Madras High Court
S.K.Karthikeyan vs The Assistant Director on 1 October, 2024
Author: S.M.Subramaniam
Bench: S.M.Subramaniam
2024:MHC:3508
CRL.R.C.No.88 of 2024
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 20.09.2024
PRONOUNCED ON : 01.10.2024
CORAM
THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM
AND
THE HONOURABLE MR.JUSTICE N.SENTHILKUMAR
CRL.R.C.No.88 of 2024
and
CRL.M.P.Nos.747 & 749 of 2024
1.S.K.Karthikeyan
2.M/s.ARI Fabrics Limited,
Represented by its Managing Director,
S.K.Karthikeyan,
1-90/52, Palani – Udumalpet Road,
Chitrakulam Post, Palani – 624 621. ... Petitioners
Vs.
The Assistant Director,
Director of Enforcement,
Government of India,
Ministry of Finance, Department of Revenue,
II and III Floor “C” Block,
Murugesa Naicker Office Complex,
#84, Greams Road,
Chennai – 600 006. ... Respondent
Prayer: Criminal Revision Case has been filed under Section 397 read with
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CRL.R.C.No.88 of 2024
Section 401 of Criminal Procedure Code, to call for the records and set aside
the order passed by the Learned Principal Special Judge for CBI Cases, VIII
Additional City Civil Court, Chennai in Crl.M.P.No.3465 of 2023 dated
12.10.2023 in C.C.No.60 of 2016.
For Petitioners : Mr.M.Ajmal Khan
Senior Counsel
For Mr.E.M.Sajith
For Respondent : Mr.Cibi Vishnu
Special Public Prosecutor
ORDER
S.M.SUBRAMANIAM, J.
Under assail is the judgment dated 12th October, 2023 passed in
Crl.M.P.No.3465 of 2023 in C.C.No.60 of 2016.
2. The petitioners instituted a petition for discharge under Section 239
of Criminal Procedure Code, which was rejected by the Special Court for
CBI Cases. The petitioners are Accused Nos.8 and 14 respectively.
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BRIEF FACTS:
3. Tripartite agreement between A1-Srinivasan and the petitioners
herein were signed on 13.02.2008, whereby, inter-alia possession of a
company was handed over to A1-Srinivasan and the 1st petitioner and other
shareholders sold their respective shareholding to A1. Pursuant to the
Memorandum of Understanding dated 13.02.2008 entered into between A6 /
Company represented by A1 and Annur Jayabalaji Textiles, machineries were
purchased by A6 out of proceeds of crime and such machineries were
delivered and installed in the factory of the 2nd petitioner ARI Fabrics Limited
/ A14 in between 13.02.2008 and 09.05.2008. On 10.12.2008, the 1st
petitioner here Mr.S.K.Karthikeyan was appointed as Director of English
Cotton Company Private Limited, which is handed over by the A1-
Srinivasan. On 23.07.2009 FIR No.27 of 2009 was registered based on the
complaint, 1st petitioner herein against A1-Srininvasan. The FIR was
registered by Coimbatore District Crime Branch for the offences under
Section 120(b), 468, 471, 409 IPC.
4. During August and September, 2009, the 1st petitioner
Mr.S.K.Karthikeyan took possession of the 2nd petitioner / A14 from A1-
Srinivasan. In between April and June, 2010, A1 took back the administration
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of the 2nd petitioner / company from the 1st petitioner herein. On 10.12.2010 a
complaint regarding scheduled offence under Prevention of Money-
Laundering Act, 2002 [herein after referred as “PMLA”] was received by
Central Bureau of Investigation (CBI) from SBI Global Factories Limited.
Consequently, on 28.11.2011, CBI filed chargesheet No.10 of 2011 in the
scheduled offence IPC 120B, 420 and Sections 13(2) read with 13(1)(a) and
(d) of the Prevention of Corruption Act, 1988.
5. The Central Bureau of Investigation (Bank Security and Frauds
Cell), Bangalore upon completion of investigation filed its final report before
the Principal Special Judge for CBI Cases at Coimbatore under Section
173(2) of the Criminal Procedure Code, 1973 in Chargesheet No.10 of 2011
dated 28.11.2011, alleging commission of offences punishable as stated in the
above parapraph.
6. The 1st petitioner / Mr.S.K.Karthikeyan has written a letter to State
Bank of India (SBI) regarding One Time Settlement (OTS) for 2nd petitioner
/ Company. In the said letter dated 12.04.2014, the 1st petitioner states that he
is the Managing Director of the 2nd petitioner / Company. Thereafter, on
23.05.2016, the complaint was filed in CC.No.60 of 2016, under Section 45
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read with Sections 3, 4, 8(5) and 70(1) and (2) of the PMLA. Subsequently,
supplementary complaint was filed on 17.11.2021 in CC.No.60 of 2016,
wherein, the petitioners were included as accused persons.
7. Based on the informations and the scheduled offence registered in
FIR dated 07.10.2010, the competent authorities of the Enforcement
Directorate formed an opinion regarding prima facie case and had reason to
believe that an offence of money laundering as defined under Section 3 of
PMLA appeared to had been committed. Enforcement Case Information
Report (ECIR) was recorded in the year 2011.
8. The petitioners filed Discharge Petition under Section 239 of
Criminal Procedure Code.
ARGUMENTS ON BEHALF OF THE PETITIONERS:
9. Mr.M.Ajmal Khan, learned Senior Counsel appearing on behalf of
the petitioners would mainly contend that the 1st petitioner is the whistle
blower, who in turn registered a complaint against A1-Srinivasan. The bank
transactions and the alleged misappropriation of funds were brought to the
notice of the Police Authorities by the 1st petitioner. Therefore, implicating
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the petitioners as accused under PMLA is unjustifiable. The CBI investigated
and filed final report in predicate offence. The petitioners have not been
stated as accused persons. The 1st petitioner is a witness. Based on the
predicate offence, ECIR Nos.3 and 4 of 2011 were recorded, wherein, the
petitioners have not been cited as accused. Only in the supplementary
complaint, the present petitioners are cited as Accused Nos.8 and 14
respectively. Therefore, the very initiation per se is untenable. The
allegations levelled against the petitioners A8 and A14 are that A8 had
knowledge of criminal activities of A1 and a party for the investments A1 in
A14 company. The petitioner orchestrated the release of mortgaged
properties, which were embroiled with the proceeds of crime. It is further
stated that, earning of the company (Rs.2.29/- Crores) during the possession
of A1 and during the possession of A8 (Rs.5.68/- Crores) from July, 2009
and April 2010 and the funds transferred by the A1 (Rs.10.04/- Crores)
totally to the extent of Rs.18.03/- Crores is proceeds of crime. On that basis,
the petitioners have allegedly said to have committed offence punishable
under Section 2(3) read with Section 3 of PMLA.
10. Learned Senior Counsel would submit that the allegations are
baseless and bereft of details. The petitioners have no way connected with the
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activities of A1 and they who registered complaint against A1 regarding
misappropriation of funds of the Bank. Therefore, impleading the petitioners
as accused are not based on any material available, but based on mere
surmises. The petitioners have no knowledge about the illegalities or the
alleged offence of money laundering. Soon after the petitioners noticed
irregularities in financial transactions, they have registered complaint against
A1. Therefore, the Special Court ought to have considered the discharge
petition filed by the petitioners.
11. Learned Senior Counsel would urge this Court by stating that the
Trial Court has not properly considered the statements of the petitioners
recorded under Section 50 of PMLA in Question No.13. The 1st petitioner /
A8 has stated that he is aware of the criminal activities committed by
G.Srinivasan and diversion of funds derived though Trade Finance facility
availed from M/s.Global Trade Financial Limited by him sometime during
the month of July, 2009. Trial Court failed to note the fact that the said
illegality was brought to the notice of the Police Authorities through
complaint by the 1st petitioner and based on his complaint, the FIR No.27 of
2009 dated 23.07.2009 was registered by District Crime branch, Coimbatore.
Therefore, the petitioners have no knowledge about the alleged offence of
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money laundering and including them as accused is beyond the scope of
Section 3 of PMLA.
12. Mr.M.Ajmal Khan, learned Senior Counsel relied on the judgment
of the Hon'ble Supreme Court of India in the case of State of Tamil Nadu vs.
R.Soundirarasu and Others1, and the case of Sanjay Kumar Rai vs. State of
Uttar Pradesh and Another2.
13. In respect of the above judgments, the Hon'ble Supreme Court of
India has considered the interpretation of the word “groundless” means that
there is no ground for presuming that the accused has committed an offence.
In the case of Sanjay Kumar Rai cited supra, the Apex Court has reiterated
about the entertainability of the discharge petition and consideration of merits
involved regarding prima facie case for the purpose of invoking the
provisions to discharge an accused.
14. The above two judgments are relating to the principles to be
followed for deciding discharge petition. However, the case of the petitioners
is to be tested with reference to the prima facie case under PMLA, whether
1. (2023) 6 SCC 768
2. (2022) 15 SCC 720
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made out or not.
REPLY BY THE RESPONDENT:
15. Mr.Cibi Vishnu, learned Special Public Prosecutor appearing on
behalf of the Enforcement Directorate would strenuously oppose by stating
that prima facie case has been found against the petitioners / A8 and A14.
When the materials available on record were found by the Enforcement
Directorate and supplementary complaint has been filed including the
petitioners as accuseds. Thus, the contention of the petitioners that they have
no knowledge about the alleged offence of money laundering is incorrect.
The Enforcement Directorate has not implicated the petitioners hurriedly.
They have recorded the statement of the petitioners under Section 50 and
after investigation found that the petitioners have involved in the offence of
money laundering. On securing materials, they have been implicated as
accuseds in supplementary complaint filed on 17.11.2021 in CC.No.60 of
2016.
16. The contention of the petitioners that they have not been arrayed as
accused in predicate offence, does not mean that the petitioners cannot be
prosecuted for the offences of money laundering under the provisions of
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PMLA.
17. In the case of V.M.Ganesan vs. Directorate of Enforcement3, this
Court has clearly laid down that;
“12. ................
(b) Any property of any person may be attached under
this section if the Director or any other officer not
below the rank of Deputy Director authorised by him
for the purposes of this section has reason to believe
(the reasons for such belief to be recorded in writing),
on the basis of material in his possession, that if such
property involved in money-laundering is not attached
immediately under this Chapter, the non-attachment of
the property is likely to frustrate any proceeding under
this Act. Section 5(1) of the Act has another proviso.
The second proviso to Section 5(1) of the Act states that
notwithstanding anything contained in clause (b) of
Section 5(1) of the Act, any property of any person may
be attached, if the officer concerned has reason to
believe that such property was involved in Money-
Laundering and that if it was not attached, it may
frustrate any proceedings under the Act.
........................
........................
20. As a matter of fact. the case of the petitioner
3. W.P.No.24432 of 2014 dated 17.11.2014
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in the second writ petition is squarely covered by the
second proviso to Section 5(1) of the Act. The
petitioner in the second writ petition is not an accused
in any of the criminal complaints. None of the three
contingencies indicated in the first proviso has arisen in
the case of the petitioner in the second writ petition. His
case falls under the category of "any property of any
person" under the second proviso to Section 5(1) of the
Act. This is on the basis that today, he is in possession
of a property which represents the proceeds of a crime
allegedly committed by the petitioner in the first writ
petition.
.......................
.......................
23. .............. If a complaint has been registered
against an individual and the complaint is under
investigation, his case would at least be covered by
second proviso. To say that a person accused of
committing an offence will not even come within the
meaning of the expression "any person" under the
second proviso, would tantamount to placing him in a
much better position than a third party who do not
commit any offence, but merely came into possession
of the property that represents the proceeds of the
crime. Therefore, on the first contention raised by the
petitioner, I hold that if a complaint has been registered
against a person and a final report is already filed, his
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case would be covered by the first proviso. But, if a
complaint has been registered against a person and a
final report has not yet been filed, he would stand along
with any other person against whom no complaint is
lodged, but who is covered by the second proviso to
Section 5(1) of the Act.
........................
28. ................
“(u)“Proceeds of crime” means any property derived or
obtained, directly or indirectly, by any person as a result
of criminal activity relating to a scheduled offence or
the value of any such property.”
29. ..................
(i)........................
(ii) ...........................
(iii) That it should have been obtained or derived
by any person as a result of criminal activity relating to
a Scheduled Offence.
...........................
...........................
35. Though the second proviso to Section 5(1)
enables the Competent Authority to attach “any
property of any person”, the word “property” should be
understood only in the context of the definition under
Section 2(1)(v). Consequently, such property should
also satisfy the following criteria, namely, (a) that it
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was derived or obtained directly or indirectly, (b) by
any person, and (c) as a result of criminal activity
relating to a scheduled offence.”
18. Learned Special Public Prosecutor reiterated that the case against
the petitioners A8 and A14 are set out in detail in the supplementary
complaint, which would be sufficient to form an opinion that a prima facie
case has been made out against the petitioners for implicating them as
accuseds in the PMLA case.
DISCUSSIONS:
19. Regarding the contention of the petitioners that they have no
knowledge about the alleged offence of money laundering, it is relevant to
consider the findings of the trial court in the impugned judgement wherein it
is recorded as follows;
“30. ........ Therefore, such amount has to be
considered as proceeds of crime. As A8 had knowledge
about the criminal activities of Al, the turn over for
Rs.5,68,93,826/- also shall be considered proceeds of
crime. A8 had been made statement before the
Enforcement Directorate that he is continuing as one of
the Director of M/s.English Cotton Company India Pvt
Ltd., till the date of statement given before Enforcement
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Directorate. On that score the following questions were
arisen:- (1) Whether Al had been invested money
derived from the proceeds of crime in scheduled
offence into Al4 company to run business or not? (2)
Whether A8 had been knowledge about the
involvement of criminal activities of Al in the
scheduled offence or not? (3) Whether A8 had become
one of the Director of English Cotton Company India
Pvt Ltd., out of proceeds of crime in the scheduled
offence alleged to have been committed by Al or not? It
is needless to say that the above said questions are
being triable issues and they can be decided only after
full- fledged trial but not at this stage.”
20. Beyond the findings of the Special Court in the impugned
judgment, this Court independently considered the prima facie case made out
against the petitioners regarding “Proceeds of Crime”. In this regard, it is
relevant to extract paragraph 12.3 of supplementary complaint, which reads
as under;
“12.3. Inasmuch as the funds obtained through
trade finance/ factoring facility from GTFL were
diverted in the aforesaid manner solely for the purpose
of embezzlement of such funds, the money trail
identified and compiled hereunder are reckoned as the
investment made towards acquiring/ taking over of
AFL. This apart certain receipts in the accounts
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operated by Shri G.Srinivasan and the erstwhile
management of AFL, recognized as trade
proceeds/receipts of AFL for the period after its
acquisition/takeover by Shri G.Srinivasan and its
retrieval by Shri S.K.Karthikeyan were reckoned in
separate worksheets as the proceeds derived out of the
Investment in AFL and included in the said
compilation. Thus, it is revealed that part funds
fraudulently derived out of the aforesaid criminal
activities by Shri G.Srinivasan from GTFL aggregating
to Rs.10.04 crores, reckoned as the proceeds of crime
has been invested for acquiring/taking over of AFL. It
is also pertinent to note that S/Shri G.Srinivasan and
R.Selvakumar had admitted to the reinvestment of
profits/receipts yielded out of the aforesaid investment
in furtherance of the business of AFL thereby resulting
in accrual of about Rs.18.03 Crores with AFL as
proceeds of crime.”
21. Regarding the specific role of the accused persons abetting the
commission of offence of money laundering by directly / indirectly attempts
to indulge or knowingly assist or knowingly is a party or its involved in
concealment / possession / acquisition or use in projecting or claiming it as
untained property in terms of Section 3 of PMLA are traceable in paragraphs
24.2 and 24.3 of supplementary complaint, which reads as under;
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“24.2. It is humbly submitted that in view of the
foregoing, Shri S.K.Karthikeyan, then Managing
Director of AFL who had the knowledge of the criminal
activities of Shri G.Srinivasan and his fraudulent
diversion funds derived as a consequence of the
aforesaid criminal activities, identifiable as “proceeds
of crime” defined under Section 2(1)(u) of PMLA
having knowingly been a party to cause the direct
investment in AFL of Rs.10.04 crores and thereafter
having indulged with trade proceeds/earnings of AFL
resulting out of the said investment totally accrued to
the extent of Rs.18.03 crores besides attempting to
connive in the projection of the same as untainted
properties has committed the offence of money
laundering defined under Section 2(p) read with Section
3 of the PMLA, which is punishable under Section 4 of
the PMLA.
24.3. It is humbly submitted that Shri
S.K.Karthikeyan having orchestrated the sale executed
under the OTS scheme for the release of the said
immovable properties of AFL offered as collateral
security for the loans availed by AFL, which were
embroiled with the proceeds of crime and thereby
having actually involved in the process connected with
the proceeds of crime in his attempt to use the same by
claiming it as untainted property has committed the
offence of money laundering defined under Section 2(p)
read with Section 3 of PMLA, which is punishable
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under Section 4 of PMLA.”
22. Copy of the statements of the 1st petitioner on 02.03.2016,
03.03.2016 and 04.06.2016 given under Sections 50(2) and 50(3) of PMLA
before the Assistant Director, Directorate of Enforcement, Chennai would
also reveal that prima facie case has been made out against the petitioners for
implicating them as accused persons in the alleged offences under PMLA.
23. While considering the petition for discharge under Section 239 of
Criminal Procedure Code, the Court has to consider the complaint and
supplementary complaints, if any, and the materials relied on in the complaint
for forming a prima facie opinion, whether the accused can be discharged or
not. If the Court found that the very complaint / charge is groundless, then
alone the discharge petition is to be considered.
24. In the case of R.Soundirarasu cited supra, the Hon'ble Apex Court
defined the meaning of word “groundless”. In paragraph 62 of the judgment
it is held that “The word “groundless”, in our opinion, means that there must
be no ground for presuming that the accused has committed the offence”. The
word “groundless” used in Section 239 Criminal Procedure Code means that
the materials placed before the Court do not make out or are not sufficient to
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make out a prima facie case against the accused. In paragraph 67 it is
reiterated that the word “groundless” means that there is no ground for
presuming that the accused has committed an offence.
25. Therefore, it is all about a prima facie case made out in the
complaint / supplementary complaints and the materials relied on for the
purpose of forming a prima facie opinion or reason to believe as far as cases
under PMLA are concerned. If prima facie case is traceable with reference to
the materials available on record, then discharge of an accused would not
arise and the trial must go-on.
26. As far as the case on hand is concerned, the findings of the Trial
Court are categorical with reference to the prima facie case made out against
the petitioners for the alleged offences committed under Section 3 of PMLA.
The Trial Court elaborately considered the material including the statements
of the petitioners recorded under Section 50 of PMLA and formed an opinion
that A1 and A8 had made statements under Section 50 PMLA before the
Enquiry Officer about the projection of “proceeds of crime” as untainted one,
thereby prima facie appears that the petitioners A8 and A14 were also
involved in the offence of money laundering punishable under Section 4 read
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with Section 3 of PMLA.
27. The said findings are made based on the materials available on
record more specifically in the supplementary complaint and based on the
statements recorded under PMLA. The petitioners herein have not raised any
further or other grounds for the purpose of interfering with the findings of the
Special Court in the judgment impugned. Thus, we have arrived at an
irresistible conclusion that the petitioners have to face trial in the manner
known to law. However, the Special Court shall proceed with the trial
uninfluenced by the findings if any made on facts in the present order.
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28. With the above observations, the Criminal Revision Case stands
dismissed. Consequently, connected Miscellaneous Petitions are closed.
[S.M.S., J.] [N.S., J.]
01 .10.2024
Jeni
Index : Yes
Speaking order
Neutral Citation : Yes
To
1.The Learned Principal Special Judge for CBI Cases,
VIII Additional City Civil Court,
Chennai.
2.The Assistant Director,
Director of Enforcement,
Government of India,
Ministry of Finance, Department of Revenue,
II and III Floor “C” Block,
Murugesa Naicker Office Complex,
#84, Greams Road, Chennai – 600 006.
3.The Special Public Prosecutor,
High Court of Madras.
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S.M.SUBRAMANIAM, J.
and
N.SENTHILKUMAR, J.
Jeni
01.10.2024
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