Karnataka High Court
Sri Fakkirappa Balappa Chavan vs Directorate Of Enforcement on 29 May, 2024
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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NC: 2024:KHC:18135
CRL.P No. 12297 of 2023
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 29TH DAY OF MAY, 2024
BEFORE
THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CRIMINAL PETITION NO. 12297 OF 2023
BETWEEN:
1. SRI. FAKKIRAPPA BALAPPA CHAVAN
S/O LATE SRI. BALAPPA CHAVAN
AGED ABOUT 71 YEARS
R/AT "SAI JYOTHI"
NO.29A/1, B/2,
NEAR OLD BUS STAND HUBLI.
2. SMT. JYOTHI F CHAVAN
W/O SRI. FAKIRAPPA BALAPPA CHAVAN
AGED ABOUT 64 YEARS
R/AT "SAI JYOTHI"
NO.29A/1, B/2,
NEAR OLD BUS STAND HUBLI.
...PETITIONERS
(BY SRI. SHIVAJI H. MANE, ADVOCATE)
Digitally signed
by NAGAVENI
Location: HIGH AND:
COURT OF
KARNATAKA
DIRECTORATE OF ENFORCEMENT
REPRESENTED BY ITS
DEPUTY DIRECTOR
GOVT. OF INDIA, BENGALURU
BY SPECIAL PUBLIC PROSECUTOR
BANGALORE ZONAL OFFICE
3RD FLOOR, 'B' BLOCK,
BMTC-TTMC BUILDING,
K.H. ROAD, SHANTHINAGAR,
BANGALORE 560 027.
...RESPONDENT
(BY SRI. UNNIKRISHNAN M., ADVOCATE)
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CRL.P No. 12297 of 2023
THIS CRL.P IS FILED U/S.482 OF CR.P.C PRAYING TO A.
QUASH THE COMPLIANT DATED 12.04.2017 TAKEN ON THE
RECORD 19.04.2017 IN SPL.C.NO.71/2017 PENDING BEFORE
THE HONBLE III ADDITIONAL DISTRICT AND SESSIONS
JUDGE, DK, MANGALURU FOR THE ALLEGED OFFENCE
P/U/S.3,4,8(5) OF PML ACT 2002 AS PER ANNEXURE A.
THIS PETITION, COMING ON FOR ADMISSION, THIS DAY,
THE COURT MADE THE FOLLOWING:
ORDER
The petitioners are before this Court calling in question
the proceedings in Spl.Case.No.71/2017 registered for offences
punishable under Sections 3 and 4 of the Prevention of Money
Laundering Act, 2002.
2. Heard the learned counsel Sri.Shivaji H., Mane,
appearing for the petitioners and the learned counsel
Sri.M.Unnikrishnan, appearing for the respondent.
3. The first petitioner - accused No.1 get embroiled in
a crime for offences punishable under Sections 13(1)(e) of
Prevention of Corruption Act, 1988. Based upon the registration
of the crime, the respondent - Enforcement Directorate
register Enforcement Case Information Report (ECIR) for
offences punishable under Sections 3, 4 and 8 of the Prevention
NC: 2024:KHC:18135
of Money Laundering Act, 2002 (for short 'PMLA') The
Lokayukta filed their final report on 28.05.2013. The
concerned Court acquits the first petitioner of the offences
punishable under Sections 13(1)(e) and 13(2) of the Act in
terms of its judgment on 24.08.2023. After the acquittal, the
first petitioner presented the subject petition on the score that
the acquittal in the predicate offence should result in
obliteration of the impugned proceedings under the Prevention
of Money Laundering Act, 2002.
4. Learned counsel for the petitioners would seek to
place reliance upon several judgments rendered by this Court
following the judgment of the Apex Court.
5. Learned counsel Sri.M.Unnikrishnan representing
the Enforcement Directorate would not dispute the position of
law as laid down by the Apex Court as followed by this Court in
several cases.
6. The issue is whether the acquittal in the predicate
offence would result in automatic obliteration of the
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proceedings under PMLA. The issue need not detain this Court
for long or delve deep into the matter. Answering the identical
issue, the Apex Court in the case of Vijay Madanlal Choudhary
and Others vs. Union of India and Others1 in paragraph 467
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.
(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
2022 SCC Online SC 929
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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
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
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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
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.
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(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.
(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.
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(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
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.
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(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
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."
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The clause (v)(d) of paragraph 467 the Apex Court holds
that in the event of three circumstances emerging the
proceedings under PMLA cannot be permitted to be continued.
The circumstances are that if the accused gets acquitted in the
predicate offence and the accused gets discharged by Court of
law and proceedings in the predicate offences quashed by this
Court in exercise of jurisdiction under Section 482 Cr.P.C, the
proceedings under PMLA would vanish.
7. One of the circumstance is what is obtaining in the
case at hand as the first petitioner acquitted of the offences
punishable under Sections 13(1)(e) and 13(2) of Prevention of
Corruption Act, which is the predicate offence. It is settled
principle of law that the proceedings under PMLA cannot
emerge without a foundation being in the predicate offence.
Since the foundation has already vanished, the superstructure
i.e., the offence under PMLA would undoubtedly tumble down.
For the reasons that the issue stands answered by the Apex
Court in the case of Vijay Madanlal Choudhary (supra), the
petition deserves to succeed, however with a rider, that in the
event, the appeal is filed by the State against the order of
acquittal by the concerned court qua the predicate offence, the
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proceedings under the PMLA would automatically get restored,
without an order from any court of law.
8. For the aforesaid reasons, the following:
ORDER
i) The petition is allowed;
ii) The complaint dated 12.04.2017, taken on
the record 19.04.2017 in Spl.C.No.71/2017
pending before the Hon'ble Additional District
& Sessions Judge, D.K., Mangalore stands
quashed with the aforesaid liberty and
observations.
Sd/-
JUDGE
KG
