2022 (3) TMI 111 - HC - Money Laundering

Court quashes prosecution in money laundering case against VMT Mills, emphasizing victim status.

VMT Spinning Mills India Private Limited Versus The Assistant Director Directorate of Enforcement Government of India

The court allowed the criminal original petition, quashing the prosecution against VMT Mills in C.C.No.56 of 2016 under the Prevention of Money Laundering ... Money Laundering - Fraud by Additional Director of the company with the help of forged documents - commission of scheduled offence - provisional attachment of Bank Accounts - HELD THAT:- Even according to the Enforcement Directorate, Srinivasan, to whom the affairs of Ari Fabrics Ltd. and VMT Mills were entrusted in good faith by their respective owners, had opened bank accounts in the name of those companies in the Bank of Baroda, Udumalpet Branch, with the connivance of Balan, Branch Manager and has parked the funds that were generated by him by indulging in cheating. One such amount is, the sum of ₹ 17,05,277/-, which was parked by Srinivasan in the fake account of VMT Mills that was opened by him in the Bank of Baroda, Udumalpet Branch, without the knowledge of the true owners of the mill. The case of VMT Mills can be better explained with the following illustration. 'A' is an honest public servant. 'B', a dishonest public servant, opens a bank account in the name of 'A' and parks the bribe monies received by him in that account. Can 'A' be prosecuted along with 'B' under the Prevention of Corruption Act, 1988 ? The answer is an obvious 'No'. So too, VMT Mills, in whose name, Srinivasan had opened a fake bank account in Bank of Baroda, Udumalpet Branch and had parked ₹ 17,05,277/-, cannot be prosecuted for money laundering. The prosecution of VMT Mills under Sections 3 and 4 of the PML Act is an abuse of process of law and accordingly, this criminal original petition is allowed. Issues:Quashing of proceedings in C.C.No.56 of 2016 against the petitioner.Analysis:The judgment involves a Criminal Original Petition seeking to quash proceedings in C.C.No.56 of 2016 on the file of the Principal Sessions Court, Chennai. The case revolves around transactions involving various individuals and companies, including Ari Fabrics Ltd. and VMT Spinning Mills India Private Limited. Srinivasan, with fraudulent intent, opened bank accounts in the names of these companies, parked funds generated through cheating, and engaged in money laundering activities. The Enforcement Directorate registered a case under the Prevention of Money Laundering Act, 2002 (PML Act) and initiated prosecution against several accused, including VMT Mills.The Enforcement Directorate found a substantial sum parked in a fake account of VMT Mills, leading to provisional attachment under the PML Act. VMT Mills contested the ownership of the funds, claiming they were unaware of the account opened by Srinivasan. Despite this, VMT Mills was named as the second accused in the criminal prosecution. The petitioner's counsel argued that VMT Mills was a victim of Srinivasan's actions, emphasizing that the company had filed a police complaint upon discovering the fraudulent activities.The Special Public Prosecutor contended that since the funds were found in an account under VMT Mills' name, the company had to be implicated as an accused. However, a detailed examination of the facts revealed the fallacy in this argument. The complaint in C.C.No.56/2016 outlined Srinivasan's fraudulent activities, including opening unauthorized accounts and diverting funds. The Enforcement Directorate's investigation confirmed that Srinivasan, without the knowledge of the true owners, misused company accounts for illicit purposes.The judgment highlighted the struggle of Doraisamy's family to regain control of VMT Mills from Srinivasan and the subsequent legal proceedings. A memorandum of compromise acknowledged Srinivasan's sole responsibility for unauthorized transactions and clarified that the remaining funds in the contested account would not be claimed by the company. Drawing a parallel with a hypothetical scenario involving a dishonest public servant, the court concluded that VMT Mills could not be prosecuted for money laundering based on Srinivasan's actions.In a considered view, the court deemed the prosecution of VMT Mills under the PML Act an abuse of process of law. Consequently, the criminal original petition was allowed, and the prosecution against VMT Mills in C.C.No.56 of 2016 was quashed. The judgment clarified that this decision did not affect the attachment of the contested funds, which could still be pursued as proceeds of crime. The Enforcement Directorate was granted the option to involve individuals associated with VMT Mills as witnesses, if deemed necessary, by following the appropriate legal procedures.