2022 (12) TMI 1242 - HC - Money Laundering

Court upholds money laundering charges against company CEO; bail possible upon surrender.

G.S.C. Rao Versus Directorate Of Enforcement Govt. Of India Thru Its Director

The court dismissed the petition seeking to quash the proceedings under Section 482 Cr.P.C., stating that a prima facie case of money laundering is ... Money laundering - misappropriated the loan amount - company has misappropriated the money lent by the bank and there was clear cut diversion of funds by the company - HELD THAT:- Money laundering often involves a complex series of transactions and it generally includes placement i.e. introduction of the proceeds of crime into the financial system. The proceeds of crime is layered in several financial transactions to distance the illicit proceeds from their source and to disguise the audit trail. In this process, a series of conversions or transactions are involved for moving the funds and places such as offshore financial centers operating in a liberal regulatory regime. The proceeds of crime is invested in the legitimate economy, so that the money may get the colour of legitimacy and this is achieved by techniques such as lending the money through front companies, etc. Prima facie the offence of money laundering is made out against the petitioner, he being the Chief Executive Officer of the company when the corporate loans were obtained and which were diverted for the purposes other than for which the loans were sanctioned to the company. No ground to quash the impugned proceedings. Thus, the present petition has no merit and substance, which is hereby dismissed. As provided that if the petitioner surrenders before the PMLA Court and applies for regular bail, his bail application should be considered expeditiously in accordance with law. Issues Involved:1. Quashing of proceedings under Section 482 Cr.P.C.2. Allegations of criminal conspiracy, breach of trust, cheating, and misconduct.3. Misappropriation and diversion of loan funds.4. Role and responsibility of the petitioner in the alleged offences.5. Jurisdiction and applicability of the Prevention of Money Laundering Act, 2002 (PMLA).6. Prima facie case of money laundering against the petitioner.Detailed Analysis:1. Quashing of Proceedings under Section 482 Cr.P.C.:The petitioner sought the quashing of the entire proceedings of Session Case No. 2072 of 2021, including the order dated 3.12.2021 taking cognizance and summoning the petitioner under Section 45 read with Section 17 of PMLA, 2002. The court dismissed the petition, stating that prima facie the offence of money laundering is made out against the petitioner, and hence, there is no ground to quash the proceedings.2. Allegations of Criminal Conspiracy, Breach of Trust, Cheating, and Misconduct:The complaint alleged that the company fraudulently induced the bank to sanction a loan of Rs.148.60 Crores and misappropriated the loan amount. The company also got a fresh corporate loan of Rs.110 Crores to adjust the previous loan, which was still outstanding. The company and its directors, along with unknown bank officials, were accused of embezzling public money and diverting funds for purposes other than the designated uses.3. Misappropriation and Diversion of Loan Funds:The company issued improper KYC certificates in the names of individual farmers and misappropriated the loan funds. The funds were transferred to other accounts and used for purposes other than those stipulated in the Memorandum of Understanding (MOU) with the bank. The bank declared the company as suspected fraud for an amount of Rs.97.85 Crores due to misappropriation, cheating, and criminal breach of trust.4. Role and Responsibility of the Petitioner in the Alleged Offences:The petitioner, as the Chief Executive Officer of the company, was alleged to have knowingly assisted the company and actively participated in the process of laundering the proceeds of crime. The petitioner argued that he was not responsible for the financial affairs of the company and had no role in the present case. However, the court found that the petitioner had a say in the key financial decisions of the company and was responsible for its day-to-day affairs.5. Jurisdiction and Applicability of PMLA:The court noted that under PMLA, 2002, the jurisdiction of the Special Court during investigation, inquiry, or trial is not dependent upon any orders passed in respect of the scheduled offence. The court rejected the petitioner's argument that the proceedings under PMLA, 2002 are misconceived and liable to be quashed.6. Prima Facie Case of Money Laundering Against the Petitioner:The court found that prima facie the offence of money laundering is made out against the petitioner. The petitioner was the Chief Executive Officer of the company when the corporate loans were obtained and diverted for purposes other than those for which the loans were sanctioned. The court dismissed the petition, stating that there is no ground to quash the impugned proceedings.Conclusion:The petition was dismissed, and the court provided that if the petitioner surrenders before the PMLA Court and applies for regular bail, his bail application should be considered expeditiously in accordance with law. The observations made in the judgment are limited to the disposal of the petition and should not influence the proceedings of the trial or the decision on the bail application.