Case Law Details
Hanuman Cotton Mills Ltd. And Ors. Vs Union of India (Calcutta High Court)
The Calcutta High Court considered a writ petition challenging a provisional attachment order dated 31 March 2022 and a show cause notice dated 5 May 2022 issued under the Prevention of Money Laundering Act, 2002 (PMLA), insofar as they related to land owned by a company. The Enforcement Directorate (ED) had attached the company’s land on the premise that certain accused individuals, who were shareholders in the company, held 1,793 shares, and that any liquidation of the company’s assets could result in proceeds payable to them in proportion to their shareholding, which could then be liable to confiscation under the PMLA.
The Court examined the factual matrix, noting that the petitioner company had leased land to another petitioner company, and that the accused persons in the PMLA proceedings were shareholders but not owners of the company or its assets. Relying on settled legal principles, the Court reiterated that shareholders are not owners of a company’s assets. Their rights are limited to dividends, earnings from shares, and voting rights, and do not extend to ownership or control over the company’s property.
Applying this principle, the Court held that the provisional attachment order and the show cause notice were bad in law to the extent they attached the land belonging to the company merely because some shareholders were accused persons in PMLA proceedings. Even if the accused persons held shares, that alone did not justify attachment of the company’s immovable property. Accordingly, the Court modified the impugned provisional attachment order and show cause notice by setting aside the attachment relating to the land measuring 25.39 acres at Fuleswar belonging to the company. Any adjudication subsequently passed under Section 8 of the PMLA was also set aside to the same extent.
However, the Court clarified that its order would not affect the attachment or proceedings relating to the 1,793 shares held in the names of the accused shareholders, nor would it affect the attachment of an office room standing in the name of one of the accused persons. The ED was permitted to proceed in accordance with law in respect of those assets. The Court further directed that if the company were to undergo liquidation or any corporate insolvency resolution process, the concerned directors must immediately inform the ED in writing.
The Court expressly stated that its observations would not prejudice the ongoing criminal proceedings against the accused persons, nor would they prevent the ED from initiating further investigation in accordance with law. It also clarified that if the ownership of certain disputed shares were ultimately adjudicated in favour of the petitioners in separate proceedings, they would be at liberty to seek release of those shares from the ambit of the PMLA proceedings. The writ petition was disposed of without costs.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. The written notes of arguments filed by the Enforcement Directorate today be kept on record.
2. Heard learned counsels for the parties.
3. Learned Senior counsel appearing for the petitioners draws the attention of the court to the interim order dated September 26, 2022 where the facts and the law governing the matter were discussed at length and an order of injunction was passed to a limited extent insofar as the assets of the petitioner no. 1 company is concerned.
4. It is submitted that the petitioners seek the said order to be made absolute.
5. Learned counsel appearing for the Enforcement Directorate submits that the premise of the order of provisional attachment of the assets of the petitioner no. 1 company was never that the accused Mahesh and his family, the added respondents, were owners of the said assets. However, the said order and the connected show cause were necessitated since the Enforcement Directorate apprehends that the accused persons, that is, the said Mahesh and his family members hold a total of 1793 shares in the petitioner no. 1 company, any liquidation of the assets of the petitioner no. 1 would generate amounts of money to the said accused persons in proportion to their said shares, which would be liable to be confiscated under the Prevention of Money Laundering Act (PMLA).
6. On such premise, it is argued that the provisional attachment order in respect of the assets of the company to the extent of the shares of the accused persons was justified.
7. It is further submitted that the petitioners may be directed to intimate to the Enforcement Directorate, in any event, if the company goes into liquidation, since such liquidation process may ultimately culminate in disbursal of the amount quantified in proportion of the accused persons’ shares in their favour, despite the same being ‘proceeds of crime’ under the PMLA.
8. Learned counsel appearing for the added respondents submits that since the criminal allegations against the added respondents are now sub judice, no adverse remarks may be made conclusively against the added respondents by this court, since such comments might prejudice the added respondents / accused persons in the connected criminal and other ancillary proceedings.
9. Upon consideration of the facts of the case, it transpires that the petitioner no. 1 is a company which granted lease in respect of a land to the petitioner no. 2 and petitioner no. 3 is the director of both the said companies. The petitioner no. 4, the son of the petitioner no. 3, is a director of the petitioner no. 2-company, whereas the petitioner no. 3, Ramesh has a brother by the name of Mahesh, who and whose family members, being the added respondents herein, are the accused persons in the PMLA and connected criminal proceedings.
10. Since it is settled law that the shareholders of a company are not the owners of the company in which they hold shares and/or the assets of the company, it is evident, by borrowing the logic as recorded in the interim order dated September 26, 2022 passed in this matter, that the show cause notice dated May 5, 2022 issued by the Adjudicating Authority and the provisional attachment order dated March 31, 2022 were bad in law inasmuch as the land belonging to the petitioner no. 1-company as mentioned therein is concerned. Even if the added respondents, who are the accused persons in the PMLA proceeding, are shareholders in respect of the petitioner no. 1-company, their rights are confined to the earnings from such shares and associated voting rights and do not extend to the company itself or its assets.
11. Accordingly, upon hearing learned counsel for the parties and in view of the submissions made, WPA 17513 of 2022 is disposed of without costs, by modifying the impugned order of provisional attachment dated March 31, 2022 and the impugned show cause notice dated May 5, 2022 to the extent that the portion of the same which concerns the land admeasuring 25.39 acres at Fuleswar in J.L. No. 108, R.S. No. 2277 of the petitioner no. 1- company (as mentioned in Serial No. 1 of Table 8 of the impugned order dated March 31, 2022) is set aside.
12. In the event any adjudication has been arrived at under Section 8 of the PMLA after filing of the writ petition, the said order is also consequentially set aside to the above extent.
13. However, it is made clear that insofar as the 1793 shares of the petitioner no. 1 company (1025 in the name of Mahesh Kumar Kejriwal and 768 in the name of Alka Kejriwal, his wife), as specifically stipulated in Table no. 7 of the impugned order dated March 31, 2022 under Section 5(1) of the PMLA are concerned, and the office room purportedly standing in the name of Mahesh Kumar Kejriwal is concerned, as mentioned in Serial No. 2 of Table 8 of the impugned order, being office room no. 12 measuring about 612.49 sq. ft. (super built up) approximately and false ceiling on the fifth floor of the building situated at premises no. 12A, N.S. Road, Kolkata – 700001, nothing in this order shall prevent the respondents from acting in terms of and/or in pursuance of or in implementation of the impugned order and show cause notice and/or of any adjudication under Section 8 of the PMLA made consequent thereto, pertaining to such shares and immovable property.
14. The petitioner nos. 3 and 4 shall, in the event the petitioner no. 1 company undergoes any liquidation process, including any Corporate Insolvency Resolution Process, inform such fact immediately upon commencement of such proceedings to the Enforcement Directorate in writing.
15. It is hereby clarified that none of the above observations or the observations made in the orders passed in the writ petition shall be deemed to adversely affect the outcome of the criminal proceedings going on against the added respondents and/or be construed either in favour of or against the said added respondents insofar as the criminal allegations against the added respondents are concerned.
16. Needless to say, nothing in the above order shall prevent the Enforcement Directorate from initiating any further investigation against the accused persons in due process of law in the event the Enforcement Directorate is otherwise so entitled in law.
17. Since the ownership of the 1025 shares allegedly belonging to the accused Mahesh is in contention before an appropriate forum in a proceeding between the petitioner nos. 3 and 4 and the added respondents, it is made clear that it will be open to the petitioners, in the event the said shares are adjudicated ultimately to belong to the petitioners, to approach the Enforcement Directorate and/or the Adjudicating Authority or any other criminal or other competent forum for release of the said shares from the ambit of the criminal proceeding.
18. The parties shall act on the server copy of this order, duly downloaded from the official website of this court.
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