The Madras High Court has held that First Information Report (FIR) quashing does not warrant automatic quashing of the Enforcement Case Information Report (ECIR) under Prevention of Money Laundering Act, 2002 (PMLA).
The bench of Justice S.M.Subramaniam and Justice V.Sivagnanam has observed that the FIR was quashed purely on this technical or procedural issue and not on substantive grounds and has not made any findings as to the offences or the prima facie allegations in the FIR. Therefore, the quashing of the FIR shall not warrant an automatic quashing of ECIR. All the more, the predicate offence under Section 447 of the Companies Act, 2013, which is also a scheduled offence under the PMLA still stands good and requires further investigation.
Background
The petitioner/accused was allegedly involved under Prevention of Money Laundering Act, 2002 (PMLA) complaint are that they have obtained loans from IDBI Bank to the tune of Rs.1301.76 Crores and Rs.1495.76 Crores from the same IDBI Bank and from the SBI Bank, Rs.1188.56 Crores.
The loans borrowed by the companies have facilitated mis-appropriation, manipulation of books of accounts through fictitious accounts and conversion of property of SIL by way of Capital advances to potentially related parties, sales and purchase with potentially related properties, and bilateral transactions with properties related amongst themselves.
Argument – Automatic Quashing Of ECIR
The petitioner contended that the High Court of Karnataka quashed the FIR registered by CBI against the petitioner with reference to the scheduled offence on 15.04.2024. The CBI preferred an appeal before the Hon’ble Supreme Court of India, which is pending. Since the FIR has been quashed, the scheduled offence is not in existence and consequently, the petitioner is entitled to be exonerated from PMLA proceedings.
The department contended that ECIR is not a statutory document and an official document maintained by the Enforcement Directorate for continuing their investigation and the ECIR has been filed based on the FIR registered under the scheduled offence. Therefore, ECIR per se would not provide cause for institution of writ proceedings under Article 226 of the Constitution of India.
The department argued that the process under PMLA was construed as a standalone process. Once the scheduled offence is traced out and ECIR is filed, investigation commences and a complaint has been filed under Section 44 and 45 of PMLA. Therefore, the writ petition would be premature since quashing of FIR has been challenged by the CBI before the Supreme Court of India, which is pending. The Enforcement Directorate has filed a supplementary prosecution complaint, in which the proceeds of crime has been elaborately enumerated by the Enforcement Directorate in the Additional complaint. Thus, the writ petition is to be rejected.
Conclusion
The court noted that the High Court of Karnataka quashed the FIR and not theSerious Fraud Investigation Office (SFIO) complaint. Therefore, the scheduled offence under Section 447 of the Companies Act, 2013 still stands good against the companies. Section 447 of the Companies Act, 2013 is also one of the scheduled offences under Part A of the schedule to PMLA. During the pendency of a Serious Fraud Investigation Office (SFIO) proceeding, which is a scheduled offence, it gives jurisdiction to the Enforcement Directorate to investigate the matter and the ECIR cannot be stated to be without a predicate offence.
The court held that PMLA is a ‘Sui-Generis Legislation’ which means PMLA is a a special litigation. Prevention of Money Laundering Act, 2002 is a special enactment, enacted with a specific purpose and object i.e., to track and investigate the cases of money laundering. This Act is a complete code in itself with all in-built mechanisms to deal with proceeds of crime. The primary focus of the legislation is “Proceeds of Crime” with respect of scheduled offences mentioned in the Act.
The court while dismissing the writ petition held that the petitioners have not made out any case for quashing of ECIR filed by the Enforcement Directorate. However, the Trial Court shall proceed uninfluenced by the observations if any made on factual aspects and decide the issues based on documents and evidence available on record and by following the due process.
Case Title: Vijayraj Surana Versus Assistant Director, Enforcement Directorate
Case No.: W.P.Nos.14782, 14786 & 14787 of 2024 and W.M.P.Nos.16016 to 16024 of 2024
Date: 28.08.2024
Counsel For Petitioner: T. R. Ragavacharyulu
Counsel For Respondent: A. R. L. Sundarasan
