decision is approved on 05/04/2024 and thereafter,
handed over to Unit-V(I).
23 With this aforesaid clarification, Mr. Venegavkar has
invited our attention to the nature and purpose of the special statute
which focuses itself on the seriousness and gravity of an offence of
money laundering, which is a different and independent class of
offence.
He would place reliance upon the decision of this Court
in case of Anil Deshmukh vs. Enforcement Directorate, 9 and the
observations in Para 18 and 35, highlighting the gravity of the
offence of money laundering and the manner in which the special
enactment deal with the offences. He would also lay emphasis
upon the observations of the Apex Court in case of Vijay Madanlal
Chaudhary (supra) to point out to us that the offence of money
laundering is an independent offence, which is dependent on
existence of proceeds of crime and laundering thereof. According to
him, the proceeds of crime may be generated through a scheduled
offence committed by anyone, and need not be necessarily the one
committed by the petitioner. It is his submission that, test for the
offence under PMLA would be laundering the proceeds of crime
and not whether the petitioner committed the scheduled offence.
He would also invite our attention to Section 44 of the
Act, which envisages filing of Closure Report and according to him,
only upon such report being filed, an investigation under the Act
9 2021 SCC Online Bom 3641
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would be closed. He would specifically invoke Para 296 read with
Para 363 of the Judgment in case of Vijay Choudhary (supra).
Reflecting upon the nature of an ECIR, Mr. Venegavkar has
submitted that it is an internal file maintained by the Directorate of
Enforcement, for internal administrative purpose and it differs from
the First Information Report, as it is not a public document and that
is what the Apex Court in Vijay Choudhary (supra) has observed,
where the contention of the petitioner, that he is entitled to a copy of
ECIR, was rejected.
Highlighting the case against the petitioners and
specifically responding to Writ Petition No.612/2023, he would
submit that several complaints of loan practises and favoured
sanction of loans in the bank were received by the Commissioner
cum Registrar of Co-operative Societies, Maharashtra State, Pune.
Mr. Jadhawar was, therefore, deputed to conduct Test Audit of all
loan accounts in excess of Rs.50 Lacs.
In the Audit Report, he reported about misappropriation
of 429.57 Crores, involving 124 NPA loan accounts in the bank,
which accounted for 92% of the loan disbursed. The Report
indicated that the sanction of loans in absence of credit worthiness
and loan repaying capacity of the borrowers lead to siphoning,
diversion and its misutilization and this was all noticed during
Audit.
The Board of Directors headed by Amar Mulchandani, the
Chairman, in connivance with his family members/Director namely
Ashok S. Mulchandani, Manoj Sadhuram Mulchandani and Daya
Ashok Mulchandani alongwith the borrowers, favoured several
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groups, while sanctioning the loans, despite having knowledge that
they will not be repaying the loans. Based upon the findings of the
Audit, 8 separate complaints involving 124 NPA accounts were filed
with Pimpri Police station against the willful defaulters alongwith
the Chairman, Board of Directors and Bank Officials of Seva Bank.
On the complaint filed by Mr. Rajesh Jadhawar, 3 FIRs were
registered bearing Nos.525, 526 and 527/2021, wherein Amar
Mulchandani is arraigned as an accused, with various borrowers of
Seva Bank for sanctioning the loans to borrowers without
ascertaining their creditworthiness, and subsequently diverting and
siphoning off the loan amount. These three FIRs were subsumed in
the present ECIR, which was under investigation.
24 Mr. Venegavkar has also submitted that the RBI had also
conducted scrutiny of loan accounts of various borrowers of the
Seva Bank and reported in its order dated 02/02/2021 as below :
“Bank had not ensured regular monitoring of end use of funds in the
accounts of borrower. Despite knowing that the proceeds of credit
facilities sanctioned to above mentioned persons, were deployed for
purpose/activities or creation of assets other than those for which the
loan was sanctioned, bank did not take any steps to recover the said
loans, charge penal interest etc.”
It is also pointed out that continuing irregularity in
sanction of loans by Amar Mulchandani alongwith the Board of
Directors and other Bank Officials, resulted in high NPA, and it
diminished the net worth of the Bank. Resultantly, the Reserve Bank
of India appointed an Administrator in June, 2021 and finally the
license of the bank is also cancelled in October, 2022.
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25 It is urged by Mr. Venegavkar that the Petitioner is Ex-
chairman of Seva Bank and he, in collusion with the other accused
persons, have siphoned off public money and duped the depositors
of the Bank, and has illegally benefited himself and created
irreparable loss in connivance, with the borrowers. He is, therefore,
accused of laundering the proceeds of crime and is alleged to have
invested it in the name of his family members and associates like
Rajesh Sawant. The FIRs registered against the petitioner Mr. Amar
Mulchandani accused him of playing an active role in
misappropriation of the funds and as he facilitated a chosen few to
avail the loans, without completing the documentation, and
ultimately, assisted the borrowers in diverting the loan amount. He
is also accused of being a beneficiary of part of the proceeds, so
generated by illegal diversion of the loan amounts by getting
commissions.
Pointing out to the causal link to the ECIR based on FIR
No.163/2018, Mr. Venegavkar would submit that the criminal act of
each of the accused is not covered in a single FIR as the criminal act
is associated with different set of facts, as loans were disbursed to
different entities, in violation of the banking norms and the proceeds
created thereof from the crime were subsequently laundered and
this involved amount of Rs.429 Crores.
26 By relying upon the exhaustive affidavit filed by the
Assistant Director, Directorate of Enforcement, Ministry of Finance,
Government of India on 28/02/2023, Mr. Venegavkar, has
attempted to demonstrate before us that the petitioner has received
tainted monies or proceeds, generated from the scheduled offences,
including the one in FIR No.525, 526 and 527 of 2021, as it
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resulted in generation of proceeds of crime, which have been
laundered, the offence of money laundering is made out, as held by
the Constitution Bench in the case of Vijay Chaudhary (supra).
Responding to the contention advanced by the learned
counsel for the Petitioners, that on closure of CR No.163/2018, the
ECIRs becomes non-existant or dead, Mr. Venegavkar has urged that
there is a process prescribed in the Act to make the proceedings non
existent, by Section 44 of the PMLA, which is a statutory process.
In the case of Vijay Chaudhary (supra), it is only in
three contingencies mentioned, the ECIR would come to an end, and
even prior to this decision, according to Mr. Venegavkar, this Court
in the case of Babulal Varma Vs Enforcement Directorate 10, had
taken a view that the PMLA is a standalone offence, and once the
proceedings therein are initiated, then the closure of FIR,
compromise between the parties, discharge of an accused, acquittal
of an accused, or quashment of scheduled offences will not affect the
proceedings under PMLA. However, the Apex Court in the case of
Vijay Chaudhary (supra) has contemplated three eventualities, when
the proceedings under PMLA would be non-existant i.e. acquittal,
discharge of the accused and quashment of the schedule offence.
It is also pointed out to us that CR No.163/2018 was
closed on 18/04/2022 when the decision of the Bombay High Court
was holding the field, and subsequent thereto, came the decision of
the Apex Court in case of Vijay Chaudhary in July, 2022. The
alleged scheduled offences being CR Nos.525, 526 and 527 of 2021
were registered prior to the Judgment of Vijay Chaudhary, and
according to Mr.Venegavkar, the existence of proceeds of crime in
10 Cri. Application No.201/21 in Cri.B.A.974/21
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case of Seva Bank which is the “causal link”, between the FIRs that
continue to subsist and therefore, the submission that on closure of
CR No.163/2018 the ECIR is a dead letter, is not an acceptable
proposition, according to him.
Mr. Venegavkar has placed reliance upon the decision of
Delhi High Court in case of Rajendra Singh Chaddha vs. Union of
India, Ministry of Home Affairs through its Chief Secretary & Anr, 11
as well as in case of Neeharika Infrastructure Pvt. Ltd. vs. State of
Maharashtra12 .
27 We have specifically enquired with Mr. Venegavkar as to
whether the practice of subsumption of FIRs, which is adopted in
the present case, is frequently followed by the ED, and he has placed
before us the following cases, where such exercise is undertaken :
Sr. Case Name ECIR No. FIR No. No. 1 Anil Parab MBZOI/57/2022 Ministry of Environment
Dated 11.05.2022 complaint No.12 of 2022 dated
10.03.2022
FIR No.177 of 2022
Dated 08.11.2022
2 Mackstar ECIR/MBZO-I/ FIR subsumed :
(Wadhawan) 39/2020 FIR No.88 of 2023 registered with NM Joshi Marg PS 3 DHFL-UPPCL ECIR/MBZO-I/02/ Multiple FIRs from Uttar Fraud 2020 Pradesh Police and Chennai Police, have been merged 4 Gainbitcoin ECIR/MBZO-II/02/ FIR in Maindan Garhi Delhi Scam (Variable 2018 FIRs Subsumed : Tech Pvt. Ltd.) dated 03.04.2018 FIR No.330/331 of 2019 (Delhi) FIR No.49 of 2023 dated 23.03.2023 and multiple more having a total of 33 FIRs 11 WP (Cri) No.562/2023 12 2021 SCC Online SC 315 Tilak ::: Uploaded on - 11/09/2024 ::: Downloaded on - 27/09/2024 21:36:07 ::: 27/76 WP 612-23 AND ORS.doc 5 City Limousines ECOR/MBZO/ ECIR was recorded based on FIR & Ors. 65/2009 dated 14.09.2007 registered by Cuffe Parade PS, Mumbai and subsequently 132 more FIRs were posted alongwith present case on the direction of Hon'ble Supreme Court
THE ANALYSIS OF THE COUNTER SUBMISSIONS ADVANCED
28 The Directorate of Enforcement, through its Assistant
Director, Mumbai Zonal Office, registered ECIR/MBZO- II/10/2021,
upon complaint filed under Section 44 and 45 of the Prevention of
Money Laundering Act, 2002 for commission of offence of money
laundering defined under Section 3 of the Act of 2002, being made
punishable under Section 4 of the Money Laundering Act. The
Assistant Director, Director of Enforcement, Ministry of Finance,
Government of India filed a complaint against 26 accused persons,
on being authorized for filing of the complaint, as per the
authorization issued by Government of India, Ministry of Finance,
Department of Revenue.
29 On the basis of a complaint filed by a shareholder of
Seva Bank, FIR No. 163 of 2018 was registered against Vinay
Aranha, and Vivek Aranha of Rosary Education Group, invoking
Section 420 r/w Section 32 of IPC, based on an allegation that the
accused persons had mortgaged their already sold property with the
bank to obtain loans and systemically cheated the bank and its
shareholders.
Subsequent to this on the basis of multiple complaints
regarding malpractices in the bank, Rajesh Jadhawar, Joint Registrar
(Audit Cooperation Department), as per the direction of
Commissioner of Co-operation Maharashtra State, conducted a test
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audit of the loan accounts and he reported to the misappropriation
to the tune of Rs. 429.57 crore involving 124 NPA loan accounts,
which accounted for 92% of the loans of SVB.
On the basis of the audit report, he filed 8 complaints,
against distinct accused persons, which resulted in registration of 3
FIRs and a table indicating the gist of the accusations along with the
accused in these FIRs is reproduced below, which would assist in
dealing with the arguments advanced on behalf of the petitioner and
the Enforcement Directorate:-
Sr. FIR No. Date & PS Name of Accused Gist of FIR No. 1 525/2021 dated 1. Dharmendra Sonkar The said FIR was registered 11.08.2021, Pimpri 2. Netra Sonkar for misappropriation of loan Police Station, Pune 3. Shailendra Sonkar amount to the tune of 4. Ratan Sonkar Rs.10.37 crore of Sonkar 5. Amar Mulchandani Group. 6. 23 other bank officials/ directors 2 526/2021 dated 1. Vinay Vivek Aranha It is alleged that 16 loans 12.08.21, Pimpri Police 2. Vivek Anthony Aranha were sanctioned to the Station, Pune 3. Deepti Vivek Aranha accused persons without the
4. Ambika Baldev Singh Dhinsa credit worthiness of the
5. Kishore Nathuram Chavan borrower and the loan
6. Almaz Aziz Aladdin amount was diverted,
7. Prasad Pandurang Nalavde siphoned off and not utilized
8. Amar Mulchandani for the declared purpose. It
9.Ashok Mulchandani is also mentioned in audit
10.Manohar Mulchandani report as well as in the FIR
11. Daya Mulchandani that Board of Directors of
12. Suresh Shirode Seva Vikas Bank whose
13. 33 other directors/bank chairman was Amar
officials Mulchandani, was also
colluding with Vinay Aranha
in this conspiracy. Total
outstanding is Rs. 43.18
Crore
1. Sheetal Tejwani The said FIR was registered
3 527/2021 dated 2. Sagar Suryavanshi for misappropriation of loan
12.08.2021, Pimpri 3. Girish Tejwani amount to the tune of
Police Station, Pune 4. Gul Tejwani Rs.60.67 crore involving 10
5. Amar Mulchandani loan cases of Suryavanshi
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6. Ashok Mulchandani Group.
7. Manohar Mulchandani
8. Daya Mulchandani
9. Suresh Shirode
10. 27 others directors/bank
officials
30 It is no doubt true that the Commission of Schedule
offence is a pre-requisite and sine quo non for initiating investigation
under the Prevention of Money Laundering Act, which is a special
enactment to prevent money laundering and to provide for
confiscation of the property derived or obtained directly or indirectly
from or involved in any process or activity connected to proceeds of
crime including its concealment, possession, acquisition or use and
projecting or claiming it as untainted property.
The Enforcement Directorate recorded the Enforcement
Case Information Report (ECIR) based on FIR No.163 of 2018,
which invoked Section 420, a schedule offence, covered under the
Act. Subsequently, other 3 FIRs mentioned in the above table were
subsumed in the said ECIR and the entire loan scam of Seva Bank
containing 124 loan accounts for total outstanding of Rs. 429.57
Crore was taken under the purview of investigation under PMLA,
2002.
The gist of the allegation in the FIR No.163 of 2018 as
well as the 3 subsequent FIRs revolved around the working and
functionality of Seva Bank and even in the first FIR No.163 of 2018,
one of the account holder/shareholder made a grievance in respect
of Rosary Education Group, being disbursed the loan without
complying the requisite formalities for grant of loan and in the
subsequent FIRs, which are filed subsequent to the audit report of
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Mr. Rajesh Jadhawar, which divulged misappropriation, alleged
that the Board of Directors, including Shri Amar Mulchandani in
connivance with other Directors and Borrowers, sanctioned favoured
loans to them neglecting their credit worthiness, and the accusations
set out that the loan amount was diverted, siphoned off and not
utilized for the declared purpose. The report also revealed that the
irregularity in the sanctioning of the loans by the Board of Directors/
Bank officials, diminishing it networth as large number loan
accounts were rendered non-performing. The accused persons
included the individuals, the members of the Board of Directors, and
the office bearers of the Bank as well as different entities, like M/s
Rosary Global Education Pvt Ltd, M/s Deepti Enterprises, proprietor
Deepti Aranha, M/s Uniq Enterprises, M/s Paramount Infrastructure
etc.
During the course of investigation, search and seizure
action under Section 17 of the PMLA was conducted, at the business
and residential premises of Amar Mulchandani and Vijay Aranha,
Sagar Suryawanshi and their family members and Associates on the
reasonable belief that the premises had parked the proceeds of crime
and the records related to money laundering.
At this juncture, it is relevant to note that, obstruction at
the end of Amar Mulchandani and his family members leading to
filing of FIR No.130 of 2023, invoking Section 352, 201 and 120
of IPC against all of the accused, who were arrested at the
conclusion of the search proceedings.
31 The investigation lead to multiple unexplained financial
transactions of the members of Mulchandani family with their
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relatives/friends/acquaintances and subsequent searches were
conducted, at distinct premises belonging to these persons and
various property documents/incriminating records/jewelery, high
end cars, cash, bank accounts, worth Rs. 10,25,48,279 was
recovered, which was seized/frozen.
During the course of search operation, statement of
various person were recorded under Section 17 of the PMLA .
Since the investigation revealed that Amar
Mulchandani, during his Chairmanship of Seva Bank had sanctioned
ineligible loans to various borrowers in lieu of kickbacks by
neglecting the prudent banking norms, which turned the accounts
into NPA with an outstanding of Rs. 429.57 Crores, the major loan
defaulter being Sagar Suryavanshi and Vinay Aarana, summons
were issued to them.
Sagar Maruti Suryavanshi (Petitioner in Writ Peittion
No.731) was arrested on 15/06/2023, on the reasonable belief that
he was guilty of offence of Money Laundering and he was
incarcerated till, the order passed on his bail application (BA
No.1584/2024) on 25/07/2024.
Amar Mulchandani (Petitioner in Writ Petition
No.612/2023), was arrested on 1/07/2023, and he is in judicial
custody as on date.
32 Ashok Mulchandani, Manohar Mulchandani and Daya
Mulchandani, were introduced by Amar Mulchandani as Directors of
Seva Bank in order to enjoy majority and he is alleged to have
gained complete control over the functioning of the bank, which
assisted him in indulging in several malpractices, while sanctioning
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favoured loans to the ineligible borrowers. He is accused of
sanctioning loans without holding any meetings, or consultation of
board of directors and his friends and associates were disbursed
loans, by merely signing on blank loan applications and these loans
were routinely shifted for other purposes. Mr. Amar Mulchandani,
along with Mr. Ashok Mulchandani continued to be the director from
2007 to 2020, and within the total span of time that was available,
the same modus operandi continued in sanction of loans from the
bank without assessing the security value of the Mortgaged property
and ever greening of old loans was done to avoid audit objections,
expressing them to conceal the true state of affairs of the bank. The
ever greening was facilitated by Mr. Amar Mulchandani in
connivance with the loan borrower.
In return, Amar Mulchandani received kickbacks in form
of cash to the extend of 20% of the loan amount and by obtaining
signatures on blank cheques from borrowers, his commission money
was withdrawn when the loan was disbursed and this was even
noticed by RBI, while its scrutinized the loan accounts in Seva Bank.
33 The test audit of the loan accounts of Seva Bank
brought about the whole modus operandi of Board of Directors, its
officials, who were found to be responsible for misappropriation of
bank’s fund, thus jeopardizing the financial interest of its depositors
and share holders. The commonality in the 3 FIRs, bearing 525, 526,
and 527 arising out of the findings of the audit report with the FIR
No.163 of 2018 is the modus operandi of the Board of Directors,
resulting into loos to the bank, and in result adversely affecting the
interest of the shareholders as well as the account holders in the
Bank.
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It is the justification of the Enforcement Directorate that
instead then opening 3 separate ECIRs on registration of the three
FIRs 525, 526, 527 of 2021 on 11/08/2021, and 12/08/2021, since
the money laundering was being investigated in the first ECIR, for
assessing the cumulative losses caused to the bank and its
shareholder, which was now discovered in the reports of the auditor,
it was decided to subsume the FIRs in the existing ECIR.
34 Rival contentions were advanced before us about the
feasibility and the permissibility of doing so and we would now
advert our attention to the same.
“Money Laundering” has the meaning assigned to it in
Section 3 of the Prevention of Money Laundering Act, 2002 and
Section 3 reads thus:-
“3. Whosoever directly or indirectly attempts to indulge or
knowingly assists or knowingly is a party or is actually involved in any
process or activity connected with the proceeds of crime and
projecting it as untainted property shall be guilty of offence of money-
laundering.”
Section 4 prescribe the punishment for money-
laundering and the Act of 2002 prescribe the procedure to deal with
an offence of money laundering.
Chapter III of the Act set out the procedure for
attachment, adjudication and confiscation of the property involved
in money-laundering, whereas Chapter V has set out the procedure
for issuance of summons, search and seizure.
Section 24 provide that, in any proceedings relating to
proceeds of crime under the Act, in case of a person charged with
offence of money-laundering, the Court shall, unless the contrary is
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proved presume that such proceeds of crime are involved in money-
laundering.
35 The Prevention of Money Laundering Act, 2002, was
enacted to address the issue of money-laundering and for its
prevention, by providing for attachment of the proceeds of crime, its
adjudication and its confiscation, by setting up the agencies and
mechanisms for combating it, as it posed a serious threat to the
financial situation of the nation spread across the globe.
The validity and interpretation of certain provisions of
the Act, 2002, and the procedure followed by the Enforcement
Directorate, while enquiring into/investigating the offences under
the PMLA, as being violative of the Constitutional mandate was
placed before the three Judge Bench of the Apex Court in case of
Vijay Mandanlal Chaudhary & Ors vs Union of India and various
concerns, as regards the provisions and its implementation came to
be answered and a pertinent observation in paragraph no.455 of the
decision reads thus:
“455. Needless to underscore that the 2002 Act is intended to
initiate action in respect of money-laundering activity which
necessarily is associated with the property derived or obtained by
any person, directly or indirectly, as a result of specified criminal
activity. The prosecution under this Act is not in relation to the
criminal activity per se but limited to property derived or obtained
from specified criminal activity. Resultantly, the inclusion of criminal
activity which has been regarded as non-cognizable, compoundable
or minor offence under the concerned legislation, should have no
bearing to answer the matter in issue. In that, the offence of money-
laundering is an independent offence and the persons involved in the
commission of such offence are grouped together as offenders under
this Act. There is no reason to make distinction between them insofar
as the offence of money-laundering is concerned. In our opinion,
therefore, there is no merit in the argument under consideration.”
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36 What amounts to an ECIR and how it is distinct from an
FIR is also specifically deliberated upon and the finding to that effect
is to be found in paragraph no.456 and 457 of the law report, which
reads thus:-
“456. As per the procedure prescribed by the 1973 Code, the officer in-
charge of a police station is under an obligation to record the information
relating to the commission of a cognizable offence, in terms of Section 154
of the 1973 Codeza, There is no corresponding provision in the 2002 Act
requiring registration of offence of money-laundering. As noticed earlier,
the mechanism for proceeding against the property being proceeds of crime
predicated in the 2002 Act is a sui generis procedure. No comparison can
be drawn between the mechanism regarding prevention, investigation or
trial in connection with the scheduled offence governed by the provisions of
the 1973 Code. In the scheme of 2002 Act upon identification of existence of
property being proceeds of crime, the Authority under this Act is expected
to inquire into relevant aspects in relation to such property and take
measures as may be necessary and specified in the 2002 Act including to
attach the property for being dealt with as per the provisions of the 2002
Act. We have elaborately adverted to the procedure to be followed by the
authorities for such attachment of the property being proceeds of crime and
the follow-up steps of confiscation upon confirmation of the provisional
attachment order by the Adjudicating Authority. For facilitating the
Adjudicating Authority to confirm the provisional attachment order and
direct confiscation, the authorities under the 2002 Act (i.e., Section 48) are
expected to make an inquiry and investigate. Incidentally, when sufficient
credible information is gathered by the authorities during such
inquiry/investigation indicative of involvement of any person in any process
or activity connected with the proceeds of crime, it is open to such
authorities to file a formal complaint before the Special Court naming the
concerned person for offence of money-laundering under Section 3 of this
Act. Considering the scheme of the 2002 Act, though the offence of money-
laundering is otherwise regarded as cognizable offence (cognizance
whereof can be taken only by the authorities referred to in Section 48 of this
Act and not by jurisdictional police) and punishable under Section 4 of the
2002 Act, special complaint procedure is prescribed by law. This procedure
overrides the procedure prescribed under 1973 Code to deal with other
offences (other than money-laundering offences) in the matter of
registration of offence and inquiry/investigation thereof. This special
procedure must prevail in terms of Section 71 of the 2002 Act and also
keeping in mind Section 65 of the same Act. In other words, the offence of
money-laundering cannot be registered by the jurisdictional police who is
governed by the regime under Chapter XII of the 1973 Code. The
provisions of Chapter XII of the 1973 Code do not apply in all respects to
deal with information derived relating to commission of money-laundering
offence much less investigation thereof. The dispensation regarding
prevention of money-laundering, attachment of proceeds of crime and
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36/76 WP 612-23 AND ORS.docgoverned by the provisions of the 2002 Act itself. To wit, regarding survey,
searches, seizures, issuing summons, recording of statements of concerned
persons and calling upon production of documents, inquiry/investigation,
arrest of persons involved in the offence of money-laundering including bail
and attachment, confiscation and vesting of property being proceeds of
crime. Indeed, after arrest, the manner of dealing with such offender
involved in offence of money-laundering would then be governed by the
provisions of the 1973 Code as there are no inconsistent provisions in the
2002 Act in regard to production of the arrested person before the
jurisdictional Magistrate within twenty-four hours and also filing of the
complaint before the Special Court within the statutory period prescribed in
the 1973 Code for filing of police report, if not released on bail before
expiry thereof.
457. Suffice it to observe that being a special legislation providing
for special mechanism regarding inquiry/investigation of offence of money-
laundering, analogy cannot be drawn from the provisions of 1973 Code, in
regard to registration of offence of money-laundering and more so being a
complaint procedure prescribed under the 2002 Act. Further, the authorities
referred to in Section 48 of the 2002 Act alone are competent to file such
complaint. It is a different matter that the materials/evidence collected by
the same authorities for the purpose of civil action of attachment of
proceeds of crime and confiscation thereof may be used to prosecute the
person involved in the process or activity connected with the proceeds of
crime for offence of money-laundering. Considering the mechanism of
inquiry/investigation for proceeding against the property (being proceeds of
crime) under this Act by way of civil action (attachment and confiscation),
there is no need to formally register an ECIR, unlike registration of an FIR
by the jurisdictional police in respect of cognizable offence under the
ordinary law. There is force in the stand taken by the ED that ECIR is an
internal document created by the department before initiating penal action
or prosecution against the person involved with process or activity
connected with proceeds of crime. Thus, ECIR is not a statutory document,
nor there is any provision in 2002 Act requiring Authority referred to in
Section 48 to record ECIR or to furnish copy thereof to the accused unlike
Section 154 of the 1973 Code. The fact that such ECIR has not been
recorded, does not come in the way of the authorities referred to in Section
48 of the 2002 Act to commence inquiry/investigation for initiating civil
action of attachment of property being proceeds of crime by following
prescribed procedure in that regard.”
37 In the wake of the distinction drawn, the further
question which arose for consideration was, whether it is necessary
to furnish the copy of ECIR to the person concerned apprehending
arrest, or at least after his arrest and this question was answered in
the negative, by holding that supply of ECIR in every case to a
person concerned is not mandatory, as it cannot be equated with an
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FIR, which is mandatorily required to be recorded and supplied to
the accused as per provisions of 1973 Code.
Revealing a copy of an ECIR, if made mandatory would
defeat the purpose sought to be achieved by the act of 2002, and it
would amount to frustrating the attachment of the property and
therefore, it was held that ECIR, which is essentially an internal
document of Enforcement Directorate cannot be cited as violation of
constitutional rights.
38 While we are called upon to decide the issue whether a
subsequently filed FIR can be subsumed into an ECIR, despite the
FIR which was the basis of the ECIR, having been resulting into a ‘C’
summary, we will definitely have to keep in mind the legislative
intent, its object and purpose.
The Prevention of Money Laundering Act, 2002 being
enacted to prevent money-laundering, has provided for a wider
scope as this offence takes place when, whosoever directly or
indirectly attempts to indulge or knowingly assist or knowingly is a
party or is actually involved in any process or activity connected
with the proceeds of crime, including its concealment, possession,
acquisition or use and projects or claims it as an untainted property.
A person is guilty of the offence of money laundering in
all the above situations. A person is also guilty of money-laundering
if he is found to have directly or indirectly attempted to indulge or
knowingly assisted a party or is actually involved in concealment or
possession, acquisition, use and projecting it as untainted property
or claiming it to be so.
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39 The focal point of the offence of money laundering is
‘proceeds of crime’ and Section 2(1)(u) defines it in the following
manner:-
“(u) “proceeds of crime” means any property derived or
obtained, directly or indirectly, by any person as a result of criminal
activity relating to a scheduled offence or the value of any such
property;”
All properties recovered or attached by the investigating
agency in connection with the criminal activity relating to a
scheduled offence cannot be regarded as proceeds of crime, but in
order to attract the vice of proceeds of crime, a property must be
derived or obtained directly or indirectly, ‘as a result of’ criminal
activity relating to a scheduled offence.
For being proceeds of crime necessarily the property
associated with the scheduled offence must have been derived or
obtained, as a result of criminal activity relating to the concerned
scheduled offence and in Vijay Madanlal Chaudhary, their Lordships
of the Apex Court cautioned that this distinction must be born in
mind, while reckoning any property referred to in the scheduled
offence as proceeds of crime for the purpose of 2002 Act, as dealing
with the proceeds of crime by any process or activity constitutes
offence of money-laundering under Section 3 of the Act.
Paragraph No.252, in case of Vijay Chaudhary offered a
infallible test to ascertain, when a property would amount to
‘proceeds of crime’
“252. Be it noted that the definition clause includes any property
derived or obtained “indirectly as well. This would include property derived
or obtained from the sale proceeds or in a given case in lieu of or in
exchange of the “property” which had been directly derived or obtained as
a result of criminal activity relating to a scheduled offence. In the context of
Explanation added in 2019 to the definition of expression “proceeds of
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crime”, it would inevitably include other property which may not have been
derived or obtained as a result of any criminal activity relatable to the
scheduled offence. As noticed from the definition, it essentially refers to
“any property” including abroad derived or obtained directly or indirectly.
The Explanation added in 2019 in no way travels beyond that intent of
tracking and reaching upto the property derived or obtained directly or
indirectly as a result of criminal activity relating to a scheduled offence.
Therefore, the Explanation is in the nature of clarification and not to
increase the width of the main definition “proceeds of crime”. The definition
of “property” also contains Explanation which is for the removal of doubts
and to clarify that the term property includes property of any kind used in
the commission of an offence under the 2002 Act or any of the scheduled
offences. In the earlier part of this judgment, we have already noted that
every crime property need not be termed as proceeds of crime but the
converse may be true. Additionally, some other property is purchased or
derived from the proceeds of crime even such subsequently acquired
property must be regarded as tainted property and actionable under the
Act. For, it would become property for the purpose of taking action under
the 2002 Act which is being used in the commission of offence of money-
laundering. Such purposive Interpretation would be necessary to uphold the
purposes and objects for enactment of 2002 Act.”
40 Offering a further clarification, in paragraph 253, it is
held in the very said verdict, that in a event the person named in the
criminal activity, relating to a schedule offence is finally absolved by
a Court of competent jurisdiction owing to an order of discharge,
acquittal or because of quashing of the criminal case (scheduled
offence) against him/her, there can be no action of money-
laundering, against such a person or person claiming through him in
relation to the property linked to the stated scheduled offence.
The aforesaid observation has to be read in the
background of Section 44 providing for the offences under the Act to
be triable by Special Court and Section 44 was amended vide Act no.
20 of 2005 and Act no. 2 of 2013 and the finance (no.2) Act, 2019.
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Addition of a proviso in 2019 has given a new
conspectus to the said provision. The said proviso reads thus:-
‘Provided that after conclusion of investigation, if no offence of
money laundering is made out requiring filing of such complaint, the
said authority shall submit a closure report before the Special Court.
41 The aforesaid proviso, which has been construed to be
an enabling provision permit the authority authorised to file closure
report before the Special Court, if no offence of money laundering
has been made in the opinion of the investigating officer. In
paragraph no.363, when interpreting the impact of the proviso their
Lordships of the Apex Court in case of Vijay Madanlal Chaudhary,
made the following observations:-
“363. Coming to the proviso inserted in this clause [Section 44(1) (b)] vide
Finance (No. 2) Act, 2019, is, in fact, an enabling provision. It permits the
Authority authorised to file a closure report before the Special Court in
case it is of the opinion that no offence of money- laundering has been
made out, requiring filing of such complaint. This provision is only to dispel
the doubt that in the event the person has been arrested by the officer
authorised under Section 19 of this Act on the basis of material in his
possession and having reason to believe and recorded in writing of being
guilty of an offence punishable under this Act, but after the inquiry done by
him in exercise of powers under Chapters V and VIII of the 2002 Act, he
forms an opinion that no offence of money-laundering is made out,
requiring filing of complaint, it is open to him to file a closure report before
the Special Court disclosing that position. The proviso would, thus, come
into play in such cases where the complaint is yet to be filed owing to the
pendency of inquiry before the authorities, under Chapters V and VIII of the
2002 Act. In that view of the matter and more so keeping in mind the
purposes and objects behind the enactment of 2002 Act, such a provision
must be regarded as having reasonable nexus with the purposes and objects
sought to be achieved by the 2002 Act. Accordingly, for the view taken by
us, we do not find any dichotomy in these provisions, much less being
manifestly arbitrary or unconstitutional.”
42 Another relevant observation in concluding para 467 of
the Vijay Madanlal Chaudhary (supra) deserve reproduction:-
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41/76 WP 612-23 AND ORS.doc“(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.”
While holding the proviso to clause 4 of sub-section (1)
of Section 44 of the 2000 Act, to be directory in nature, the
provision was read down to mean that the special court may exercise
judicial discretion on case to case basis.
43 Relying upon the aforesaid, what is sought to be urged
before us on behalf of the petitioners, is once the closure report in a
predicate offence i.e. C.R. No.163 of 2018 is filed and accepted, then
ECIR/ MBZO-2/10/2021 is a dead letter and a non est and if it is so,
then there is no question subsuming subsequent FIRs, in the same.
In support of this submission, our attention is drawn to
the decision in case of Naresh Goyal vs. Directorate of Enforcement
(Criminal Writ Petition No. 4037 of 2022) decided by the Division
Bench of this Court, where the argument advanced on behalf of the
petitioners in the two Writ Petitions was, that the ECIR registered by
Directorate of Enforcement does not survive, in as much as, there is
no scheduled offence, which is a condition precedent for initiating
ED proceedings as Mr. Shirsat, the learned counsel for ED, did not
dispute the fact that there was no scheduled offence pending against
either of the petitioners and he also did not dispute that registration
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of scheduled offence is a condition precedent for initiating ED
proceedings.
The facts placed before the Division Bench, reveal that a
private complaint was filed before the Metropolitan Magistrate,
against Jet Airways (India Ltd) and its erstwhile Non-Executive
Directors, including both the petitioners, alleging offences
punishable under IPC and by passing an order under Section 156(3),
the Senior Police Inspector, MRA Marg Police Station, was directed
to register an FIR.
Based on this FIR, ED registered the ECIR, under
Section 3 and 4 of the PMLA. Admittedly, on 9/03/2020, a closure
report was filed by the police on the ground that the dispute was
civil in nature and in the matter of dues, which is payable to the
complainant by Jet Airways, the claim in respect thereof, was
already filed with Resolution Professional in the Insolvency
proceedings, initiated under IBC, 2016.
Enforcement Directorate filed an Intervention
Application as well as Protest Petition, challenging the closure report
and the trial Court rejected the same by observing that it had no
locus to intervene. When the informant appeared in the matter, and
a Criminal Revision was filed, it was also dismissed on the ground
that ED has no locus to intervene. Thereafter, a Criminal Writ
Petition was also filed, which was also dismissed, and the said
decision was upheld by the Supreme Court by dismissing the SLP.
Recording that the acceptance of Summary had attained
finality, the Division Bench referred to the decision of Vijay Mohanlal
Chaudhary (supra) recording that only if there is a predicate
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offence, then an ECIR is maintainable, but if the FIR stands closed by
a judicial process, the ECIR will not survive. A natural corollary of it
would be that, the ED would not be able to continue with the
investigation, there being no predicate offence.
44 In deriving the aforesaid conclusion, the Division Bench
relied upon the decision of this Court in case of State of Maharashtra
vs. Bhimrao Vitthal Jadhav, decided on 21/09/1974, which had held
that granting of ‘C’ summary amounts to an acquittal and dealing
with the argument of the counsel for the ED, he was confronted with
the decision of Apex Court in case of M/s Obulapuram Mining Pvt
Ltd (Criminal Writ Petition No.1269/2017) decided on 2/12/2022,
where the Solicitor General appearing for the ED had admitted that
since the proceedings before the Apex Court arose from an order of
attachment and there is an acquittal in respect of a predicate
offence, proceedings really would not survive.
45 We have looked into the decision of this Court in case of
State of Maharashtra vs. Bhimrao, since the Division Bench founded
it’s conclusion on the same by holding that ‘C’ summary amounts to
an acquittal.
The facts, involved reveal that the police constable was
accosted by the officers and men of Anti-corruption Bureau, and
since he was smelling of alcohol, he was sent for medical
examination and the chemical analysis showed that the
concentration of the alcohol in blood was 0.49 percent. As the
officer in-charge of the investigation felt that it was below 0.5, the
percentage required to raise a presumption of having drunk, so as to
constitute an offence under Section 66(1) (b) of the Bombay
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Provision Act, 1949. He made a report to the Judicial Magistrate,
claiming ‘C’ summary, which was granted.
The question that was placed before the Court was
whether a departmental enquiry need to be undertaken for deciding
whether the delinquent is fit to be retained in public service even
though he has been acquitted by the Criminal Court.
In paragraph no.8, recording that it was not doubted
that, “granting ‘C’ summary was a judicial order and that the
granting of the summary amounts to an acquittal of the plaintiff-
respondent in the present case, it was held that there is no automatic
bar for holding departmental proceedings. The ultimate question
whether acquittal in Criminal proceedings would bar holding of
departmental enquiry was answered by recording that the
departmental enquiry was not a trial and since a concession was
given that ‘C’ summary was a judicial order and amounted to
acquittal, the Court proceeded upon the same, as it was not disputed
that ‘C’ summary report would amount to ‘acquittal’.
46 By relying upon the decision of the Division Bench in
Naresh Goyal (supra), the ECIR was quashed as the predicate
offence did not survive, as the accused was acquitted in the wake of
acceptance of ‘C’ summary. It is not in dispute that even in the
present case before us ‘C’ summary has been accepted, which
amounts to acquittal of the accused in the predicate offence. In the
case of Vijay Madanlal Chaudhary (supra), it is specifically held that
in three contingencies, stipulated therei, if the FIR is quashed, then
the ECIR shall not survive. An acquittal of an accused is one such
contingency.
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47. This principle is seriously doubted by Mr. Anturkar and
he has relied upon the recent decision of the Supreme Court in case
of CBI vs. Hemendra Reddy and ors13 , where the principle question
that fell for consideration was formulated in paragraph no.3 of the
decision in the following words:-
“3. The principal question of law that falls for the consideration of
this Court in the present litigation is whether the High Court was justified
in quashing the entire prosecution instituted by the CBI against the accused
persons for the alleged offences on the ground that the CBI could not have
undertakekn further investigation under sub section (8) of Section 173 of
the Criminal Procedure Code, 1973 (for short, ‘the CrPC’) and filed a
chargesheet having once already submitted a final report under sub section
(2) of the Section 173 of the CrPC (closure report)? In other words,
whether the High Court was right in taking the view that the Special Court
could not have taken cognizance upon the chargesheet field by the CBI
based on further investigation having once already filed a closure report in
the past and the same having been accepted by the court concerned at the
relevant point of time?”
On a case being registered against the Appraiser in
Customs Department, for being in possession of the disproportionate
assets, FIR was registered by the CBI under Section 13(1) (e) r/w
section 13(2) of the Prevention of Corruption Act, 1988. On
conclusion of investigation, the CBI/ACB filed an application with a
prayer to close the proceedings with the following prayer:-
“After completion of investigation, it has come to light that the accused
cannot be prosecuted. Hence, final report under Section 173 of Cr.P.C. is
being filed, which may be accepted.”
The Special Court on 29/01/2009, recorded as below:-
“Reason stated in the report is convincing. Hence the final
report is accepted, and the FIR is closed and permitted to retain
documents collected during investigation to be used in regular
departmental action against A1”
48 The CBI filed Criminal Miscellaneous Petition under
Section 173(8) of Cr.P.C, seeking to reopen and undertake further
13 (2023) SCC Online SC 515
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investigation by stating as below:-
‘….the prosecution has filed the final report under Section 173 Cr.P.C
before this Hon’ble Court on 24.12.2008 with a prayer to close the FIR as a
mistake of fact’
‘ It is humbly submitted that now new evidences emerge to prove the
allegation leveled against the above said accused persons and to
substantiate the charge of possession of the disproportionate to the known
sources of income of A-1 and A-2. Hence, it is just and necessary to re-open
and further investigate the above case under Section 173 (8) Cr.P.C in the
interest of justice’The Special Court allowed the application, and the CBI
continued its investigation and issued summons, when the affected
party respondent no.3 filed Criminal OP before the Madras High
Court, seeking quashing of proceedings related to the summons
received by him.
The High Court on 11/09/2014, rejected the prayer of
respondent no.3 by holding that Under 173(8) of the CrPC, a police
officer can carry on further investigation even after a report under
Section 173(2) of the CrP.C is submitted, in view of Section 173(8)
of the CrP.C and held in Vinay Tyagi v. Irshad Ali alias Deepak
reported in (2013) 5 SCC 762, with the only rider being that the
police should seek formal permission from the Court. It was held
that acceptance of the final report by the Magistrate does not debar
him from taking cognizance if on further investigation, fresh
material comes to light and since fresh material was received in the
year 2013 it warranted reopening of the investigation.
Thereafter, when the charge-sheet was filed, once again
the doors of Madras High Court were knocked, seeking quashing of
the charge-sheet and the CBI filed its counter to the petitions.
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49 The High Court allowed the Criminal Applications by
holding thus:-
(i) That on receipt of a final report under Section 173 of the CrPC, the
Magistrate has three options either to accept the report and dose the case, to
disagree with the report and proceed with the case or to order further
investigation under Section 156(3) of the CrPC
(ii) That the Magistrate is only empowered to direct “further investigation”
and not to direct a “re-investigation/de-novo investigation”.
(iii) In terms of the judgment in Vinay Tyagi (supra) no investigation agency
is empowered to conduct a fresh, de-novo or reinvestigation once a report
under Section 173(2) of the CrPC is filed.
(iv) The petition seeking “re-opening”/”further investigation” was filed after
a lapse of 4 years
(v) In order to empower the Magistrate to permit further investigation,
something should have been pending before the Magistrate, but no matter was
pending as the investigation had already been closed.
(vi) The Special Court thus had no power to grant permission to conduct a
further investigation.
(vii) The judgment of Vinay Tyagi (supra) had not been brought to the
attention of the High Court at the time of deciding Crl. O.P. No. 6371 of
2014.”
The High Court quashed the entire prosecution on the
ground that the Special Court (CBI) had no jurisdiction to grant
permission to CBI to conduct further investigation.
The contention of an accused that acceptance of a
closure report terminate the proceedings finally, so as to bar the
investigating agency from carrying out any further investigation in
relation to the offence was examined, in light of the submission that
an order accepting the closure report under Section 190 (1)(c) of
Code of Criminal Procedure is a judicial order, and not an
administrative order, as when final report of the police is submitted
to the Magistrate and the Magistrate passes an order, either agreeing
with the report of the police and finalizing the proceedings; or not
agreeing with the police report and holding that the evidence is
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sufficient to justify the forwarding of the accused to the Magistrate
and taking cognizance of the offence complained off.
Though the aforesaid contention was not rebutted, what
was deemed necessary to be examined was, whether an order
accepting a final report, would bar further investigation by the
police or the CBI, as in the present cases, in exercise of statutory
powers under chapter XII of Cr.P.C. By placing reliance on the
decision, in case of State of Rajasthan vs Aruna Devi,14,in the facts
where a final report was submitted stating that the complaint was
false and this was accepted by the Magistrate, but since the
Superintendent of Police had independently ordered further
investigation, a challan was filed under Section 420 and 467 of IPC,
and the Magistrate took cognizance, a challenge raised to the act of
the Magistrate result in dismissal of the Revision, but the High Court
allowed the Revision and the order of cognizance was set aside.
50 When the matter came up in an Appeal before the Apex
Court under Article 136, it was held that, on further investigation
being made, fresh materials came to light, which lead to the filing of
further report, stating that a case has been made out. By relying
upon the pronouncement flowing from two more decisions in case of
K Chandrasekhar and S Papaiah, in paragraph 79 a pertinent
observation was made:-
“79. In the light of the aforesaid decision of the Supreme Court, it
appears that though the order passed by the learned Magistrate accepting a
final report under Section 173 is a judicial order, there is no requirement
for recalling, reviewing or quashing the said order for carrying out further
investigation under Section 173(8) of the CrPC. As held by this Court in the
said decision, the provisions of Section 173(8) of the CrPC have been
enacted to take care of such like situation is also.”
14 (1995) 1 SCC 1
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In para 83, the conclusion drawn is summarized as below:
“(i) Even after the final report is laid before the Magistrate and is
accepted, it is permissible for the investigating agency to carry out further
investigation in the case. In other words, there is no bar against concluding
further investigation under Section 173(8) of the CrPC after the final report
submitted under Section 173(2) of the CrPC has been accepted.
(ii) Prior to carrying out further investigation under Section 173 (8)
of the CrPC it is not necessary that the order accepting the final report
should be reviewed, recalled or quashed.
(iv) Further investigation is merely a continuation of the earlier
investigation, hence it cannot be said that the accused are being subjected
to investigation twice over. Moreover, investigation cannot be put a par
with prosecution and punishment so as to fall within the ambit of Clause (2)
of Article 20 of the Constitution. The principle of double jeopardy would,
therefore, not be applicable to further investigation.
(v) There is nothing in the CrPC to suggest that the court is obliged to hear
the accused while considering an application for further investigation
under Section 173(8) of the CrPC.”
7
In light of the above conclusion that, it is also held that
even after the final report is laid before the Magistrate and accepted,
it is permissible for the investigating agency to carry out further
investigation and prior to carrying out the investigation under
Section 173 (8) of the Code of Criminal Procedure, it is not
necessary that the order accepting the final report should be
reviewed, recalled or quashed.
51 The decision of the Apex Court is delivered in the
background that prayer was made to close the proceedings by CBI,
since on completion of investigation, it came to the light that the
accused cannot be prosecuted under the provisions of the Prevention
of Corruption Act. The Special Court, while considering the prayer to
closed the FIR, accepted the final report and closed the same. The
CBI itself sought reopening of the investigation under section
173(8), since new evidence emerged against accused to substantiate
the charge of possession of disproportionate income to his known
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sources. The decision of the Apex Court revolve around the closure
report, since it was based on absence of any material against
accused, which subsequently was received and therefore, CBI sought
reopening of the closure report.
It is worth to note that the Apex Court was conscious of
Section 169 of the Code, which provided for release of an accused
when the evidence was deficient, which definitely was not a report,
but it contemplated filing of a report by the investigating officer in
the manner provided in section 173 of the Code, as on completion of
investigation, the officer-in-charge of the police station is duty
bound to forward to the Magistrate report in the form prescribed,
including the information whether the accused has been arrested,
whether he has been released on his bond or whether he has been
forwarded in custody. The Apex Court was only dealing with this
report to be submitted on completion of investigation under sub-
clause 2 of section 173 and, therefore, focused its attention on
power of further investigation, as contemplated under sub-section 8
of Section 173 of the Code. It was not dealing with summaries i.e.
‘C’ summary.
52 The Bombay Police Manual 1959, which contains the
Rules under the Bombay Police Act 1951, in Rule 219 has provided
for submission of final reports and its Paltil. Rule 219 of the Bombay
Police Manual, 1959 reads as under:-
219. Final Reports:- (1) When there is no sufficient evidence to justify the
forwarding of the accused to a Magistrate, the Police Station Officer or the
investigating officer will release the accused person on bail, if he is in
custody.
(2) The Police Station Officer will then submit a final report to the
Magistrate empowered to take cognizance of an offence on a Police report
through the Superintendent of Police or the Sub- Divisional Police Officer,
as the case may be, in the following three classes of cases: –
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(a) Those in which it appears from the Police investigation that no
offence has been committed.
(b) Those in which it appears from the Police investigation that only a
non-cognizable offence has been committed.
(c) Those in which there are grounds for believing that an offence has
been committed, but in which, in the opinion of the officer-in-charge of the
Police Station, there are not sufficient grounds to investigate or there is not
sufficient evidence to justify sending anyone for trial, or in which the
offender is not known or cannot be arrested and sent for trial.
In cases referred to the Police by a Magistrate, the final report will be
sent direct to the Magistrate.
(3) The final report should be written up carefully by the officers- in-
charge of the Police Station personally and should be accompanied by all
the case papers numbered and indexed methodically. If the accused has
been released on bail, the Magistrate should be requested to cancel the
bail bond. He should also be requested to pass orders regarding the
disposal of property attached, unless any of the articles, e. g., blood
stained clothes, are required for further use in true but undetected cases. A
request should also be made to the Magistrate to classify the case and to
issue an appropriate summary of his order, viz. :-
“A’ True, undetected (where there is no clue whatsoever about the culprits
or property or where the accused in known but there is no evidence to
justify his being sent up to the Magistrate (for trial).
“B” Maliciously false.
“C” Neither true nor false, e. g., due to mistake of fact or being of a civil
nature.
“Non-cognizable” Police investigation reveals commission of only a non-
cognizable offence.
(4) A Superintendent of Police or a Sub-Divisional Officer is not bound to
forward a final report to the Magistrate immediately. He may of his own
motion direct further enquiry or he may for special reasons permit a case
to remain pending under investigation.
(5) When any further investigation is ordered and made subsequent to the
submission of the final report the papers should, at each stage up to final
disposal, be sent though the Superintendent of Police or the Sub-Divisional
Officer. In urgent cases however, the Magistrate may return the papers,
direct to the investigating officer.
(6) When a final report of an officer-in-charge of a Police Station is
returned to him for further investigation or other purpose, the date of the
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determining, the beginning of the period of 14 days within which a
summary of the Magistrate’s final order should be sent
(7) It is not competent to a Magistrate to return investigating officer’s
report made to him under Section 173, Criminal Procedure Code, with an
order to make a case against the accused and to send it up for trial. If the
Magistrate considers that there is a prima facie case against the accused
he should take action under Section 204 of the Code.”
53 The above typical provision offers a guidance to the
investigating officer or the police station officer about the report to
be filed under section 173 of the Code after his investigation is
complete.
The Apex Court in Hemendra Reddy (supra) was
dealing with the final report under section 173(2) of the Code,
which definitely has the scope for carrying further investigation, but
when summaries are filed as mentioned above, and particularly, as
per ‘C’ summary is concerned which is filed by the concerned police
offer as the offence is neither true nor false or if it is of civil nature,
we do not find that that the proposition of law laid down by the
Apex Court will apply to ‘C’ summary. Since ‘C’ summary amounts to
acquittal, as in case of Naresh Goyal (supra) we see no reason why
the observations of the Apex Court would apply to the present
scenario.
[
54 The principle of law flowing from this decision,
according to Mr. Anturkar deserve an extension to the principle in
the case of Vijay Madanlal Chaudhary, where it is held that 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 anyone claiming such property being the property linked to
the scheduled offence.
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55 In Vijay Chaudhary (supra), only three contingencies
are contemplated; it being a trite position in law that offence under
Section 3 of 2002 Act is dependent on illegal gain of property, as a
result of criminal activity relating to a scheduled offence, but if the
person is finally discharge/acquitted of the scheduled offence or the
case against him is quashed, then there can be no continuation of
proceedings of money laundering against him or anyone having
linked with the said property, being described as ‘Proceeds of Crime’.
56 The argument advanced by Mr.Kadam that on
acceptance of closure report in a predicate offence, the ECIR is
rendered a dead letter, as it is non-est and it do not possess the
potential of subsuming an FIR, is premised on the ground that there
is no power or provision in PMLA to subsume subsequent FIRs into
a pre-existing ECIR.
While appreciating the said argument, the offence of
money laundering, has to be the focus. Any person, who either
directly or indirectly, attempts to indulge or knowingly assist or
become part of, or is actually involved in any process or activity,
connected with the proceeds of crime, which include its
concealment, possession, acquisition or use, or its use and projection
or claim that it is an untainted property, is guilty of an offence of
money laundering.
The proceeds of crime is any property derived or
obtained as result of criminal activity, relating to a scheduled
offence, or where such property is taken or held outside the country,
and the offence of money laundering necessarily precedes
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commission of the scheduled offences, which cover a category of
offences under the Indian Penal Code, under the NDPS Act,
Unlawful Activities Prevention Act, and all such offences which are
set out in the schedule.
For attracting offfence of money laundering, it
postulates that there must be a predicate offence and offence of
money laundering is dealing with the proceeds of crime.
The predicate offences are all offences that are listed in
the schedule and unless there is commission of a predicate offence,
an offence of money laundering cannot be committed. Even if a
person is not convicted in a predicate offence, he can be found guilty
of money laundering, as the intention of the legislature in
introducing the offence of money laundering was to punish a person
who is found to have directly or indirectly attempted to indulge, or
knowingly assisted or knowingly is a party, or is actually involved in
one or more of the process or activity included in Section 3 of the
Act. The initial interpretation that the offence of money laundering
is a one time instantaneous offence and finishes with its
concealment or possession or acquisition or use of projecting it as
untainted property, or it being claimed as untainted property, was
found to be a wrong interpretation and when the Finance Bill 2019
was introduced, justifying the amendments in the 2002 Act, it was
categorically recorded that the intention of the legislature had
always been that a person will be held guilty of offence of money
laundering and will be punished, so long as he is enjoying the
‘proceeds of crime’ by its concealment or possession or acquisition or
use, or projecting the property as untainted property or claiming it
as untainted property.
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57 The Special Enactment which contemplate attachment
of the property involved in money laundering, is premised on the
exercise of power by an Officer not below the rank of Deputy
Director authorised by the Director, if he has reason to believe on the
basis of the material in his possession that any person is in
possession of any proceeds of crime and such proceeds of crime are
likely to be concealed, transferred or dealt with, in any manner,
which may result in frustrating any proceedings relating to
confiscation.
The Act has also created mechanism for adjudication of
the complaints by the Director or any other Officer, who had
provisionally attached any property, by recording the reasons of his
belief that a person is in possession of any proceeds of crime and
which are likely to be concealed, transferred or dealt with to
frustrate its confiscation, by following the appropriate procedure as
prescribed, the adjudicating authority shall either affirm the
attachment of property or order it’s retention or freezing of the
same, or may release the property, depending upon the material
placed before him. If the attachment of the property is confirmed,
the Act also contemplate the procedure for its management while
the trial is pending.
58 It is evident from the scheme of the enactment that a
predicate offence shall precede the offence of money laundering, but
it may not be necessary that if the predicate offence comes to an
end, the ECIR itself shall come to an end.
As noted by the Apex Court, in Vijay M. Chaudhary
(supra), that the mechanism of proceeding against the property
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being proceeds of crime, is a sui generis procedure, and upon
identification of the existence of the property being proceeds of
crime, the Authority under the Act is expected to inquire into
relevant aspects in relation to such property and take measures, as
may be necessary, including attachment of the said property, for
being dealt with, according to the scheme of the enactment. ECIR
has a distinct connotation from an FIR in a sense that it is an
internal document created by the Enforcement Department before
initiating prosecution against a person involved with process or
activity connected with proceeds of crime. It is not a statutory
document, as the FIR recorded under Section 154 of Code of
Criminal Procedure, is in as much as if such ECIR has not been
recorded, it does not come in the way of the authorities referred to
in Section 48 of the 2002 Act, to commence an inquiry/investigation
for initiating civil action of attachment of the property, being
proceeds of crime, by following procedure prescribed in that regard.
ECIR being essential in internal document of the
Enforcement Directorate, non-supply of the same has not been
viewed to be a violation of the constitutional right, and a person
arrested being made aware of the grounds of arrest has been held to
be compliant with the mandate of Article 22(1) of the Constitution,
as held in Vijay Madanlal Choudhary (supra).
Since the offence under Section 3 of the Act is
dependent on illegal gain of property as a result of criminal activity
relating to a scheduled offence, and the existence of a predicate
offence, is a sine qua non for prosecution under the 2002 Act, which
has been held to be not permissible on notional basis, or on the
assumption that the scheduled offence has been committed, unless it
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is so registered with the jurisdictional police and/or pending
inquiry/trial including by way of a criminal complaint before the
competent forum, it is only 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, the
predicate offence having come to an end, there can be no offence of
money laundering against him or any one claiming such property be
linked to the scheduled offence through him.
59 The question whether the subsequent FIR can be
subsumed into an existing ECIR also deserve consideration. The
term ‘subsumption’ or ‘subsuming’ is not defined under the statute,
but in the normal parlance, it means to include something or
someone. As per Merrium Webster’s dictionary, ‘subsume’ is defined
as to include a place within something larger or more
comprehensive; encompasses as a sub-ordinate or a component
element.
The word ‘subsume’ would therefore be indicative of
combining, comprehending, comprising, covering, inserting etc.
The term ‘subsumption’ would be synonymous with
colligate, type of: include, consider as part of something. There can
be no doubt that for subsuming the subsequent FIR, there is a need
to have a quasi link with the first FIR, which resulted into the
recording of ECIR.
60 Mr. Kadam had heavily relied upon the decision in case
of Naresh Goyal and since the said decision has recorded that grant
of ‘C’ summary amounts to acquittal and therefore, a conclusion was
derived that since there was no scheduled offence against the
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petitioner in both the petitions, in view of the closure report filed
which was accepted by the Court, the impugned ECIR will not
survive. The premise on which Naresh Goyal is based, would bind
us, as the decision of the Apex Court in case of State through CBI Vs.
Hemendra Reddy & Ors (supra), as it is dealing with closure report
and not summary report.
61 Another decision on which reliance is placed in case of
Indrayani Patnaik Vs. Enforcement Directorate ,15 where relying upon
the decision in case of Vijay M. Chaudhary, the discharge of the
petitioners from the scheduled offence, was pressed into service in
support of the submission that there cannot be any prosecution for
the alleged offence of money laundering in relation to the said
offence, as the petitioners are already discharged.
The relevant observation in the said decision is
reproduced by us as below :-
2. Learned senior counsel has submitted that in the present case, prosecution of
the petitioners in relation to the scheduled offence, on which the proceedings
under the Prevention of Money-laundering Act, 2022 (PMLA) were based, have
already come to an end with the petitioners having been discharged from V.G.R.
Case No. 59 of 2009 (T.R. Case No. 80 of 2011) by the order dated 27.11.2020,
as passed by the High Court of Orissa in Criminal Revision No. 831 of 2018.
Learned counsel would submit that in the given state of facts and the law
declared by this Court, there cannot be any prosecution for the alleged offence
of money-laundering in relation to the said offence for which, the petitioners
have already been discharged.
4. The record as it stands today, the petitioners stand discharged of the
scheduled offence and therefore, in view of the law declared by this Court, there
could arise no question of they being prosecuted for illegal gain of property as a
result of the criminal activity relating to the alleged scheduled offence.
5. That being the position, we find no reason to allow the proceedings against
the petitioners under PMLA to proceed further
15 2022(SCC) Online SC 2167
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In addition, it is also relevant to note the observation in
paragraph no.6, which also deserve a reproduction.
6. However, taking note of the submissions made by the learned
Additional Solicitor General and in the interest of justice, we reserve the
liberty for the respondents in seeking revival of these proceedings if the
order discharging the petitioners is annulled or in any manner varied,
and if there be any legitimate ground to proceed under PMLA.
62 A further decision of the Delhi High Court in case of
Harish Fabiani & Ors Vs. Enforcement Directorate & Ors ,16 on which
reliance is placed by the counsel for the petitioners, would disclose
that the petitions sought a declaration for declaring certain
provisions under the Act of 2002 to be unconstitutional, being in
violation of the fundamental rights. In addition, a prayer was also
made to quash and set aside the impugned ECIR and stay all the
proceedings arising therefrom and quash the summons issued
therein.
During the pendency of this petition, Supreme Court
delivered its judgment in Vijay Chaudhary on 27/7/2022, deciding
upon the constitutionality of various provisions and therefore the
said prayers were declared to be infructuous.
For the purpose of quashing of the ECIR, the petitioners
urged that despite the predicate offence registered under FIR
No.129/2021 having been quashed by the judgment dated
4/5/2022, by the High Court of Bombay, the petitioners were issued
summons in respect of the ECIR and therefore, the other relief in the
petitions were prayed for.
The pronouncement of law in Vijay M. Chaudhary to the
effect that if the person accused of any scheduled offence is finally
16 2022 SCC Online Delhi 3121
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discharged/acquitted or the criminal case against him, is quashed by
the Court of competent jurisdiction, no case of money laundering
against him or anyone claiming such property through him, was
presented in favour of the petitioners. The Addl. Solicitor General
contested the said plea by contending that the FIR still subsists since
it has only been quashed qua the petitioners before the Bombay
High Court and not in toto. Reliance was also placed upon para 311
of Vijay M. Chaudhary (supra), by submitting that before resorting
to an action and provision of attachment, registration of a scheduled
offence or a complaint is not a pre-condition and even though there
may be not any scheduled offence registered, ED can still move for
provisional attachment and therefore, ECIR may not be quashed.
63 Referring to the factual matrix involved, it was noted
that in the two Writ Petitions filed in the High Court of Bombay,
various petitioners sought quashment of the order passed by the
JMFC, Wada under Section 156(3) of Code of Criminal Procedure
and FIR No.129/2021 registered pursuant thereto. The Bombay
High Court allowed the Writ Petitions by recording that lodgment of
the complaint against the petitioners and continuity of the
proceedings is an abuse of process of law. It is in this background
the following observation is recorded
14. It is therefore incontrovertibly clear from a bare perusal of the
judgment/order of the High Court of Bombay read in conjunction with prayer
clause ‘a’ extracted above from both the Writ Petitions before the Court, that
both the order dated 7th April, 2021 passed by Judicial Magistrate in O.M.A.
No. 105 of 2021 and FIR No. 129/2021 dated 13th April, 2021 in P.S. Wada
stood quashed in toto. This Court finds no merit in the argument by the
Respondents that the quashing was qua the petitioners before the High Court
of Bombay and not the other accused in the said FIR. The quashing of the FIR
and order of the Judicial Magistrate preceding its registration was complete
and Not conditional, partial, and truncated in any manner. Nothing in the said
judgment/order of the High Court of Bombay suggests otherwise. Once the
predicate order under section 156(3) Cr.P.C. and the FIR stood quashed there
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would be no residue left in the matter against the accused as regards the
allegations made in the said complaint and crystallized in the FIR.
64 Another pertinent observation is contained in paragraph
no.22 to the following effect
22. The Hon’ble Supreme Court has been clear and categorical in its
reasoning as evident from the para extracted above. The undeniable
sequitur of the above reasoning is that firstly, authorities under the PMLA
cannot resort to action against any person for money-laundering on an
assumption that the property recovered by them must be proceeds of crime
and that a scheduled offence has been committed; secondly, the scheduled
offence must be registered with the jurisdictional police or pending inquiry
by the way of complaint before the competent forum; thirdly, in the event
there is already a registered scheduled offence but the person named in the
criminal activity relating to a scheduled offence is finally absolved by a
Court of competent Jurisdiction owing to an order of discharge, acquittal or
quashing of the criminal case of the scheduled offence, there can be no
action for money laundering against not only such a person but also any
person claiming through him in relation to the property linked to the stated
scheduled offence. In other words no action under PMLA can be resorted to
unless there is a substratum of a scheduled offence for the same, which
substratum should legally exist in the form of a subsisting (not quashed)
criminal complaint/inquiry or if it did exist the accused has since been
discharged or acquitted by a Court of competent jurisdiction.
There was no dispute in the said case before the Delhi
High Court that the scheduled offence on the basis of which the
ECIR was registered was itself quashed and therefore, it was held
that the action under the PMLA cannot continue, as the Court may
not be required to go into the merits of the original complaint or the
consequent investigation as the judgment/order of the Hon’ble High
Court of Bombay, in this regard is final, and any other allegations
against the accused in the said FIR or any other persons not accused
in the FIR, is a matter which would be for the appropriate Court of
competent jurisdiction to decide in appropriate proceedings before
that court.
65 In both the aforesaid decisions on which reliance is
placed, there was quashing of the FIR and therefore, the cases were
covered by the conclusion and finding by the Supreme Court in Vijay
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Chaudhary, that without there being any evidence of a predicate
offence or an FIR against them, being in existence or legally alive,
the ECIR would not survive.
In the case before us, FIR No. 163/2018 registered with
Vimantal police station, had invoke an offence punishable under
Section 420 r/w Section 34 of the IPC and it necessarily involved a
misappropriation on part of the Bank, the complaint being filed by
the shareholder to the Bank.
66 ECIR/MBZO-II/10/2021 registered on 31/3/2021 had
its source in FIR NO. 163/2018 against Aranhas.
The subject ECIR compiled the following facts on
carrying out the investigation;
A. That, on the same day on 29/12/2014, 1) Mr. Prakash Chandra
Vyas 2) 7 Mrs. Jayshree Prakash Chandra Vyas 3) Mrs. Khairunisa
Aslam Furniturewala and Aslam Kabrudin Furniturewala gave the
property at Lohgaon Survey No. 206/3 which was purchased under
Sale Deed No. 9393/14 through registered Live and License Deed
Nos. 9395/14 and 9396/14 to 1) Vivek Arana 2) Vivek Arana of
Rosary Education Group.
B. On 24/04/2018, the Directors of Rosary Global Education, viz
1) Vivek Arana 2) Vinay Arana 3) Miss. Dipti Vivek Arana on behalf
of Rosary Education Group, again mortgaged the same property
under Mortgage Deed No. 5171/18 registered at Deputy Registrar’s
Office, Havel No. 18, Pune to Seva Vikas Co-op Bank Ltd. Head
Office near Seva Bhavan, near Sadhu Vaswani Garden Pimpri Pune
(via Budhwar Peth Branch) and obtained a Term Loan Loan
Amount of Rs. 2.5 Crore & Cash Credit Facility of Rs. 2 Crores.
C. That, on the basis of the said rent agreement, the directors of
Rosary Education Group, viz 1) Vivek Arana 2) Vinay Arana 3)
Miss. Dipti Vivek Arana 4) Chandralekha Vivek Arana have
obtained an amount of Rs. 7 Crores in March 2018 and Rs. 4.5
Crores in April 2018 as loan and gave the said property as
mortgage to them as per mortgage deed no. 4407/14 & 5171/18.
Thus, they have deceived Seva Vikas Co-op Bank Ltd. and their
shareholders. Accordingly, a case has been registered against them
for financial fraud.
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D. On the basis of the aforesaid information, it appears that
proceeds amounting to Rs. 11.5 crores have been generated out of
criminal activities related to the scheduled offence and the same
appears to have been utilized and parked by Vivek Anthony Ahana
and others and thus, projected the same as untainted.
E. An ECIR bearing No. ECIR/MBZO-II/10/2021 is therefore
recorded and investigation under the provisions of the Prevention of
Money Laundering Act, 2002 and the Rules framed there-under is
being initiated.
67 Admittedly, the ECIR is based on the subject FIR as it
contained an accusation against Rosary Education Group, which had
obtained loan and secured the loan by mortgaging the property and
they deceived the Seva Bank and their shareholders, and the accused
persons i.e. Aranhas Group was alleged of amassing illegal wealth to
the tune of Rs.11.5 crores as it did not repay the loan of Rs.11.5
crores obtained from Seva Bank against the mortgage property.
Section 420 of the IPC being included as a scheduled
offence in the Schedule to the PMLA Act, 2002, the subject ECIR was
registered.
It is after investigation a ‘C’ Summary closure report is
filed which was accepted on 18/4/2022. The three FIRs i.e. C.R.
Nos. 525, 526 and 527 were registered at Pimpri Chinchwad police
station based on the report of the Auditor Rajesh Jadhawar and in
these FIRs, different loan accounts of distinct entities are referred
with an allegation that the said groups have duped the Bank, as the
loan accounts were declared as NPA.
FIR No.525/2021 covered 6 loan accounts, whereas FIR
No.526/2021 covered 16 loan accounts and FIR No. 527/2021 was
lodged in regards to 9 loan accounts.
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It is admitted that FIR No. 806/2019 had some
overlapping accounts and based on this C.R, ECIR/MBZO/II/32-
2021 was registered. This FIR No. 806/2019 was based on the
inspection report and audit report by Auditor Rajesh Jadhawar,
which upon quashing of this FIR by the High Court and its revival by
the Supreme Court, on 25/7/2023, was merged with
ECIR/MBZO/II/10/2021, which was already being investigated by
Unit-5(1). The decision of the ED to merge ECIR/
MBZO/II/32/2021 with ECIR/MBZO/II/10/2021, is an internal
decision, considering the commonality of the offfences which form
the substratum of the ECIR/MBZO/II/10/2021.
FIR No. 806/2019 registered with Pimpri police station,
on invoking Section 406, 420, 409, 465, 467, 467 and 471 r/w
Section 34 of IPC against the Board of Directors, as they face the
accusation that they had cheated the shareholders of the Bank by
acting hand-in-glow with various groups and it was found that the
Management, office bearers of the Bank had adopted the same
modus operandi which was the basis for registration of
ECIR/MBZO/II/10/2021 and Unit-5 was already investigating into
it, by arresting the main accused and even the properties/proceeds
of crime under Section 5 of the PMLA Act, was also attached.
In the wake of the above, since we could clearly notice
the causa link between the FIR Nos. 525, 526 and 527 with the
ECIR/MBZO/II/10/2021, we do not find substance in the
submission advanced by Mr.Kadam that the subsumption could not
have taken place, as when it is said that the three FIRs are subsumed
in the existing ECIR, it only convey that they have been included in a
particular group i.e. ECIR/MBZO/II/10/2021, because of the
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commonality, as the Enforcement Directorate was investigating the
affairs of Seva Bank, qua the individual groups which had availed
the loan in collusion with the Board of Directors and the officials of
the Bank.
68 The pronouncement of the Apex Court in Vijay
Choudhary (supra), in no uncertain words has highlighted the
purpose and object of the 2002 Act, by stating that it is not limited
to punishment for offence of money laundering, but it also provide
measures for prevention of money laundering and for attachment of
proceeds of crime, which are likely to be concealed, transferred or
dealt with, in any manner, which may result in frustrating any
proceedings relating to confiscation of such proceeds under the Act
of 2002. It is sui generis, which necessarily warrant a link between
the ‘scheduled offence’ defined under Section 2(1)(y) with
‘proceeds of crime’. The property derived or obtained as a result of
a criminal activity relating to an offence, termed as ‘scheduled
offence’, is regarded as tainted property and dealing or layering such
property, in any manner, attracts the offence of money laundering.
The ‘scheduled offence’ is the one which is registered, upon an
information relating to its commission, being provided under Section
154 of the Cr.P.C. There is no corresponding provision in the 2002
Act for registration of an offence of money laundering. It is the
money, which is the outcome of a ‘scheduled offence’ which is being
laundered, and, hence, offence of money laundering comes into
existence as it revolve around the proceeds of crime, which are
generated.
It is now well settled that offence under Section 3 of the
Act of 2002, is dependent on illegal gain of property as a result of
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criminal activity relating to a ‘scheduled offence’ and it is concerning
the process or activity connected with such property which
constitute the offence of money laundering. The provisions of the
Act of 2002, cannot be set into motion, and it do not permit
prosecution of any person thereunder 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 filing of a criminal complaint before the
competent forum.
The Act of 2002 has merely defined the term ‘Proceeds
of crime’ in the backdrop of a criminal activity relating to a
‘scheduled offence’ and in Vijay Choudhary (supra), it is distinctly
held that an offence under PMLA shall continue, except when the
person is discharged or acquitted from the scheduled offence or the
criminal case against him is quashed by the Court of competent
jurisdiction and since we are of the opinion that on acceptance of ‘C’
summary, the FIR comes to an end, but the ECIR continued its
existence, as three FIRs were already subsume into it, before it died.
Mr.Anturkar, in his words, has submitted that on acceptance of ‘C’
summary, the proceedings in the FIR No.163 of 2018 are only in
state of Coma, but they do not deserve to ‘rest in peace’, as no
curtains are finally drawn, but we do not subscribe to his
submission, as though we accept that on acceptance of ‘C’ Summary,
the FIR No.163 of 2018 has come to an end, but the ECIR, which
had already subsumed three CRs i.e. 525, 526 and 527 of 2021,
cannot be said to be nonest.
69 One decision on this point is the one delivered by Delhi
High Court of Rajinder Singh Chadha vs. Union of India, Ministry of
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Home Affairs Through its Chief Secretary & Anr. (supra)
pronounced on 24/11/2023.
We must also refer to the background facts in brief :-
a) Two FIRs viz. 16/2018 dated 24/01/2018 and FIR No.49/2021
dated 12/03/2021 were registered under Section 420, 406, 120B of
the IPC at PS, EOW against the accused persons, including the
petitioner, arising out of similar set of facts and circumstances.
The respective complainants alleged that despite payment of
monies by them, they did not receive possession of flats, as
promised by the Company, in which the Petitioner Rajinder Singh
Chadha was acting as a Director, and it was alleged that he was
responsible for siphoning off funds collected from the complainant.
During the pendency of the trial in both the FIRs, the accused
persons settled their dispute with the complainants amicably.
b) In FIR No.16/2018, the accused moved an application for
compounding under Section 320 of Cr.P.C. which was allowed by
the trial Court and the accused persons accordingly stood
acquitted. FIR No.49/2021 was quashed by the co-ordinate Bench
of the High Court on 22/12/2022 in the wake of the settlement
arrived at.
c) ECIR was lodged on 26/07/2019 by the Directorate of
Enforcement against the Petitioner and unknown persons.
A search and seizure was carried out under Section 17(1) of the
Act of 2002, at the office and residential premises of the petitioner
and he was issued a show cause notice under Section 8(1) for a
response to be filed.
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d) It is in this background facts, it was urged on behalf of the
petitioner that the predicate offences, in the two FIRs now stand
compounded and quashed and as a consequence the jurisdictional
fact which form the basis of the ED’s investigation has come to an
end and the ECIR in the subsequent proceedings, cannot continue
any longer.
70 In support, reliance was placed on the decisions in case
of Vijay Choudhary (supra), Harish Fabiani & Ors. (supra), Naresh
Goyal (supra), Prakash Industries Limited (supra), Parvathi Kollur
and Anr. vs. State by Directorate of Enforcement in Criminal Appeal
No.1254/2022, Directorate of Enforcement vs. M/s.Obulapuram
Mining Company in Criminal Appeal No.1269/2017 passed by the
Hon’ble Supreme Court, Emta Cola Ltd. (supra), M/s.Nik Nish Retail
& Anr. vs. Assistant Director, Enforcement Directorate ,17 Manturi
Shashi Kumar vs. ED18, Arun Kumar and Ors. vs. Union of India and
Ors.19
The learned Single Judge reproduced the relevant
observations from Vijay Choudhary, Naresh Goyal and also the
observations of Calcutta High Court in Nik Nish Retail (supra), to
the following effect :
“34. The quashing of FIR of regular case automatically
created a situation that the offenes, stated and alleged in the
FIR has no existence; thus the “Scheduled Offence” has also
no existence after quashing of the FIR. When there is no
“Scheduled Offence”, the proceedings initiated under the
provisions of Prevention of Money Laundering Act, 2002
cannot stand alone.”
71 The Enforcement Directorate opposed the contention,
17 2022 SCC OnLine Cal 4044
18 2023 SCC OnLine TS 1098
19 (2007) 1 SCC 732.
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by submitting that on the basis of the FIR, the ECIR was recorded on
27/06/2019, and when the FIR was registered, there were 20
complainants, however, at the time of filing of charge-sheet, there
were 60 more complainants and as per the petitioner, dispute was
settled only with 61 out of 80 complainants. Before the Magistrate,
it was recorded that the petitioner shall settle dispute with the
remaining complainants as well.
Thereafter, fresh complaints were received and EOW
registered another FIR No.49/2021 and this was also taken on
record in the existing ECIR 09/HIU/2019.
The petitioner approached seeking quashment of FIR
No.49/2021, which was allowed. Even in this FIR, there were 77
complainants and the dispute was settled only with 55. Further, 79
complaints were informed to be pending before RERA, Uttar Pradesh
against the Company.
72 During the pendency of the Petition, FIR No.55/2023
was registered on 10/07/2023 against the Company and its
Directors, invoking Sections 409, 420, 120B of the IPC with PS,
EOW, which was based on similar allegations, as in previous FIR. On
the FIR being registered, the investigation proceeded in the already
open ECIR.
73 It was argued on behalf of the counsel for the
Department that since the enquiry/investigation under PLMA
culminated into a complaint, and the same being a complaint case,
at this stage, raising an argument that ECIR has to be quashed
because some of the FIRs are compromised, is premature since the
‘scheduled offence’ continue to exist, and it was urged that once the
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enquiry/investigation is concluded and the Respondent file a
complaint, the petitioner can avail all the remedies available under
the Cr.P.C. .
74 Dealing with the aforesaid rival contentions, where
reliance was also placed upon the decision in the case of Prakash
Industries (supra), the sequence of the dates and the events was
distinctly noted by the learned Judge and an issue was framed as to
whether the Department is justified in continuing the
investigation/proceedings in the impugned ECIR/09/HIU/2019,
which was initially registered on the basis of ‘scheduled offences’ in
FIR No.16/2018, and thereafter continuing on the basis of FIR
No.49/2021, by taking on record the scheduled offences in FIR
No.55/2023, based on similar allegations as in earlier FIRs, in view
of the fact that the ‘scheduled offencs’ in the first two FIRs, stood
compounded/quashed.
Dealing with the sequence of events, the learned Judge
specifically held as under :-
“28. It is pertinent to note that the aforesaid FIRs were
registered at the instance of investors who were aggrieved by the
non-completion of a project by the company. A perusal of the
aforesaid list of dates reflect that although the impugned ECIR
was registered initially on the basis of scheduled offences
registered vide FIR No.16/2018 dated 24.01.2018 which stood
compounded vide order dated 19.11.2019, the second FIR
No.49/2021 which was registered on 12.03.2021 was taken on
record in the impugned ECIR by the department and the
proceedings continued under the same. The department chose
not to register a separate ECIR, but took on record the scheduled
offencecs registered vide FIR No.49/2021 in the same ECIR,
inter-alia, on the ground that it related to the same transaction
and involved the same accused persons. The fact that FIR
No.49/2021 was taken on record by the department in the present
ECIR despite an order of compounding and acquittal was not
challenged by the petitioner.
29. Hon’ble Supreme Court in Vijay Madanlal Choudhary
(supra) has held that there is no corresponding provision toTilak
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71/76 WP 612-23 AND ORS.docSection 154 of the CrPC in the PMLA requiring registration of an
offence of money laundering. While observing the same, the
Hon’ble Supreme Court held as under :
“457… there is no need to formally register an ECIR,
unlike registration of an FIR by the jurisdictional police in
respect of cognizable offence under the ordinary law. There
is force in the stand taken by the ED that ECIR is an
internal document created by the department before
initiating penal action or prosecution against the person
involved with process or activity connection with proceeds
of crime. Thus, ECIR is not a statutory document, nor there
is any provision in 2002 Act requiring Authority referred to
in Section 48 to record ECIR or to furnish copy thereof to
the accused unlike Section 154 of the 1973 Code….”
75 By relying upon the observations of the Supreme Court
in Vijay Choudhary (supra) carving out a distinction between ECIR
under PMLA and an FIR under the provisions of Cr.P.C., which had
referred to the ECIR as an ‘internal document’, the learned Single
Judge concluded that the ECIR was registered on prima facie
satisfaction of commission of an offence under Section 3 of PMLA
and the department, by way of the present ECIR, was not
investigating the case of home buyers/investors in respect of the
allegations in the first two FIRs, but with respect to the alleged
‘proceeds of crime’ generated from commission of the alleged
scheduled offences in the FIR registered at the instance of home
buyers/investors.
Holding that the third FIR i.e. FIR No.55/2023 also
related to the same project which was the subject matter of the two
previous FIRs, it was categorically held as below :-
“In the present factual context, even if separate FIRs are
registered at the instance of separate home-buyers/investors,
each of the said FIRs cannot be considered as a separate
cause of action for registration of different ECIRs.”
The stand taken by the department in its written submissions
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was appreciated by recording thus :-
“32. The stand taken by the department in the written
submissions filed by learned Special Counsel is that ‘The
argument of the petitioner that FIR 55/2023 cannot be added to
the existing ECIR, and ED should record an additional ECIR is
against the scheme of the PMLA Act. In this regard it is
submitted that the entire PMLA Act does not even mention the
term ‘ECIR’, that ECIR is an internal departmental document for
administrative purposes. In view thereof, as stated hereinbefore,
the third FIR in the present case relates to the commission of a
‘scheduled offence’ in respect of the complainant therein, but for
the purposes of an investigation under the PMLA, it would be
the part of the same ECIR which related to investigation
pertaining to ‘proceeds of crime’ under the PMLA in the previous
FIRs. Needless to state, the Hon’ble Supreme Court, in Vijay
Madanlal Choudhary (supra), has categorically held that the
offence under PMLA is an independent offence. Since the ECIR
has not been equated with an FIR and has been held to be an
internal document, there cannot possibly be a restriction to
bringing on record on any subsequent ‘scheduled offence
registered by way of an FIR alleged to have been committed in
respect of the same transaction which was the subject matter of
such ECIR.
33. The proposition of law laid down in judicial
precedents relied upon by learned Senior Counsel for the
petitioner is not in dispute. In the said cases, the ‘scheduled
offence’ was quashed or compounded in all respects. In the
present case, ‘scheduled offences’ by way of the third FIR still
exist. It is pertinent to note that even in an FIR being
investigated by the local police involving multiple complainants,
compounding with some of them will not be a ground for
quashing of the said FIR. However, partial
compounding/quashing is permissible.
76 Reliance was also placed upon the decision of a co-
ordinate bench in Nayati Healthcare and Research NCR Pvt. Ltd. And
Ors. Through the Authorised Representative Sh. Satish Kumar
Narula & Ors. vs. Union of India Ministry of Home Affairs through
its Standing Counsel and Anr., 2023 DHC, 7542, in which by relying
upon Vijay Madanlal Choudhary (supra) and Nik Nish Retail (supra),
an observation was quoted in Para 35 to the following effect :-
“13. The Telangana High Court in Manturi Shashi Kumar
(supra) has also quashed a complaint under Section 3 of theTilak
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73/76 WP 612-23 AND ORS.docPMLA on the grounds of the accused being
discharged/acquitted of the scheduled offence. The relevant
observations of the said judgment are set out below:-
“28. Thus, according to Supreme Court, the offence under Section 3 of
PMLA is dependent on illegal gain of property as a result of criminal
activity relating to a scheduled offence. If the person is finally
discharged or acquitted of the scheduled offence or the criminal case
against him is quashed by the court, there can be no offence of money
laundering against him or anyone claiming such property being the
property linked to the scheduled offence. It is immaterial for the
purpose of PMLA whether acquittal is on merit or on composition.”
14. In view of the aforesaid legal position, the present complaint
filed by the ED and the proceedings arising therefrom cannot
survive. Considering that the FIR has been quashed by this court
and that it has not been challenged till date, there can be no offence
of money laundering under section 3 of the PMLA against the
petitioners.
15. Accordingly, the present petition is allowed and the ECIR
bearing No.ECIR/51/DLZO-II/2021 and proceedings arising
therefrom are quashed. Consequently, the Look Out Circular issued
against the petitioners in respect of the aforesaid ECIR also stands
quashed.”
77 In conclusion, it was held that the subject ECIR dated
27.06.2019 cannot be quashed and registration of FIR no.55/2023
dated 10/07/2023 would constitute ‘scheduled offences’ legitimizing
the existence of the said ECIR though it was specifically directed that
since FIR No.16/2018 and 49/2021 have been compounded and
quashed, the Enforcement Directorate cannot initiate or conclude
any proceeding, including investigation, in connection with the two
FIRs and the proceedings undertaken with respect to the two FIRs,
qua the petitioner in ECIR were quashed.
78 With no definition of ‘subsumption’ or even ‘predicate
offence’ in the Act of 2002, on reading of the observations of the
learned Single Judge, in Rajinder Singh Chadha (supra) it can only
be observed that ECIR is a genus and it may have different species
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provided there is a connect between the the genus and the species.
As in the present case, we can find the causal link in
the subsisting ECIR No. ECIR/MBZO-II/10/2021, which is still alive,
and has not become a dead letter, as despite acceptance of ‘C’
summary, and one of the contingency contemplated in Vijay
Choudhary (supra), have been attained, as there is an acquittal in
FIR No.163 of 2018, the registration of subsequent FIR Nos. 525,
526 and 527 of 2021, with an proximate connect with the proceeds
of crime generated and layered, they are capable and therefore,
rightly subsumed into the said ECIR, which is still alive and kicking.
79 It is not unusual for the Enforcement Directorate to
adopt this procedure and Mr. Venegavkar has placed before us
distinct cases, where this methodology is adopted, to which we have
referred as above.
We must also refer to a decision of this Court delivered
by the learned Single Judge (A.S.Gadkari, J) in Criminal Application
(APL) No. 201/2021 dated 16.03.2021, in case of Babulal Verma
S/o. Mulchand Varma & Anr. vs. Enforcement Directorate, Mumbai &
Anr., which is equally a somehow similar thinking, when an
Application filed under Section 482 read with 483 of the Cr.P.C.
raised a challenge to the order passed in Remand Application by the
learned Single Judge of Mumbai and sought direction to release
applicant from confinement in Jail.
The counsel for the Applicants by placing reliance upon Sub-
section (b) of Section 44 of PMLA added by way of proviso urged
that ‘scheduled offence’ in the present case is a sine qua non for the
offence of money laundering which would generate money (being
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laundered) and it also refer to as predicate offence. It was urged
that the moment predicate/scheduled offence comes to an end, the
offence lodged by Respondent No.1 on the said predicate offence
also comes to an end and does not remain in existence. It was also
urged that once scheduled offence is compromised/compounded,
the structure of the present crime falls to the ground and does not
survive and becomes non est.
The Enforcement Directorate represented by the
Additional Solicitor General Mr. Anil Singh urged that investigation
of the crime by ED is an independent investigation and once ECIR is
registered then the base/predicate/scheduled offence is no more
required for taking it to its logical end under PMLA and the
scheduled offence is necessary only for registration of an offene
under PMLA and thereafter whatever may happen to
predicate/scheduled offence, is totally irrelevant. It was urged that
PMLA is a self-contain statute and the offence registered under it
stand alone, independent of predicate offence.
The learned Single Judge appreciated the said
arguments in the backdrop of the scheme of the special enactment,
which was connected with the the specific object to track and
investigate cases of money laundering.
We must quote the most pertinent observations of the
learned Single judge, which reads thus :-
“Hypothetically, ‘an accused’ in a Predicate/Scheduled Offence is highly
influential either monetarily or by muscle power and by use of his influence
gets the base offence, compromised or compounded to avoid further
investigation by ED i.e. money laundering or the trail of proceeds of crime by
him, either in the Predicate/Scheduled Offence or any of the activities
revealed therefrom. And, if the aforestated contention of the learned counsel
for the Applicants is accepted, it will put to an end to the independent
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76/76 WP 612-23 AND ORS.docthe PMLA. Therefore, if the contention of the learned counsel for the
Applicants is accepted, in that event, it would be easiest mode for the accused
in a case under PMLA to scuttle and/or put an end to the investigation under
the PMLA. Therefore, the said contention needs to be rejected.”
Based on the aforesaid observation, since the
conclusion was drawn that in case of money laundering which
involves many stages of ‘Placement’, ‘Layering’, it require systematic
analysis and investigation and upholding the impugned order of
remanding the applicants to the judicial custody, the application was
dismissed.
It is to be noted that this decision was delivered on
16/03/2021, a few days before the Apex Court in Vijay Choudhary
offered further clarification contemplating three contingencies when
the ECIR, i.e. investigation under PMLA, came to an end.
80 In the wake of the above reading, we are satisfied that
grievance of the petitioners do not deserve any consideration.
Necessarily, the Writ Petitions filed by different accused, seeking
similar relief cannot be entertained. Hence, the Petitions are
dismissed. In view of the dismissal of the Writ Petitions, pending
Interim Applications also stand disposed off.
(MANJUSHA DESHPANDE,J) (BHARATI DANGRE, J.)
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