M/S Karvy Realty India Ltd. vs The Adjudicating Authority
2022 Latest Caselaw 6924 Tel

         THE HON'BLE SRI JUSTICE K.LAKSHMAN

              WRIT PETITION No. 45443 OF 2022

ORDER:

This writ petition is filed to issue a direction to 1st respondent

to grant extension of time to the petitioners to prepare a reply to the

show cause notice, for a further period of two months and

consequently exclude 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').

2. Heard Sri Avinash Desai, learned counsel for the

petitioners, Sri Gadi Praveen Kumar, learned Deputy Solicitor

General of India, appearing for respondents. Perused the record.

3. The undisputed facts in the present writ petition 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, 3rd

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.

4. 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

No.1680 of 2022 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.

5. The petitioners herein had filed a writ 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. Thereafter, the

petitioners herein have filed the writ petition vide W.P.No.30753 of

2022 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 on several grounds therein. This Court vide order dated

10.08.2022 granted further two months from 10.08.2022 to the

petitioners therein to submit their explanation/reply to the show

cause notice dated 22.04.2022 excluding the extended time period

for computing the period of 180 days. The said two months time was

expired on 10.10.2022.

6. 2nd respondent filed original complaint No.1799 of 2022,

dated 26.08.2022 under Section 5(5) of the PMLA before 1st

respondent against the petitioners herein. 1st respondent issued

subject PAO No.15 of 2022 dated 28.07.2022 under Section 5(1) of

the Act to a tune of Rs.110,70,18,735.78/- in the case vide

F.No.ECIR/HYZO/14/ 2021. The 1st respondent issued a Show

Cause Notice dated 19.09.2022 under Section 8(1) of the Act to the

petitioners herein calling upon them to indicate the source of

income, earning or assets out of they have acquired the properties

attached under PAO No.15 of 2022 and why the said attachment

should not be confirmed. The petitioners herein, through their

counsel vide e-mail dated 29.10.2022 to 1st respondent sought

adjournment for a period of four (4) weeks, to file an effective reply

to the show cause notice. 1st respondent vide its e-mail dated

31.10.2022, granted additional two weeks time till 14.11.2022 to file

reply. On 08.11.2022, the petitioners herein filed a writ petition vide

W.P.No.41133 of 2022 to quash PAO No. 15 of 2022 dated 28 07

2022 passed by 2nd respondent and set aside the Show Cause Notice

dated 19.09.2022. The petitioners also filed a petition vide I.A.No.1

of 2022 in the said writ petition seeking interim suspension of the

said show cause notice dated 19.09.2022 and the said writ petition is

reserved for orders.

7. Sri Avinash Desai, learned counsel for the petitioners would

submit that by virtue of PAO, dated 28.07.2022, 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 19.09.2022. No prejudice would be

caused to the Investigating Agency if time is extended. He would

further submit that vide above said PAO, dated 19.09.2022, 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. His health condition is very

bad. He has to go through the same, collect information and submit

effective reply. 2nd respondent illegally initiated proceedings under

the PMLA Act and filed the said original complaint against the

petitioners herein, without there being a scheduled offence under the

PMLA Act and without a complaint from Laxmi Vilas Bank

presuming that Karvy Group of Entities took loans from said Laxmi

Vilas Bank. 1st respondent without considering the fact that the

petitioners are making hectic efforts to submit reply to the show

cause notice dated 22.04.2022 in Original Complaint No.1680 of

2022, directed the petitioners to file their replies to the present show

cause notice also on or before 01.11.2022. 1st respondent has no

jurisdiction to issue the said show cause notice dated 19.09.2022.

8. During pendency of the said writ petition, 1st respondent

continued to proceed with the case and fixed date of hearing on

22.12.2022 without giving an opportunity to the petitioners to

submit their written replies. Therefore, the petitioners sought

extension of further period of two months to submit reply to the

show cause notice which is not deliberate. No prejudice would be

caused to the respondents if the provisional attachment made by the

respondents is continued during the said period and the same is

excluded from the computation of 180 days period under Section

5(3) of the Act.

9. There is 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 28.07.2022.

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 Mr. 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.

10. 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. 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.

11. Sri Gadi Praveen Kumar, learned Deputy Solicitor General

of India, appearing for respondents 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.

12. 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 2022, as such

the said judgment is not applicable to the facts 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

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

the impugned show cause notice. In W.P.No.30753 of 2022, this

Court vide order dated 10.08.2022 granted further two months from

10.08.2022 to the petitioners therein to submit their

explanation/reply to the show cause notice dated 22.04.2022

excluding the extended time period for computing the period of 180

days. The said two months time was expired on 10.10.2022. 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. Therefore, the petitioners

herein have filed the present writ petition 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.

13. The said relief is 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.

v) Show Cause Notice, dated 19.09.2022 was served on 29.09.2022 granting 30 days time to submit explanation. The same was extended from time to time. Vide e-mail dated 29.10.2022 time was extended by two weeks which was expired by 14.11.2022. They have not submitted any reply. Now they are seeking two months time to submit explanation which is unreasonable and it is not based on satisfactory reasons.

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

31.10.2022, granted additional two weeks time till 14.11.2022 to file

reply.

14. 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.

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

to note that in PAO, dated 28.07.2022, 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.

16. As rightly contended by Sri Avinash Desai, learned

counsel for the petitioners, the attachment will be continued

pursuant to the PAO dated 28.07.2022 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 28.07.2022 will be continued. No prejudice

would be caused to 2nd respondent/ Investigating Agency.

17. No doubt that the adjudicating process as envisaged under

Section 8 of the Act is time-bound 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

19.09.2022. According to this Court, two months time from today is

reasonable.

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

petitioners, the petitioners have to 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. it is relevant to note that this Court vide Common order

dated 10.08.2022 in W.P.No.30753 of 2022 granted two months

time to submit explanation to the show cause notice dated

22.04.2022 issued in respect of PAO therein. There is no challenge

the said order and it attained finality. There is no allegation that

petitioners did not comply with the said order.

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

inclined to extend time to the petitioners.

21. In view of the above discussion, this Writ Petition is

disposed of granting two months time from today to the petitioners

to submit their explanation/reply to the show cause notice dated

19.09.2022. However, it is made clear that the petitioners herein

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.

Consequently, miscellaneous petitions, if any, pending shall stand closed.

__________________ K. LAKSHMAN, J Date:22.12.2022 Note: Issue copy forthwith.

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