Case Law Details
Karvy Realty India Ltd. Vs The Adjudicating Authority (Telangana High Court)
Telangana High Court granted two months time for submission of reply to the show cause notice. Further, stated that extended period of two months will be excluded for the purpose of computing period of 180 days under Section 5(3) of the Prevention of Money Laundering Act, 2002.
Facts- This writ petition is filed to issue a direction to 1st respondent to grant extension of time to the petitioners to prepare a reply to the show cause notice, for a further period of two months and consequently exclude two month period from the computation of 180 days under Section 5(3) of the Prevention of Money Laundering Act, 2002 (for short, ‘the Act’).
Conclusion- Noted that it will take some time to go through the relevant documents, collect information and prepare reply. Accordingly, this Writ Petition is disposed of granting two months’ time from today to the petitioners to submit their explanation/reply to the show cause notice and it is relevant to note that for the purpose of computing the period of 180 days, the period which was extended by this Court for submitting reply is excluded as per third proviso to Section 5(1) of the Act.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
This writ petition is filed to issue a direction to 1st respondent to grant extension of time to the petitioners to prepare a reply to the show cause notice, for a further period of two months and consequently exclude two month period from the computation of 180 days under Section 5(3) of the Prevention of Money Laundering Act, 2002 (for short, ‘the Act’).
2. Heard Sri Avinash Desai, learned counsel for the petitioners, Sri Gadi Praveen Kumar, learned Deputy Solicitor General of India, appearing for respondents. Perused the record.
3. The undisputed facts in the present writ petition are as follows:-
The Central Crime Station (CCS), Hyderabad had registered a case in Cr.No.78 of 2021 against M/s Karvy Stock Broking Limited (for short, ‘KSBL’) to which C.Pardhasarathy, is the Chairman, 3rd petitioner herein and its Directors and FIR No.86 of 2021 against M/s Karvy Comtrade Limited and its Directors for the offence under Section 420 of IPC. The allegations leveled against them are that they have not repaid loans which are classified as fraud accounts. The Investigation under the provisions of the Act was initiated vide File No. ECIR/ HYZO/14/2021, dated 19.05.2021 by 2nd respondent. Several other FIRs registered in respect of the case were also taken on record. The said C.Parthasarathy, was in judicial custody from 19.08.2021 to 25.06.2022 in various crimes at Chanchalguda Central Jail, Hyderabad.
4. According to 2nd respondent, their investigation would reveal that the loans outstanding in books of KSBL as on 31.03.2020 are Rs.1705.23 Crores. These loans were fraudulently obtained by KSBL from banks/Financial Institutions by declaring clients’ shares as its own shares. Moreover, KSBL, transferred shares of fully paid up clients/clients who did not owe any funds to the company illegally and pledged with the banks/Financial Institutions. It involved the blatant misuse of Power of Attorney given by the clients to the KSBL/the petitioner. During the course of investigation, Provisional Attachment Order (PAO) No.06/22, dated 08.03.2022 under Section 5(1) of the Act was issued by 2nd respondent attaching various properties. The Original Complaint No.1680 of 2022 dated 06.04.2022 was filed by 2nd respondent before 1st respondent in respect of PAO. 1st respondent had issued show cause notice dated 22.04.2022 under Section 8(1) of the Act, to the petitioners herein in respect of the said original complaint. The show cause notice along with original complaint and relied upon documents were served upon various defendants, including the petitioners herein, on 09.05.2022 by hand. The same were also duly served on Sri C.Parthasarathy in Chanchalguda Jail premises in hard as well as soft copy on 10.05.2022. The due date of compliance as per the show cause notice dated 22.04.2022 was 05.06.2022.
5. The petitioners herein had filed a writ petition vide W.P.No.27051 of 2022 seeking extension of time to submit reply to the said show cause notice. This Court, vide order dated 28.06.2022 granted extension of one month time to the petitioners to prepare a reply to the said show cause notice. The said one month time granted by this Court was expired on 27.07.2022. Thereafter, the petitioners herein have filed the writ petition vide W.P.No.30753 of 2022 seeking extension of two months time to submit the reply to the said show cause notice and also to exclude the said two months time from the computation of 180 days under Section 5(3) of the Act on the on several grounds therein. This Court vide order dated 10.08.2022 granted further two months from 10.08.2022 to the petitioners therein to submit their explanation/reply to the show cause notice dated 22.04.2022 excluding the extended time period for computing the period of 180 days. The said two months time was expired on 10.10.2022.
6. 2nd respondent filed original complaint No.1799 of 2022, dated 26.08.2022 under Section 5(5) of the PMLA before 1st respondent against the petitioners herein. 1st respondent issued subject PAO No.15 of 2022 dated 28.07.2022 under Section 5(1) of the Act to a tune of Rs.110,70,18,735.78/- in the case vide F.No.ECIR/HYZO/14/ 2021. The 1st respondent issued a Show Cause Notice dated 19.09.2022 under Section 8(1) of the Act to the petitioners herein calling upon them to indicate the source of income, earning or assets out of they have acquired the properties attached under PAO No.15 of 2022 and why the said attachment should not be confirmed. The petitioners herein, through their counsel vide e-mail dated 29.10.2022 to 1st respondent sought adjournment for a period of four (4) weeks, to file an effective reply to the show cause notice. 1st respondent vide its e-mail dated 31.10.2022, granted additional two weeks time till 14.11.2022 to file reply. On 08.11.2022, the petitioners herein filed a writ petition vide W.P.No.41133 of 2022 to quash PAO No. 15 of 2022 dated 28 07 2022 passed by 2nd respondent and set aside the Show Cause Notice dated 19.09.2022. The petitioners also filed a petition vide I.A.No.1 of 2022 in the said writ petition seeking interim suspension of the said show cause notice dated 19.09.2022 and the said writ petition is reserved for orders.
7. Sri Avinash Desai, learned counsel for the petitioners would submit that by virtue of PAO, dated 28.07.2022, the properties mentioned therein of the petitioners were attached and the same will be continued under attachment until and unless Adjudicating Authority passes an order under Section 8(3) of the Act. Therefore, 2nd respondent-Investigating Agency is under advantageous position by way of present PAO, dated 19.09.2022. No prejudice would be caused to the Investigating Agency if time is extended. He would further submit that vide above said PAO, dated 19.09.2022, 2nd respondent had attached several properties. Some of the properties were acquired two decades ago. Mr. C. Parthasarathy, Chairman of Karvy Group of Companies, has acquainted with the said facts and he has to collect information with regard to the same as 5000 pages of documents were furnished. Several cases were registered against him. He was released on bail on 25.06.2022 itself. In compliance of the conditions imposed by the concerned Courts in bail orders, he has to appear before the respective Investigating Officers 4 days in a week including one day in Bangalore. His health condition is very bad. He has to go through the same, collect information and submit effective reply. 2nd respondent illegally initiated proceedings under the PMLA Act and filed the said original complaint against the petitioners herein, without there being a scheduled offence under the PMLA Act and without a complaint from Laxmi Vilas Bank presuming that Karvy Group of Entities took loans from said Laxmi Vilas Bank. 1st respondent without considering the fact that the petitioners are making hectic efforts to submit reply to the show cause notice dated 22.04.2022 in Original Complaint No.1680 of 2022, directed the petitioners to file their replies to the present show cause notice also on or before 01.11.2022. 1st respondent has no jurisdiction to issue the said show cause notice dated 19.09.2022.
8. During pendency of the said writ petition, 1st respondent continued to proceed with the case and fixed date of hearing on 22.12.2022 without giving an opportunity to the petitioners to submit their written replies. Therefore, the petitioners sought extension of further period of two months to submit reply to the show cause notice which is not deliberate. No prejudice would be caused to the respondents if the provisional attachment made by the respondents is continued during the said period and the same is excluded from the computation of 180 days period under Section 5(3) of the Act.
9. There is force in the said arguments of Sri Avinash Desai, learned counsel for the petitioners. There is no dispute that several properties were attached under the subject PAO, dated 28.07.2022. It is also not in dispute that some of the properties were acquired about two decades ago. The petitioners have to collect information and submit effective reply. It is also not in dispute that several documents running into about 5000 pages were furnished to the petitioners along with the show cause notice. They have to go through the same and submit explanation effectively. It is also not in dispute that Mr. C.Parthasarathy, Chairman of Karvy Group of Companies is involved in several crimes and he was arrested. He was released on bail only on 25.06.2022. The Courts concerned have imposed several conditions including the condition of his appearance before the Investigating Officer concerned and to cooperate with him by furnishing information/documents as sought by him in concluding investigation.
10. It is also not in dispute that one crime is pending in Bangalore and that he has to appear before the Investigating Officer in the said crime. He was hospitalized on 25.06.2022 itself and discharged on 30.06.3022, his samples were sent for biopsy and reports are awaited. His health condition is very bad. He has to go through the same, collect information and submit effective reply.
11. Sri Gadi Praveen Kumar, learned Deputy Solicitor General of India, appearing for respondents would submit that on expiry of 180 days from the date of PAO, in terms of Section 5(3) of the Act, the said PAO ceases to have effect and Adjudicating Authority has become functus officio and the proceedings in the said complaint could not proceed. He has also placed reliance on the judgment of Delhi High Court in M/s Vikas WSP Ltd. Vs. Directorate Enforcement1. In the said case, the Delhi High Court, accepting the said contention of 2nd respondent/Investigating Agency observed that the Adjudicating Authority would be rendered functus officio after expiry of the period of 180 days and could not proceed with the original complaint pending before it.
12. It is relevant to note that, vide order dated 28.06.2022 in W.P.No.27051 of 2022, this Court considering the provisions of the Act, contentions of the parties including the principle laid down by Delhi High Court in the aforesaid judgment held that the facts of the said case are different to the facts in W.P.No.27051 of 2022, as such the said judgment is not applicable to the facts in W.P.No.27051 of 2022 and the said decision is not helpful to the respondent Department. With the said findings, this Court has granted one month time to the petitioners herein to prepare a proper response to the impugned show cause notice. In W.P.No.30753 of 2022, this Court vide order dated 10.08.2022 granted further two months from 10.08.2022 to the petitioners therein to submit their explanation/reply to the show cause notice dated 22.04.2022 excluding the extended time period for computing the period of 180 days. The said two months time was expired on 10.10.2022. For the purpose of computing the period of 180 days, the period during which the proceedings were extended shall be excluded as per the third proviso to Section 5 of the Act, inserted by way of Amendment Act No.13 of 2018 w.e.f. 19.04.2018. Therefore, the petitioners herein have filed the present writ petition seeking extension of two months time to submit the reply to the said show cause notice and also to exclude the said two months time from the computation of 180 days under Section 5(3) of the Act on the following grounds;-
i) There are many properties mentioned in the PAO along with show cause notice, 5000 pages of documents were supplied to the petitioners herein. Some of the properties were acquired two decades ago and therefore, the petitioners have to collect information with regard to the same.
ii) Several crimes were registered against the petitioners companies, Directors etc., and they have obtained bail in the said crimes.
iii) The Courts concerned have granted bail to them on imposition of certain conditions including the condition of reporting before the Investigating Officers concerned on a particular day of the week. Therefore, they have to appear before the Investigating Officers in compliance of the said orders. They have to appear before the Investigating Officer weekly four days including one day before the Investigating Officer in Bangalore.
iv) The Chairman of Karvy Group of Companies was released on bail on 25.06.2022, he was hospitalized on the very same day on 15.06.2022 and discharged from the hospital on 30.06.2022.
v) His biopsy sample was sent to the Laboratory.
vi) He is the main person acquainted with the facts and he has to collect information, prepare reply and submit it to the 1st respondent/Adjudicating Authority.
vii) No prejudice would be caused either to 1st respondent or 2nd respondent.
13. The said relief is opposed by the 2nd respondent on the following grounds:-
i) The adjudication process before 1st respondent under the provisions of the Act is time-bound and 1st respondent is under statutory obligation to pass order under Section 8(3) of the Act within 180 days from the date of attachment.
ii) The petitioners have sought extension of time and therefore, vide e-mail dated 24.06.2022, 1st respondent has granted additional time of one week to the petitioners to submit their reply on or before 28.06.2022. Even then, they have not submitted their reply. Instead, they have filed the above said writ petitions.
iii) This Court has granted one month time to submit reply to the petitioners and even then they have not submitted reply. On the other hand, they are seeking extension of time without mentioning satisfactory reasons and therefore, they are trying to delay the adjudicating process which is time bound.
iv) They have assistance of lawyers, Chartered Accountants, employees and access to the case documents. Even then, instead of submitting reply to the said show cause notice, they are intentionally seeking time.
v) Show Cause Notice, dated 19.09.2022 was served on 29.09.2022 granting 30 days time to submit explanation. The same was extended from time to time. Vide e-mail dated 29.10.2022 time was extended by two weeks which was expired by 14.11.2022. They have not submitted any reply. Now they are seeking two months time to submit explanation which is unreasonable and it is not based on satisfactory reasons.
12. It is also not in dispute that 1st respondent vide its e-mail dated 31.10.2022, granted additional two weeks time till 14.11.2022 to file reply.
14. No doubt, though the petitioners are having assistance of Advocates, Chartered Accountants, Managers and employees etc., who are having access to the affairs of the petitioners companies, collect information and prepare reply by taking guidance of the Chairman, Karvy Group of Companies. At the same time even to go through the said documents, collect information and prepare reply, certainly, it will take some time.
15. As discussed supra, at the cost of repetition, it is relevant to note that in PAO, dated 28.07.2022, there are several properties and the documents furnished by 1st respondent along with the show cause notice running into 5000 pages. Some of the properties were acquired about two decades ago. Therefore, they have to collect information and submit reply effectively.
16. As rightly contended by Sri Avinash Desai, learned counsel for the petitioners, the attachment will be continued pursuant to the PAO dated 28.07.2022 till 1st respondent/ Adjudicating Authority passes an order in terms of Section 8(3) of the Act. The Adjudicating Authority, on consideration of the entire material available on record either may confirm or raise the attachment Until and unless, the said attachment is confirmed or raised, the PAO dated 28.07.2022 will be continued. No prejudice would be caused to 2nd respondent/ Investigating Agency.
17. No doubt that the adjudicating process as envisaged under Section 8 of the Act is time-bound process. Timelines are mentioned therein. Therefore, in view of the said discussion, according to this Court, the petitioners are entitled to grant of extension of some reasonable time to submit reply to the show cause notice, dated 19.09.2022. According to this Court, two months time from today is reasonable.
18. According to Sri Avinash Desai, learned counsel for the petitioners, the petitioners have to get information and submit explanation effectively. Unless and until the said defendants submit explanation, 1st respondent/ Adjudicating Authority will not be in a position to pass an order in terms of Section 8(3) of the Act. Therefore, no prejudice would be caused to 2nd respondent. For the purpose of computing the time period of 180 days, the period during which the proceedings were extended shall be excluded in terms of proviso 3 to Section 5 of the Act.
19. it is relevant to note that this Court vide Common order dated 10.08.2022 in W.P.No.30753 of 2022 granted two months time to submit explanation to the show cause notice dated 22.04.2022 issued in respect of PAO therein. There is no challenge the said order and it attained finality. There is no allegation that petitioners did not comply with the said order.
20. In view of the above said discussion, this court is also inclined to extend time to the petitioners.
21. In view of the above discussion, this Writ Petition is disposed of granting two months time from today to the petitioners to submit their explanation/reply to the show cause notice dated 19.09.2022. However, it is made clear that the petitioners herein shall not seek further extension of time and they shall submit explanation/reply within the said extended period of two months by keeping in view the object and legislative intent of Section 8 of the Act, that the adjudicating process is time bound. It is relevant to note that for the purpose of computing the period of 180 days, the period which was extended by this Court for submitting reply is excluded as per third proviso to Section 5(1) of the Act.
Consequently, miscellaneous petitions, if any, pending shall stand closed.
Notes:-
1 W.P.(C).No.3551 of 2020 and 12626 of 2020, dated 18.11.2020
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