Calcutta High Court (Appellete Side)
Rose Valley Real Estate And … vs Union Of India & Ors on 30 March, 2015
IN THE HIGH COURT AT CALCUTTA CIVIL APPELLATE JURISDICTION APPELLATE SIDE Present: The Hon'ble the Chief Justice and Hon'ble Mr. Justice Joymalya Bagchi F.M.A. No. 4031 of 2014 With CAN No. 11477 of 2014 Rose Valley Real Estate and Constructions Ltd. & Anr. Vs. Union of India & Ors. For the appellants : Mr. Sudipto Sarkar, Mr. Kishore Datta, Mr. A. Bhattacharyya, Mr. M. Bhattacharyya, Mr. Anirban Ray, Mr. A. Abdullah, Mr. S. Singh, Mr. S. Shaw. For the Directorate of : Dr. Samsuddin, Enforcement Mr. Rajib Mukherjee, Ms. Swarnali Sengupta. For the Syndicate Bank : Mr. M.K. Lahiri, Mr. H.L. Shukla, Mr. Proshit Deb. For the respondent No. 9 : Mr. Subrata Kumar Sinha.
For the respondent no. : Mr. Biswambhar Jha. 11 For the respondent no. : Mr. Ayan Kumar Boral, 13 Mr. Archan Dutta. Heard on : 19.02.2015 Judgement on : 30.03.2015
Joymalya Bagchi, J.: The appeal is directed against the judgement and order dated 25th November, 2014 in W.P. No. 28728 (W) of 2014 whereby the learned Single Judge, inter alia, refused to quash impugned 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 factual matrix giving rise to the instant appeal is as follows :‐ The appellant no. 1 is a Public Limited Company which belongs to Rose Valley Group of Companies. The appellant no. 1 Company had collected a sum of Rs. 12.82 crores by issuing non‐convertible debentures from members of the public during the year 2001‐02, 2004‐05, 2005‐06 and 2007‐08 without filing proper documents either to Register of Companies or SEBI.
Over the aforesaid issue, Security and Exchange Board of India (hereinafter referred to as SEBI) issued summons dated 14th July, 2011 under section 11C(3) of SEBI Act, 1992 calling upon the appellant no. 1 Company to furnish information and/or documents with regard thereto. Such summons were followed up by other successive summons.
Finally, an adjudication proceeding was initiated and by order dated 26th March, 2013 the appellant no. 1 was held guilty of non‐compliance of provisions of the SEBI Act and a monetary penalty of Rs. 1 crore was imposed upon it.
In appeal, Security Appellate Tribunal modified the penalty imposed upon the appellant and reduced the same to Rs. 10 lakhs. In the meantime, criminal proceeding being case No. C/1421 of 2013 was filed before the learned Chief Judicial Magistrate, Calcutta for violation of section 12A read with section 24 of the SEBI Act against the appellant. It appears that the said proceeding has been challenged before this Court in CRR No. 20177 of 2013 and the same has been stayed.
It is pertinent to note that offence under section 24 of the SEBI Act is a “scheduled offence” under the Prevention of Money Laundering Act, 2002 (hereinafter referred to as “PML Act, 2002”) With reference to the aforesaid “scheduled offence” investigation was initiated by the respondent no. 3 being ECIR No. ECIR/KLZO/02/2014 against the appellant under the provisions of PML Act, 2002.
In connection with such investigation, respondent nos. 2 and 3 along with their officers conducted search at the offices of the appellant and seized monies to the tune of Rs. 37,0763.50 apart from compact discs and documents.
The appellant challenged the aforesaid search and seizure in W.P. No. 17343 (W) of 2014 which was subsequently withdrawn with liberty to file afresh, if occasion arose.
In the meantime, the respondent authority issued show cause notice on the appellant no. 1 calling upon him to show cause before the adjudicating authority as to why the seized properties be not retained under section 17(4) read with section 8(3) of PML Act, 2002.
On 22.07.2014 the aforesaid show cause notice under section 17(4)/8(3) of PML Act, 2002 was challenged by the appellants in W.P. No. 20892 (W) of 2014, inter alia, on the ground that there was no jurisdiction to initiate proceeding against the appellants under the provisions of PML Act, 2002.
A learned Single Judge of this Court disposed of the aforesaid writ petition giving liberty to the appellant to take up the point of jurisdiction before the adjudicating authority under PML Act, being respondent no. 5 herein.
In appeal, an Hon’ble Division Bench of this Court by order dated 28.07.2014 granted liberty to the appellant to agitate the point of jurisdiction before the respondent no. 5 and specifically directed the latter to decide the same as a preliminary objection vice versa applicability of PML Act, 2002.
Pursuant thereto, the appellant filed its reply to the show cause notice being OA No. 16 of 2014 wherein the appellant raised the issue of non‐applicability of PML Act and the jurisdiction of the authority to invoke the same. The appellant reserved its right to deal with the factual allegations in the show cause notice subsequently.
By order dated 10.09.2014 the respondent no. 5 rejected the contentions of the appellant and directed retention of the seized properties. In the meantime, Deputy Director of Enforcement Directorate, respondent no. 3 herein, issued impugned letter dated 19.09.2014 upon Syndicate Bank requesting the latter to prohibit/freeze withdrawal from the accounts maintained in the branches of the said bank by Rose Valley Group of Companies with immediate effect. Karnataka Bank Limited, HDFC also intimated the appellant that they have received similar letters. The appellant challenged the impugned order dated 10.09.2014 passed by respondent no. 5 authority and the letter dated 19.09.2014 issued by respondent no. 3 upon the respondent banks requesting them to prohibit/freeze withdrawal from the accounts maintained in the branches of the said bank by Rose Valley Group of Companies with immediate effect.
A learned Single Judge of this Court by impugned order dated 25th November, 2014 set aside the order dated 10.09.2014 passed by the adjudicating authority, respondent no. 5 herein, inter alia, on the premise that the said order was not in consonance with the direction passed by the Hon’ble Division Bench in its order dated 28.07.2014 in AST No. 345 of 2014 and remanded the matter for fresh consideration by the adjudicating authority. However, the learned Single Judge refused to interfere with the impugned letter dated 19.09.2014 issued by respondent no. 3 to respondent banks, as aforesaid. Hence, the present appeal.
Mr. Sarkar, learned senior counsel appearing for the appellants restricted his submission to the impugned letter dated 19.09.2014 issued by respondent no. 3 to the respondent banks only. He submitted that the said letter in effect amounted to attachment/seizure of the accounts of the appellant no. 1 Company. Such power could be exercised by the respondent authority only under section 5 or section 7 of the PML Act, 2002 after recording reasonable beliefs based on the materials in possession of the concerned authority. Impugned letter did not record such reasonable belief and hence the same was without jurisdiction and liable to be quashed. He further submitted that the amounts collected from the public in respect of the non‐convertible debentures issued by appellant no. 1 Company had already been refunded and the same is recorded in the order of Securities Appellate Tribunal. Hence, there was no material in possession of the respondent authority to issue such letter in connection with the offence under section 24 of SEBI Act. He further submitted that criminal prosecution under SEBI Act has been stayed by the High Court. He accordingly prayed for quashing of the impugned letter dated 19.09.2014 issued by respondent no. 3 upon various banks freezing accounts of the appellant no. 1 Company.
He relied on various decisions in support of his contention. Dr. Samsuddin, learned counsel appearing for the respondents Enforcement Directorate at the very outset clarified that the impugned letter dated 19.09.2014 had not been issued either under section 5 or under section 7 of PML Act, 2002. Relying on the definition of “proceeds of crime” under section 2(u) of PML Act, 2002 learned counsel argued that such expression was wide enough to cover other benefits/usufruct that had directly or indirectly accrued to appellant no. 1 Company out of the funds illegally collected under the non‐convertible debenture Scheme. Hence, refund of sums collected from the public under such Scheme per se did not absolve the appellant no. 1 Company from the PML Act. He further submitted that the investigation in the instant case was not restricted to the “scheduled offence” under SEBI Act, 1992 but also included within its ambit other “scheduled offences” under the Indian Penal Code, namely section 420/120B IPC in respect of which investigation is being conducted by CBI against Rose Valley Group of Companies pursuant to direction of the Apex Court in the case of Subrata Chattoraj Vs. Union of India, 2014(8) SCC 768. He submitted that failure to refer to other “scheduled offences” in the ECIR file or in the impugned letter did not divest the jurisdiction of the respondent authority from carrying on investigation with regard thereto. He referred to section 68 of the Act in that regard.
He further submitted that the impugned letter was issued by the respondent no. 3 in contemplation of exercise of powers under section 5/7 of PML Act, 2002. He submitted that the definition of the word “investigation” in section 2(na) of PML Act, 2002 is an inclusive one and empowered the respondent authorities to take all incidental and consequential actions for collection of evidence for effective enforcement of the Act. He submitted 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.
He further submitted that money laundering investigation is a highly specialized exercise which entails immediate tracing, identification, restraint, seizure and eventual attachment and confiscation of the “proceeds of crime”. In the event amounts from the suspected accounts are not immediately restrained from being withdrawn, said amounts would be spirited away through electronic banking or otherwise to off shore accounts of non‐contracting States which are beyond the domain of the legislation notwithstanding its extra territorial operation. He accordingly prayed for dismissal of the appeal.
In the course of hearing records of the investigation were produced before the Court. It appears from the records of investigation that the investigation initiated against the appellant no. 1 Company under PML Act, 2002 is not restricted to offence under section 24 of SEBI Act alone. It has been extended in respect of other “scheduled offences” under Indian Penal Code, namely sections 420/120B IPC and in respect of such offences investigation has also been initiated by CBI pursuant to directions of the Apex Court in Subrata Chattoraj (supra) with regard to the appellant’s group of Companies duping innumerable depositors through collective investment schemes or other schemes floated by the aforesaid group of Companies.
In response thereto, Mr. Sarkar strenuously argued that the instant investigation is restricted to the scheduled offence under SEBI Act as it would appear from the ECIR case registered by respondent no. 3 on 27.02.2014. He further submitted that there is no reference to the other scheduled offences in the show cause notice issued upon the appellant no. 1 Company under section 17(4)/8(3) of PML Act, 2002 or the impugned letter dated 19.09.2014.
What therefore falls for decision is whether the direction given by the respondent no. 3 in the impugned letter dated 19.09.2014 to the respondent banks to prohibit/freeze withdrawals from the accounts maintained by appellant’s group of companies in the branches of the respondent banks is lawful or not.
Impugned letter reads as follows :‐
“F.No. ECIR/KLZ0/2018/3937 Dated : 19.09.2014
Post Box No. 1, Manipal – 576162,
Sub. : Prohibiting/freezing withdrawal from the Accounts maintained in different branches Reg.
Investigation under provisions of the Prevention of Money Laundering Act, 2002 is going on in this office in the case of M/s. Rose Valley Group of Companies.
In this regard, it is requested to prohibit/freeze withdrawal from the Accounts (as per the list enclosed) maintained in different branches of your bank or if any other accounts found in the systems relating to the Rose Valley Group of Companies with immediate effect so that amount could not be siphoned off.
Enclo. : As above.
Yours faithfully, Sd/‐Ashok Gautam Deputy Director”.
PML Act, 2002 was enacted to prevent money laundering and to provide for confiscation of property derived from or involved in money laundering and for matters connected therewith and incidental thereto.
The aforesaid legislation is a product of a unified global effort to ensure that all Nations who are members of the United Nations adopt similar domestic money laundering legislations and/or programmes to counter the menace of widespread money laundering arising out of organized transborder crimes, like terrorism, drug trafficking, corporate fraud and other grave offences which cause serious threat not only to the financial systems of the countries but also endanger their integrity and sovereignty. The evolved and effective manner in which “proceeds of crime” are placed, layered and integrated into the financial systems of the country through e‐commerce and international trade necessitates a specialized agency with ample powers to investigate such crimes through vigilant surveillance, supervision, tracking and identification of suspicious transactions, restraint of suspicious accounts and ultimate seizure, retention, attachment and confiscation of assets which are reasonably believed to be “proceeds of crime”. To achieve such end, the aforesaid legislation has been brought into force. Let us examine the scheme of the Act. PML Act, 2002 empowers the authorities prescribed in Chapter VIII of the Act to carry on investigation in respect of offence of money laundering as defined in section 3 of the Act. Section 3 of the Act reads as follows :‐ “3. Offence of money‐laundering.–Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money‐laundering.”
Proceeds of crime has been defined in 2(u) of the Act.
“2(u). “proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property.”
A conjoint reading of the aforesaid provisions make it evident that the authorities under the Act are 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. Anyone who directly or indirectly indulges or attempt to indulge or knowingly assists or is a party involved in such process is said to have committed such offence.
Investigation is defined under section 2(na) of the Act as follows :‐ “2(na). “Investigation” includes all the proceedings under this Act conducted by the Director or by an authority authorized by the Central Government under this Act for the collection of evidence.”
It is an inclusive definition. Chapter III,IV, & V of the Act enumerates the various powers of the investigation agency. Sections 16, 17, 18, 20 and 21 of the Act provide for powers to survey, search, seizure and retention of proceeds of crime or any record or property relating thereto upon recording reasonable belief as required under the said provisions. Section 19 of the Act provides for power to arrest. Section 12 and 12‐A of the Act casts duty upon “reporting entities (as defined in section 2(wa) of the Act), that is, banks and financial institution to maintain records of transactions, identities of persons entering into such transactions and report the same to the authorities under the Act. Sections 5, 8 and 9 of the Act provide for attachment of proceeds of crime or records/properties related thereto upon recording reasonable belief thereto and eventual confiscation of such attached/retained properties under section 8 of the Act. Section 54 of the Act provides for duty of certain officers and others to assist the authorities for enforcement of the Act. Officers of reporting entities, that is, banks and financial institutions, fall in the aforesaid category.
It has been argued none of the aforesaid provisions empower the respondent authorities to issue the impugned letter dated 19.09.2014 directing respondent banks to prohibit/freeze withdrawal from the accounts maintained by the appellant’s group of Companies. It has been submitted that such power could have been exercised only after recording requisite satisfaction as to reasonable belief under section 5 or section 7 of the Act. Admittedly such notice has not been issued under the said provisions and is therefore liable to be quashed.
It has also been argued in view of the fact that the monies collected from the public issuing of non‐convertible debentures having been refunded there was no reason to prohibit/freeze withdrawal from the accounts of the appellant no. 1 Company.
With regard to the issue of refund of debenture money, one must bear in mind the wide definition of the word “proceeds of crime” in the Act. Proceeds of crime under the Act is not only relates to property derived or obtained directly from the criminal activity but also extends to properties indirectly derived or obtained as a result of criminal activity which is a “scheduled offence” or the value of such property. Hence, proceeds of crime in the instant case relating to the scheduled offence under SEBI Act would not only mean the amount directly collected from the public through the illegal debenture scheme but also to all other benefits or usufruct which have directly or indirectly accrued to the credit of the Company therefrom.
That apart, it appears although the investigation had initially commenced in respect of the “scheduled offence” under SEBI Act it is no longer restricted to the same. In the meantime, investigation under PML Act has been extended to other scheduled offences under the Indian Penal Code, e.g., 420/120B of IPC which are being investigated by CBI pursuant to direction of the Apex Court in Subrata Chattoraj (supra) with regard to crores of monies collected from innocent depositors under various collective investment schemes floated by the appellant’s group of Companies.
It has been strenuously argued that the investigation in the instant case cannot be extended to other scheduled offences inasmuch as same was initially registered for the scheduled offence under SEBI Act. We are unable to subscribe to such submission. Investigation of a crime is an ongoing dynamic process. It may commence in respect of a particular “scheduled offence” but may in the course of its progresses encompass within its ambit other “scheduled offences” too.
Whether investigation of such other “scheduled offences” ought to have been done by registering a separate case/file number is a matter of administrative convenience and not one of inherent lack of jurisdiction of the respondent authority to carry on such investigation. Hence, we are unable to accept the submission of the learned senior counsel for the appellant that the investigation in the instant case could not have taken without its ambit other “scheduled offences” under the Indian Penal Code for which the appellant’s group of Companies are being proceeded with while issuing the impugned letter dated 19.09.2014 to its bankers.
Coming to the other issue as to lack of inherent jurisdiction to make request to the appellant’s bankers for prohibition/freezing of withdrawal from the accounts maintained by the appellant’s group of Companies without restoring to section 5(attachment) or section 7(seizure) of the Act, let us examine the same in the light of the various provisions of the Act. Section 2(na) defines “investigation”. The definition is an inclusive one and therefore would empower investigating agency to take recourse to not only proceedings under the Act but also to all incidental and consequential acts that may be necessary for effectively pursuing such proceedings to ensure collection of evidence. The prime object of an investigation for an offence of money laundering is that the investigating agency must be empowered to take immediate steps so that monies credited in suspicious accounts are not spirited away rendering the proceedings under the Act nugatore and otiose.
It is true that existence of reasonable belief is the condition precedent for exercise of powers under section 5 (attachment) or section 7 (seizure of the property or asset) of an accused. However, existence of reasonable belief is not a condition precedent for commencement of investigation under the Act. Such investigation may be commenced on reasonable suspicion that “proceeds of crime” relating to “scheduled offences” are being dealt with in a manner defined in section 3 of the Act.
In the course of such investigation, it may be necessary for the investigating agency to trace out suspicious transactions and/or the trail of monies in the accounts maintained by an accused who is being investigated for such offence. If during the course of such tracing, identification and verification, monies from such accounts are permitted to be withdrawn and/or siphoned off, the very purpose of investigation would be rendered futile and nugatory.
To obviate such futility, investigating agency must be held to possess an enabling and/or incidental power to request a reporting entity, namely, a banking company to temporarily prohibit withdrawal from the accounts of an accused who is being investigated into under the Act. No doubt such power must be exercised in contemplation of proceedings under the Act, e.g., proceedings for attachment or seizure under section 5/7 of the Act. To hold otherwise, would denude the authorities of the power to preserve the funds in the account of the accused person during investigation and would render the very powers of seizure/attachment of assets after arriving at a reasonable belief a dead letter of law. Temporary powers of prohibiting withdrawal from the accounts of an accused pending investigation are in aid of exercise of powers under section 5/7 under the Act and not to circumvent them.
Accordingly, the absence of reasonable belief as vigorously argued by the learned senior counsel does not denude the jurisdiction of the investigating agency to take incidental or consequential steps for preservation of evidence pending further investigation in contemplation of exercise of powers of seizure or attachment under the Act.
It is settled law that when a statute confers power on an authority to do a thing, it gives powers by necessary implication to do all other things that are necessary for doing that thing. Hence, acts which are necessary and incidental for performance of a statutory power are to be inferred by necessary implication. Failure to do so, would render such statutory power a dead letter of law.
In V.T. Khanzode & Ors. Vs. Reserve Bank of India & Anr., (1982)2 SCC 7, the Apex Court held :‐ “…..The doctrine of ultra vires in relation to the powers of a statutory corporation has to be understood reasonably and so understood, “whatever may fairly be regard as incidental to, or consequential upon, those things which the legislature has authorized ought not (unless expressly prohibited) to be held by judicial construction, to be ultra vires”. (See Attorney‐General Vs. Great Easter Rly. Co., (1880)5 AC 473 (HL).”
Similar view was reiterated in Khargram Panchayat Samiti & Anr. Vs. State of West Bengal & Ors., (1987)3 SCC 82.
“4. It is well‐accepted that the conferral of statutory powers on these local authorities must be construed as impliedly authorising everything which could fairly and reasonably be regarded as incidental or consequential to the power itself. See: De Smithʹs Judicial Review of Administrative Action. 4th edn., p. 95, HWR Wadeʹs Administrative Law, 5th edn., p. 217, Craies on Statute Law, 6th edn., p. 276, Attorney General v. Great Eastern Railway, LR (1880) 5 AC 473; Baroness Wenlock v. River Dee Co., LR (1885) 10 AC 354. De Smith in his celebrated work Judicial Review of Administrative Action, 5th edn. at p. 95 puts the law tersely in these words:
The House of Lords has laid down the principle that ʺwhatever may fairly be regarded as incidental to, or consequent upon, those things which the Legislature has authorised, ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires.ʺ This principle was enunciated by Lord Selborne in Attorney General v. Great Eastern Railway in these words:
The doctrine of ultra vires ought to be reasonably and not unreasonably, understood and applied and whatever may be fairly regarded as incidental to or consequential upon, those things which the legislature has authorised ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires.
These words have been quoted by Professor Wade in his monumental work Administrative Law, 5th edn. at p, 217 and also by Craies on Statute Law, 6th edn. p, 276. Craies also refers to the observations of Lord Watson in Baroness Wenlock v. River Lee Co. to the effect:
Whenever a corporation is created by Act of Parliament, with reference to the purposes of the Act, and solely with a view to carrying these purposes into execution, I am of opinion not only that the objects which the corporation may legitimately pursue must be ascertained from the Act itself, but that the powers which the corporation may lawfully use in furtherance of these objects must either be expressly conferred or derived by reasonable implication from its provisions.ʺ It ought to be borne in mind that the word “investigation” in the Act is an inclusive one. It would, therefore, include within its fold all such incidental and consequential powers which may be necessary to achieve its end, namely, collection of evidence and thereby enforcement of the Act.
The authority of respondent no. 3 to issue impugned letter is not traced to section 5 or section 7 of the Act. On the other hand, it is traceable to incidental or consequential powers exercised by an investigating authority to give effect to the provisions of the Act and for its effective enforcement. Hence, recording of reasonable belief is not a sine qua non for taking such temporary preemptive measure for preservation of evidence which are undertaken in contemplation of and in aid to the initiation of proceeding of seizure and attachment under the Act. In such view of the matter, ratio in Rohtas Industries Ltd.
Vs. S.D. Agarwal & Anr., AIR 1969 SC 707 which deals with existence of reasonable belief for exercise of statutory powers of investigation under the Companies Act is of no help to the appellant.
Respondents banks being “reporting entities” under the Act are duty bound to act upon a request made by the authorities under section 54 of the Act.
PML Act, 2002 empowers the authorities to initiate all proceedings under the Act for collection of evidence. Attachment or seizure of properties which are reasonably believed to be proceeds of crimes or connected therewith are contemplated under section 5 or 7 of the Act. All incidental and consequential acts like temporary prohibition of withdrawal from accounts of an accused pending investigation for giving effect to such powers of seizure and attachment are, therefore, to be inferred for effective enforcement of the Act.
Failure to infer such power would result in siphoning off funds from accounts of accused persons pending investigation rendering powers of seizure/attachment under the Act otiose.
Viewed from such perspective, the impugned letter is neither an unlawful invasion of right to property nor is the same bereft of statutory sanction. Any other interpretation would frustrate the object or purpose of the law which seeks to create an effective machinery for investigation and collective of evidence in money laundering cases and render the same an illusory one.
In Bijaya Kumar Agarwala Vs. State of Orissa, (1996)5 SCC 1, the Apex Court was considering the interpretation of the word “storage” and held, the same would not include, “transportation.” The ratio is, therefore, wholly inapplicable while interpreting the inclusive definition of the word “investigation” under the Act.
Similarly, in Aslam Mohammad Merchant Vs. Competent Authority & Ors., (2008)14 SCC 186 show cause notice was quashed as the same was issued on the mere direction of competent authority without recording reasons and/or application of mind. The case is distinguishable on facts as in the present appeal we are concerned with necessary and indispensable steps taken during investigation for preservation of evidence in contemplation of proceedings under the Act and not with regard to issuance of show cause notice in conclusion of investigation.
Finally, it has been argued that there is no reference to other scheduled offences apart from the scheduled offence in SEBI Act in the impugned letter.
Reliance has been made in Chandre Singh Vs. State of Rajasthan (paragraph 38). Section 68 of the Act, inter alia, provides that notice or order or other proceeding under PML Act, 2002 shall not be rendered invalid by reason of any mistake, defect or omission in such notice, summon or order if such notice, summon or order is otherwise in conformity with the intent and purpose of the Act. Section 68 of the Act reads as follows :‐ “68. Notice, etc., not to be invalid on certain grounds.–No notice, summons, order, document or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid, or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such notice, summons, order, document or other proceeding if such notice, summons, order, document or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”
It appears that the impugned letter was issued in exercise of powers of investigation as defined under section 2(na) of the Act and has been done for the purpose of enforcement of the Act. Furthermore, records produced during hearing show that appellant is accused of commission of other “scheduled offences” under the Act and is being investigated by CBI on that score. Hence, mere absence of reference to other “scheduled offences” in the impugned letter cannot be a ground to invalid the impugned notice under the Act.
In view of the saving clause engrafted in section 68 (supra) and the materials emanating from records of investigation, we are of the view Chandre Singh (supra) is inapplicable to the facts of the case.
It is also argued on behalf of the respondents relying on Chandra Singh & Ors. Vs. State of Rajasthan & Anr., (2003)6 SCC 545 the Court in exercise of discretionary jurisdiction under Article 226 may not interfere with an illegal order whereby substantial justice is being done.
Reference has also been made by the respondents to B. Rama Raju Vs. Union of India, (2011)164 Com Cas 149 (AP) and unreported judgement dated 31.07.2013 of Gujarat High Court in Special Civil Application No. 4171 of 2012 with Special Civil Application No. 1059 of 2012, Alive Hospitality & Food Private Ltd. Vs. Union of India. None of the aforesaid cited cases deal with the issue raised in this appeal. In B. Rama Raju (supra) vires of the Act was under challenge whereas in Alive Hospitality & Food Pvt. Ltd. (supra) the Court was seized with a case of provisional attachment.
A balance has to be struck between the right to property of an individual and the measures which may be required to be inferred by necessary implication in an investigating agency for effective enforcement of the proceedings under the Act. Impugned letter dated 19.09.2014 must be read as a temporary measure during investigation undertaken for preservation of evidence in contemplation of initiation of proceedings under the Act and for its enforcement. Such letter is not an end itself. While on the other hand, failure to resort to such measure may render the substantive powers under the Act otiose, to permit the same to continue indefinitely would amount to supplanting them.
In conclusion it is held as follows :‐
(a) Impugned letter dated 19.09.2014 issued by respondent no. 3 requesting respondent banks (reporting entities under the Act) to prohibit/freeze withdrawal of monies from the account of the appellant’s group of Companies is to be read as an indispensable temporary measure for preservation of evidence pending investigation and has been issued in aid of proceedings for attachment and seizure contemplated under section 5 or 7 of the Act and not to supplant them. Such incidental and consequential power being in aid to proceedings contemplated under the Act is held to be vested in the investigating agency in view of the inclusive definition of “investigation” under section 2(na) of PML Act, 2002.
(b) Respondents banks being “reporting entities” under the Act are duty bound to assist the investigating agency in terms of section 54 of PML Act and therefore issuance of notice upon the respondents banks cannot be said to be illegal.
(c) Failure to refer to other “scheduled offences” apart from the one under the SEBI Act in the impugned letter would not ipso facto invalidate the same in view the materials emanating from the records of investigation as also the saving provision engrafted in section 68 of the PML Act, 2002.
(d) Impugned letter dated 19.09.2014 having been held to be a temporary measure in aid of proceedings under the Act cannot be an end it itself. Hence, embargo contained in the said letter cannot continue indefinitely but is required to be restricted to a time frame within which the respondents may initiate appropriate proceedings under the Act in respect of the accounts/assets referred therein.
Accordingly, the impugned letter dated 19.09.2014 is modified and the embargo contained therein is directed to operate for a period of three months from date within which the respondent authorities are at liberty to initiate appropriate proceedings as contemplated under the Act, if not already done, in respect of the assets/accounts referred to therein. If the respondent authorities fail to initiate proceedings under the Act in respect of the accounts/assets referred to in the impugned letter within the aforesaid time frame, the respondent banks would be at liberty to permit the appellants to operate the said accounts/assets in accordance with law.
The appeal is partly allowed.
Findings or observations made herein are for the purpose of disposal of the appeal and shall not have any binding effect on the parties at the subsequent stage of the proceeding or in any other collateral proceeding.
(Manjula Chellur, C.J.) (Joymalya Bagchi, J.) P.A. to J. Bagchi, J.