G.S.C . Rao vs Directorate Of Enforcement Govt. ...
2022 Latest Caselaw 20939 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 

Court No. - 10
 
Case :- Application U/s 482 No.764 of 2022
 
Applicant :- G.S.C . Rao
 
Opposite Party :- Directorate Of Enforcement Govt. Of India Thru Its Director
 
Counsel for Applicant :- Surendra Pratap Singh,Purnendu Chakravarty
 
Counsel for Opposite Party :- A.S.G,Kuldeep Srivastava,Shiv P. Shukla
 

 
Hon'ble Dinesh Kumar Singh, J.

1. The present petition under Section 482 Cr.P.C. has been filed seeking quashing of the entire proceedings of Session Case No. 2072 of 2021 (Directorate of Enforcement Vs. M/s Simbhaoli Sugars Limited and others), arising out of ECIR/02/PMLA/LKZO/2018 dated 27.02.2018 and Complaint Case No.946 of 2020, including the order dated 3.12.2021 taking cognizance and summoning the petitioner under Section 45 read with Section 17 of the Prevention of Money Laundering Act, 2002 (for short ''PMLA, 2002'), pending before the learned Special Judge, PMLA, 2002/Sessions Judge, Lucknow.

2. Relevant facts, in brief, are that a complaint dated 17.11.2017 was received by the Central Bureau of Investigation (for short ''CBI'), BS & FC, New Delhi from Oriental Bank of Commerce through Manohar Dhingra, Assistant General Manager, Meerut regarding alleged offences of criminal conspiracy, criminal breach of trust, cheating and criminal misconduct by public servants and private persons, namely, Simbhaoli Sugars Limited, its Directors, unknown Bank officials and other unknown persons, including their accomplices and abettors, whereby the Oriental Bank of Commerce was cheated to the tune of Rs.97.85 Crores.

3. It is alleged that M/s Simbhaoli Sugars Limited, Hapur (hereinafter referred to as the ''company') had fraudulently induced the Oriental Bank of Commerce (for short ''bank') to sanction the loan of Rs.148.60 Crores and misappropriated the loan amount, which was limited to the tune of Rs.97.85 Crores (outstanding principal of loan) and again got sanctioned a fresh corporate loan of Rs.110 Crores to get the previous loan adjusted, the latter being still outstanding to be repaid to the bank. The company and its directors and other managerial persons between the period from 8.11.2011 to 25.02.2018 and unknown bank officials of the bank entrusted with the responsibility of causing due diligence in sanctioning/disbursing the loans appeared to have embezzled the public money received by the company as loan and siphoned off the same for purposes other than the designated uses, suspected creation of assets and other purposes hitherto unknown.

4. In the complaint, it was said that the company had issued Improper KYC certificates in the names of the individual farmers and submitted the same to the bank along with the loan documents. As per the tie-up arrangement, the disbursement of the loans were made through individual loan account of 5762 farmers and consolidated amount was credited to the Escrow (Current) Account No.05371131001453 of the company. The company, thereafter, transferred the funds from this current account to other accounts maintained by it with State Bank of India, Punjab National Bank and UCO Bank through RTGS. In this manner, the company has misappropriated the money lent by the bank and there was clear cut diversion of funds by the company. The company vide its letter dated 28.05.2013 while admitting the liability and requesting for charging of normal rate of interest, had also admitted that the funds were utilized for payment of arrears of sugarcane supplied earlier to their mills and thus, had admitted the diversion of the funds for purposes other than that agreed between the company and the bank. The money received by the company has been used for purposes other than those stipulated in the Memorandum of Understanding (MOU). The bank had declared company as suspected fraud for an amount of Rs.97.85 Crores for the reason of misappropriation, cheating and criminal breach of trust and the same was reported to the Reserve Bank of India on 13.05.2015.

5. It is also said that the accounts of the borrower farmers were also declared as Non Performing Asset on 31.03.2015 in accordance with the prudential norms as the company had committed breach of terms of MOU and diverted funds for purposes other than that agreed between the company and the bank.

6. The bank had sanctioned financial facility to the company for financing individual/JLGS/SHGs/sugarcane farmers under tie up arrangement with the company. The company was engaged in the business of manufacturing of refined sugars, white crystal sugars and specialty sugar etc. As per the annual report dated 31.3.2012 of the company, during the relevant period, there were ten Directors, including the petitioner as Chief Executive Officer.

7. In pursuance to the RBI Master Circular dated 01.07.2011, a scheme for financing individual/JLGS/SHGs/sugarcane farmers was approved by the bank and in pursuance to it, a proposal was submitted by the company to the erstwhile regional office of the bank at Ghaziabad on 08.11.2011 for financing individual/JLGS/SHS/sugarcane farmers (representing 5762 farmers) under the tie-up arrangement with the company (maximum limit of Rs.3,00,000/- per farmer) within the overall exposure cap of Rs.150 Crores, which was approved by the bank on 19.12.2011.

8. After approval of the scheme, the company supplied the names of Individual farmers along with their details of land holding and cane supplied by them in the previous season to the erstwhile regional office of the bank at Meerut. As per the tie-up arrangement, the company was also required to submit the KYC and other requisite documents along with the loan application of individual farmers. All the loan applications were submitted by the company directly to the erstwhile regional office of the bank at Meerut, where the same were processed. After processing of the loan applications at the erstwhile Regional Office, Meerut, a list of farmers was forwarded to Hapur Branch of the bank. On the basis of said list, the Hapur Branch had disbursed loans to 5762 farmers during the period from 25.01.2012 to 13.03.2012, with total loan amount aggregating Rs.148.59 Crores. All the 5762 accounts were opened and accordingly disbursements of loans were made. The disbursements were made through individual loan accounts of all the 5762 farmers and consolidated amount of each disbursement was credited in the Escrow (current) account of the company as per the tie up agreement and based on the undertaking given by the company to the effect that inputs like seed, fertilizers and other necessary equipments etc. have been supplied by it to all the individual farmers.

9. For implementing the scheme of finance to farmers, a Memorandum of Understanding dated 18.01.2012 was executed between the company and the bank, whereby the company had undertaken the responsibility of distribution of materials like seeds, fertilizers and other necessary equipments etc. to the farmers. The company has also executed a corporate guarantee guaranteeing the repayment of the loan. As per MoU, after supply of sugar-care by farmers to the company, out of the sugarcane price to be paid by the company to the farmers, loan liability was to be adjusted by the company and the remaining amount was to be paid by the company to the farmers.

10. Original Application No.26 of 2016 for recovery of Rs.112.94 Crores was filed by the bank in Debts Recovery Tribunal, Lucknow on 16.01.2015 against the company. After filing the said application before the Tribunal, the company was making repayments in piecemeal and approached the bank for the purpose of financing a fresh corporate loan to the tune of Rs.110 Crores, so that it may clear the entire liability of all those loans of farmers, which it had diverted. Upon acknowledgment of liability by the company and converting the unsecured loans into secured loan and company's undertaking to gradually reduce the bank dues, a corporate loan of Rs.110 Crores was sanctioned by the bank on 28.01.2015 with securities under multiple banking arrangements with State Bank of India as the lead. In pursuance thereof, a joint application was filed before the Debts Recovery Tribunal, Lucknow for recording the liquidation of liability of the company and passing a consent order for disposing of the case filed by the bank. On the basis of the joint application stating that the matter was settled between the parties and the bank wanted to withdraw the original application, the Tribunal disposed of the matter in terms of the joint compromise application vide order dated 16.03.2016.

11. Thereafter, the total liability of Rs.112,93,99,471/- was finally adjusted on 30.06.2016 by way of deposit of corporate loan of Rs.110 Crores sanctioned on 28.01.2015 by the bank by way of depositing Rs.2,93,99,471/- by the company from their own sources. The said corporate loan of Rs.110 Crores advanced by the bank under multiple banking arrangements led by SBI slipped into Non Performing Asset on 29.11.2016 due to non-payment of installments by the company and Rs.109.08 Crores became the outstanding dues.

12. For the lapses committed by the bank officials regarding failure to complete the KYC compliance etc. while sanctioning the loans, disciplinary actions have been taken against the bank officials in accordance with Officer Employees (Discipline and Appeal) Regulations, 1982.

13. On the basis of the said complaint, an FIR at RCBD1/2018/E/0002 was registered by the CBI, BS & FC, New Delhi on 22.02.2018, under Sections 120-B read with 420 and 409 IPC and Section 13(2) read with 13(1)(d) of Prevention of Corruption Act against the company and ten accused persons, who were Directors of the company, and other unknown bank officials and other private persons.

14. Sections 420 and 409 read with 120-B IPC and Section 13(2) read with 13(1)(d) of Prevention of Corruption Act, 1988 are covered under the Scheduled Offences as per PMLA, 2002, therefore, ECIR No.ECIR/02/PMLA/LKZO/2018 was recorded at the Lucknow Zonal Office of Directorate of Enforcement, Lucknow on 27.02.2018 against the aforesaid suspect/accused company and others for commission of offence under Section 3 of PMLA, 2002 punishable under Section 4 of PMLA, 2002.

15. After completing the investigation by the Directorate of Enforcement, a complaint has been filed under Sections 45 read with 17 PMLA, 2002 for the offence of money laundering under Section 3 and punishable under Section 4 of PMLA, 2002. The petitioner is one of the accursed in the said complaint.

16. It is alleged that from the recovery, seizure of various documents and enquiries with various banks, it would reveal that accounts, including Escrow Account No.05371131001453 of the company had been used for diverting the loan funds disbursed for providing assistance to the designated 5762 farmers under the tie-up arrangement with the company, towards regular cane dues payments to the farmers registered under various cane unions falling in its reserved area, repayment of various term loans, repayment of interest and loans, repayment of External Commercial Borrowings taken from Punjab National Bank and towards operational expenses of the company. The statements of various persons, including bank officials and managerial persons of the company and others were also recorded under Section 50 of PMLA, 2002.

17. In the complaint, role of the petitioner had been designated in money laundering alleging that he was the Executive Director of the company since 2000. His designation was changed to Executive Director and Chief Executive Officer in 2013 and till his termination in August, 2013, but his role and responsibility remained the same. He was the de-facto head of the company and responsible for its day-to-day affairs and had knowingly assisted the company and actively participated in the process of laundering the proceeds of crime in the form of the loan funds received from the bank in 2012 and 2013 as defined under Section 3 of the PMLA, 2002 and punishable under Section 4 of the said Act.

18. The PMLA Court vide order dated 3.12.2021 had taken cognizance and summoned the petitioner for facing trial for offence under Section 3 of the PMLA, 2002.

19. Before filing this petition, the petitioner had filed Criminal Revision No.2529 of 2018 before this Court against the judgment and order passed by the learned trial court, whereby it rejected the application of the petitioner for release of his seized assets. The said revision was allowed by this Court vide order dated 07.03.2019 with some conditions.

20. Thereafter, petitioner filed Criminal Revision No.3333 of 2018 before this Court with a prayer to permit him to visit Philippines in connection with the business. The said revision was dismissed by this Court vide judgment and order dated 26.09.2018.

21. Aggrieved by the said judgement and order dated 26.09.2018 passed by this Court, the petitioner went to Supreme Court by filing Criminal Appeal No.245 of 2019. The said appeal was allowed by the Supreme Court and the petitioner was permitted to visit Philippines for a period of ten days with some conditions.

22. Sri Purnendu Chakravarty, learned counsel for the petitioner submits that despite the FIR having been registered way back on 22.02.2018, no charge-sheet has been filed by the CBI against the applicant till date. The petitioner had always cooperated in the investigation and whenever he had been called, he had appeared. He further submits that the learned Special Judge had not applied his judicial mind to the facts and circumstances of the case and merely relying on the contents of the compliant, which are based on surmises and conjunctures, impugned order dated 03.12.2021 has been passed. He also submits that no offence of cheating under Section 420 IPC is made out at all against the petitioner. The loan of Rs.148.59 Crores was taken by the company, which was to be repaid by the company and no intention was there to cause wrongful loss to the bank or unjust enrichment to the company.

23. Learned counsel for the petitioner further submits that the bank had initiated insolvency proceedings before the NCLT, Allahabad in the year 2018 and the Punjab National Bank had also initiated the said proceedings in the year 2019. He further submits negotiations are going on between the company and the bank and the same are on the verge of finalization and, it is expected that the offer made by the company would be accepted by the banks for full and final settlement of the outstanding dues. It is also submitted that neither in the FIR nor in the ECIR any role has been attributed to the petitioner for fraudulently availing the loan from the bank. The petitioner did not play any role for advancement of loan to the farmers on the basis of MOU inasmuch as he was not a signatory or has not involved in any other way.

24. Learned counsel for the petitioner further submits that the petitioner was merely the Chief Executive Officer of the company and as per the provisions of the Company's Law, Chief Executive Officer is responsible for the operations of the business unit and implementation of the new projects of the company, while the responsibility for finance and accounts of the company has been vested with the Chief Financial Officer. He, therefore, submits that the petitioner was not responsible for the financial affairs of the company till he left the company in September, 2013 and had no role in the present case.

25. Learned counsel for the petitioner also submits that not a single document has been discovered by the CBI or by the Enforcement Directorate, which was signed by the petitioner for the company for availing the aforesaid loan and neither he had signed the MoU executed between the company and the bank. The Promoter Directors, Gurmit Singh Mann, Gurpal Singh and others had taken the corporate loan of Rs.110 Crores from the bank by pledging their shares and executing personal guarantees. The promoter Directors in the present case have been allowed to go scot-free and the complaint has been filed merely against the employees of the company.

26. Learned counsel for the petitioner also submits that in the complaint itself, it has been stated that co-accused, Mr. Sanjay Taparia, Chief Financial Officer of the company was liable for entire financial function, which invariably included the proper and mandatory utilization of the loan funds received from the bank under the farmer financing loan. The petitioner was neither authorized for payment from the Escrow account nor operated the Escrow account, where the loan amount from the bank had been received by the company.

26. Learned counsel for the petitioner further submits that to constitute an offence under Section 120-B IPC, the essential ingredient of actus reus i.e. an overt act must be proved. However, in the present case, the complaint does not disclose any such overt act by the petitioner. It is further submitted that the offence under Section 13 of the Prevention of Corruption Act is attracted only against the public servant and since the petitioner is not a public servant, the offence under Section 13 of the Prevention of Corruption Act is not attracted against him.

27. Learned counsel for the petitioner also submits that the offences under Sections 420 and 120-B IPC are not made out against the petitioner and he cannot be proceeded under PMLA, 2002. He further submits that the proceedings under PMLA, 2002 are misconceived and liable to be quashed in view of the judgement of the Supreme Court rendered in the case of P. Chitambharam Vs. Directorate of Enforcement (2019) 9 SCC 24 and the judgement of the Delhi High Court in the case of Rajiv Chanana Vs. Dy. Director, Directorate Enforcement, (2014) SCC Online Del 4889.

28. Learned counsel for the petitioner further submits that the ''proceeds of crime' under PMLA, 2002 must be read down to mean proceeds of such crimes that may generate black money or tainted money, which is outside the regular or normal financial system. Therefore, when such tainted money is knowingly introduced into the normal financial system, the crime of money laundering takes place and in cases such as the present case, where the money is already in financial system and is merely diverted for use, which was allegedly not authorized by the agreement though there is no denying that the loan availed by the company was not utilized for the purpose of which it was sanctioned, the offence of ''money laundering' within the meaning of PMLA, 2002 can not be said to have been committed, and since the amount collected in Escrow account was not the black money, there was no ''proceeds of crime'. He also submits that the entire loan amount is being settled amicably between the company and the bank.

29. On the other hand, Sri Kuldeep Srivastava, learned counsel for the Directorate of Enforcement has submitted that under the provisions of PMLA, 2002, jurisdiction of the Special Court during investigation, inquiry or trial under this Act, is not dependent upon any orders passed in respect of the scheduled offence and the trial of both sets of offences by the same court shall not be construed as a joint trial. He has placed reliance on Section 44(1)(d) PMLA, 2002 and explanation in the said provision, which was inserted by way of amendment in the year 2019 in PMLA, 2002. He has further submitted that the petitioner was Chief Executive Officer of the company at the relevant time and was responsible for the day-to-day affairs of the company. The company had issued improper KYC certificates of the farmers and further transferred the funds to other accounts and misappropriated the money towards purposes other than those stipulated in the MoU and thus committed the offences of fraud, cheating and criminal breach of trust under various sections of IPC.

30. Learned counsel for the Directorate of Enforcement has further submitted that "scheduled offences" and "offence of money laundering" are mutually exclusive and independent of each other. Section 3 of PMLA, 2002 deals with the offence of money laundering punishable under Section 4 of the said Act, whereas the offences under the ''schedule of PMLA, 2002' enable the Enforcement Directorate to conduct the investigation for the collection of evidence relating to offence of money laundering.

31. Learned counsel for the Directorate of Enforcement has also submitted that the petitioner had a say in the key financial decisions of the company and the company had clearly diverted the loan amount for purposes other than the purposes for which the loan had been sanctioned. It was found during the course of investigation that the petitioner had knowingly assisted the company and actively participated in the process of laundering the proceeds of crime in the form of funds received from the bank during the period from 2012-13.

32. Learned counsel for the Directorate of Enforcement has further submitted that in the present case, the offence of money laundering had been committed by the petitioner as well as the other accused persons. It is not the case of the Directorate that the loan amount received in the Escrow Account was proceeds of crime, however, its further diversion and utilization for uses other than the uses for which the loan had been granted constituted the offence of money laundering. He, therefore, submits that there is no force in the present petition and the offence against the petitioner is prima facie is made out and, therefore, the petition is liable to be dismissed.

33. I have considered the submissions advanced by the learned counsel for the parties and perused the record.

34. Money laundering often involves a complex series of transactions and it generally includes placement i.e. introduction of the proceeds of crime into the financial system. The proceeds of crime is layered in several financial transactions to distance the illicit proceeds from their source and to disguise the audit trail. In this process, a series of conversions or transactions are involved for moving the funds and places such as offshore financial centers operating in a liberal regulatory regime.

35. The proceeds of crime is invested in the legitimate economy, so that the money may get the colour of legitimacy and this is achieved by techniques such as lending the money through front companies, etc.

36. Supreme Court in the case of Naresh J. Sukhwani v. Union of India, 1995 Supp (4) SCC 663, while dealing with Section 108 of the Customs Act, which is pari materia to Section 50 of PMLA, 2002 held as under:-

"4. It must be remembered that the statement made before the Customs officials is not a statement recorded under Section 161 of the Criminal Procedure Code, 1973. Therefore, it is a material piece of evidence collected by Customs officials under Section 108 of the Customs Act. That material incriminates the petitioner inculpating him in the contravention of the provisions of the Customs Act. The material can certainly be used to connect the petitioner in the contravention inasmuch as Mr Dudani's statement clearly inculpates not only himself but also the petitioner. It can, therefore, be used as substantive evidence connecting the petitioner with the contravention by exporting foreign currency out of India. Therefore, we do not think that there is any illegality in the order of confiscation of foreign currency and imposition of penalty. There is no ground warranting reduction of fine."

37. In view of the detailed facts and the submissions, I am of the view that prima facie the offence of money laundering is made out against the petitioner, he being the Chief Executive Officer of the company when the corporate loans were obtained and which were diverted for the purposes other than for which the loans were sanctioned to the company. In view thereof, I do not find any ground to quash the impugned proceedings.

38. Thus, the present petition has no merit and substance, which is hereby dismissed.

39. However, it is provided that if the petitioner surrenders before the PMLA Court and applies for regular bail, his bail application should be considered expeditiously in accordance with law.

40. It is made clear that any observation made herein above is limited to the disposal of this petition and should not influence the proceedings of the trial or while deciding the bail application of the petitioner.

( Dinesh Kumar Singh, J.)

Order Date :- 14.12.2022

Rao/-