2020 (12) TMI 1355 - HC - Money Laundering

Court rejects criminal petitions in loan fraud case, stresses importance of thorough investigation.

The court dismissed the criminal petitions seeking to quash FIRs related to allegations of loan fraud, emphasizing the seriousness of the accusations and ... Inherent power under Section 482 of Cr.P.C. - quashing of FIR/criminal proceedings in economic offences - one time settlement (OTS) and criminal liability - investigation under the Prevention of Money Laundering Act (PMLA) - ECIR not equivalent to FIR; summons under Section 50 of PMLA - scheduled offences under PMLA and investigation for proceeds of crimeInherent power under Section 482 of Cr.P.C. - quashing of FIR/criminal proceedings in economic offences - Whether the High Court should exercise its inherent power under Section 482 Cr.P.C. to quash the FIRs registered by CBI against the petitioners - HELD THAT: - The Court applied settled principles that inherent power under Section 482 Cr.P.C. is to be sparingly exercised and quashing is appropriate only to prevent abuse of process or where the complaint discloses no offence. Having examined the facts, the Court found prima facie serious allegations of a large-scale loan fraud causing wrongful loss to public sector banks and, by extension, the public at large. The banking letters, forensic audit report and classification of accounts as fraud/NPA establish sufficient averments of criminality at the threshold. Precedents recognising that economic offences affecting public interest warrant continuation of investigation were held applicable. In these circumstances, quashing would stifle investigation and likely cause manifest injustice; thus the petitions seeking quashment of the FIRs were refused. [Paras 31, 32, 35, 50, 55]Criminal Petitions seeking quashment of the FIRs dismissed; inherent power under Section 482 Cr.P.C. not exercised to quash the FIRs.One time settlement (OTS) and criminal liability - quashing of FIR/criminal proceedings in economic offences - Whether acceptance of One Time Settlement (OTS) by the banks absolves the petitioners of criminal liability and mandates quashing of criminal proceedings - HELD THAT: - The Court noted that the banks had accepted OTS on express terms clarifying that OTS was a commercial settlement and would have no bearing on ongoing or future criminal investigations. The petitioners had accepted OTS without challenging its terms. Reliance on decisions where OTS led to quashing was considered distinguishable because, in those cases, compromise terms did not preserve criminal liability as here. Further, precedent establishes that OTS or payment of a portion of dues affects civil recovery but does not automatically extinguish criminal culpability in economic offences which impact public interest. Accordingly, acceptance of OTS did not preclude continuation of criminal investigation or warrant quashing. [Paras 21, 22, 29, 30, 31]Acceptance of OTS does not absolve petitioners of criminal liability; it is not a ground to quash the FIRs or ECIR.ECIR not equivalent to FIR; summons under Section 50 of PMLA - investigation under the Prevention of Money Laundering Act (PMLA) - scheduled offences under PMLA and investigation for proceeds of crime - Whether the ECIR registered by the Enforcement Directorate is equivalent to an FIR and whether persons summoned under Section 50 of PMLA are 'accused' entitled to protections under Cr.P.C. and Article 20(3) - HELD THAT: - The Court followed the reasoning in the cited High Court authority that ECIR is an instrument of investigation under PMLA and is not equivalent to an FIR under Section 154 Cr.P.C.; registration of ECIR does not make the person an accused. Investigation under PMLA is for collection of evidence relating to proceeds of crime arising from scheduled offences. The Enforcement Directorate is empowered to issue summons under Section 50 for investigation; suspects summoned are required to cooperate and cannot be treated as accused for the limited purpose of the investigation stage. Given that the ECIR and the resultant summons are investigative measures and the ECIR prima facie discloses material, the Court refused to quash the summons and directed cooperation with the investigation. [Paras 43, 44, 45, 46, 54]ECIR is not equivalent to an FIR; persons summoned under Section 50 PMLA are not to be treated as accused at this stage and the summons/ECIR cannot be quashed on that ground.Final Conclusion: The High Court dismissed the criminal petitions: the FIRs registered by the CBI are not quashed, and the ECIR and summons issued by the Enforcement Directorate under the PMLA are not set aside. The petitioners must cooperate with ongoing investigations; interim orders stand vacated. Issues Involved:1. Quashing of FIRs2. Allegations of loan fraud3. Delay in lodging complaints4. Forensic audit and lack of opportunity for petitioners5. Acceptance of One Time Settlement (OTS) and its impact on criminal liability6. Investigation by Enforcement Directorate under PMLA7. Economic offences and their implicationsDetailed Analysis:1. Quashing of FIRs:The petitioners sought to quash FIR No.11 of 2018 and FIR No.RC0352020A0002, arguing that the complaints do not disclose any criminal offence and that the acceptance of OTS should absolve them of criminal liability. The court, however, found that the allegations of loan fraud and the substantial loss caused to the banks justified the continuation of criminal proceedings. The court emphasized that economic offences have broader implications beyond the immediate parties involved and affect the financial and economic well-being of the nation.2. Allegations of Loan Fraud:The petitioners were accused of committing fraud and cheating the banks, causing a wrongful loss of approximately Rs.182.99 Crores. The court noted that the petitioners obtained loans and credit facilities from various banks, defaulted on repayments, and ultimately settled for a fraction of the dues through OTS. The forensic audit revealed serious lapses, including non-cooperation with auditors and diversion of funds.3. Delay in Lodging Complaints:The petitioners contended that there was an abnormal delay in lodging the complaints. The court acknowledged the delay but emphasized that the seriousness of the allegations and the substantial loss caused to the banks warranted a detailed investigation.4. Forensic Audit and Lack of Opportunity for Petitioners:The petitioners argued that the forensic audit conducted by M/s. S.P. Rungta and Associates was done behind their backs without giving them an opportunity to respond. The court found that the audit was conducted as part of the banks' due diligence and that the petitioners' non-cooperation with the auditors was a significant factor in the findings.5. Acceptance of One Time Settlement (OTS) and Its Impact on Criminal Liability:The petitioners claimed that the acceptance of OTS by the banks should absolve them of criminal liability. The court rejected this argument, noting that the banks had explicitly stated in their acceptance letters that OTS would not affect ongoing criminal proceedings. The court cited precedents where the Supreme Court held that OTS could only settle civil liability, not criminal liability.6. Investigation by Enforcement Directorate under PMLA:The Enforcement Directorate initiated an investigation under the Prevention of Money Laundering Act (PMLA) based on the scheduled offences alleged in the FIRs. The court emphasized that the Directorate is duty-bound to investigate bank frauds involving losses of more than Rs.25 Crores. The court found that the petitioners were not cooperating with the investigation and had filed petitions to quash the summons issued by the Directorate.7. Economic Offences and Their Implications:The court highlighted that economic offences have far-reaching implications beyond the immediate parties and affect the public and taxpayers. The court cited various Supreme Court judgments emphasizing that economic offences should not be quashed merely because the accused settled the amount with the bank. The court stressed that such offences adversely affect the financial and economic well-being of the nation.Conclusion:The court dismissed the criminal petitions, emphasizing the seriousness of the allegations and the need for a thorough investigation. The court vacated the interim orders and directed the petitioners to cooperate with the ongoing investigations by the Central Bureau of Investigation and the Enforcement Directorate. The court reiterated that economic offences have broader implications and should be dealt with rigorously to ensure the financial and economic stability of the nation.