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Indian CasesSupreme Court of India

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

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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 

The Hon'ble the Chief Justice and 
Hon'ble Mr. Justice Joymalya Bagchi  
                                 F.M.A. No. 4031 of 2014 
                                 CAN No. 11477 of 2014 
                 Rose Valley Real Estate and Constructions Ltd. & Anr. 
                                  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. 
 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 


         The Chairman 

         Syndicate Bank, 

         Post Box No. 1, Manipal – 576162, 

         Karnataka State. 


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. 

I agree. 

  (Manjula Chellur, C.J.)                                                                    (Joymalya Bagchi, J.)                                                  P.A. to J. Bagchi, J.