Harish Fabiani & Ors. Vs Enforcement Directorate & Ors. (Delhi High Court)
Summary: The Delhi High Court held that proceedings under the Prevention of Money Laundering Act, 2002 cannot survive where the scheduled or predicate offence forming their foundation has ceased to legally exist. The petitioners challenged ECIR No. ECIR/07/HIU/2021, consequential summons, coercive proceedings and Look Out Circulars after the Bombay High Court, by judgment dated 4 May 2022, quashed the order passed under Section 156(3) CrPC as well as FIR No. 129/2021 registered at P.S. Wada, District Palghar. During pendency of the petitions, the Supreme Court delivered its judgment in Vijay Madanlal Choudhary & Ors. Vs Union of India & Ors., 2022 SCC OnLine SC 929, thereby rendering the constitutional challenges to various provisions of the PMLA infructuous. The Delhi High Court examined the prayers granted by the Bombay High Court and held that the predicate FIR had been quashed in toto, and not merely qua particular petitioners. The quashing was complete and was neither conditional nor partial. Applying Vijay Madanlal Choudhary, the Court held that the authorities under the PMLA cannot proceed merely on an assumption that a scheduled offence has been committed. There must be a legally subsisting scheduled offence registered with the jurisdictional police or a complaint pending before the competent forum. Where the accused has been discharged or acquitted, or the scheduled-offence proceedings have been quashed by a competent court, money-laundering proceedings founded upon that offence cannot continue. The Court also rejected the Enforcement Directorate’s argument that its power under Section 66(2) PMLA to share information could itself sustain the ECIR, holding that disclosure of information does not crystallise a scheduled offence. Mere filing of an SLP against the Bombay High Court judgment did not dilute its finality at that stage. Consequently, ECIR No. ECIR/07/HIU/2021 was quashed, all proceedings arising from it were set aside, further coercive action, search, seizure and summons were prohibited, and the consequential Look Out Circulars were also set aside.
Cases Discussed
- Vijay Madanlal Choudhary & Ors. Vs Union of India & Ors., 2022 SCC OnLine SC 929 (Supreme Court), decided on 27.07.2022 — Relied upon and followed. The Supreme Court held that PMLA authorities cannot prosecute a person merely on the notional basis or assumption that a scheduled offence has been committed; where the person is finally discharged/acquitted or the scheduled-offence case is quashed by a competent court, there can be no money-laundering action against such person or a person claiming through him in relation to property linked to that scheduled offence. The Delhi High Court treated this principle as directly governing the controversy.
- Asst. Director, Directorate of Enforcement Vs Kewal Krishna Kumar, CRL. M.C. 1455/2021 (Delhi High Court), order dated 10.11.2021 — Relied upon by the Enforcement Directorate in support of its submission that the High Court should stay its hands because an SLP challenging the Bombay High Court judgment had been preferred before the Supreme Court. The contention was ultimately not accepted.
- State of Punjab Vs Davinder Pal Singh Bhullar & Ors., (2011) 14 SCC 770 (Supreme Court) — Relied upon by the petitioners and applied on the principle sublato fundamento cadit opus: when the foundational proceeding is legally extinguished, subsequent and consequential proceedings founded upon it fall with it. The Court reproduced the Supreme Court’s observations that where the initial action is not in consonance with law, subsequent proceedings are automatically vitiated.
- State of Bihar & Anr. Vs P.P. Sharma, IAS & Anr., 1992 Supp (1) SCC 222 (Supreme Court) — Relied upon by the Enforcement Directorate for the proposition concerning the effect of alleged mala fides of an informant or complainant on investigation. The Delhi High Court held that the authority was not relevant to the issue before it because the predicate FIR itself stood quashed.
- K. Trivedi & Sons & Ors. Vs State of Gujarat & Ors., 1986 Supp SCC 20 (Supreme Court) — Relied upon by the Enforcement Directorate in contending that, in view of the pending SLP against the Bombay High Court judgment, the Delhi High Court should refrain from passing the relief sought by the petitioners. The submission was rejected.
- Municipal Corporation of Delhi Vs Ram Kishan Rohtagi & Ors., (1983) 1 SCC 1 (Supreme Court) — Relied upon by the Enforcement Directorate concerning the possibility of a court taking cognizance against persons if evidence subsequently demonstrates their involvement. The Delhi High Court held that the decision was not relevant to the controversy before it because there was no surviving scheduled-offence complaint, inquiry or FIR supporting the impugned ECIR.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. These writ petitions were heard together and have sought similar prayers. For ease of reference, various reliefs sought in each of these writ petitions (and accompanying applications), presented in different permutations and combinations, could effectively be enumerated as under:
i. Issue a Writ of Declaration or any Writ, Order or Direction of like nature declaring Section 2(1)(u), Section 50 and Explanation to Section 44 of the Prevention of Money Laundering Act, 2002 to be unconstitutional as being in violation of Articles 14, 19(1)(g), 19(6), 20(3) and 21 of the Constitution of India;
ii. Quash and set aside the impugned ECIR no. ECIR/07/HIU/2021 and stay all proceedings arising therefrom;
iii. Quash the summons issued in respect of ECIR No. ECIR/07/HIU/2021;
iv. Issue a Writ of Certiorari or any Writ, Order or Direction of like nature directing the calling of records in relation to ECIR No. ECIR/07/HIU/2021;
v. Issue a Writ of Prohibition or any Writ, Order or Direction of like nature restraining the Respondents from taking any coercive action in respect of the ECIR No. ECIR/07/HIU/2021 including conducting search and seizures at residences/office or issuing look out circulars or any other restrictive order;
vi. Quash and set aside Look out Circulars issued against some of the petitioners.
2. While these petitions were pending before this Court, the Hon’ble Supreme Court of India delivered its judgement in Vijay Madanlal Choudhary & Ors Vs. Union of India & Ors. 2022 SCC OnLine SC 929 on 27th July, 2022 deciding on the issue of constitutionality and vires of various provisions of the Prevention of Money Laundering Act, 2002 (“PMLA”) inter alia Section 2(1)(u), Section 50 and Explanation to Section 44. Considering that the Hon’ble Supreme Court in Vijay Madanlal Choudhary (supra) has already considered the issue of constitutionality of various provisions of PMLA, the issue of granting relief for prayers in the nature of para 1 (i) above does not arise. The judgement of the Hon’ble Supreme Court is binding on this Court and all parties in these petitions before this Court and there is no reason for this Court to issue any further declaration in that regard. Prayers sought in all these petitions before this Court in the nature of para 1 (i) above therefore do not survive and are infructuous, having been dealt with by the judgement of the Hon’ble Supreme Court in the matter of Vijay Madanlal Choudhary (supra).
Relief sought by the Petitioners
3. The immediate concern of the petitioners relates to prayers in the nature of para 1 (ii) — (vi), whereby the petitioners are concerned about the continuation of proceedings in relation to the ECIR No. ECIR/07/HIU/2021 (“the said ECIR”) issued by the Directorate of Enforcement (“ED”) despite the predicate offence registered under FIR No. 129/2021 (“the said FIR”) having been quashed by the judgment dated 4th May, 2022 of the High Court of Bombay. The petitioners pray for issue of a writ of certiorari setting aside summons issued by the ED to various petitioners in respect of the said ECIR, the Look Out Circular (“LOC”) and any other consequential proceedings emanating out of the said ECIR, and quash the same in view of the predicate offence having been quashed by judgment dated 4th May, 2022 passed by the High Court of Bombay in relation to the said FIR. The thrust of the petitioners’ contention is based upon the conclusion of the Hon’ble Supreme Court in Vijay Madanlal Choudhary (supra) in para 467 (v)(d) which reads as under:
“(v)(d) The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property, which constitutes the offence of money-laundering. The Authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or any one claiming such property being the property linked to stated scheduled offence through him.”
(emphasis supplied)
4. The crux of this conclusion in Vijay Madanlal Choudhary (supra) by the Hon’ble Supreme Court, in context of these petitioners, is that if the person accused of any scheduled offence is finally discharged/acquitted or the criminal case against him is quashed by a court of competent jurisdiction, there can be no case of money-laundering against him or anyone claiming such property (which is linked to the stated scheduled offence) through him.
5. Senior Counsel appearing for the petitioners have thus contended that the petitioners before this Court are either accused in the said FIR (now quashed by High Court of Bombay) or are otherwise not accused in the said FIR and therefore applying the ratio and finding of the Hon’ble Supreme Court, the ECIR against these petitioners and consequential proceedings do not survive.
Submissions on behalf the Respondents
6. S.V. Raju, the learned Additional Solicitor General, appearing for the ED, objected to this plea by the petitioners and contended inter alia that:
i) The said FIR still subsists since it has only been quashed qua the petitioners before the Bombay High Court and not in toto.
ii) Relying upon para 311 of Vijay Madanlal Choudhary (supra), it was contended that before resorting to an action and provision of attachment, registration of a scheduled offence or a complaint is not a precondition.
iii) Since the prayer seeking declaration regarding unconstitutionality of various provisions of the PMLA does not survive, these writ petitions should be transferred to a single bench.
iv) Since the ED has filed a Special Leave Petition vide Diary No. 26629 of 2022 on 25th August, 2022 before the Hon’ble Supreme Court, this Court should stay its hand.
v) Reliance was also placed upon para 253 of Vijay Madanlal Choudhary (supra).
vi) Reliance was placed on allegations of deliberate acts by petitioner Harish Fabiani of offshore fraud.
vii) Reliance was also placed on Section 66(2) of the PMLA.
viii) Reliance was placed on State of Bihar & Anr. Vs. P.P Sharma, IAS, & Anr., 1992 Supp (1) 222.
ix) Reliance was also placed on Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi & Ors., (1983) 1 SCC 1.
Submissions in Rejoinder by the Petitioners
7. In response to the submissions of the learned ASG, Senior Counsels appearing for the petitioners advanced submissions in rejoinder.
The petitioners contended that once the Bombay High Court had quashed the scheduled offence on the basis of which the ECIR was registered, the question of the ECIR being sustained did not arise. Reliance was placed on Vijay Madanlal Choudhary and State of Punjab Vs. Davinder Pal Singh Bhullar & Ors., (2011) 14 SCC 770.
Analysis
8. Consequent to directions in a petition filed under section 156(3) Cr.P.C. by the complainant before the Judicial Magistrate First Class, Wada, FIR No. 129/2021 was registered in P.S. Wada (Thane) in District Palghar, Mumbai on 13th April, 2021.
9. Writ Petition Nos. 1805/2021 and 6812/2021 were filed in High Court of Bombay by various petitioners seeking quashment of the order of 7th April, 2021 passed by the Judicial Magistrate First Class, Wada and FIR No. 129/2021 of P.S. Wada.
10. Para ‘a’ of the prayer in Writ Petition No. 1805/2021 sought quashing of the Magistrate’s order and FIR No. 0129 of 2021.
11. Para ‘a’ of the prayer in Writ Petition No. 6812/2021 filed by Shri Atul Chordia sought quashing and setting aside of FIR No. 129 of 2021.
12. The High Court of Bombay by judgment and order dated 4th May, 2022 allowed both writ petitions in terms of prayer clause ‘a’.
13. It is therefore incontrovertibly clear from a bare perusal of the judgement/order of the High Court of Bombay read in conjunction with prayer clause ‘a’ extracted above from both the Writ Petitions before the Court, that both the order dated 7th April, 2021 passed by Judicial Magistrate in O.M.A. No. 105 of 2021 and FIR No. 129/2021 dated 13th April, 2021 in P.S. Wada stood quashed in toto. This Court finds no merit in the argument by the Respondents that the quashing was qua the petitioners before the High Court of Bombay and not the other accused in the said FIR. The quashing of the FIR and order of the Judicial Magistrate preceding its registration was complete and not conditional, partial or truncated in any manner.
14. Reference in this regard may be made to the judgement of the Hon’ble Supreme Court in State of Punjab v. Davinder Pal Singh Bhullar & Ors. (2011) 14 SCC 770.
15. It is further the case of the petitioners before this Court that various petitioners in the respective writ petitions are not even accused in the said FIR No. 129/2021 and therefore there is no predicate offence and therefore the question of the said ECIR being sustained in isolation against them does not arise.
16. As per the petitioners, the persons identified were various employees of Indiabulls Housing Finance Limited and related companies and had been roped in by the respondents in the said ECIR without there being any underlying predicate offence registered against them. In light of the conclusion and finding of the Hon’ble Supreme Court in Vijay Madanlal Choudhary (supra) this Court finds no reason for the said ECIR to be sustained against them, without there being any evidence of a predicate offence or an FIR against them which is in existence or is legally alive.
17. In all these cases therefore, both of the employees against whom no complaint was ever filed for the scheduled offences and those against whom it was filed and has been quashed subsequently by a Court of competent jurisdiction, it would only be appropriate that the said ECIR against them under PMLA be quashed and all proceedings consequent thereto undertaken or directed by the Respondents or any authority are set aside.
18. As regards the contention of the respondents that since an SLP has been preferred by the ED assailing the judgement/order dated 4th May, 2022 of the High Court of Bombay this Court should stay its hands in the interim, this Court finds that judgment/order of the High Court of Bombay quashing the FIR and the preceding order of the Judicial Magistrate was complete in all respects. The fact that a Special Leave Petition had been filed by the ED does not dilute or erode the finality of the order of the High Court of Bombay.
19. Reference may also be placed on para 253 of Vijay Madanlal Choudhary (supra).
20. The Hon’ble Supreme Court has been clear and categorical in its reasoning. Authorities under the PMLA cannot resort to action against any person for money-laundering on an assumption that property recovered must be proceeds of crime and that a scheduled offence has been committed. The scheduled offence must be registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum. Where the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to discharge, acquittal or quashing of the criminal case, there can be no action for money laundering against such person or any person claiming through him in relation to the property linked to the scheduled offence. In other words no action under PMLA can be resorted to unless there is a substratum of a scheduled offence.
21. As regards Section 66 PMLA, this Court is of the considered view that an ECIR or a proceeding under the PMLA cannot be triggered merely on that assumption alone. Section 66(2) enables disclosure and sharing of information inter se authorities; however mere disclosure does not crystallize a scheduled offence.
22. Reliance of the learned ASG on State of Bihar & Anr. Vs. P.P Sharma, IAS & Anr. and Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi & Ors. may not be relevant to the conspectus of the issue before this Court. Nothing has been brought to the attention of this Court of any existing or surviving complaint/inquiry or FIR against the petitioners for any offences provided in the Schedule of PMLA.
23. The contention that Transfer Petition (Criminal) No. 245/2022 had been disposed of by the Supreme Court and therefore the lis would not survive before this Court was untenable. The Supreme Court had expressly granted liberty to the private parties to pursue proceedings pending before the High Court.
Conclusion
24. In light of the above analysis and discussion this Court concludes as under:
a) The relief sought regarding constitutionality or vires of various provisions of the Prevention of Money Laundering Act, 2002 is infructuous having been decided by the Hon’ble Supreme Court in Vijay Madanlal Choudhary & Ors. Vs. Union of India & Ors., 2022 SCC OnLine SC 929.
b) The ECIR no. ECIR/07/HIU/2021 registered by the Directorate of Enforcement, Department of Revenue, Ministry of Finance, Government of India, under FIR No. 129/2021 dated 13th April, 2021 registered by P.S. Wada, Dist. Palghar, Maharashtra stands quashed.
c) All proceedings arising from the ECIR No. ECIR/07/HIU/2021 are set aside and there would be no further coercive action or search and seizure or summons arising from the said ECIR.
d) The Look out Circulars issued by respondents pursuant to the ECIR No. ECIR/07/HIU/2021 are also set aside.
