2025 (11) TMI 1862 - HC - Money Laundering

Parallel PMLA and Companies Act probes upheld; Section 5(1) attachment sustained despite Section 212(2) investigation transfer

Sanjay Aggarwal, Chandan Bhatia, Kamal Kalra & Anr. Versus Union Of India & Ors.

HC dismissed the petitions challenging the Provisional Attachment Order (PAO) issued under Section 5(1) PMLA. It held that transfer of investigation to ... Money Laundering - serious irregularities pertaining to foreign exchange transactions - validity of the issuance of the Provisional Attachment Order (PAO) passed under Section 5(1) of the Prevention of Money Laundering Act, 2002 - right of the CBI and the Directorate to investigate the present case stood interdicted by virtue of Section 212(2) of the Act of 2013 - HELD THAT:- This Court, having considered the submissions advanced by the learned counsel for the parties, is of the view that the contention of the Petitioner, that the transfer of investigation to the SFIO would bar parallel proceedings under the PMLA, is legally untenable. This Court is afraid that the said argument holds no ground since the express language, “in respect of any offence under this Act”, used in Section 212(2) the Act of 2013, reveals that the said provision applies only to offences covered under that Act. Moreover, a purposive and harmonious construction of the statutory regime confirms that the Act of 2013 is merely applicable to the offences relating to companies and does not extend to offences under other laws, including the PMLA. While Section 212 is a self-contained code governing SFIO investigations into company affairs, its scheme does not preclude other agencies, in their own domain, from probing offences under separate laws. Importantly, if the practical application of the entire dispute is taken into account, it would become crystal clear that the Act of 2013 only deals with violations of corporate governance, norms, fraudulent conduct by the officers of the company and irregularities in the administration of the said company. However, the PMLA, penalises the process or activity connected with the proceeds of crime derived from scheduled offences, and under which, such tainted property would be classified as proceeds of crime. The offences defined under both the aforementioned statues are distinct and involve separate elements of proof while serving distinct legislative purposes. This Court is satisfied that the D/AO had ample and cogent material to justify and form a ‘reason to believe’ under Section 5(1) of the PMLA for the purpose of attachment - the formation of belief was not perfunctory or based on mere suspicion, but was founded on a rational nexus between the material collected and the inference drawn regarding the involvement of the Petitioner in the process of money-laundering - The PMLA is a self-contained statutory regime, with its own adjudicatory and appellate structure, and the existence of a viable statutory remedy would militate against premature interference through writ jurisdiction. This Court, in analogous cases, has held that when a complete appeal mechanism is built into a special statute, Constitutional Courts should ordinarily restrain from exercising their powers under Article 226 of the Constitution of India, 1950, unless there is some extraordinary or exceptional circumstance. Therefore, this Court being conscious about its restricted jurisdiction, deems it appropriate to not delve deeply into the validity of the PAO and its consequential proceedings, leaving those matters to be ventilated before the Appellate Tribunal. This Court finds no merit in the present Petitions - Petition dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether assignment of investigation to the Serious Fraud Investigation Office under Section 212(2) of the Companies Act, 2013 bars or restricts investigation and proceedings under the Prevention of Money Laundering Act, 2002 in respect of the same transaction. 1.2 Whether a Provisional Attachment Order under Section 5(1) of the Prevention of Money Laundering Act, 2002 can validly be issued in the absence of a final report/charge-sheet under Section 173 of the Code of Criminal Procedure, 1973 against the concerned person, and the correct construction of the provisos to Section 5(1). 1.3 Whether the impugned Provisional Attachment Order is vitiated for want of a legally sustainable 'reason to believe' under Section 5(1) of the Prevention of Money Laundering Act, 2002, including on account of alleged non-supply of reasons and absence of pre-attachment hearing. 1.4 Whether the writ petitions are maintainable in view of confirmation of the Provisional Attachment Order by the Adjudicating Authority and the availability and invocation of the statutory appellate remedy under the Prevention of Money Laundering Act, 2002. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of assignment to SFIO under Companies Act, 2013 on PMLA proceedings Legal framework considered 2.1 The Court examined Sections 212(1), 212(2) and 212(17)(b), Sections 435 and 436, and Section 447 of the Companies Act, 2013; Sections 3, 5, 43, 48, 49 and 71 of the Prevention of Money Laundering Act, 2002; and the provisions of the Prevention of Corruption Act, 1988 and the Indian Penal Code, in light of the parties' submissions. Reliance was placed on the interpretation in SFIO v. Rahul Modi and Vijay Madanlal Choudhary, as also on Vinod Kumar v. State of Haryana. Interpretation and reasoning 2.2 The Court held that Section 212(2) of the Companies Act, 2013, by its express language 'in respect of any offence under this Act', restricts other agencies only from investigating offences under the Companies Act, 2013 once the Central Government assigns investigation to SFIO. It does not bar investigation under other statutes such as the PMLA, IPC or PCA. 2.3 Section 212 was characterised as a self-contained code only for SFIO investigations into 'affairs of a company' and offences under the Companies Act, 2013. The statute does not provide a CrPC-type investigation framework for IPC/PCA offences; its machinery is limited to powers under Sections 209, 212(7) and 436(2) of the Companies Act, 2013. 2.4 The Court contrasted this with the distinct investigative regimes under: Section 17 of the Prevention of Corruption Act (corruption offences), Sections 48 and 49 of the PMLA (money-laundering), and Section 4 of the CrPC (investigation and trial of IPC offences). The jurisdiction of Special Courts under Section 435 and 436 of the Companies Act, 2013, Section 43 of the PMLA and Section 4 of the PCA to try 'other offences' at the same trial was held not to confer investigative powers on SFIO or any other agency beyond their parent statute. 2.5 The explanation to Section 447 of the Companies Act, 2013 was noted to define 'fraud' in relation to company affairs and to be conceptually and legally distinct from the PMLA offence of money-laundering. The subsequent inclusion of Section 447 as a scheduled offence under the PMLA was treated as a legislative choice to enable PMLA proceedings where fraud under the Companies Act generates 'proceeds of crime', not as a provision extinguishing or superseding PMLA's operation. 2.6 Section 212(17)(b), using the phrase 'under any other law', was read as recognising simultaneous investigations by multiple agencies under different statutes and as an information-sharing mechanism that presupposes coexistence of proceedings, rather than exclusivity of SFIO. 2.7 The plea that the Companies Act, 2013, being later in time, impliedly abrogates or overrides the PMLA despite Section 71 PMLA was rejected. The Court held the two enactments address distinct wrongs-corporate/managerial fraud and lapses on the one hand, and laundering of 'proceeds of crime' derived from scheduled offences on the other-requiring different ingredients of proof and serving different legislative purposes. Conclusions 2.8 Assignment of investigation to SFIO under Section 212(2) of the Companies Act, 2013 does not preclude or bar investigations, attachment, or other proceedings under the PMLA arising from the same factual matrix. 2.9 The Companies Act, 2013 does not extinguish or interdict the jurisdiction of the Directorate of Enforcement or CBI to investigate and prosecute offences under the PMLA, IPC or PCA. Parallel proceedings under the respective statutes are legally permissible. Issue 2 - Validity of PAO in absence of a report under Section 173 CrPC; construction of Section 5(1) PMLA Legal framework considered 2.10 The Court considered Section 5(1) of the PMLA and its provisos, in light of the prior decision in Directorate of Enforcement v. M/s Hi-tech Mechantile India Pvt. Ltd. (LPA 588/2022). It also referred to Radha Mohan Lakhotia v. Deputy Director as affirmed in Vijay Madanlal Choudhary. Interpretation and reasoning 2.11 The contention that no Provisional Attachment Order can be issued unless and until a report under Section 173 CrPC is filed against the person concerned, and that the first proviso to Section 5(1) is an absolute precondition, was rejected. 2.12 Following its reasoning in the Hi-tech Mechantile decision, the Court held that the first proviso to Section 5(1) is a statutory pre-requisite for initiation of attachment proceedings but cannot be read to mean that non-filing of a final report under Section 173 CrPC in respect of the particular person automatically invalidates an attachment. The proviso governs the stage and framework for exercise of power, but does not create a rigid condition precedent in the manner contended by the petitioner. 2.13 The Court accepted the position that a PAO may issue against any person in possession of 'proceeds of crime', where the statutory conditions under Section 5(1) are satisfied, even if a final report/charge-sheet has not yet been filed in relation to that specific person, provided the statutory scheme relating to a scheduled offence has been triggered. Conclusions 2.14 A Provisional Attachment Order under Section 5(1) PMLA is not rendered invalid solely because a report under Section 173 CrPC has not been filed against the petitioner, or because the petitioner is not yet an accused in the scheduled offence case. 2.15 The first proviso to Section 5(1) PMLA is not to be construed as an exclusive or sole condition precedent whose non-fulfilment ipso facto vitiates the attachment; the petitioner's challenge on this ground was held to be devoid of merit. Issue 3 - Sufficiency and communication of 'reason to believe' and requirement of pre-attachment hearing under Section 5(1) PMLA Legal framework considered 2.16 The Court examined Section 5(1) and Section 50 of the PMLA and considered the principles laid down in Radhika Agarwal v. Union of India, as discussed in its prior decision in Directorate of Enforcement v. Poonam Malik. Interpretation and reasoning 2.17 Referring to Radhika Agarwal and Poonam Malik, the Court reiterated that 'reason to believe' in Section 5(1) PMLA signifies an objective and evidence-based satisfaction founded on tangible material, and cannot be equated with mere suspicion or conjecture. 2.18 Applying these principles, the Court examined the material that formed the basis of the PAO and the Adjudicating Authority's order, including: (i) the CBI FIR under Sections 420/120B IPC and Section 13 PCA; (ii) the ECIR registered by the Directorate of Enforcement; (iii) documents and electronic records seized; and (iv) statements recorded under Section 50 PMLA and supporting documents. 2.19 On the basis of Section 50 statements and documentary evidence, the Court noted that the petitioner was prima facie shown to have: (a) created and operated multiple shell companies lacking genuine business substance; (b) obtained IEC numbers for such entities; (c) arranged large-scale forex remittances, including advance remittances up to approximately Rs. 450 crores between January 2015 and July 2015; and (d) used these structures to channel remittances abroad under the pretext of imports, in collusion with importers/exporters and overseas entities in Dubai and Hong Kong. This material was held to establish a rational nexus between the properties attached and 'proceeds of crime' allegedly laundered. 2.20 The Court found that the Designated/Authorised Officer and the Adjudicating Authority had referred to and relied upon the above material in forming their satisfaction; hence, the belief was neither perfunctory nor unsupported. It met the threshold of 'reason to believe' required under Section 5(1) PMLA. 2.21 On the contention that reasons were not supplied and that a pre-attachment hearing was mandatory, the Court held that Section 5 does not require a prior notice or hearing before issuance of a PAO. Safeguards are embedded in the statute through: (a) mandatory recording of reasons in writing; (b) forwarding such reasons to the Adjudicating Authority in a sealed cover; and (c) subsequent issuance of a show cause notice under Section 8, enabling the affected person to contest the attachment. 2.22 It was further noted that the reasons to believe and supporting material had in fact been considered by the Adjudicating Authority and were available on record, and that detailed findings had been rendered in the confirmation order. Conclusions 2.23 The Court held that, on the material cited in the PAO and before the Adjudicating Authority, the Designated/Authorised Officer had ample and cogent material to form the requisite 'reason to believe' under Section 5(1) PMLA. 2.24 The challenge to the PAO on the ground of absence or insufficiency of reasons to believe, or on the ground of non-supply of such reasons and want of pre-attachment hearing, was rejected. Issue 4 - Maintainability of writ petitions in light of confirmation of PAO and availability of statutory appeal Legal framework considered 2.25 The Court considered the structure of adjudication and appeal under the PMLA, including the role of the Adjudicating Authority under Section 5(5) read with Section 8, and the appellate remedy before the Appellate Tribunal under Section 26 PMLA. Interpretation and reasoning 2.26 It was noted that the Provisional Attachment Order had already been confirmed by the Adjudicating Authority by order dated 29.08.2016, and that the petitioner had availed the statutory remedy of appeal under Section 26 of the PMLA before the Appellate Tribunal. 2.27 The Court emphasised that the PMLA is a self-contained statutory regime with its own adjudicatory and appellate hierarchy. Where such a complete mechanism exists, Constitutional Courts, exercising jurisdiction under Article 226, ordinarily refrain from interfering at the interlocutory stage or from re-appreciating the merits, save in exceptional or extraordinary circumstances. 2.28 In light of the confirmation order and the pending appeal, the Court held that re-examination of the full merits of the Provisional Attachment Order or consequential proceedings would not be appropriate within the limited scope of judicial review. It confined itself to the legality of the jurisdictional challenges and the statutory interpretation issues raised. Conclusions 2.29 The writ petitions were held not to warrant interference in view of the confirmation of the PAO by the Adjudicating Authority and the efficacious statutory appeal already invoked by the petitioner. The Court declined to sit in substantive appeal over the attachment and left all issues on merits to be adjudicated by the Appellate Tribunal. 2.30 On the cumulative reasoning on all issues, the petitions were dismissed, with liberty to the petitioner to pursue remedies before the Appellate Tribunal under the PMLA.