Recently, the Delhi High Court found itself examining a complex challenge arising at the intersection of the Prevention of Money Laundering Act, 2002, the Companies Act, 2013, and parallel criminal proceedings under the Indian Penal Code and anti-corruption law. The hearing drew attention because it questioned how far Section 5 of the Money Laundering Act, 2002, Section 212 of the Companies Act, and the requirement of a report under Section 173 of the Code of Criminal Procedure could limit or permit simultaneous investigations by different agencies.
Brief Facts:
The case arose from allegations that large-scale foreign remittances were made through domestic accounts using shell entities, ultimately prompting the registration of offences under penal and anti-corruption law. A complaint by a bank officer triggered the process, leading first to an FIR for cheating and conspiracy, and then to the registration of an ECIR by the Enforcement Directorate. During the inquiry, investigators traced a network of entities set up in the names of individuals who, according to the records, had no genuine financial footing. These entities allegedly facilitated the flow of funds abroad through fabricated documents and false import declarations, enabling remittances to be masked as advance payments in cross-border trade.
Contentions of the Petitioners:
The counsel for the Petitioners contended that once the Union Government transferred the matter for investigation under the company law framework, all other agencies were barred from continuing parallel inquiries. The counsel's argument rested on the statutory bar applicable when the serious fraud investigation mechanism is invoked, which, according to them, eliminated the jurisdiction of other authorities, including the one empowered under the money-laundering statute. The Petitioner was further urged that a provisional attachment cannot be issued unless a chargesheet under the criminal procedure code has been filed, and that the order lacked the mandatory “reason to believe” required for a valid exercise of power.
Contentions of the Respondents:
The counsel for the Respondents opposed each of these claims, maintaining that company law and money-laundering law operate in separate fields, address different forms of misconduct, and employ distinct procedural regimes. The Respondent submitted that the bar under company law is confined to offences under that enactment and does not inhibit proceedings under other statutes. The counsel also highlighted that the attachment had already been confirmed by the adjudicating authority and that the Petitioners had exercised their appellate remedy, making the writ proceedings unnecessary. It was additionally argued that the material relied upon, ranging from statements recorded under statutory authority to remittance trails and seized documents, demonstrated a clear basis for forming the belief required under law.
Observation of the Court:
The Court began by analysing the statutory bar claimed under company law and held that the argument had no legal footing. In clear terms, the Court observed that “This Court is afraid that the said argument holds no ground since the express language, ‘in respect of any offence under this Act’, used in Section 212(2) the Act of 2013, reveals that the said provision applies only to offences covered under that Act.”
The Court emphasised the co-existence of parallel regimes and referenced the statutory scheme itself, noting that “A purposive and harmonious construction of the statutory regime confirms that the Act of 2013 is merely applicable to the offences relating to companies and does not extend to offences under other laws, including the PMLA.”
While addressing the broader context of multiple agencies operating simultaneously, the Court relied on the statutory language of Section 212(17)(b) of the Companies Act. It noted that “This phrase recognises the statutory implication and intention implying that parallel proceedings/investigation under different statutory regimes is permissible under the Act of 2013.”
In addressing the Petitioner’s argument that the PAO could only be issued after filing of a chargesheet, the Court relied on its own recent precedent Directorate of Enforcement v. Hi-Tech Mercantile, and reiterated that “It was observed that while the first proviso to Section 5(1) of the PMLA constitutes a statutory prerequisite for initiating an attachment, it is not to be construed that the compliance of the said proviso is a sole pre-requisite for issuance of a PAO, which if not complied with would render the attachment proceedings invalid or ineffective.”
On the question of “reason to believe”, the Court merged its findings with the Supreme Court’s view in Radhika Agarwal v. Union of India. It noted that “‘reason to believe’ is an objective, evidence-based satisfaction founded on tangible material… and cannot rest on, or be equated with, mere suspicion.”Applying this test to the facts, the Court held that “This Court is satisfied that the D/AO had ample and cogent material to justify and form a ‘reason to believe’… the formation of belief was not perfunctory or based on mere suspicion, but was founded on a rational nexus between the material collected and the inference drawn.”
Finally, while discussing why writ jurisdiction should not be exercised at this stage, the Court recorded that “The impugned PAO… has already been affirmed by the A… and the Petitioner has availed of his statutory remedy… Given these circumstances… it would not be appropriate for this Court to re-examine the merits of the PAO in full.” and further concluded that“the existence of a viable statutory remedy would militate against premature interference through writ jurisdiction.”
The decision of the Court:
The Court dismissed the petitions. It held that PMLA proceedings are not barred even if SFIO is investigating under the Companies Act. The attachment order was already confirmed by the Adjudicating Authority and the petitioners have an appellate remedy, so the High Court would not interfere. All issues can be raised before the Appellate Tribunal.
Case Title: Sanjay Aggarwal v. Union of India & Ors
Case No.: W.P.(C) 2819/2016 & CM APPL. 11885/2016
Coram: Hon’ble Mr Justice Anil Kshetarpal and Hon’ble Mr Justice Harish Vaidyanathan Shankar
Counsel for the Petitioner: Adv. A Naveen Malhotra, Adv. Ritvik Malhotra and Adv. Nilansh Malhotra
Counsel for the Respondent: Special Counsel Anupam S. Sharrma, Adv.Vivek Gurnani, Adv. Harpreet Kalsi, Adv. Abhishek Batra, Adv. Ripudaman Sharma, Adv. Vashisht Rao, Adv. Riya Sachdeva, Adv. Vishesh Jain and Adv. Anant Mishra,
Read Judgement @LatestLaws.com
