Joseph Massey & Ors vs Union Of India
2016 Latest Caselaw 3495 Del

            *IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                      Date of decision: 11th May, 2016

+              W.P.(C) No.199/2016 & CM No.839/2016 (for stay).

       JOSEPH MASSEY & ORS                                 ..... Petitioners
                   Through:          Mr. Sandeep Sethi, Sr. Adv. with Mr.
                                     Rishabh Sancheti and Ms. Padma
                                     Priya, Advs.
                                  Versus
       UNION OF INDIA                                   ..... Respondent

                    Through:         Mr. Sanjay Jain, ASG with Mr. Amit
                                     Mahajan, CGSC, Mr. Nitya Sharma,
                                     Ms. Shreya Sinha and Mr. Sumit
                                     Misra, Advs. for UOI.
                                     Mr. Satish Aggarwal, Adv.
CORAM:-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1. This petition under Article 226 of the Constitution of India impugns

the show cause notices dated 12th November, 2015 under Section 13 of the

Prevention of Money Laundering Act, 2002 (PMLA) issued by the

respondent Financial Intelligence Unit - India, Department of Revenue,

Ministry of Finance of the Government of India to each of the three

petitioners namely Shri Joseph Massey, Shri Shreekant Javalgekar and Shri

Jignesh Shah and seeks compensation for causing mental and physical

harassment to the petitioners.

2. It is the case of the petitioners (i) that the respondent which is a

statutory body enacted under the PMLA, vide order dated 4th November,

2015 held the National Spot Exchange Limited (NSEL) to be guilty of

failing in several obligations under the PMLA and imposed a total fine of

Rs.1,66,00,000/- on NSEL and directed NSEL to register itself as a reporting

entity under the PMLA; (ii) that purportedly in pursuance to the aforesaid

order, impugned show cause notices were issued to the petitioners; (iii) that

the petitioners worked as non-executive directors of NSEL and notices

issued to them are in disregard of law and malicious and by way of a roving

and fishing inquiry; (iv) that the respondent in the show cause notices also

has not stated any basis for implicating the petitioners and do not disclose

the material on the basis of which the petitioners are treated as "in charge"

and "responsible" for the business of NSEL and the notices do not mention

the exact role or specific involvement of the petitioners with regard to the

contravention/violation; (v) that PMLA is a draconian legislation and

issuance even of a show cause notice thereunder has bearing on the dignity

and reputation of the noticee; (vi) moreover, since the notices do not disclose

the jurisdiction of the respondent to issue notice to the petitioners, the

petitioners ought not to be compelled to respond thereto; and, (vii) reliance

in the petition itself is placed on Gorkha Security Services Vs. Govt. (NCT

of Delhi) (2014) 9 SCC 105 and CCE Vs. Champdany Industries Ltd.

(2009) 9 SCC 466.

3. The petition came up first before this Court on 11th January, 2016

when being of the view on the basis of:

(I) Special Director Vs. Mohd. Ghulam Ghouse (2004) 3 SCC

440;

(II) Trade Tax Officer, Saharanpur Vs. Royal Trading Co. (2005)

11 SCC 518;

(III) Union of India Vs. Kunisetty Satyanarayana (2006) 12 SCC

28;

(IV) Secretary, Ministry of Defence Vs. Prabhash Chandra Mirdha

(2012) 11 SCC 565;

(V) Shri Anant R. Kulkarni Vs. Y.P. Education Society (2013) 6

SCC 515;

(VI) Arun Kumar Mishra Vs. Union of India (2014) 208 DLT 56;

(VII) Maruti Suzuki India Ltd. Vs. India Tourism Development

Corporation Ltd. MANU/DE/1034/2013 (SLP(C) No.27110/2013

whereagainst was dismissed in limine on 13th September, 2013),

laying down/holding:

(a) that against a mere issuance of show cause notice, the

Court should be reluctant to interfere as a mere show cause

notice does not infringe right of anyone and hence writ

jurisdiction should not ordinarily be exercised by quashing a

show cause notice, as it does not amount to adverse order,

unless the show cause notice is found to be wholly without

jurisdiction or for some other reason wholly illegal;

(b) that the High Court should leave such a hasty petitioner

to pursue the remedy of showing cause against the notice,

raising all his contentions for the consideration of the statutory

authority and then approach the High Court, in the event of the

result going against him;

(c) deprecating entertaining of petitions challenging show

cause notice;

               (d)    such writ petitions to be premature;

               (e)    that a show cause notice serves no other purpose than to

set the machinery of law into motion and has no serious

consequence because the noticee is heard before an order is

made

that the petition was not maintainable, the senior counsel for the

petitioners and the learned ASG appearing for the respondent on advance

notice were heard extensively on the admissibility of the petition and order

reserved.

4. The senior counsel for the petitioners contended:

(i) that the order dated 4th November, 2015 supra of the respondent

is against NSEL only and has in this regard drawn attention to para 8

of the said order to demonstrate that the show cause notice preceding

that order was issued to NSEL only and to para 6 of the order finding

NSEL only to be guilty and to para 27 of the order imposing fine on

NSEL only;

(ii) that the impugned show cause notice issued to the three

petitioners describes each of the three petitioners as Non-Executive

Director of NSEL;

(iii) that if the respondent intended to proceed against the three

petitioners, ought to have proceeded against them along with NSEL

only and there can be no piecemeal proceedings;

(iv) parity was drawn with Section 142 of the Negotiable

Instruments (NI) Act, 1881;

(v) Gorkha Security Services supra lays down that the fundamental

purpose behind serving a show cause notice is to make the noticee

understand the precise case set up against him which he has to meet

and argued that the impugned show cause notices are deficient in this

respect;

(vi) that under Section 70(1) of the PMLA action can be taken only

against such of the Directors who were in charge of and were

responsible to the guilty company for the conduct of the business of

the company as well as the company and the petitioners who were in

the show cause notices themselves described as Non-Executive

Directors and who, the notice does not state were in charge of NSEL

and responsible to the NSEL for the conduct of business of NSEL

could not have been issued notices and cannot be proceeded against;

(vii) that the show cause notices have thus been issued without the

satisfaction of the respondent of the petitioners being responsible for

NSEL;

(viii) that monetary penalty can be imposed only under Section 13.

5. Per contra, the learned ASG has contended:

(a) that the parity drawn with Section 142 of the NI Act is wrong;

(b) that even a whole time director can be a Non-Executive

Director;

(c) invited attention to Rule 7 of the Prevention of Money

Laundering (Maintenance of Records) Rules, 2005 and argued that it

is the duty of all officers and employees of a "reporting entity" within

the meaning of PMLA and as NSEL is, to observe the procedure and

the manner of furnishing information;

(d) that the impugned show cause notices have been issued in

compliance of the principles of natural justice although there was no

need thereof;

(e) that the doctrine of indoor management is applicable;

(f) drew attention to Sections 12 requiring "reporting entity" to

maintain records, 2(n) defining intermediary and 2(wa) defining

reporting entity of the PMLA and contended that the records can be

entrusted even to a Non-Executive Director;

(g) relied on Special Director Vs. Mohd. Ghulam Ghouse (2004) 3

SCC 440 also deprecating the practise of entertaining writ petitions

questioning legality of the show cause notices resulting in stalling

enquiries as proposed and retarding investigative process to find

actual facts with the participation and in the presence of the parties;

(h) argued that the petitioners will have opportunity before the

respondent to raise all the pleas;

(i) contended that the respondent could have proceeded against

NSEL as well as the petitioners together but having not proceeded

against the petitioners along with NSEL, there is no bar thereto at this

stage also;

(j) that the respondent is yet to reach the stage of returning finding

and no interference is warranted at this stage.

6. The senior counsel for the petitioners in rejoinder:

(i) reiterated that Section 142 of the NI Act is pari materia;

(ii) drew attention to the words "in the course of any enquiry" in

Section 13(2) of the PMLA and contended that in the course of the

enquiry by the respondent against NSEL, nothing against the

petitioners was found (as nothing in this regard is stated in the order

dated 4th November, 2015) and no fresh enquiry on foundation of

findings in the first enquiry is maintainable;

(iii) drew attention to Appendix A to the memorandum of writ

petition containing extracts of Anita Malhotra Vs. Apparel Export

Promotion Council (2012) 1 SCC 520, Pepsico India Holdings Pvt.

Ltd. Vs. Food Inspector (2011) 1 SCC 176, Central Bank of India

Vs. Asian Global (2010) 11 SCC 203, M.A.A. Annamalai Vs. State

of Karnataka (2010) 8 SCC 524, National Small Industries Corp.

Ltd. Vs. Harmeet Singh Paintel (2010) 3 SCC 330, Ramraj Singh

Vs. State of M.P. (2009) 6 SCC 729, N.K. Wahi Vs. Shekhar Singh

(2007) 9 SCC 481 and S.M.S. Pharmaceuticals Ltd. Vs. Neeta

Bhalla (2005) 8 SCC 89 on the aspects of liability of Non-Executive

Directors.

7. The senior counsel for the petitioners, after the orders were reserved,

has also filed an index of judgments with copies of:

(A) Anil Bhargava Vs. State (2008) ILR 2 Delhi 792 to contend

that different complaints on the same cause of action are

impermissible;

(B) Bhagwati Prasad Khaitan Vs. The Special Director 1977 SCC

Online Cal. 285 holding the show cause notice issued to the Director

to be vague and thus bad;

(C) Ajay Bagaria Vs. Union of India 2008 (103) DRJ 324 holding

the requirement of minimum averments against Directors, as laid

down in cases of NI Act, applicable to Foreign Exchange

Management Act, 1999 also;

(D) Commissioner of Central Excise, Bangalore Vs. Brindavan

Beverages (P) Ltd. (2007) 5 SCC 388 quashing the show cause notice

for the reason of being unspecific and vague;

(E) Anand Brothers Private Limited Vs. Union of India (2014) 9

SCC 212 laying down recording of reasons to be essential;

(F) L.P. Desai Vs. Union of India 2003 (71) DRJ 553 laying down

that unless the information is clearly conveyed to the noticee, he

would not be in a position to make a proper representation.

8. I am afraid the contentions aforesaid of the senior counsel for the

petitioners do not persuade me to hold this petition impugning the show

cause notices to be maintainable. I have already hereinabove noted that as

per the dicta of the Supreme Court, a show cause notice does not adversely

affect the noticee and furnishes no cause of action to a noticee to maintain a

petition under Article 226 of the Constitution of India thereagainst, unless is

issued by a person having no authority / jurisdiction to do so or is otherwise

patently illegal.

9. It is not the case of the petitioners that the respondent had no authority

or jurisdiction to issue the impugned show cause notices. Similarly, the

petitioners have otherwise not shown any other patent illegality in the show

cause notices. The other arguments urged are such which can be urged by

the petitioners in response to the impugned show cause notices and unless

the respondent, after considering the said reply of the petitioners decides to

take action against the petitioners, the petitioners would have no cause of

action or grievance. If the arguments as urged by the senior counsel for the

petitioners were to be accepted, it would nullify what has been held

consistently by the Courts, of non-maintainability of writ petitions against

show cause notices.

10. Supreme Court in Shri Anant R. Kulkarni supra held that the facts

and circumstances of the case in question must be carefully examined by the

High Court before entertaining a petition under Article 226 of the

Constitution of India against a show cause notice, taking into consideration

the gravity / magnitude of charges involved therein and that the Court has to

consider the seriousness and magnitude of the charges and while doing so

must weigh all the facts, both for and against the delinquent officers and

come to a conclusion which is just and proper considering the circumstances

involved. This Court has in Farida Begum Biswas Vs. Union of India

(2015) SCC Online Del. 11834 and SRJ Infratech Pvt. Ltd. Vs. Director

Directorate of Enforcement 2016 SCC Online Del. 221 also refused to

interfere in show cause notices under the PMLA.

11. Having seen the matter in this light and having gone through the

contents of the order dated 4th November, 2015 and the contents of the

impugned show cause notices, in my opinion, no interference at the show

cause notice stage is warranted in the interest of clean and honest

administration. NSEL, as aforesaid, vide order dated 4th November, 2015 has

already been held to be a "reporting entity" and guilty of failure to comply

with the provisions of PMLA. The petitioners were admittedly Non-

executive Directors of NSEL. Section 13 empowers the respondent to issue

directions to any of the employees of a reporting entity to comply with

specific instructions or to send reports at such intervals as may be prescribed

on the measures it is taking and to impose monetary penalty on any of the

employees of a "reporting entity". In exercise of such power, in my view the

respondent is within its right to issue impugned show cause notices to the

petitioners. At this stage, I need not say anything further for the fear of

affecting the proceedings before the respondent.

12. There is thus no merit in the petition, which is dismissed as not

maintainable, leaving all the pleas as raised herein open for the petitioners to

take, if aggrieved from the decision of the respondent.

No costs.

RAJIV SAHAI ENDLAW, J.

MAY 11, 2016 „pp/bs‟..