The Madras High Court dismissed the petition filed for staying the proceedings initiated by the Enforcement Directorate (“ED”) under the Prevention of Money Laundering Act, 2002 (“the PML Act”).
The Court held that there is a commission of a predicate offence by the Petitioner and prima facie material to establish that the scheduled offence has generated proceeds of crime. Therefore, the essential requirements to initiate the investigation are fulfilled and the Court cannot be expected to interfere at this stage.
Brief Facts:
The writ petition was filed to forbear the ED from proceeding further with their investigation against the Petitioner under the provisions of the PML Act. It was alleged against the Petitioner that they had sent foreign exchange abroad in violation of the Foreign Exchange Management Act,1999 (“FEMA Rules”). The ED had also registered a case against the Petitioner since the FIR by the AXIS Bank disclosed the commission of an offence u/s.420 IPC, which is a scheduled offence under the Prevention of Money Laundering Act. The ED had also issued summon to the Petitioner u/s.50 of the PMLA. Being aggrieved by the said, the present petition was filed.
Contentions of the Petitioner:
It was the case of the Petitioner that the Respondent had taken advantage of the FIR registered against him and started an investigation to find out if there was any contravention of FEMA in remitting the money outside India. However, the said action of the Respondent was against the provisions of the FEMA Rules. The Counsel further contended that the Competent Authority already dealt with the allegation of concealing the fact from AXIS Bank that there is a FEMA case against them in the application for foreign remittance. The adjudicating authority vide order dated 25.07.22. concluded that the Petitioner committed no violation. Therefore, AXIS Bank cannot have any grievance against the Petitioner. As a result, the action of the Respondent based on the complaint filed by AXIS Bank violates the provisions of FEMA. The Counsel further submitted that even if the allegations made in the FIR are taken, the Respondent cannot start a prosecution without satisfying the ingredients of Section 3 of the PML Act. The reliance was placed on the judgement of this Court in R.K.M. Powergen Private Ltd., .Vs. The Assistant Director/Officer on Special Duty Directorate of Enforcement Government of India and Others reported in 2022(3) MLJ (Crl) 225.
Contentions of the Respondent:
It was contended by the learned Counsel of the Respondent that the order dated 25.07.22 was stayed when challenged under Section 37A of FEMA. The Counsel further argued that the RBI Regulations mandate to disclose the information of any investigation pending against the Promoter/Director. However, the Petitioner was misleading the authorised dealer i.e. AXIS Bank, by concealing the fact that the Promoter of the Company was facing investigation by the ED since 2012. Even in the investigation, it was established that the Petitioner had siphoned off the money. Therefore, he concluded by prayer that the ongoing investigation could not be interfered with.
Observation of the Court
This Court refrained from going into the legality of the stay order dated 25.07.22 passed under Section 37A of FEMA, given the pending writ petition. However, they observed that the Petitioner, by making a false declaration, had induced the authorised dealer to deliver valuable foreign exchange and wrongfully gained them by siphoning off huge amounts of money. This action of the Petitioner would constitute the proceeds of a crime.
This Court relied on the Apex Court judgement in Vijay Madanlal Choudhary and Others .Vs. Union of India and Others 2022 SCC OnLine SC 929 in which it was held that the commission of a predicate offence and prima facie material which shows the scheduled offence has generated proceeds of crime is enough to start an investigation. These requirements are satisfied in the present case. Therefore, the Court concurred with the submissions of the Respondent that the Respondent has jurisdiction to investigate the case under the PML Act. The judgement on which the Petitioner had placed reliance was distinguished on the ground that it was a case where the offences involved were found not to fall under the schedule of the PML Act.
The decision of the Court:
The Madras High Court denied staying the investigation by the ED as they were found acting within the four corners of the PML Act.
Case Title: Southern Agrifurane Industries Private Ltd. vs The Assistant Director
Coram: Hon’ble Justice P.N. Prakash and Hon’ble Justice Anand Venkatesh
Case no.: W.P.No.28140 of 2022
Advocate for the Petitioner: Mr. B. Kumar
Advocate for the Respondent: Mr. N. Ramesh
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