TaxTMI 
TaxTMI 
TaxTMI 
2020 (12) TMI 1355
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....e very same petitioners have filed Crl.P.No.3982 of 2020 to quash FIR No.RC0352020A0002 on the file of CBI ACB, Hyderabad. The petitioners are accused Nos.1 to 4 in the said crime. The offences alleged against them are under Section - 420 read with 120-B of IPC and under Section - 13 (1) (d) read with 13 (2) of the Act, 1988. 4. The very same petitioners have filed Crl.P.No.4272 of 2020 to quash the complaint and investigation in ECIR/HYZO/03/ 2019/2420, 2421 and 2422 on the file of Assistant Director, Enforcement Directorate, Ministry of Finance, Government of India, Basheerbagh, Hyderabad. The petitioners are accused Nos.1 to 4 in the said ECIR. 5. Heard Sri Vedula Venkata Ramana, learned Senior Counsel representing Sri D. B. Chaitanya, learned counsel for the petitioners, Sri B. Narasimha Sharma, learned Standing Counsel for Enforcement Directorate and Sri K. Surender, learned Special Public Prosecutor for Central Bureau of Investigation. 6. The allegations against the petitioners in FIR No.11/2018 on the file of CBI, BS & FC, Bangalore: i) The Central Bank of India is de facto complainant in the said complaint, dated 30.06.2018, ii) Petitioner No.4 was incorporated on 14.....
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....also specifically mentioned in the complaint. viii) After assessing the requirements, the Central Bank of India has sanctioned an amount of Rs.20.00 Crores by way of cash credit hypothecation and Rs.40.00 Crores by way of letter of credit facility on 19.03.2012 on a pre-condition that other banks shall give no objection certificate for sharing the primary securities. On receipt of no objection certificate from other banks and after execution of necessary documents/creation of security, the Company started availing the loan facilities. ix) Initially, petitioner No.4 maintained the cash credit account within the limits and adjusted the LCs on due date without any devolvement. Subsequently, during the year 2014, petitioner No.4 made a request for enhancement of limit from existing Rs.60.00 Crores to Rs.85.00 Crores and the same was sanctioned under the proposed consortium arrangement with the Central Bank of India as a lead bank. However, formation of consortium did not materialize due to non-tie-up of the assessed limits with other banks. x) Stock audit was conducted by the Central Bank of India and the details of the same were specifically mentioned in paragraph - 10 of the compl....
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....laint, dated 29.02.2020. Petitioner No.4 availed loans from the bank including cash credit of Rs.5 cores and inland/foreign letter of credit of Rs.15.00 Crores. The same was enhanced to Rs.23.00 Crores on 01.01.2014. ii) After running for about 1-2 years, petitioner No.4 posted loss for 2014-15 and started default in its payment obligations from May 2015. Petitioner No.4 could not meet the obligations under letters of credit already established by the bank and bank has to repay it on behalf of petitioner No.4. With default persisting, the account finally slipped as NPA on 29.08.2015. iii) A joint lenders forum was set up by all the lenders and forensic audit was conducted to ascertain the status of funds and irregularities if any. The auditors i.e., M/s. S.P. Rungta and Associates, have conducted forensic audit and submitted their report in October, 2016. In the report, it is specifically mentioned that petitioner No.4 did not provide all required documents and books of accounts for a meaningful audit under the pretext of books having been seized by IT authorities. Petitioner No.4 has written off receivables worth Rs.111.51 Crores during last three years. Purchase transactions un....
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.... ECIR, the Enforcement Directorate started collecting various documents including bank account statements, income tax returns, details of moveable/immovable properties in the names of the petitioners and other related persons, credit audit reports, stock audit reports, etc. On perusal of the said documents, it is found that, prima facie, there appears to be substantial case of fraud and diversion of loan amounts by the management of petitioner No.4. Investigation of the case is at very crucial stage and the Enforcement Directorate has conducted searches on the premises of the Directors of petitioner No.4 on 16.09.2020. Certain crucial and incriminating materials have been recovered. The allegations against the petitioners are of serious nature and are specific in nature and require a detailed investigation. 9. Contentions of the Petitioners: (i) There is abnormal delay in lodging the complaints by both the banks. (ii) The alleged forensic audit alleged to have been conducted by M/s. S.P. Rungta and Associates is behind back of the petitioners and they have not given any opportunity to the petitioners. (iii) Complaints were given on 30.06.2018 and 29.02.2020, but registration o....
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....the Apex Court in Sadhu Ram Singla, the prosecution by the CBI itself is baseless and it is an abuse of process of law and hence, on the complaint of the CBI, registration of crime by the Enforcement Directorate under the provisions of the PMLA is again an abuse of process of law. (xix) There is no basis much less proceeds of crime and hence, the provisions of the PMLA do not attract at all. (xx) The investigation/enquiry by the Enforcement Directorate in ECIR/HYZO/03/2019/2420, 2421 and 2422 is again an abuse of process of law. 10. Contentions of Enforcement Directorate: (i) Based on the complaint of loan fraud filed by the Central Bank of India and Bank of Maharashtra, the Central Bureau of Investigation has registered two crimes against the petitioners and the offences alleged are scheduled offences under PMLA. Therefore, the Enforcement Directorate has initiated money-laundering investigation in respect of the said bank loan fraud in File No.ECIR/HYZO/03/2019/2420, 2421 and 2422 under the provisions of the PMLA. It is only at enquiry stage. (ii) Enforcement Directorate is duty bound to register a case and initiate PMLA investigation. (iii) The allegations against the peti....
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....proposals and also the terms therein, now the petitioners cannot say that the complaints lodged by the above said banks is illegal and they are trying to criminalize the civil disputes. (v) The petitioners have paid meager amounts by availing the benefits under OTS and there is allegation of misappropriation of Rs.140.00 Crores of public money by the petitioners which is an economic offence. (vi) The said action of the petitioners is unjust enrichment of public money by the petitioners. (vii) Investigation is pending. (viii) Reliance was placed on the decisions of the Apex Court in Central Bureau of Investigation v. Hari Singh Ranka 2018(1) RCR (Crl.) 336, Central Bureau of Investigation v. Maninder Singh 2016(1) SCC 389, Parbatbhai Aahir alias Parbatbhai Bhimsinhbhai Karmur and Gopakumar B Nair v. Central Bureau of Investigation 2014(2) SCC (Crl) 853. (ix) By placing reliance on the above said decisions, it is contended by the CBI that in the matter of economic offence, exercise of inherent power under Section - 482 of Cr.P.C., by the High Court is unjust. CONSIDERATION OF THE COURT: 12. In view of the above stated rival contentions, the undisputed facts are as follows: i....
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....is being considered by the bank as a commercial decision and shall have no bearing whatsoever on the ongoing criminal case / investigation, if any or not known to the bank, being carried out by the CBI / Police and the same shall proceed as per law. The settlement agreed between the parties shall not in any way affect or construed as a settlement of on-going criminal case / proceedings pending in the Court against the borrower. No dues certificate will be issued on specific request of the borrower mentioning clearly therein that the dues are settled by mutually agreed settlement involving sacrifice on the part of the Bank." 16. In the letter dated 14.05.2020 issued by the Bank of Maharashtra, it is specifically mentioned that "sacrifice in ledger balance" is Rs.17.60 Crores. 17. It is also relevant to mention that the Central Bank of India in the letter dated 21.09.2019 informed petitioner No.4 that the Higher Authorities of the bank have sanctioned the offer to settle the account under OTS for Rs.17,95,00,000/- in full and final settlement of the dues on certain conditions including the following conditions: "OTS is being considered by the bank as a commercial decision and sh....
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....from the bank and did not repay the same, and therefore, the account of the company was declared as NPA. On verification of the stocks, it was found that the company therein had fraudulently obtained higher credit limits on the basis of false and fabricated stock statements by forging the signatures. The law was set into motion and FIR was registered. During the pendency of the proceedings before the Court, a compromise was arrived at between the company therein and the bank under OTS. An application was filed by the company therein for compounding the offences under Section - 320 (2) of Cr.P.C. and the same was dismissed by the trial Court on the ground that Section - 427 read with Section - 468 of IPC is a non-compoundable offence. 21. Thereafter, they have approached the High Court of Punjab and Haryana invoking its powers under Section - 482 of Cr.P.C., for quashing the FIR and the resultant proceedings. The High Court of Punjab and Haryana quashed the criminal proceedings on the ground that the bank and the company therein have entered into a settlement and entire amount was paid. Then the matter was carried to the Apex Court. The Apex Court, by relying upon various judgments....
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....facie, the petitioners have committed fraud not only against the banks, but also against the public in general. Such economic frauds adversely affect the financial and economic well-being of the Nation and have implications which lie beyond the domain of a mere dispute between petitioner No.4 and the above said banks including Central Bank of India and Bank of Maharashtra. The mere fact that the banks which are already under stress to clear the NPAs from their books accepted the OTS, will not absolve the petitioners from criminal charges. 25. At the cost of repetition, it is relevant to mention that, in the above said letters, both the banks have specifically mentioned that acceptance of OTS proposals by the banks will not absolve the criminal liability of the petitioners. According to the banks, Central Bureau of Investigation and Enforcement Directorate, out of fear of facing punishment stipulated under the provisions of law, the petitioners have approached the banks with OTS proposals. The source of funds used by the petitioners for completing the OTS is also suspect and it is part of Enforcement Directorate's fund trial investigation. Petitioner No.4 has defaulted the cred....
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....nct. 30. In Hari Singh Ranka, the Apex Court considered the affect of OTS and held that the OTS merely deals with the civil liability that too by making of payment of Rs.25.00 Crores whereas outstanding liability was Rs.44.00 Crores though it was submitted loss caused was approximately Rs.13.00 Crores. The amount which has been settled in OTS scheme cannot be legally sufficient to wipe out the criminal liability of the accused persons. The OTS could wipe off only the civil liability, but not the criminal one. 31. In the present case, it is specifically mentioned in the letter dated 14.05.2020 issued by the Bank of Maharashtra that the sacrifice in ledger balance is Rs.17.60 Crores. According to above said five banks, the total loss caused to the banks due to the criminal acts of the petitioners herein, is Rs.182.99 Crores. The details of the same are specifically mentioned in the tabular form mentioned supra. 32. In Maninder Singh, the Apex Court held that the inherent powers of the High Court under Section - 482 of Cr.P.C. should be sparingly used. Only when the Court comes to the conclusion that there would be manifest injustice or there would be abuse of the process of the Co....
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....s, the Apex Court held that in view of the breach of promise, agreement or contract does not ipso fact constitute the offence of the criminal breach of trust contained in Section - 405 of IPC without there-being a clear case of entrustment. The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. 37. But, whereas, in the present case, the accounts of the petitioner No.4 Company were declared as NPA and for the criminal activities resorted to by its Directors. The said accounts were identified as fraud accounts. The petitioners herein did not challenge the said proceedings and thus, the said proceedings attainted finality. The fraud played by the petitioners is specifically mentioned in the tabular form mentioned supra which is Rs.182.99 Crores and it is a loan fraud and it is an economic offence. Therefore, the said principle in Laxmi Narayan is not applicable to the facts of the present case. 38. As discussed supra, there are serious allegations against the petitioners. M....
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....perty initially suspected to be proceeds of crime and material of commission of offence and reasons to believe that an offence of Money Laundering has been committed and offence thereof. By mentioning the said facts, it is specifically mentioned in the ECIR that a prima facie case for an offence of money laundering under Section - 3 of PMLA and punishable under Section - 4 of the Act appears to have been made out. Therefore, the Enforcement Directorate has registered a case and is taken up for investigation under the provisions of the PMLA and the Rules made thereunder. 41. The investigation is an exclusively reserved for the Enforcement Directorate and it is collecting the evidence. Thereafter, Enforcement Directorate will follow the procedure laid down under Chapter - III of the PMLA i.e., Attachment, Adjudication and Confiscation. It will follow the procedure under Chapter - V i.e., Summons, Searchers and Seizures, etc. On completion of the same, including orders passed by the adjudicating authority, there is a provision for filing appeal by invoking the procedure laid down under Chapter - VI of the said Act. According to the Enforcement directorate, instead of co-operating wit....
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....rcement Directorate to an FIR under Section - 154 Cr.P.C. The persons whom summons were issued under Section - 50 of the PMLA cannot be treated as they are accused at present. 44. In the said judgment, the principle laid down by the Apex Court in Ramesh Chandra Mehta v. State of West Bengal [AIR 1970 SC 940] was referred, wherein it was held that normally a person stands in the character of an accused when a first information report is lodged against him in respect of an offence before an Officer competent to investigate it, or when a complaint is made relating to the commission of an offence before a Magistrate competent to try or send to another Magistrate for trial the offence, where a Customs Officer arrests a person and informs that person of the grounds of his arrest for the purpose of holding an enquiry into the infringement of the provisions of the Sea Customs Act which he has reason to believe has taken place, there is no formal accusation of an offence. In the case of an offence by infringement of the Sea Customs Act and punishable at the trial before a Magistrate there is an accusation when a complaint is lodged by an officer competent in that behalf before the Magistra....
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....ss to the bank while enriching themselves. It is at investigation stage. The petitioners have to co- operate with the Investigating Officer by appearing before him pursuant to the summons issued by the Enforcement Directorate. 49. In the present case also, the total OTS payment done by petitioner No.4 is only a small fraction of total dues. The details of the same are specifically mentioned in the tabular form mentioned supra. The allegation against petitioner No.4 is that it has caused a massive loss of Rs.182.99 Crores to the public sector banks and the same is also specifically mentioned in the complaints dated 30.06.2018 and 29.02.2020 by the Central Bank of India and Bank of Maharashtra. The said money ultimately belongs to the public and tax payers. Thus, prima facie, the petitioners have committed fraud not only against one or two banks, but against the public in general and it is a 'loan fraud' and it is an 'economic offence'. 50. Such economic frauds adversely affect the financial and economic well-being of the Nation and have implications which lie beyond the domain of a mere dispute between petitioner No.4 and the above said banks. The mere fact that th....