M/ S. Karvy Stock Broking Limited ... vs The Adjudicating Authority And 2 ...
2022 Latest Caselaw 4091 Tel

        THE HON'BLE SRI JUSTICE K.LAKSHMAN

      WRIT PETITION NOs.30732 AND 30753 OF 2022


COMMON ORDER:

     The issue involved in both the writ petitions and the parties

are also common, they are heard and decided together by way of

the following COMMON ORDER:

     2. These writ petitions are filed to issue a direction to 1st

respondent to grant extension of time to the respective petitioners

to prepare a reply to the show cause notice, for a further period of

two months and consequently exclude the two month period from

the computation of 180 days under Section 5(3) of the Prevention

of Money Laundering Act, 2002 (for short, 'the Act').

3. Heard Sri Avinash Desai, learned counsel for the

petitioners, Sri Anil Prasad Tiwari, learned counsel appearing for

2nd respondent and learned Government Pleader for Home

appearing for 3rd respondent. Perused the record.

4. The undisputed facts in the present writ petitions are as

follows:-

The Central Crime Station (CCS), Hyderabad had registered

a case in Cr.No.78 of 2021 against M/s Karvy Stock Broking

Limited (for short, 'KSBL') to which C.Pardhasarathy, is the

Chairman, the 6th petitioner herein and its Directors and FIR No.86

of 2021 against M/s Karvy Comtrade Limited and its Directors for

the offence under Section 420 of IPC. The allegations leveled

against them are that they have not repaid loans which are

classified as fraud accounts. The Investigation under the provisions

of the Act was initiated vide File No. ECIR/ HYZO/14/2021, dated

19.05.2021 by 2nd respondent. Several other FIRs registered in

respect of the case were also taken on record. The said

C.Parthasarathy, was in judicial custody from 19.08.2021 to

25.06.2022 in various crimes at Chanchalguda Central Jail,

Hyderabad.

5. According to 2nd respondent, their investigation would

reveal that the loans outstanding in books of KSBL as on

31.03.2020 are Rs.1705.23 Crores. These loans were fraudulently

obtained by KSBL from banks/Financial Institutions by declaring

clients' shares as its own shares. Moreover, KSBL, transferred

shares of fully paid up clients/clients who did not owe any funds to

the company illegally and pledged with the banks/Financial

Institutions. It involved the blatant misuse of Power of Attorney

given by the clients to the KSBL/the petitioner. During the course

of investigation, Provisional Attachment Order (PAO) No.06/22,

dated 08.03.2022 under Section 5(1) of the Act was issued by 2nd

respondent attaching various properties. The Original Complaint

dated 06.04.2022 was filed by 2nd respondent before 1st respondent

in respect of PAO. 1st respondent had issued show cause notice

dated 22.04.2022 under Section 8(1) of the Act, to the petitioners

herein in respect of the said original complaint. The show cause

notice along with original complaint and relied upon documents

were served upon various defendants, including the petitioners

herein, on 09.05.2022 by hand. The same were also duly served on

Sri C.Parthasarathy in Chanchalguda Jail premises in hard as well

as soft copy on 10.05.2022. The due date of compliance as per the

show cause notice dated 22.04.2022 was 05.06.2022.

6. The petitioners herein had filed a petition vide

W.P.No.27051 of 2022 seeking extension of time to submit reply

to the said show cause notice. This Court, vide order dated

28.06.2022 granted extension of one month time to the petitioners

to prepare a reply to the said show cause notice. The said one

month time granted by this Court was expired on 27.07.2022.

Therefore, the petitioners herein have filed the present writ

petitions seeking extension of two months time to submit the reply

to the said show cause notice and also to exclude the said two

months time from the computation of 180 days under Section 5(3)

of the Act on the following grounds;-

i) There are many properties mentioned in the PAO along

with show cause notice, 5000 pages of documents were

supplied to the petitioners herein. Some of the properties

were acquired two decades ago and therefore, the

petitioners have to collect information with regard to the

same.

ii) Several crimes were registered against the petitioners

companies, Directors etc., and they have obtained bail in

the said crimes.

iii) The Courts concerned have granted bail to them on

imposition of certain conditions including the condition of

reporting before the Investigating Officers concerned on a

particular day of the week. Therefore, they have to appear

before the Investigating Officers in compliance of the said

orders. They have to appear before the Investigating

Officer weekly four days including one day before the

Investigating Officer in Bangalore.

iv) The Chairman of Karvy Group of Companies was

released on bail on 25.06.2022, he was hospitalized on the

very same day on 15.06.2022 and discharged from the

hospital on 30.06.2022.

v) His biopsy sample was sent to the Laboratory.

vi) He is the main person acquainted with the facts and he has

to collect information, prepare reply and submit it to the

1st respondent/Adjudicating Authority.

vii) No prejudice would be caused either to 1st respondent or

2nd respondent.

7. The said relief was opposed by the 2nd respondent on the

following grounds:-

i) The adjudication process before 1st respondent under the

provisions of the Act is time-bound and 1st respondent is

under statutory obligation to pass order under Section

8(3) of the Act within 180 days from the date of

attachment.

ii) The petitioners have sought extension of time and

therefore, vide e-mail dated 24.06.2022, 1st respondent

has granted additional time of one week to the

petitioners to submit their reply on or before 28.06.2022.

Even then, they have not submitted their reply. Instead,

they have filed the above said writ petitions.

iii) This Court has granted one month time to submit reply

to the petitioners and even then they have not submitted

reply. On the other hand, they are seeking extension of

time without mentioning satisfactory reasons and

therefore, they are trying to delay the adjudicating

process which is time bound.

iv) They have assistance of lawyers, Chartered Accountants,

employees and access to the case documents. Even then,

instead of submitting reply to the said show cause notice,

they are intentionally seeking time.

8. Sri Avinash Desai, learned counsel for the petitioners

would submit that by virtue of PAO, dated 08.03.2022, the

properties mentioned therein of the petitioners were attached and

the same will be continued under attachment until and unless

Adjudicating Authority passes an order under Section 8(3) of the

Act. Therefore, 2nd respondent-Investigating Agency is under

advantageous position by way of present PAO, dated 08.03.2022.

No prejudice would be caused to the Investigating Agency. He

would further submit that vide above said PAO, dated 08.03.2022,

2nd respondent had attached several properties. Some of the

properties were acquired two decades ago. Mr. C. Parthasarathy,

Chairman of Karvy Group of Companies, has acquainted with the

said facts and he has to collect information with regard to the same

as 5000 pages of documents were furnished. Several cases were

registered against him. He was released on bail on 25.06.2022

itself. In compliance of the conditions imposed by the concerned

Courts in bail orders, he has to appear before the respective

Investigating Officers 4 days in a week including one day in

Bangalore. He was hospitalized on 25.06.2022 itself and

discharged on 30.06.3022 his samples were sent for biopsy and

reports are awaited. His health condition is very bad. He has to go

through the same, collect information and submit effective reply.

9. There is some force in the said arguments of Sri Avinash

Desai, learned counsel for the petitioners. There is no dispute that

several properties were attached under the subject PAO, dated

08.03.2022. It is also not in dispute that some of the properties

were acquired about two decades ago. The petitioners have to

collect information and submit effective reply. It is also not in

dispute that several documents running into about 5000 pages were

furnished to the petitioners along with the show cause notice. They

have to go through the same and submit explanation effectively. It

is also not in dispute that C.Parthasarathy, Chairman of Karvy

Group of Companies is involved in several crimes and he was

arrested. He was released on bail only on 25.06.2022. The Courts

concerned have imposed several conditions including the condition

of his appearance before the Investigating Officer concerned and

to cooperate with him by furnishing information/documents as

sought by him in concluding investigation. It is also not in dispute

that one crime is pending in Bangalore and that he has to appear

before the Investigating Officer in the said crime. In proof of his

hospitalization from 25.06.2022 and 30.06.2022 and sending of

sample to biopsy, he has filed medical reports which are not

disputed by 2nd respondent/Investigating Agency.

10. Sri Anil Prasad Tiwari, learned Standing Counsel

appearing for 2nd respondent would submit that on expiry of 180

days from the date of PAO, in terms of Section 5(3) of the Act, the

said PAO ceases to have effect and Adjudicating Authority has

become functus officio and the proceedings in the said complaint

could not proceed. He has also placed reliance on the judgment of

Delhi High Court in M/s Vikas WSP Ltd. Vs. Directorate

Enforcement1. In the said case, the Delhi High Court, accepting

the said contention of 2nd respondent/Investigating Agency

observed that the Adjudicating Authority would be rendered

functus officio after expiry of the period of 180 days and could not

proceed with the original complaint pending before it.

11. It is relevant to note that vide order dated 28.06.2022 in

W.P.No.27051 of 2022, this Court considering the provisions of

the Act, contentions of the parties including the principle laid

down by Delhi High Court in the aforesaid judgment held that the

facts of the said case are different to the facts in W.P.No.27051 of

W.P.(C).No.3551 of 2020 and 12626 of 2020, dated 18.11.2020

2022, as such the said judgment is not applicable to the facts of in

W.P.No.27051 of 2022 and the said decision is not helpful to the

respondent Department. With the said findings, this Court has

granted one month time to the petitioners herein to prepare a

proper response to the impugned show cause notice. For the

purpose of computing the period of 180 days, the period during

which the proceedings were extended shall be excluded as per the

third proviso to Section 5 of the Act, inserted by way of

Amendment Act No.13 of 2018 w.e.f. 19.04.2018.

12. It is also not in dispute that 1st respondent vide e-mail

dated 24.06.2022 granted a week time to the petitioner to submit

explanation before 28.06.2022. It is also not in dispute that this

Court vide order dated 28.06.2022 in W.P.No.27051 of 2022

granted extension of one month time to the petitioners to prepare

reply to the show cause notice and submit to 1st respondent and the

same was expired on 27.07.2022.

13. No doubt, though the petitioners are having assistance of

Advocates, Chartered Accountants, Managers and employees etc.,

who are having access to the affairs of the petitioners companies,

collect information and prepare reply by taking guidance of the

Chairman, Karvy Group of Companies. At the same time even to

go through the said documents, collect information and prepare

reply, certainly, it will take some time.

14. As discussed supra, at the cost of repetition, it is relevant

to note that in PAO, dated 08.03.2022, there are several properties

and the documents furnished by 1st respondent along with the

show cause notice running into 5000 pages. Some of the properties

were acquired about two decades ago. Therefore, they have to

collect information and submit reply effectively.

15. As rightly contended by Sri Avinash Desai, learned

counsel for the petitioners, the attachment will be continued

pursuant to the PAO dated 08.03.2022 till 1st respondent/

Adjudicating Authority passes an order in terms of Section 8(3) of

the Act. The Adjudicating Authority, on consideration of the entire

material available on record either may confirm or raise the

attachment Until and unless, the said attachment is confirmed or

raised, the PAO dated 08.03.2022 will be continued. No prejudice

would be caused to 2nd respondent/ Investigating Agency.

16. No doubt that the adjudicating process as envisaged

under Section 8 of the Act is timebound process. Timelines are

mentioned therein. Therefore, in view of the said discussion,

according to this Court, the petitioners are entitled to grant of

extension of some reasonable time to submit reply to the show

cause notice, dated 22.04.2022. According to this Court, two

months time from today is reasonable.

17. In W.P.No.30753 of 2022, the petitioner is son of Sri

C.Parthasarathy, the Chairman of Group of Companies. He is not a

Director of any of the Companies. The allegation against him is

that he has received salary from the said Group of Companies.

Therefore, according to Sri Anil Prasad Tiwari, learned counsel

appearing for 2nd respondent, he can submit explanation within the

time stipulated by this Court in the interim order. The said interim

order was granted on a condition that the petitioner will not be

granted any further time and he shall not seek any extension of

time. Even then, he has also filed the present writ petition with a

request to extend time.

18. According to Sri Avinash Desai, learned counsel for the

petitioners, the petitioner in W.P.No.30753 of 2022 is son of

C.Parthasarathy, Chairman of Karvy Group of Companies. He has

to even get information and submit explanation effectively. Unless

and until the said defendants submit explanation, 1st respondent/

Adjudicating Authority will not be in a position to pass an order in

terms of Section 8(3) of the Act. Therefore, no prejudice would be

caused to 2nd respondent. For the purpose of computing the time

period of 180 days, the period during which the proceedings were

extended shall be excluded in terms of proviso 3 to Section 5 of

the Act.

19. In view of the above said discussion, this court is also

inclined to extend time to the petitioner in W.P.No.30753 of 2022.

20. In view of the above discussion, these Writ Petitions are

disposed of granting two months time from today to the petitioners

in both the writ petitions to submit their explanation/reply to the

show cause notice dated 22.04.2022. However, it is made clear

that the petitioners in both the writ petitions shall not seek further

extension of time and they shall submit explanation/reply within

the said extended period of two months by keeping in view the

object and legislative intent of Section 8 of the Act, that the

adjudicating process is time bound. It is relevant to note that for

the purpose of computing the period of 180 days, the period which

was extended by this Court for submitting reply is excluded as per

third proviso to Section 5(1) of the Act.

Miscellaneous petitions, if any, pending shall stand closed.

___________________ K. LAKSHMAN, J Date:10.08.2022

Note: Issue copy forthwith.

b/o. vvr