The Madras High Court observed that the Courts only have to see whether the Enforcement Directorate (Respondent) is acting within the ambit and scope of the Prevention of Money Laundering Act, 2002 (hereinafter referred to as “PMLA”), and not misusing the powers. If Court is satisfied that the investigation taken up by the Respondent is within their powers and there is no misuse, then the Court cannot act as a stumbling block in the further progress of the investigation by the Respondent.
Brief Facts:
A case under the Foreign Exchange Management Act (hereinafter referred to as “FEMA”) was registered against the Petitioner company because the Petitioner had sent the foreign exchange abroad in violation of FEMA Rules. The Enforcement Directorate investigated and passed orders to seize certain movable and immovable properties of the Petitioner company. The said orders were not confirmed by the Competent Authority under Section 37A of FEMA.
The Enforcement Directorate filed two writ petitions against the orders of the Competent Authority and thereafter, an interim stay on the orders was granted by the Court.
The Petitioner company used Axis Bank which is an authorized dealer under FEMA for overseas remittances. The Complaint was registered by Axis Bank based on which FIR was lodged. Since the offence was a scheduled offence under the PMLA, Enforcement Directorate registered a case and issued a summons to the Petitioner. This is why the present writ petition has been filed to restrain the Respondent from acting beyond the jurisdiction conferred under the PMLA.
Contentions of the Petitioner:
It was contended that the Respondent started an investigation to ascertain whether FEMA provisions were violated. The provisions of FEMA have not been made a scheduled offence, Respondent is trying to indirectly investigate by taking undue advantage of FIR. The reading of the complaint would prove that the allegations are only in regards to violation of FEMA and no IPC offence is involved. It was submitted that the FIR has been challenged and an interim order has been passed directing that no final report should be filed till the disposal of the petition.
It was further argued that Axis Bank only had an issue with the non-disclosure of FEMA case and this was dealt with by the Competent Authority under Section 37A (2) of FEMA and it was held that Petitioner did not commit any violations and the seizure orders passed by the Enforcement Directorate was set aside.
It was contended that there is no scope for the generation of proceeds of crime and therefore, Respondent cannot start a prosecution without fulfilling ingredients of Section 3 of PMLA.
Contentions of the Respondent:
It was submitted that a writ petition has been filed against the order passed by the Adjudicating Authority under Section 37 of FEMA. It was argued that the Petitioner misled the Authorized Dealer by not disclosing the investigation conducted by the Enforcement Directorate. It was submitted that the money was siphoned off by the Petitioner to the tune of Rs. 216.40 crores. Alleging that the present case is a case of cross-border money laundering, the Respondent argued that the ongoing investigations should not be interfered with.
Observations of the Court:
The Court observed that the Petitioner failed to disclose the pending/ongoing investigations to the Authorized Dealer i.e., Axis Bank, and therefore, deceived the Bank.
Since a writ petition has already been filed by the Enforcement Directorate, the Court did not comment on the legality of the order passed by the Adjudicating Authority under Section 37 FEMA. However, it was noted that the findings of the Adjudicating Authority will have no bearing on the complaint filed by Axis Bank as there is a genuine grievance of misdeclaration by the Petitioner company. The concealing of material fact gave rise to the registration of FIR under Sections 417 and 420 of the Indian Penal Code,1860. It is on this basis, that Respondent started an investigation under PMLA as an offence under Section 420 Indian Penal Code,1860 is a scheduled offence.
Regarding the proceeds of crime, it was noted that the delivery of valuable foreign exchange and remittances in the hands of wholly owned subsidiaries of the Petitioner company outside India would classify as proceeds of crime.
Further, the Bench observed that the Courts only have to see whether the Respondent is acting within the ambit and scope of PMLA and not misusing the powers. If Court is satisfied that the investigation taken up by the Respondent is within their powers and there is no misuse, then the Court cannot act as a stumbling block in the further progress of the investigation by the Respondent.
It was opined by the High Court that the Court is not expected to stall investigations conducted by Investigation Agencies as it falls exclusively in the domain of the executive. The only exceptions are if the investigations are found to be without jurisdiction, or there is a misuse of power of investigation or such an investigation is an abuse of process of law.
The decision of the Court:
Based on the reasons, the Court found no reason to interfere with the investigation by Respondent and accordingly, dismissed the writ petition.
Case Title: Southern Agrifurane Industries Pvt. Ltd. V. The Assistant Director
Coram: Hon’ble Mr. Justice P.N. Prakash, Hon’ble Mr. Justice Anand Venkatesh
Case No.: W.P. No. 28140 of 2022
Advocate for Petitioner: Adv. Mr. B. Kumar
Advocate for Respondent: Adv. Mr. N. Ramesh (Special PP)
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