Supreme Court Declines Interference in JSW Steel PMLA Proceedings

JSW Steel Limited Etc. Vs Deputy Director (Supreme Court of India)

Summary: The Supreme Court disposed of the appeals filed by JSW Steel Limited and others arising from proceedings under the Prevention of Money Laundering Act, 2002 (PMLA). The supplied Supreme Court order records that Justice Augustine George Masih pronounced the judgment of the Bench comprising Justice Dipankar Datta and Justice Augustine George Masih and that the appeals were disposed of in terms of a signed non-reportable judgment. The supplied Supreme Court text does not reproduce that signed judgment or its reasons. Accordingly, no conclusion is drawn from the supplied material regarding the substantive reasoning adopted by the Supreme Court or the precise manner in which it dealt with the findings of the Karnataka High Court.

The appeals arose from a Karnataka High Court common judgment concerning two writ petitions filed by JSW Steel. W.P. No. 7499 of 2022 sought quashing of proceedings, including investigation emanating from ECIR/09/BZ/2012, while W.P. No. 11399 of 2022 additionally challenged the Special Court’s order dated 11 April 2022 taking cognizance and issuing summons. The High Court dismissed both petitions. It considered itself bound by an earlier inter-parties Coordinate Bench ruling and also declined to revisit an issue pending before the Supreme Court. On cognizance, it applied Pradeep S. Wodeyar v. State of Karnataka, 2021 SCC OnLine SC 1140, and held that the Special Judge’s order demonstrated the requisite application of mind.

Supreme Court Order

The Supreme Court order supplied for the present appeals is brief. It records that Justice Augustine George Masih pronounced the judgment of the Bench comprising Justice Dipankar Datta and Justice Augustine George Masih.

It further records that the appeals were disposed of in terms of the signed non-reportable judgment and that pending applications, if any, would stand disposed of.

Since the text of that signed non-reportable judgment is not contained in the material supplied, the reasons, directions or other substantive terms contained in that judgment cannot safely be reconstructed from the short pronouncement order. The discussion below therefore sets out the proceedings and reasoning contained in the underlying Karnataka High Court judgment supplied with the Supreme Court order.

Underlying Karnataka High Court Judgment

JSW Steel Sought Quashing of ECIR and PMLA Proceedings

JSW Steel Limited approached the Karnataka High Court in W.P. No. 7499 of 2022 seeking quashing of all proceedings, including investigation and other proceedings against the company and its officials emanating from ECIR/09/BZ/2012.

In the connected W.P. No. 11399 of 2022, JSW Steel and another petitioner additionally challenged the order dated 11 April 2022 by which the concerned Special Court took cognizance of the alleged offences and issued summons.

Since both petitions arose from substantially common facts and grounds, the High Court considered them together.

₹130 Crore Advance Paid for Supply of Iron Ore

JSW Steel stated that it had entered into a contract dated 16 November 2009 with Obulapuram Mining Company Private Limited (OMC), associated with G. Janardhan Reddy, for supply of 1.5 million tonnes of iron ore, fines and lumps to JSW’s Vijayanagar plant.

JSW claimed to have paid an advance of ₹130 crore by bank transfer towards the supplies.

According to JSW, OMC failed to supply the contracted quantity from March 2010 onwards. Despite subsequent supplies through sister concerns, iron ore corresponding to approximately ₹35.45 crore remained due.

JSW therefore maintained that it was a creditor of OMC and its related concerns rather than a recipient of proceeds of crime.

CBI Investigation and ECIR Followed Illegal Mining Proceedings

On 23 September 2011, the Supreme Court directed a CBI investigation into alleged illegal mining and export of iron ore by Associated Mining Company. The CBI registered an FIR against several persons, including G. Janardhan Reddy and Lakshmi Aruna.

A charge sheet was filed on 30 May 2012 for offences under the IPC and the Prevention of Corruption Act, 1988. JSW was not named in that charge sheet.

Meanwhile, JSW initiated arbitration proceedings against OMC for recovery of approximately ₹35.44 crore and damages. On 25 September 2012, the Enforcement Directorate registered the ECIR against G. Janardhan Reddy and Lakshmi Aruna.

The CBI subsequently filed a supplementary report on 6 September 2013 in which JSW’s name appeared.

Arbitration Award Relied Upon to Deny Possession of Proceeds of Crime

JSW relied upon the arbitral proceedings to contend that its dealings with OMC were ordinary commercial transactions for purchase of iron ore.

The Arbitral Tribunal granted the relief sought by JSW. An execution application was subsequently filed before the Bombay High Court for enforcement of the award. OMC’s challenge to the award in Commercial Arbitration Petition No. 454 of 2019 was dismissed for non-prosecution.

On this basis, JSW contended that it was a creditor of OMC and could not be regarded as being in possession of proceeds of crime under the PMLA.

Earlier Division Bench Had Quashed PMLA Proceedings

JSW placed substantial reliance upon a Karnataka High Court Division Bench judgment dated 13 March 2017 concerning proceedings against G. Janardhan Reddy and Lakshmi Aruna.

The Division Bench had held that offences allegedly committed before their inclusion in the Schedule to the PMLA could not be subjected to the PMLA retrospectively. It consequently quashed the concerned ECIR and attachment proceedings.

The State challenged that decision before the Supreme Court in SLP (Criminal) Nos. 4472-4473 of 2017.

On 24 July 2017, the Supreme Court granted leave and directed that the impugned Division Bench judgment would not operate as a precedent.

JSW nevertheless argued before the High Court that the Division Bench judgment itself had not been stayed. According to JSW, once the foundational ECIR had been quashed, consequential proceedings based upon it could not survive.

Earlier Inter-Parties Judgment Went Against JSW

The Enforcement Directorate relied upon an important intervening judgment of a Coordinate Bench of the Karnataka High Court in Dyani Antony Paul v. Union of India, 2020 SCC OnLine Kar 4995 / MANU/KA/4442/2020.

Three of the connected writ petitions considered in those proceedings had been filed by the present petitioners. The Coordinate Bench had therefore already considered substantially the same challenge concerning the scheduled offence, retrospective application of the PMLA and the character of money laundering as a standalone offence.

Earlier Coordinate Bench Treated Money Laundering as Standalone Offence

In Dyani Antony Paul, the Coordinate Bench had considered whether proceedings under the PMLA would be without jurisdiction where the predicate offence was not included in the Schedule on the relevant date and whether the offence of money laundering under Section 3 PMLA was a standalone offence.

The earlier judgment held that what is targeted by Section 3 is the laundering of money. Consequently, the relevant consideration is the date on which the alleged proceeds are processed or projected as untainted and not merely the date on which the illicit money was originally acquired.

It further treated money laundering as a continuing offence and rejected the argument that proceedings necessarily failed merely because of the timing of inclusion of the predicate offence in the Schedule.

Properties of Persons Other Than Predicate-Offence Accused Can Be Proceeded Against

The earlier Coordinate Bench also considered Sections 5 and 8 of the PMLA and the definition of “proceeds of crime”.

Relying upon B. Rama Raju v. Union of India, (2011) 3 ALD 443 (DB), it noted the distinction between prosecution for money laundering and proceedings for attachment, adjudication and eventual confiscation of property.

The reasoning recognised that attachment proceedings can, subject to the statutory conditions, extend to property in the possession of a person who is not himself accused of the scheduled offence if the property represents proceeds of crime.

The earlier decision also relied upon Radha Mohan Lakhotia v. Deputy Director, PMLA, 2010 SCC OnLine Bom 1116, concerning the breadth of the expression “any person” for the purposes of attachment of proceeds of crime.

Money Laundering Considered a Continuing Offence

The earlier Coordinate Bench relied upon State of Bihar v. Deokaran Nenshi, (1972) 2 SCC 890 for the distinction between an offence committed once and for all and a continuing offence.

It concluded that money laundering could continue through the processes of placement, layering and integration and that the relevant date for Section 3 PMLA was when the person was allegedly involved in the process or activity connected with proceeds of crime and their projection as untainted property.

That earlier inter-parties ruling therefore rejected the challenge based upon alleged retrospective application of the PMLA.

High Court Held Earlier Inter-Parties Findings Bound the Petitioners

In the present proceedings, the High Court observed that the contentions advanced by JSW had already been considered by the Coordinate Bench in the earlier proceedings involving the same parties.

Although the writ appeals arising from the earlier decision were subsequently disposed of by relegating the appellants to the Appellate Tribunal and granting limited interim protection, the Division Bench had not disturbed the findings rendered in the Coordinate Bench judgment.

The High Court therefore held that the same contentions could not simply be reagitated before it.

Judicial Discipline Required High Court to Hold Its Hands

The High Court additionally considered the fact that the central issue arising from the earlier Division Bench judgment was pending before the Supreme Court.

It referred to D.K. Trivedi & Sons v. State of Gujarat, 1986 Supp SCC 20; Chhavi Mehrotra v. Director General, Health Services, 1995 Supp (3) SCC 434; Union of India v. Jaiswal Coal Co. Ltd., (1999) 5 SCC 733; Mohinder Kumar v. State of Haryana, (2001) 10 SCC 605; and Kalyan Chandra Sarkar v. Rajesh Ranjan, (2005) 2 SCC 42.

The High Court drew from these decisions the principle that judicial discipline assumes particular importance where a higher forum is already seized of the same central issue.

It therefore declined to pronounce afresh upon whether the alleged offences were scheduled offences on the date of the relevant transactions.

Jurisdictional-Fact Argument Did Not Alter the Result

JSW relied upon Arun Kumar v. Union of India, (2007) 1 SCC 732 for the principle concerning jurisdictional facts.

The High Court did not dispute the principle but held that it did not assist JSW in the peculiar circumstances because the Supreme Court had directed that the earlier Division Bench judgment should not operate as a precedent and an inter-parties Coordinate Bench judgment had already rejected an identical challenge.

Reliance was also placed upon Shauqin Singh v. Desa Singh, (1970) 3 SCC 881 and State of Punjab v. Davinder Pal Singh Bhullar, (2011) 14 SCC 770 to contend that where the initial action is contrary to law, subsequent and consequential proceedings must also fall.

The High Court distinguished that submission because the Supreme Court had not yet held that the initial action under the PMLA in the controversy before it was contrary to law.

Second Petition Challenged Cognizance and Summons

W.P. No. 11399 of 2022 raised an additional issue concerning the Special Judge’s order dated 11 April 2022 taking cognizance and issuing summons.

The Special Judge recorded that the complaint had been filed by an Assistant Director of the Directorate of Enforcement acting as a public servant and that recording of a sworn statement was therefore dispensed with in terms of Section 200(a) CrPC.

The order further recorded that the complaint averments and documents produced in two volumes had been perused and that sufficient prima facie material existed against accused Nos. 1 to 5 for the offence punishable under Section 4 PMLA.

Application of Mind Necessary While Taking Cognizance

JSW relied upon Sunil Bharti Mittal v. CBI, (2015) 4 SCC 609 and other Supreme Court decisions to contend that the cognizance order did not demonstrate sufficient application of mind.

The High Court particularly examined Pradeep S. Wodeyar v. State of Karnataka, 2021 SCC OnLine SC 1140, where a three-Judge Bench of the Supreme Court had considered the law governing cognizance.

Pradeep S. Wodeyar reiterated the settled principle that cognizance is taken of the offence and not the offender. It also examined the extent to which application of mind must be reflected in an order taking cognizance.

Fully Reasoned Cognizance Order Not Invariably Required

The High Court noted the distinction discussed in Pradeep S. Wodeyar between cognizance based upon a private complaint and cognizance based upon a police report.

The Supreme Court had held that where cognizance is based upon a police report, a fully reasoned order is not obligatory if the order otherwise demonstrates that the Special Judge applied his mind to the material before him.

The Supreme Court had also held that an irregularity in a cognizance order would not necessarily vitiate the proceedings unless a failure of justice within the meaning of Section 465 CrPC was demonstrated.

Special Judge Had Considered Complaint and Two Volumes of Documents

Applying those principles, the Karnataka High Court found that the Special Judge’s order was not a mechanical one-line order.

The Special Judge had expressly recorded that the complaint averments and documents contained in two volumes were perused and that sufficient prima facie material existed for taking cognizance.

The High Court therefore concluded that the order demonstrated the requisite application of mind.

The contention that cognizance and summons were vitiated for want of reasons was accordingly rejected.

Both Writ Petitions Dismissed

The Karnataka High Court ultimately declined to interfere either with the action challenged in W.P. No. 7499 of 2022 or with the cognizance order challenged in W.P. No. 11399 of 2022.

Finding no merit warranting interference at that stage, the High Court dismissed both writ petitions. Consequently, pending I.A. No. 1 of 2022 in W.P. No. 11399 of 2022 was also disposed of.

Cases Discussed

• Pradeep S. Wodeyar v. State of Karnataka, 2021 SCC OnLine SC 1140 (Supreme Court) — Extensively considered on the requirements governing cognizance and application of mind. The High Court applied its principle that a fully reasoned cognizance order is not invariably necessary where the material demonstrates application of mind and no failure of justice is shown.
• Dyani Antony Paul v. Union of India, 2020 SCC OnLine Kar 4995 / MANU/KA/4442/2020 (Karnataka High Court) — The earlier inter-parties Coordinate Bench decision considered substantially the same challenge to the PMLA proceedings. Its findings on the standalone and continuing character of money laundering and the relevant date of laundering were treated as binding in the present proceedings.
• Sunil Bharti Mittal v. CBI, (2015) 4 SCC 609 (Supreme Court) — Considered on the requirement that the Magistrate or Special Judge apply judicial mind before taking cognizance and issuing process.
• Alive Hospitality and Food Private Limited v. Union of India, 2013 SCC OnLine Guj 3909 (Gujarat High Court) — Referred to in the earlier Coordinate Bench judgment while approving the approach adopted in B. Rama Raju concerning the PMLA and proceeds of crime.
• Bhushan Kumar v. State (NCT of Delhi), (2012) 5 SCC 424 (Supreme Court) — Referred to on application of mind at the stage of cognizance and the proposition that Section 204 CrPC does not require explicit narration of reasons for issuance of summons in every case.
• State of Punjab v. Davinder Pal Singh Bhullar, (2011) 14 SCC 770 (Supreme Court) — Relied upon by JSW for the consequence of an invalid foundational action; the High Court held the principle did not assist JSW on the facts because the foundational PMLA action had not been declared invalid by the Supreme Court.
• B. Rama Raju v. Union of India, (2011) 3 ALD 443 (DB) (Andhra Pradesh High Court) — Considered in the earlier inter-parties decision for the distinction between prosecution for money laundering and attachment, adjudication and confiscation proceedings, including proceedings concerning property held by persons not accused of the scheduled offence.
• Radha Mohan Lakhotia v. Deputy Director, PMLA, 2010 SCC OnLine Bom 1116 (Bombay High Court) — Referred to on the scope of Section 5 PMLA and the ability to proceed against proceeds of crime in the possession of a person other than the person charged with the scheduled offence.
• Bank of India v. Ketan Parekh, (2008) 8 SCC 148 (Supreme Court) — Referred to in the earlier Coordinate Bench judgment while considering the operation of special statutes and overriding provisions.
• Chief Enforcement Officer v. Videocon International Limited, (2008) 2 SCC 492 (Supreme Court) — Referred to on issuance of summons and the proposition that Section 204 CrPC requires formation of an opinion regarding sufficient ground for proceeding but does not invariably require explicit narration of reasons.
• Arun Kumar v. Union of India, (2007) 1 SCC 732 (Supreme Court) — Relied upon by JSW on jurisdictional facts. The High Court accepted the principle but held that it did not alter the result in view of the earlier inter-parties determination and pending Supreme Court proceedings.
• Kalyan Chandra Sarkar v. Rajesh Ranjan, (2005) 2 SCC 42 (Supreme Court) — Applied on judicial discipline and the importance of respecting findings of higher courts and Coordinate Benches.
• Solidaire India Limited v. Fairgrowth Financial Services, JT 2001 (2) SC 642 (Supreme Court) — Referred to while considering the interaction of special enactments and overriding statutory provisions.
• Mohinder Kumar v. State of Haryana, (2001) 10 SCC 605 (Supreme Court) — Cited on judicial discipline where a related issue is awaiting determination by a larger or higher forum.
• Union of India v. Jaiswal Coal Co. Ltd., (1999) 5 SCC 733 (Supreme Court) — Relied upon for the principle that a High Court should observe judicial discipline where the Supreme Court is already seized of proceedings concerning the same subject matter.
• Chhavi Mehrotra v. Director General, Health Services, 1995 Supp (3) SCC 434 (Supreme Court) — Referred to for the requirement of judicial propriety and avoidance of conflicting exercise of jurisdiction where the Supreme Court is seized of the matter.
• Attorney General for India v. Amratlal Prajivandas, (1994) 5 SCC 54 (Supreme Court) — Referred to in the earlier PMLA decision while considering forfeiture of illegally acquired property held through relatives or associates.
• Kartar Singh v. State of Punjab, 1994 SCC (Cri) 899 (Supreme Court) — Referred to on mens rea and the principle that criminal liability ordinarily requires a guilty mind unless the statute expressly or by necessary implication excludes it.
• D.K. Trivedi & Sons v. State of Gujarat, 1986 Supp SCC 20 (Supreme Court) — Considered while examining the proper course for a High Court when substantially the same legal issue is pending before the Supreme Court.
• State of Bihar v. Deokaran Nenshi, (1972) 2 SCC 890 (Supreme Court) — Relied upon in the earlier inter-parties proceedings to explain the distinction between an offence committed once and for all and a continuing offence.
• Shauqin Singh v. Desa Singh, (1970) 3 SCC 881 (Supreme Court) — Relied upon by JSW in support of its challenge to the jurisdictional foundation of the proceedings; the High Court found the principle insufficient to overcome the circumstances of the present case.
• R.R. Chari v. State of Uttar Pradesh, AIR 1951 SC 207 (Supreme Court) — Referred to in the discussion of the meaning of taking cognizance and the point at which a Magistrate or Judge first takes judicial notice of an offence.
• Gopal Marwari v. Emperor, AIR 1943 Pat 245 (Patna High Court) — Referred to through the cognizance jurisprudence considered by the Karnataka High Court for explaining the meaning of “cognizance”.

Read KarnatakaHC Judgment in this case: PMLA Proceedings Cannot Be Quashed on Issues Already Considered Earlier: Karnataka HC

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. Hon’ble Mr. Justice Augustine George Masih has pronounced the judgment of the Bench comprising Hon’ble Mr. Justice Dipankar Datta and His Lordship.

2. The appeals are disposed of in terms of signed non-reportable judgment.

3. Pending application(s), if any, shall stand disposed of.