Rose Valley Real Estate And … vs Union Of India & Ors on 30 March, 2015 – Case Summary

In the case of Rose Valley Real Estate and Constructions Ltd. & Anr. vs Union of India & Ors., the Calcutta High Court (Appellate Side) delivered its judgment on 30th March 2015. The case was presided over by the Hon’ble Chief Justice and Hon’ble Mr. Justice Joymalya Bagchi.

Facts of the Case

The appellant, Rose Valley Real Estate and Constructions Ltd., a public limited company part of the Rose Valley Group of Companies, had collected a sum of Rs. 12.82 crores by issuing non-convertible debentures from the public during the years 2001-02, 2004-05, 2005-06, and 2007-08. This was done without filing proper documents either to the Register of Companies or SEBI (Securities and Exchange Board of India).

SEBI issued summons to the appellant company under section 11C(3) of the SEBI Act, 1992, demanding information and/or documents related to the issue. This led to an adjudication proceeding, and the appellant was found guilty of non-compliance with the provisions of the SEBI Act. A monetary penalty of Rs. 1 crore was imposed on the appellant, which was later reduced to Rs. 10 lakhs by the Securities Appellate Tribunal.

Issues Raised

The appellant challenged the legality of the notice dated 19.09.2014 issued by respondent no. 3 to the respondent banks to prohibit/freeze the withdrawal from the accounts maintained in the branches of the said banks by the appellant no. 1 Group of Companies. The appellant also contested the jurisdiction to initiate proceedings against them under the provisions of the Prevention of Money Laundering Act, 2002 (PML Act, 2002).

Court’s Observations and Judgment

The court noted that the offence under section 24 of the SEBI Act is a “scheduled offence” under the PML Act, 2002. The court also observed that the investigation initiated against the appellant under the provisions of the PML Act, 2002 was not restricted to the offence under section 24 of the SEBI Act alone. It had been extended in respect of other “scheduled offences” under the Indian Penal Code, namely sections 420/120B IPC.

The court held that the impugned letter dated 19.09.2014, issued by respondent no. 3 to the respondent banks, was lawful. The court observed that the respondent authorities were empowered to investigate any allegation relating to any process or activity connected with “proceeds of crime” including its concealment, possession, acquisition, or use and projecting or claiming the same as untainted property.

The court also noted that the respondent banks, being “reporting entities” under the Act, were duty-bound under section 54 of the Act to assist the authorities for its enforcement. The court dismissed the appeal, upholding the legality of the impugned letter and the jurisdiction of the respondent authorities to initiate proceedings under the PML Act, 2002.