Karnataka High Court
Mr N Lakshman Rao Peshve vs Direcctorate Of Enforcement on 23 April, 2024
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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NC: 2024:KHC:16194
WP No. 8926 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 23RD DAY OF APRIL, 2024
BEFORE
THE HON'BLE MR JUSTICE M.NAGAPRASANNA
WRIT PETITION NO. 8926 OF 2024 (GM-RES)
BETWEEN:
1. MR N LAKSHMAN RAO PESHVE
S/O P.L NARAYANA RAO,
AGED ABOUT 60 YEARS,
RESIDING AT B 201
MANTRI PRIDE APARTMENTS,
I BLOCK,
JAYANAGAR,
BANGALORE - 560011
2. MRS. KANCHANA LAKSHMAN RAO
WIFE OF LAKSHMAN RAO PESHVE
AGED ABOUT 46 YEARS,
RESIDING AT B 201
Digitally signed MANTRI PRIDE APARTMENTS,
by NAGAVENI I BLOCK,
Location: HIGH JAYANAGAR,
COURT OF BANGALORE - 560011
KARNATAKA
3. MR.SUBBARAO GNANESHWAR RAO
SON OF LATE MR. TUKARAMRAO SUBBARAO
AGED ABOUT 75 YEARS,
RESIDING AT C 305
MANTRI GARDEN APARTMENTS,
I BLOCK, JAYANAGAR,
BANGALORE - 560011
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WP No. 8926 of 2024
4. MR. P.L NARAYANA RAO
SINCE DECEASED
REPRESENTED HEREIN BY
MRS. KANCHANA L. RAO
W/O LAKSHMAN RAO PESHVE
RESIDING AT B 201,
MANTRI PRIDE APARTMENTS
I BLOCK,
JAYANAGAR
BENGALURU - 560011
...PETITIONERS
(BY SRI. SANDESH J. CHOUTA, SENIOR ADV. FOR
SMT. MANEESHA KONGOVI, ADVOCATE)
AND:
1. DIRECTORATE OF ENFORCEMENT
GOVERNMENT OF INDIA,
BENGALURU ZONAL OFFICE,
3rd FLOOR, B BLOCK,
BMTC SHANTINAGAR, TTMC
KH ROAD,
SHANTINAGAR,
BENGALURU - 560027
THROUGH THE DEPUTY DIRECTOR
2. ADJUDICATING AUTHORITY
UNDER THE PREVENTION OF MONEY
LAUNDERING ACT, 2002
ROOM NO.26, 4TH FLOOR
JEEVAN DEEP BUILDING
PARLIAMENT STREET
NEW DELHI - 110 001
REP. BY ITS REGISTRAR /
ADMINISTRATIVE OFFICER
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WP No. 8926 of 2024
3. APPELLATE TRIBUNAL
UNDER THE PREVENTION OF
MONEY LAUNDERING ACT, 2002 AND
SMUGGLERS AND FOREIGN EXCHANGE
MANIPULATORS ACT, 1976 (SAFEMA)
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
4TH FLOOR, 'A' WING
LOKNAYAK BHAWAN
KHAN MARKET
NEW DELHI - 110 003
REP. HEREIN BY ITS
REGISTRAR / ADMINISTRATIVE OFFICER
4. SRI. GANESH RAO
PARTNER OF M/S VASANTHKHAN ESTATE
HIREKOLALU VILLAGE,
CHIKMAGALURU - 577 101
...RESPONDENTS
(BY SRI. MADHUKAR DESHPANDE, ADV. FOR R1;
V/O DATED 15.04.2024, NOTICE TO R2 TO R4 IS D/W)
THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF
THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE
ORDER DTD 22.12.2021 PASSED BY THE R2 VIDE ANNEXURE-A
(UNDER THE PREVENTION OF MONEY LAUNDERING ACT,
2002), NEW DELHI, IN ORIGINAL COMPLAINT NO.579/2016 IN
PAO NO.12/2016 DTD 31.03.2016 IN ECIR
NO.ECIR/BGZO/11/2012 AS AGAINST THE PETITIONERS
CONSEQUENTLY DECLARE THAT THE ORIGINAL COMPLAINT
NO.579/2016 IN PAO NO.12/2016 DTD 31.03.2016 IN ECIR
NO.ECIR/BGZO/11/2012 DOES NOT SURVIVE.
THIS PETITION, COMING ON FOR PRELIMINARY
HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:
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WP No. 8926 of 2024
ORDER
The petitioners are before this Court calling in question an
order dated 22.12.2021 passed by the second respondent
under the provisions of the Prevention of the Money Laundering
Act, 2002 (for short 'PMLA'), pursuant to registration of an
Enforcement Case Information Report (for short 'ECIR') against
the petitioners - the husband and the wife. The proceedings
against the husband and the wife commenced by registration of
a crime by the Lokayukta for offence punishable under Section
13(1)(e) read with Section 13(2) of the Prevention of
Corruption Act, 1988 in Crime No.54/2012.
2. Heard the learned Senior counsel Sri.Sandesh J.
Chouta, for Smt.Maneesha Kongovi, appearing for the
petitioners and the learned counsel Sri.Madhukar Deshpande,
appearing for respondent No.1.
3. The wife had filed a discharge before the concerned
Court, which had been rejected. The wife then knocks at the
doors of the revisional jurisdiction of a Court in
Crl.R.P.No.814/2015, which comes to be allowed by an order
dated 24.02.2016, quashing the proceedings against the wife,
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which has become final. Therefore, the wife has been absolved
of all the blame that was made while registering crime in Crime
No.54/2012.
4. Insofar as the present petitioner, the husband is
concerned, the proceedings were challenged before this Court
in W.P.No.736/2018. This Court in terms of its order dated
08.02.2023, quashed the proceedings against the petitioners.
The lokayuktha Police had tossed the said order before the
Apex Court in S.L.P. No.11870/2023. The Apex Court on
15.09.2023, while issuing notice had passed the following
order:
" Delay condoned.
Application for exemption from filing O.E. is
allowed.
Learned counsel for the petitioner submits that it
is in the discharge application filed under Section 227
Cr.P.C. that the trial Court did not find in favour of the
respondent but the High Court in respect of that aspect
went into the issue of the validity of the sanction. We
may note the submission of the learned counsel for the
respondent that in the discharge application also they
have pleaded the aspect of lack of appropriate sanction.
Learned counsel for the petitioner submits while
referring to the submission that the case of the
petitioner does not fall in the category of "Failure of
Justice" enunciated in various judgments.
Issue notice.
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Learned counsel for the respondent accepts
notice.
Counter affidavit be filed within four weeks.
Rejoinder be filed within two weeks thereafter.
List after eight weeks".
Pursuant to the said order, the petitioners along with his
wife and other accused had filed Crl.P.No.6130/2017. The
challenge therein was to the proceedings initiated against them
under Section 3 and 4 of the PMLA. A co-ordinate Bench of this
Court in terms of its order dated 07.03.2023, quashed the
proceedings against all the accused in the ECIR (supra) on the
score that the predicate offence has been quashed against
them.
5. The present petition is preferred seeking quashment
of a attachment order passed by the Enforcement Directorate
under the PMLA on the ground that the predicate offence is no
more, the proceedings under Sections 3 and 4 are no more and
therefore, these proceedings cannot be continued.
6. Learned Senior counsel would reiterate the
submissions and the facts that are narrated hereinabove.
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7. The issue now lies in a narrow compass. The
proceedings in the predicate offence i.e., the offence under the
Prevention of Corruption Act come to be closed by two orders.
One against the wife in the year 2016 and against the
petitioner in the year 2023, as observed hereinabove. The
proceedings are challenged by the lokayuktha before the Apex
Court and there is no interim order of stay is granted.
8. On the strength of the predicate offence being
quashed, Sections 3 and 4 of PMLA offences are also quashed
against the petitioners. The Apex Court, in the case of Vijay
Madanlal Choudhary and Others vs. Union of India and Others1
has held as follows:
" 467. In light of the above analysis, we now
proceed to summarise our conclusion on seminal
points in issue in the following terms:--
(i) The question as to whether some of the
amendments to the Prevention of Money-
laundering Act, 2002 could not have been
enacted by the Parliament by way of a Finance
Act has not been examined in this judgment.
The same is left open for being examined along
with or after the decision of the Larger Bench
(seven Judges) of this Court in the case of Rojer
Mathew705.
2022 SCC Online SC 929
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(ii) The expression "proceedings" occurring in
Clause (na) of Section 2(1) of the 2002 Act is
contextual and is required to be given expansive
meaning to include inquiry procedure followed
by the Authorities of ED, the Adjudicating
Authority, and the Special Court.
(iii) The expression "investigation" in Clause
(na) of Section 2(1) of the 2002 Act does not
limit itself to the matter of investigation
concerning the offence under the Act and is
interchangeable with the function of "inquiry" to
be undertaken by the Authorities under the Act.
(iv) The Explanation inserted to Clause (u) of
Section 2(1) of the 2002 Act does not travel
beyond the main provision predicating tracking
and reaching upto the property derived or
obtained directly or indirectly as a result of
criminal activity relating to a scheduled offence.
(v)(a) Section 3 of the 2002 Act has a wider
reach and captures every process and activity,
direct or indirect, in dealing with the proceeds of
crime and is not limited to the happening of the
final act of integration of tainted property in the
formal economy. The Explanation inserted to
Section 3 by way of amendment of 2019 does
not expand the purport of Section 3 but is only
clarificatory in nature. It clarifies the word "and"
preceding the expression projecting or claiming
as "or"; and being a clarificatory amendment, it
would make no difference even if it is introduced
by way of Finance Act or otherwise.
(b) Independent of the above, we are clearly
of the view that the expression "and" occurring
in Section 3 has to be construed as "or", to give
full play to the said provision so as to include
"every" process or activity indulged into by
anyone. Projecting or claiming the property as
untainted property would constitute an offence
of money-laundering on its own, being an
independent process or activity.
(c) The interpretation suggested by the
petitioners, that only upon projecting or
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claiming the property in question as untainted
property that the offence of Section 3 would be
complete, stands rejected.
(d) The offence under Section 3 of the 2002
Act is dependent on illegal gain of property as a
result of criminal activity relating to a
scheduled offence. It is concerning the process
or activity connected with such property, which
constitutes the offence of money-laundering.
The Authorities under the 2002 Act cannot
prosecute any person on notional basis or on
the assumption that a scheduled offence has
been committed, unless it is so registered with
the jurisdictional police and/or pending
enquiry/trial including by way of criminal
complaint before the competent forum. If the
person is finally discharged/acquitted of the
scheduled offence or the criminal case against
him is quashed by the Court of competent
jurisdiction, there can be no offence of money-
laundering against him or any one claiming
such property being the property linked to
stated scheduled offence through him.
(vi) Section 5 of the 2002 Act is
constitutionally valid. It provides for a balancing
arrangement to secure the interests of the
person as also ensures that the proceeds of
crime remain available to be dealt with in the
manner provided by the 2002 Act. The
procedural safeguards as delineated by us
hereinabove are effective measures to protect
the interests of person concerned.
(vii) The challenge to the validity of sub-
section (4) of Section 8 of the 2002 Act is also
rejected subject to Section 8 being invoked and
operated in accordance with the meaning
assigned to it hereinabove.
(viii) The challenge to deletion of proviso to
sub-section (1) of Section 17 of the 2002 Act
stands rejected. There are stringent safeguards
provided in Section 17 and Rules framed
thereunder. Moreover, the pre-condition in the
proviso to Rule 3(2) of the 2005 Rules cannot be
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read into Section 17 after its amendment. The
Central Government may take necessary
corrective steps to obviate confusion caused in
that regard.
(ix) The challenge to deletion of proviso to
sub-section (1) of Section 18 of the 2002 Act
also stands rejected. There are similar
safeguards provided in Section 18. We hold that
the amended provision does not suffer from the
vice of arbitrariness.
(x) The challenge to the constitutional validity
of Section 19 of the 2002 Act is also rejected.
There are stringent safeguards provided in
Section 19. The provision does not suffer from
the vice of arbitrariness.
(xi) Section 24 of the 2002 Act has
reasonable nexus with the purposes and objects
sought to be achieved by the 2002 Act and
cannot be regarded as manifestly arbitrary or
unconstitutional.
(xii)(a) The proviso in Clause (a) of sub-
section (1) of Section 44 of the 2002 Act is to be
regarded as directory in nature and this
provision is also read down to mean that the
Special Court may exercise judicial discretion on
case-to-case basis.
(b) We do not find merit in the challenge to
Section 44 being arbitrary or unconstitutional.
However, the eventualities referred to in this
section shall be dealt with by the Court
concerned and by the Authority concerned in
accordance with the interpretation given in this
judgment.
(xiii)(a) The reasons which weighed with this
Court in Nikesh Tarachand Shah706 for
declaring the twin conditions in Section 45(1) of
the 2002 Act, as it stood at the relevant time, as
unconstitutional in no way obliterated the
provision from the statute book; and it was
open to the Parliament to cure the defect noted
by this Court so as to revive the same provision
in the existing form.
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(b) We are unable to agree with the
observations in Nikesh Tarachand Shah707
distinguishing the enunciation of the
Constitution Bench decision in Kartar Singh708;
and other observations suggestive of doubting
the perception of Parliament in regard to the
seriousness of the offence of money-laundering,
including about it posing serious threat to the
sovereignty and integrity of the country.
(c) The provision in the form of Section 45 of
the 2002 Act, as applicable post amendment of
2018, is reasonable and has direct nexus with
the purposes and objects sought to be achieved
by the 2002 Act and does not suffer from the
vice of arbitrariness or unreasonableness.
(d) As regards the prayer for grant of bail,
irrespective of the nature of proceedings,
including those under Section 438 of the 1973
Code or even upon invoking the jurisdiction of
Constitutional Courts, the underlying principles
and rigours of Section 45 may apply.
(xiv) The beneficial provision of Section 436A
of the 1973 Code could be invoked by the
accused arrested for offence punishable under
the 2002 Act.
(xv)(a) The process envisaged by Section 50
of the 2002 Act is in the nature of an inquiry
against the proceeds of crime and is not
"investigation" in strict sense of the term for
initiating prosecution; and the Authorities under
the 2002 Act (referred to in Section 48), are not
police officers as such.
(b) The statements recorded by the
Authorities under the 2002 Act are not hit by
Article 20(3) or Article 21 of the Constitution of
India.
(xvi) Section 63 of the 2002 Act providing for
punishment regarding false information or
failure to give information does not suffer from
any vice of arbitrariness.
(xvii) The inclusion or exclusion of any
particular offence in the Schedule to the 2002
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Act is a matter of legislative policy; and the
nature or class of any predicate offence has no
bearing on the validity of the Schedule or any
prescription thereunder.
(xviii)(a) In view of special mechanism
envisaged by the 2002 Act, ECIR cannot be
equated with an FIR under the 1973 Code. ECIR
is an internal document of the ED and the fact
that FIR in respect of scheduled offence has not
been recorded does not come in the way of the
Authorities referred to in Section 48 to
commence inquiry/investigation for initiating
"civil action" of "provisional attachment" of
property being proceeds of crime.
(b) Supply of a copy of ECIR in every case to
the person concerned is not mandatory, it is
enough if ED at the time of arrest, discloses the
grounds of such arrest.
(c) However, when the arrested person is
produced before the Special Court, it is open to
the Special Court to look into the relevant
records presented by the authorised
representative of ED for answering the issue of
need for his/her continued detention in
connection with the offence of money-
laundering.
(xix) Even when ED manual is not to be
published being an internal departmental
document issued for the guidance of the
Authorities (ED officials), the department ought
to explore the desirability of placing information
on its website which may broadly outline the
scope of the authority of the functionaries under
the Act and measures to be adopted by them as
also the options/remedies available to the
person concerned before the Authority and
before the Special Court.
(xx) The petitioners are justified in
expressing serious concern bordering on causing
injustice owing to the vacancies in the Appellate
Tribunal. We deem it necessary to impress upon
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the executive to take corrective measures in this
regard expeditiously.
(xxi) The argument about proportionality of
punishment with reference to the nature of
scheduled offence is wholly unfounded and
stands rejected."
The Apex Court holds that in the event the predicate
offence would get obliterated by a competent court of law
either by discharge, quashment or acquittal, the proceedings
under the PMLA would automatically vanish.
9. If the finding of the Apex Court is that the offence
under the PMLA would automatically vanish, as there is no
predicate offence, there is no offence under the PMLA. If the
foundation goes, the superstructure would undoubtedly tumble
down. What is remaining is, what is between the foundation
and the superstructure i.e., the attachment orders, thus the
attachment orders would necessarily tumble down, in the light
of the entire proceedings under PMLA already quashed.
10. The submission of the learned counsel for
respondent No.1 that these proceedings need not be quashed,
as in the event, the Apex Court would permit the lokayukta to
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continue the proceedings, all these proceedings would revive,
holds no water.
11. Owing to a circumstance that is yet to come about,
this Court would not hold its hands to quash the proceedings
that are challenged in the case at hand, more so in the light of
every other order being in favour of the petitioners. If any
further proceedings are permitted to be continued, it would run
foul of the afore-quoted paragraphs of the Apex Court in the
case of Vijay Madanlal Choudhary (supra). Therefore, the
submissions of the learned counsel Sri.Madhukar Deshpande
that proceedings need not be quashed is noted to be rejected.
However, liberty will always be available to the Enforcement
Directorate to resume the proceedings under the PMLA in the
event the Apex Court would set aside the order of this Court
quashing the predicate offence, as, if the predicate offence gets
restored, the foundation gets restored even superstructure
would get restored. The present proceedings, which is in
between the two, as observed hereinabove would undoubetedly
get restored.
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12. In the light of the aforesaid circumstance, the
following:
ORDER
i) The writ petition is allowed;
ii) The order dated 22.12.2021 passed by the
Adjudicating Authority under the Prevention
of Money Laundering Act, 2002, stands
quashed.
iii) It is made clear that in the event the Apex
Court would set aside the order passed by
this Court, in SLP referred to supra, all
proceedings against the petitioners under the
PMLA would get restored. I deem it
appropriate to add that it is axiomatic and
not on a memo being moved by this Court
seeking restoration.
Sd/-
JUDGE
KG
