2023 (9) TMI 1676 - HC - Money Laundering

Karnataka HC quashes Look Out Circular issued under PMLA Section 50 based on mere suspicion without probable cause

Sri. Sudarshan Ramesh Versus Union of India by Ministry of Home Affairs, New Delhi; Bureau of Immigration, Ministry of Home Affairs, Bengaluru; Directorate of Enforcement, Ministry of Finance, Bengaluru;

The Karnataka HC allowed a writ petition challenging a Look Out Circular (LOC) issued under PMLA. The petitioner was summoned under Section 50 PMLA solely ... Maintainability of the writ petition under Article 226 read with Section 482 of the Criminal Procedure Code (Cr.P.C.) to challenge the LOC - Rejection of request to revoke the Look Out Circular (LOC) - summoning of the petitioner under section 50 of PMLA on suspicion alone. Whether the summoning of the petitioner under section 50 of PMLA on suspicion alone is legally permissible? - HELD THAT:- In the instant case, there is no cognizable offence registered against the petitioner nor a non-bailable warrant is issued against the petitioner. The petitioner is summoned solely on the ground that his brother has been implicated as an accused in the scheduled offences and under the PMLA, and also alleging that his father had transferred 50,000 GBP which is the proceeds of the crime to a third party. Section 50 is a crucial provision and states that a person, who is being summoned for investigation must be provided with a written notice specifying the nature and the reasons for it. While the said provision does not explicitly use the term ' Probable cause', it emphasizes the importance of providing valid reasons and grounds for summoning an individual. The purpose of this provision is to protect the right of the person being summoned and ensure that investigation is not arbitrary. The summoning of a person repeatedly without probable cause or reasonable ground and only on the ground of suspicion alone is not in accordance with the principles of due causes and fairness. LOC cannot be issued solely on the ground that the petitioner has not provided information to the convenience and satisfaction of the respondent No. 2, and in the absence of any material that the petitioner was aware of the transactions between his father and one Mr. Hanish Patel, the petitioner cannot be repeatedly summoned to give information to suit the convenience of the prosecution - It is well established in law that a person can be summoned to give statements during the course of investigation only when there exists a reasonable ground to believe that the said person has knowledge or information with regard to the commission of a crime. The principle of reasonable suspicion/ probable cause is fundamental to the criminal justice system and it ensures that persons are not subjected to investigation or summoned to give statements during the course of investigation which would otherwise result in violating the principles of fairness, justice and the Rule of Law, more so when the petitioner has cooperated with the investigation. The Hon'ble Supreme Court in the case of SELVI AND OTHERS -VS- STATE OF KARNATAKA, [2010 (5) TMI 907 - SUPREME COURT] with reference to Article 20(3) and 161(2) Cr.P.C., has held that these provisions protect the accused, suspects and witnesses from being compelled to make self incriminating statements and the person concerned has right to remain silent on questions which may incriminate him. Therefore, in the absence of any reasonable suspicion leave alone probable cause, the LOC issued for securing the presence of the petitioner for recording further statements would be arbitrary and violate the fundamental rights enshrined under Article 21 of the Constitution of India. Maintainability of the writ petition under Article 226 read with Section 482 of the Criminal Procedure Code (Cr.P.C.) to challenge the LOC - HELD THAT:- The proceedings initiated under the provisions of PMLA against the brother of the petitioner is the basis for issuing LOC and any action taken or order passed under PMLA can be challenged by invoking inherent jurisdiction under Section 482 Cr.P.C or under Article 226 r/w Section 482 Cr.P.C to prevent the abuse of the process of law/or to secure the ends of justice. Hence, the fundamental right of the petitioner to travel abroad as enshrined in Article 21 of the Constitution of India is infringed by the respondent No. 1 in the course of investigation under the provisions of PMLA. The petitioner has been restrained from travelling abroad for a period of 1 year 10 months spreading over from January 2021 till date. Therefore, the contention of the learned ASG that the LOC can only be challenged under Article 226 and not under 482 Cr.P.C. is not acceptable. Conclusion - The continuation of the LOC against the Petitioner indefinitely on the ground of suspicion alone will be an abuse of process of law and also the object of LOC. Petition allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue before the Court was whether the repeated summoning of the petitioner under Section 50 of the Prevention of Money Laundering Act, 2002 (PMLA) on mere suspicion, and the subsequent issuance of a Look Out Circular (LOC) against him, was legally permissible. Additionally, the Court considered the maintainability of the writ petition under Article 226 read with Section 482 of the Criminal Procedure Code (Cr.P.C.) to challenge the LOC.ISSUE-WISE DETAILED ANALYSISLegal Framework and PrecedentsThe relevant legal framework included the provisions of the PMLA, particularly Section 50, which allows for the summoning of individuals for investigation. The Court also referenced constitutional protections under Article 21, which guarantees the right to life and personal liberty, including the right to travel. Precedents cited included the Supreme Court decisions in Selvi v. State of Karnataka and Vijay Madanlal Choudhary v. Union of India.Court's Interpretation and ReasoningThe Court emphasized that the issuance of an LOC is intended to secure individuals against whom cognizable offences are registered, particularly when they evade arrest or fail to appear before the court. The Court noted that in this case, no cognizable offence was registered against the petitioner, nor was there a non-bailable warrant issued. The petitioner was summoned solely due to his familial connection to an accused individual and alleged financial transactions involving his father.Key Evidence and FindingsThe Court found that the petitioner had cooperated with the investigation, appearing multiple times when summoned, and no incriminating evidence against him had been uncovered. The respondents failed to provide material evidence to substantiate the suspicion against the petitioner, relying instead on his relationship with the accused.Application of Law to FactsThe Court applied the principles of fairness and due process, emphasizing that repeated summoning without reasonable grounds or probable cause violated the petitioner's rights. The Court highlighted the importance of providing valid reasons for summoning individuals under Section 50 of the PMLA, which was not adhered to in this case.Treatment of Competing ArgumentsThe petitioner argued that the repeated summons and LOC violated his rights under Article 21 and that the writ petition was maintainable under Article 226 read with Section 482 Cr.P.C. The respondents contended that the petition was not maintainable and that the LOC was necessary to prevent the petitioner from absconding. The Court rejected the respondents' arguments, finding that the petitioner's rights had been infringed without sufficient legal justification.ConclusionsThe Court concluded that the LOC issued against the petitioner was arbitrary and unenforceable, as it was based solely on suspicion without credible evidence. The Court held that the continuation of the LOC would be an abuse of process and infringe on the petitioner's fundamental rights.SIGNIFICANT HOLDINGSThe Court held that the repeated summoning of the petitioner without reasonable grounds violated the principles of fairness and due process. It emphasized that the LOC could not be justified solely on the basis of suspicion or familial connection to an accused individual. The Court declared the LOC unenforceable and ordered its cancellation, affirming the petitioner's right to travel.Verbatim Quotes of Crucial Legal Reasoning'The summoning of a person repeatedly without probable cause or reasonable ground and only on the ground of suspicion alone is not in accordance with the principles of due causes and fairness.'Core Principles EstablishedThe Court reinforced the principle that individuals cannot be subjected to investigation or restrictions on their liberty without reasonable grounds or probable cause. It affirmed the importance of protecting individuals' rights under Article 21 and ensuring that legal processes are not abused.Final Determinations on Each IssueThe Court allowed the writ petition, quashing the impugned order and declaring the LOC unenforceable. It ordered the removal of the endorsement on the petitioner's passport and affirmed his right to travel, subject to cooperation with any future investigations if incriminating material is uncovered.