2025 (11) TMI 1710 - HC - Money Laundering

Pre-cognizance hearing under PMLA limited; no fresh cognizance needed for supplementary complaint based on SFIO findings

Rahul Surana S/o. Shri Dinesh Chand Surana Versus The Assistant Director, Directorate of Enforcement, Chennai

HC dismissed the criminal revision filed by the accused challenging the second supplementary prosecution complaint under PMLA. It held that cognizance is ... Money Laundering - criminal conspiracy to defraud public sector banks through misappropriation, fraud, and manipulation of accounts - creation of a web of shell and dummy companies to siphon loan funds via fictitious transactions - cognizance of offence/accused - pre-cognizance hearing - reliability of Mariam Fashuddin case [2024 (2) TMI 1130 - SUPREME COURT]. Cognizance meaning - HELD THAT:- Cognizance essentially means that the Judge should have applied his judicial mind and prima facie be satisfied that the allegations in the complaint, if proved, would constitute an offence - Various decisions rendered by the Courts of law have explained the significance of the term cognizance. In R.R.Chari Vs State of Uttar Pradesh [1951 (3) TMI 26 - SUPREME COURT], the Hon'ble Supreme Court of India stated that the word “cognizance” is used by the Court to indicate the point when Magistrate or a Judge first takes judicial notice of an offence. Therefore, it is understood that cognizance of an offence takes place, when a Judicial Magistrate applies his mind and takes judicial notice of the offence - the application of mind plays a pivotal role to fulfil the process of taking cognizance. So this procedure shall not be an empty formality. Second point is that cognizance is taken with regard to the offence and not the offender. Cognizance of offence/accused - HELD THAT:- Explanation (ii) to Section 44 of PMLA specifically provides for supplementary complaints. The Explanation (ii) to Section 44 clarifies that the prosecution complaint shall be deemed to include any subsequent complaint in respect of further investigation that may be conducted to bring any further evidence, oral or documentary, against any accused person involved in respect of the offence, for which complaint has already been filed, whether named in the original complaint or not - Taking multiple cognizance of the same offence would render the judicial process redundant and result in delay in the justice delivery process. Once cognizance of an offence is taken, any further supplementary prosecution complaint is considered as flowing from the main prosecution complaint for which the Court has already taken cognizance. So adding multiple layers of procedure to an already cognized complaint is a futile exercise. In the present case, cognizance of the offence was already taken on 25.11.2022 and so the Second Supplementary Complaint does not involve taking cognizance afresh - the language of the impugned order does not show any irregularity and so the objection raised by the Petitioner at this stage cannot be entertained. Pre-cognizance hearing - HELD THAT:- Pre-cognizance hearing cannot be equated with a mini- trial. It is only for the Court to satisfy itself on jurisdiction and related procedural aspects. Any further delving into the factual defences or evidences at this stage should not be entertained. The Enforcement Directorate further submitted that the Petitioner has failed to appreciate the distinction between 'pre-existing evidence' and 'new material/fresh evidence.' The SFIO complaint, though based on transactions that occurred in the past, constitutes a new scheduled offence that came into existence only on 09.09.2022. This is fresh material for the purposes of the PMLA investigation - It was also submitted that money laundering is a continuing offence and the very nature of this offence permits investigation into various layers of transactions, shell companies, and interconnected entities that are used to launder the proceeds of crime. The SFIO complaint revealed additional entities, transactions, and modus operandi that were not part of the original investigation based solely on the CBI FIR. Reliability of Mariam Fashuddin case [2024 (2) TMI 1130 - SUPREME COURT] - HELD THAT:- There was no fresh material against the Petitioner that the Enforcement Directorate unearthed between the 1st Supplementary Prosecution Complaint and the 2nd Supplementary Prosecution Complaint and the law as held by the Hon'ble Supreme Court in Mariam Fashuddin ought to apply in the present case as well - the SFIO complaint is not a mere re-evaluation of existing material but constitutes fresh evidence obtained during the course of further investigation. This Court finds that the SFIO complaint dated 09.09.2022 constitutes fresh and new material and that the supplementary complaint is not based on stale material and that the decision in Mariam Fashuddin is distinguishable and does not apply to the facts of the present case and hence the supplementary complaint is legally maintainable under Section 44(1) read with Explanation (ii) of the PMLA - it can be deduced that the underlying transactions or events occurred in the past does not render the SFIO complaint 'stale.' Hence this court finds merit in the argument that the scheduled offence itself (i.e., the SFIO complaint under Section 447 of the Companies Act) is a new development and cannot be termed as stale material. The impugned order on the file of the XIV Additional Special Court for CBI cases need not be interfered with. Consequently, this Court concludes that the revision is devoid of merits and the same is liable to be dismissed. The trial Court shall proceed with the case on merits, uninfluenced by the observations made on facts - the Criminal Revision Case is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, in law, cognizance is taken of the offence or of the offender, and whether cognizance can be taken afresh on a supplementary prosecution complaint in proceedings under the Prevention of Money Laundering Act, 2002. 1.2 Whether the docket order dated 17.02.2025, recording that cognizance was taken 'as against accused 28 to 42' on the Second Supplementary Prosecution Complaint, suffers from a material irregularity vitiating the proceedings. 1.3 Whether the proviso to Section 223(1) of the Bharatiya Nagarik Suraksha Sanhita, 2023, mandating a pre-cognizance hearing, applies when a supplementary prosecution complaint is filed in a case where cognizance of the offence has already been taken on the main complaint. 1.4 Whether the Second Supplementary Prosecution Complaint is vitiated on the ground that it is based only on 'stale material' and not on 'further investigation' or 'fresh evidence' as envisaged in Explanation (ii) to Section 44 of the Prevention of Money Laundering Act, 2002, read with the principles under Section 173(8) CrPC / Section 193(9) BNSS. 1.5 Whether the decision in Mariam Fasihuddin v. State of Karnataka applies so as to invalidate the Second Supplementary Prosecution Complaint for want of new material. 1.6 Whether the impugned order taking the Second Supplementary Prosecution Complaint on file and issuing process is liable to be interfered with for want of elaborate reasons. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Nature of cognizance and its applicability to supplementary complaints Legal framework 2.1 The Court examined the concept of 'taking cognizance' with reference to decisions including R.R. Chari v. State of Uttar Pradesh, Fakhruddin Ahmad v. State of Uttaranchal, Prasad Shrikant Purohit v. State of Maharashtra, CREF Finance Ltd. v. Shree Shanthi Homes (P) Ltd., and State of Andhra Pradesh v. Pastor P. Raju. 2.2 Explanation (ii) to Section 44 of the Prevention of Money Laundering Act, 2002, was considered, which deems a subsequent prosecution complaint based on further investigation to be part of the already filed complaint for the same offence, whether or not the accused was named earlier. Interpretation and reasoning 2.3 The Court reiterated that 'cognizance is in regard to the offence and not the offender'; it occurs when the Judge applies judicial mind to the materials and decides to initiate proceedings, and is distinct from issuance of process. 2.4 Explanation (ii) to Section 44 PMLA clarifies that a supplementary complaint is not a fresh or independent complaint but is deemed to be part and parcel of the main complaint regarding the offence for which cognizance has already been taken. 2.5 Once cognizance of the offence has been taken on the main complaint, any supplementary prosecution complaint flows from the main complaint and does not involve taking cognizance afresh. Taking multiple cognizances of the same offence is impermissible and would render the process redundant. Conclusions 2.6 Cognizance was already taken of the offence on 25.11.2022 on the main prosecution complaint; the Second Supplementary Prosecution Complaint does not entail taking cognizance afresh. 2.7 Cognizance cannot be taken a second time, nor can it be taken 'as against' particular accused persons; it attaches to the offence, and supplementary complaints are subsumed within the initial cognizance of that offence. Issue 2: Effect of the wording in the docket order dated 17.02.2025 Interpretation and reasoning 2.8 The daily order recorded that 'Cognizance of the complaint as against the accused 28 to 42 taken'. The Court held that this phraseology is erroneous because: (i) cognizance cannot be taken a second time, and (ii) cognizance is taken of the offence and not of specific accused persons. 2.9 The order is to be understood as meaning that the Second Supplementary Prosecution Complaint was taken on file and added to the existing proceedings in Spl. C.C. No. 9 of 2022, in which cognizance had already been taken. 2.10 This error was characterized as a merely curable error of expression which neither vitiates the entire proceedings nor results in miscarriage of justice. 2.11 The impugned order discloses that the Trial Court perused the materials and formed a prima facie opinion to proceed, thereby evidencing due application of mind. Conclusions 2.12 The defective wording in the docket order does not constitute a material irregularity; it is a curable error and does not invalidate the proceedings or the issuance of process on the Second Supplementary Prosecution Complaint. Issue 3: Applicability of pre-cognizance hearing under proviso to Section 223(1) BNSS to a supplementary complaint Legal framework 3.1 The petitioner invoked the proviso to Section 223(1) of the BNSS, which mandates a pre-cognizance hearing, and relied on the decision in Kushal Kumar Agarwal v. Enforcement Directorate, wherein such hearing was held to be mandatory at the stage of taking cognizance. 3.2 Explanation (ii) to Section 44 PMLA, which deems supplementary complaints to form part of the original prosecution complaint, was again central to this issue. Interpretation and reasoning 3.3 The Court held that the proviso to Section 223(1) BNSS applies when cognizance is being taken for the first time on a prosecution complaint. 3.4 Since, in the present case, cognizance had already been taken on the main complaint in 2022, the subsequent supplementary complaint did not entail a fresh cognizance. 3.5 Pre-cognizance hearing cannot be expanded into a 'mini-trial'; it is confined to jurisdictional and procedural scrutiny and does not envisage examination of factual defences or assessment of evidence at that stage. 3.6 The facts in Kushal Kumar Agarwal were distinguished: in that case the Court dealt with a fresh complaint where cognizance was being taken for the first time, rendering the proviso to Section 223(1) BNSS squarely applicable. By contrast, the present matter concerns a supplementary complaint forming part of an already cognized offence. Conclusions 3.7 The proviso to Section 223(1) BNSS does not apply to the filing of the Second Supplementary Prosecution Complaint in a matter where cognizance of the offence had already been taken. 3.8 The petitioner was not entitled to a separate pre-cognizance hearing at the stage of the Second Supplementary Complaint, and the absence of such hearing does not vitiate the impugned proceedings. Issue 4: Requirement of detailed reasons at the stage of taking complaint on file and issuing process Legal framework 4.1 The Court referred to decisions including Pramila Devi v. State of Jharkhand, Kanti Bhadra Shah v. State of W.B., Nagawwa v. Veeranna Shivalingappa Konjalgi, Chief Controller of Imports & Exports v. Roshanlal Agarwal, U.P. Pollution Control Board v. Mohan Meakins Ltd., U.P. Pollution Control Board v. Bhupendra Kumar Modi, Sonu Gupta v. Deepak Gupta, Rakhi Mishra v. State of Bihar, Mehmood Ul Rehman v. Khazir Mohammad Tunda, and State of Gujarat v. Afroz Mohammed Hasanfatta. Interpretation and reasoning 4.2 The consistent position in these authorities is that at the stage of issuing process under Section 204 CrPC (corresponding stage under BNSS), the Magistrate/Trial Court: (i) is only required to be prima facie satisfied that there are sufficient grounds for proceeding, (ii) is not required to record detailed reasons, and (iii) is not to evaluate the merits of the case or the defence. 4.3 It is also established that detailed orders are not required at intermediate stages such as issuing process, framing charges, or remanding the accused; reasons are statutorily required primarily when refusing to take the case forward (e.g., dismissal of complaint). 4.4 Applying these principles, the Court held that the impugned order, which reflects perusal of material and satisfaction to proceed, meets the legal standard; absence of a detailed or reasoned order at this stage is not a ground for interference. Conclusions 4.5 The impugned order cannot be faulted merely for lack of elaborate reasoning; the brief order suffices so long as it demonstrates application of mind and satisfaction to proceed. 4.6 The challenge to the impugned order on the ground of insufficiency of reasons is untenable. Issue 5: Whether the Second Supplementary Prosecution Complaint is based only on 'stale material' and not on further investigation/fresh evidence Legal framework 5.1 The petitioner relied on Explanation (ii) to Section 44 PMLA, read with the language of Section 173(8) CrPC / Section 193(9) BNSS, stressing that supplementary complaints must be based on 'further investigation' and 'further evidence, oral or documentary'. 5.2 The petitioner placed reliance on Mariam Fasihuddin v. State of Karnataka, where it was held that 'further investigation' infers obtaining fresh evidence and not mere re-evaluation of material already collected and considered. Petitioner's contentions 5.3 The petitioner contended that all materials cited against him in the Second Supplementary Complaint (statements recorded in 2021, searches in 2021, Provisional Attachment Order and confirmation in 2023, SFIO complaint filed on 09.09.2022, and related documents and statements dating from 2021-2023) pre-date the First Supplementary Prosecution Complaint. 5.4 It was argued that no fresh oral or documentary evidence was collected between the First and Second Supplementary Complaints and that the Enforcement Directorate offered no explanation for arraigning the petitioner later on the basis of earlier-available material. Hence, the Second Supplementary Complaint was said to rest on 'stale material' contrary to the standard in Mariam Fasihuddin. Enforcement Directorate's contentions 5.5 The Enforcement Directorate submitted that the Second Supplementary Complaint is founded on the complaint filed by the Serious Fraud Investigation Office under Section 447 of the Companies Act, 2013, before the Special Court on 09.09.2022, and that this SFIO complaint is itself fresh and new material constituting a scheduled offence under PMLA. 5.6 The Enforcement Directorate emphasized that: (i) the ECIR was initially registered in 2019 on the basis of CBI FIR; (ii) by Addendum dated 10.06.2024, the ECIR was amended to incorporate the SFIO complaint as a scheduled offence; (iii) the SFIO complaint introduced new allegations of corporate fraud, falsification of accounts, and Companies Act violations; and (iv) a forensic audit report by M/s. Haribhakti & Co., forming part of SFIO proceedings, constituted fresh documentary evidence. 5.7 It was further argued that the distinction between 'pre-existing evidence' and 'new material/fresh evidence' must be recognized: while the underlying transactions are past events, the SFIO complaint and associated findings amount to new scheduled offence material for PMLA purposes. 5.8 It was also contended that money laundering is a continuing offence, and the nature of the offence justifies investigation into additional layers, entities, and transactions which may come to light through such new proceedings. Interpretation and reasoning 5.9 The Court accepted that Explanation (ii) to Section 44 PMLA contemplates supplementary complaints founded on further investigation and further evidence, akin to the scheme of Section 173(8) CrPC / Section 193(9) BNSS. 5.10 In assessing the objection of 'stale material', the Court examined the role of the SFIO complaint itself. It noted that the SFIO complaint: (i) was registered on 09.09.2022, subsequent to earlier searches; (ii) constituted a new scheduled offence; and (iii) brought in the forensic audit report by M/s. Haribhakti & Co. as fresh evidence. 5.11 The Court held that, for PMLA purposes, the SFIO complaint together with the forensic audit report and related material is fresh and new material, even if based on past transactions. The fact that earlier investigative steps and documents predated the First Supplementary Complaint did not, by itself, render the SFIO complaint and its consequences 'stale'. 5.12 The Court emphasized that what is decisive is that the SFIO complaint, as a scheduled offence and as a proceeding with its own findings and evidentiary materials, arose as a new development and provided an enlarged foundation for the money-laundering investigation, including against new entities and accused (A-28 to A-42). Conclusions 5.13 The Second Supplementary Prosecution Complaint is not based merely on re-evaluation of existing material but on fresh material, namely the SFIO complaint and associated forensic audit report and findings. 5.14 The SFIO complaint dated 09.09.2022 constitutes fresh and new material; the supplementary complaint is therefore legally maintainable under Section 44(1) read with Explanation (ii) PMLA and is not vitiated on the ground of being founded on 'stale material'. 5.15 The mere fact that the underlying transactions/events are of earlier years does not make the SFIO complaint or its utilisation in a supplementary PMLA complaint 'stale'. Issue 6: Applicability of Mariam Fasihuddin v. State of Karnataka Legal framework and reasoning 6.1 The petitioner sought to apply Mariam Fasihuddin, arguing that, as in that case, no new material had been unearthed but only earlier material was re-used. 6.2 The Court noted that in Mariam Fasihuddin the supplementary charge-sheet was expressly based on a Truth Lab report which was already available when the original charge-sheet was filed, and: (i) there was merely re-evaluation of existing material; (ii) no fresh investigation; and (iii) no new evidence, oral or documentary, was brought on record. 6.3 By contrast, the Court found that in the present case: (a) the SFIO complaint itself is a new scheduled offence registered on 09.09.2022; (b) the Haribhakti & Co. forensic audit report is fresh documentary evidence; (c) investigation was extended on the basis of this new scheduled offence; (d) the ECIR was amended on 10.06.2024 to incorporate the SFIO complaint as a fresh predicate offence; and (e) the supplementary complaint introduces new entities, transactions and an expanded scope of alleged money-laundering. Conclusions 6.4 The decision in Mariam Fasihuddin is factually distinguishable and does not govern the present case. 6.5 The reliance on Mariam Fasihuddin to invalidate the Second Supplementary Prosecution Complaint is misplaced. Overall disposition 7.1 The impugned order dated 17.02.2025 taking the Second Supplementary Prosecution Complaint on file and issuing process does not suffer from any legal infirmity warranting interference. 7.2 The plea based on the proviso to Section 223(1) BNSS and alleged absence of pre-cognizance hearing is untenable in the context of a supplementary complaint where cognizance of the offence had already been taken. 7.3 The objection that the supplementary complaint is founded on 'stale material' is rejected; the SFIO complaint and related material constitute fresh evidence for purposes of PMLA supplementary prosecution. 7.4 The criminal revision is devoid of merit and stands dismissed; the Trial Court is to proceed with the case on merits, uninfluenced by factual observations in the present order.