TaxTMI 
TaxTMI 
2026 (6) TMI 399
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....ty and interpretation of various provisions of the Prevention of Money Laundering Act, 2002 (for short, 'PMLA'), as well as the procedure adopted by the Enforcement Directorate (for short, 'ED') while inquiring into and investigating offences under the Act. 2. In the aforesaid case, a challenge was mounted against Sections 3, 5, 8, 17, 18, 19, 24, 44, 45, 50 and 63 of the PMLA, the Schedule appended thereto, and the practice adopted by the Enforcement Directorate of registering an Enforcement Case Information Report ("ECIR"). The Apex Court, after undertaking an exhaustive and detailed examination of all the contentions advanced before it, upheld the constitutional validity of the impugned provisions. In the process, the Court authoritatively expounded the scope, ambit, and import of several foundational concepts under the Act, including "proceeds of crime" as defined under Section 2(u), "scheduled offence" as defined under Section 2(y), and the offence of money laundering under Section 3. The Court also closely examined the statutory framework governing attachment, adjudication, and confiscation under Chapter III of the Act, as well as the powers conferred upon the authorities ....
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..... Shone George before the Ministry of Corporate Affairs (for short, "MCA"), seeking an investigation into the affairs of the 1st petitioner Company under Sections 210(1)(c) and 212 of the Companies Act, 2013. Thereafter, the complainant, Mr. Shone George, approached this Court by filing a Writ Petition seeking a direction to the MCA to conduct an investigation into the affairs of the Company. e. Subsequently, on 12.01.2024, the MCA passed an order under Section 210(1)(c) of the Companies Act, 2013, appointing three Inspectors under Section 210(3) of the Act to investigate into the affairs of the 1st petitioner Company and to submit a report to the Central Government. f. Thereafter, on 31.01.2024, the MCA passed an order under Sections 212(1)(a) and 212(1)(c) of the Companies Act, 2013, entrusting the investigation into the affairs of the Company to the Serious Fraud Investigation Office (for short, "SFIO"). On the very same day, the SFIO issued an order under Sections 212(1) and 212(4) of the Companies Act, 2013, appointing Inspectors and Investigating Officers to carry out the investigation. They were directed to complete the investigation within a period of eigh....
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...., 2002 and to quash ECIR/KCZO/11/2024 and all investigations and proceedings emanating therefrom by the issuance of a writ of certiorari or such other writ, order or direction; B. Call for the records leading to issuance of Exhibits P-6 to P-9 Summons dated 08.04.2024 and Exhibit P-11 email dated 11.04.2024 by the Respondent and quash the same by the issuance of a writ of certiorari or such other writ, order or direction; C. Writ of Mandamus or any other writ, order or direction, directing the respondent to comply with the request made by the Petitioner company in Exhibit P-10 email dated 10.04.2024. 8. In the counter affidavit filed by the respondent, the following contentions were raised. a. The petition is premature and, therefore, not maintainable. According to the respondent, an ECIR is not a statutory document but merely an internal record maintained by the Directorate of Enforcement, and consequently, it is neither amenable to challenge nor liable to be quashed. It was further contended that a person who has merely been issued a summons cannot, at that stage, be regarded as an aggrieved person so as to invoke the writ jurisdiction of this Court.....
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....iture allegedly utilized for cash payments at Rs.135.54 crores for Assessment Years 2013-14 to 2019-20, i.e. Financial Years 2012-13 to 2018-19. CMRL approached the Income Tax Settlement Commission and quantified the inflated expenses at Rs.134.27 crores. They claimed that the payment of Rs.1.72 crores towards software services was a genuine payment. Further, out of the Rs.134.27 crores, quantified by the Company herein as inflated expenses, CMRL pleaded that a sum of Rs.73.38 crores be allowed as eligible expenses incurred for business purposes and offered the balance amount of Rs.57.78 crores as additional income. The Settlement Commission by order dated 12.06.2023 upheld the findings of the Income Tax Department with respect to inflation of expenses, generation of cash for illegal payments, and fictitious payment of Rs.1.72 crores to Smt. Veena Vijayan and her company M/s. Exalogic Solutions Pvt. Ltd. without rendering of services. However, the Interim Board for Settlement, as part of settlement, allowed 70% of the amount of Rs.73.38 crores claimed as eligible expenditure and disallowed the remaining 30% thereof. f. Since M/s. Cochin Minerals and Rutile Limited is a pub....
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....nd collect information relating to suspected money-laundering activities, independent of the formal registration of a criminal case for the scheduled offence. k. The respondent further contended that the petitioners' reliance on the immunity granted under the provisions of the IT Act is wholly misconceived. It was submitted that the second proviso to Section 245H of the IT Act expressly stipulates that, on and after 01.06.2007, the Income Tax Settlement Commission has no jurisdiction to grant immunity in respect of offences punishable under the Indian Penal Code or under any Central enactment other than the Income Tax Act, 1961 and the Wealth Tax Act, 1957. Consequently, any immunity granted in settlement proceedings under the Income Tax Act cannot operate as a bar against proceedings initiated under the PMLA or in respect of any other independent statutory offence. l. The respondent also contended that a person summoned under Section 50 of the PMLA is under a statutory obligation to comply with such summons. By virtue of sub-section (3) of Section 50 of the PMLA, every person so summoned is bound to attend, either in person or through an authorised agent, as ....
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....nsel, as instructed by Sri Arshdeep Singh Khurana, the learned counsel, advanced the following submissions: a. The learned Senior Counsel submitted that the case of the appellant was that the very registration of ECIR was without jurisdiction. According to the learned counsel, the ECIR would constitute the very foundation and genesis of proceedings initiated by the ED under the PMLA. Only if there exists a scheduled offence, the ED would have the jurisdictional authority to exercise powers under the provisions of the PMLA including the registration of the ECIR, the issuance of summons under Section 50 of the PMLA or any other consequential action. Reliance was placed on Ankur Agarwal v. Directorate of Enforcement [2025:AHC-LKO:11128] and Carona Ltd. v. Parvathy Swaminathan & Sons [(2007) 8 SCC 559] to bolster his submissions. b. It is submitted that the Apex Court in Vijay Madanlal (supra) has emphatically held that an investigation by the ED under the PMLA must necessarily be premised on a valid FIR/complaint registered by a competent investigating agency in respect of a scheduled offence under the PMLA. It is only when the above jurisdictional facts exist that t....
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.... commission under the IT Act invoked powers under Section 245D and if that be the case, in view of Section 245 I of the Income Tax Act, the order passed under Section 245D is conclusive in nature and no matter covered therein can be reopened in any other proceedings under any other law for the time being in force. This aspect of the matter was not properly appreciated by the learned Single Judge. g. It is submitted that the learned Single Judge has seriously erred in relying upon the additional affidavits dated 21.05.2025 and 03.06.2025 filed by the respondent much after the Writ Petition was reserved for judgment. No opportunity was granted to the appellants to file a response on the merits or to address submissions on the merits of the subsequent developments. It is submitted that if such an opportunity was granted, the appellants could have placed on record the proceedings pending before the High Court of Delhi in W.P.(Crl) No.1188 of 2024 wherein the appellants herein had challenged the very initiation of investigation by the SFIO including the orders dated 12.01.2024 and 31.01.2024 passed by the Ministry of Corporate Affairs under various provisions of the Companies A....
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....ted company in which 48.75 % shares are held by the general public and 13.41 % shares are held by KSIDC, a public sector undertaking. It has come out from the initiation of proceedings under the IT Act and the Companies Act that funds were diverted by CMRL to M/s. Exalogic through illegal payments without any business relationship whatsoever thereby causing loss to the public shareholders and KSIDC. It is submitted that by funnelling out funds by such devious methods and by depriving the shareholders of what they were entitled to, CMRL had committed the offence of cheating and other related offences. This diversion of funds led to the generation of proceeds of crime by M/s. Exalogic by way of commission of scheduled offences which is presently under inquiry by the ED under the provisions of the PMLA. It is further submitted that immediately after registration of the ECIR, as contemplated under the statute, information was forwarded to the Kerala Police under Section 66(2) of the PMLA for registration of the crime. It is submitted that such a course was followed by the ED to conduct a prompt enquiry and to secure the proceeds of the crime, if, based on the enquiry, the allegations w....
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....ation in the affairs of the Company under Section 210(1)(c) and 212 of the Companies Act. Pursuant to directions issued by this Court in a W.P.(C) No. 42092 of 2023, the MCA passed an order on 12.01.2024, ordering that the affairs of CMRL are to be investigated and three Inspectors were appointed under Section 210(3) of the Companies Act. Immediately thereafter, on 31.01.2024, the MCA passed an order under Section 212(1)(a) and (c) of the Companies Act, assigning the investigation to be conducted by the SFIO. On the basis of the said order, the SFIO issued an order on 31.01.2024 under Section 212(1) and 212(4) of the Companies Act, 2013 appointing Inspectors and Investigating Officers to carry out an investigation and to conclude the same within a period of eight months. It was thereafter that on 08.04.2024, the summons dated 08.04.2024 were issued by the ED, requiring the officers to personally appear on 11.04.2024 and 15.04.2024. 14. A copy of the summons issued to the principal employees has been produced before this Court as Exts.P6 to P9. In the said summons, it is mentioned that the Assistant Director, Enforcement Directorate, was issuing the same, invoking his powers unde....
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....t in this writ petition, the main relief sought is to quash the ECIR. To answer the said issue, we shall refer to the relevant portions of the judgment in Vijay Madanlal (supra) where the Apex Court had explained the subtle distinction between an ECIR and an FIR. Paragraphs 366 to 372 of the judgment are of relevance: 366. As per the procedure prescribed by the 1973 Code, the officer in-charge of a police station is under an obligation to record the information relating to the commission of a cognizable offence, in terms of Section 154 of the 1973 Code [Lalita Kumari v. State of U.P., (2014) 2 SCC 1]. There is no corresponding provision in the 2002 Act requiring registration of offence of money laundering. As noticed earlier, the mechanism for proceeding against the property being proceeds of crime predicated in the 2002 Act is a sui generis procedure. No comparison can be drawn between the mechanism regarding prevention, investigation or trial in connection with the scheduled offence governed by the provisions of the 1973 Code. 367. In the scheme of the 2002 Act upon identification of existence of property being proceeds of crime, the authority under this Act is ....
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....s fully governed by the provisions of the 2002 Act itself. To wit, regarding survey, searches, seizures, issuing summons, recording of statements of persons concerned and calling upon production of documents, inquiry/investigation, arrest of persons involved in the offence of money laundering including bail and attachment, confiscation and vesting of property being proceeds of crime. Indeed, after arrest, the manner of dealing with such offender involved in offence of money laundering would then be governed by the provisions of the 1973 Code - as there are no inconsistent provisions in the 2002 Act in regard to production of the arrested person before the jurisdictional Magistrate within twenty-four hours and also filing of the complaint before the Special Court within the statutory period prescribed in the 1973 Code for filing of police report, if not released on bail before expiry thereof. 369. Suffice it to observe that being a special legislation providing for special mechanism regarding inquiry/investigation of offence of money laundering, analogy cannot be drawn from the provisions of the 1973 Code, in regard to registration of offence of money laundering and more so....
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....ore the inquiry/investigation required to proceed against the property being proceeds of crime including to the person involved in the process or activity connected therewith, may have deleterious impact on the final outcome of the inquiry/investigation. So long as the person has been informed about grounds of his arrest that is sufficient compliance of mandate of Article 22(1) of the Constitution. Moreover, the arrested person before being produced before the Special Court within twenty-four hours or for that purposes of remand on each occasion, the court is free to look into the relevant records made available by the authority about the involvement of the arrested person in the offence of money laundering. In any case, upon filing of the complaint before the statutory period provided in the 1973 Code, after arrest, the person would get all relevant materials forming part of the complaint filed by the authority under Section 44(1)(b) of the 2002 Act before the Special Court. 372. Viewed thus, supply of ECIR in every case to the person concerned is not mandatory. From the submissions made across the Bar, it is noticed that in some cases ED has furnished copy of ECIR to the....
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.... file a formal complaint before the Special Court, naming the person concerned for the offence of money laundering under Section 3 of the PMLA. It was also held that an ECIR is nothing but an internal document, created by the Department before initiating penal action or prosecution proceedings against the person involved with process or activity, connected with proceeds of crime. More importantly, it was held that the fact that such ECIR has not been registered shall not come in the way of the authorities referred to in Section 48 of the PMLA to commence inquiry/investigation for initiating civil action of attachment, being proceeds of crime by following the prescribed procedure. In plain and simple words, the ECIR is not a statutory document, and there is no provision in the PMLA, requiring the authority mentioned in Section 48 to record ECIR or to furnish copy thereof to the accused, as in the case of Section 154 of the Cr.P.C. As far as furnishing the copy of the ECIR is concerned, it was observed that the ECIR may contain sensitive operational details about the material in the ED's possession, disclosure of which could jeopardize the investigation and frustrate the attachme....
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....judicating authority referred to in Chapter III to adjudicate the matters in issue, including until the filing of the complaint by the authority authorised in that behalf before the Special Courts constituted under Chapter VII PMLA. The expression "proceedings", therefore, need not be given a narrow meaning only to limit it to proceedings before the court or before the adjudicating authority as is contended but must be understood contextually. This is reinforced from the scheme of the Act as it recognises that the statement recorded by the Director in the course of inquiry, to be deemed to be judicial proceedings in terms of Section 50(4) of the 2002 Act. Further in Paragraph Nos. 102 and 103, it was observed as under: 102. The task of the Director or an authority authorised by the Central Government under the 2002 Act for the collection of evidence is the intrinsic process of adjudication proceedings. In that, the evidence collected by the authorities is placed before the adjudicating authority for determination of the issue as to whether the provisional attachment order issued under Section 5 deserves to be confirmed and to direct confiscation of the property in quest....
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....on, which is not limited to provide for prosecution of persons involved in the offence of money-laundering, but mainly intended to prevent money-laundering activity and confiscate the proceeds of crime involved in money-laundering. It also provides for prosecuting the person involved in such activity constituting the offence of money-laundering. In other words, the role of the Authorities appointed under Chapter VIII of the PMLA is such that they are tasked with dual role of conducting inquiry and collect evidence to facilitate adjudication proceedings before the Adjudicating Authority in exercise of powers conferred upon them under Chapters III and V of the PMLA and also to use the same materials to bolster the allegation against the person concerned by way of a formal complaint to be filed for offence of money-laundering under the PMLA before the Special Court, if the fact situation so warrant. It is not as if, after every inquiry prosecution, is launched against all persons found to be involved in the commission of the offence of money laundering. It was held that inquiry is the foundational process and when ED receives information suggesting the existence of proceeds of crime, ....
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....t in respect of matters specified in sub-section (1). While explaining the scope and ambit of Section 50, the Apex Court held as under in paragraph No. 338 of the judgment: "338. In the context of the 2002 Act, it must be remembered that the summons is issued by the authority under Section 50 in connection with the inquiry regarding proceeds of crime which may have been attached and pending adjudication before the adjudicating authority. In respect of such action, the designated officials have been empowered to summon any person for collection of information and evidence to be presented before the adjudicating authority. It is not necessarily for initiating a prosecution against the noticee as such. The power entrusted to the designated officials under this Act, though couched as investigation in real sense, is to undertake inquiry to ascertain relevant facts to facilitate initiation of or pursuing with an action regarding proceeds of crime, if the situation so warrants and for being presented before the adjudicating authority. It is a different matter that the information and evidence so collated during the inquiry made, may disclose commission of offence of money launder....
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....), it is not an investigation for initiating prosecution in respect of crime of money laundering as such. That is only an incidental matter and may be the consequence of existence of proceeds of crime and identification of persons involved in money laundering thereof. 23. The Apex Court has held that the nominal use of the word "investigation" in Section 50 would not transform an inquiry into a prosecution. It was held that stricto sensu, at the stage of issuance of summons, the exercise carried out by the ED is not an investigation for initiating prosecution in respect of an offence of money laundering. The Court refused to hold that the word "investigation" used in Section 50(2) conferred a power to initiate prosecution, but instead characterised it as an inquiry power, directed at ascertaining the existence of proceeds of crime and the involvement of persons in the process or activity connected with such proceeds. In other words, the power under Section 50 of the PMLA is primarily an instrument of the civil limb of the PMLA. The prosecution of the person against whom a summons was issued under Section 50 is a potential, but not an inevitable consequence. The evidence obtai....
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....also in a given case, justified in acting with utmost speed to ensure that the proceeds of crime/property is available for being proceeded with appropriately under the 2002 Act so as not to frustrate any proceedings envisaged by the 2002 Act. (emphasis supplied) 26. In the conclusion portion, in paragraph No. 382 of the Judgment, it was held that the fact that FIR in respect of scheduled offence has not been recorded does not come in the way of the authorities referred to in Section 48 to commence inquiry/investigation for initiating "civil action" of "provisional attachment" of property being proceeds of crime. In other words, the Apex Court made it unequivocally clear that the critical distinction is that the prosecution of an accused requires a registered scheduled offence, whereas, initiation of civil action does not. It would also be appropriate to refer to Section 66(2) of the PMLA, which reads as under: Section 66. xxxx xxxx xxxx (2) If the Director or other authority specified under sub-section (1) is of the opinion, on the basis of information or material in his possession, that the provisions of any other law for the time being in force are c....
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....he other hand the objective of the PMLA is the process or activity connected with proceeds of crime. Even if the Income Tax Settlement Commission determines that a taxpayer has made full and true disclosure and grants immunity under the IT Act, that determination operates only within the four corners of the IT Act and has no res judicata or estoppel effect in PMLA proceedings, which involve a distinct cause of action and a distinct legal regime. The settlement of a tax dispute cannot therefore extinguish the offence of money laundering or the ED's jurisdiction to inquire into the transactions leading to the proceeds of crime. 29. The appellants have raised a contention that additional affidavits were filed by the respondent, intimating the Court about the filing of a complaint before the jurisdictional forum by the SFIO and that too after the judgment was reserved. The said fact was taken note of by the learned Single Judge to hold that the substratum of the case set up no longer subsists. It was also contended that if an opportunity was granted, the appellants could have placed on record the interdictory orders passed in the said proceedings in a challenge mounted by the ap....