[PMLA] ED Can Summon Persons Not Named As Accused In Schedule Offence If Schedule Offence Is Pending: Karnataka HC

The Karnataka High Court has reiterated that for issuance of summons under the Prevention of Money Laundering Act (PMLA), the person need not be an accused in the schedule (predicate) offence if it is pending.

Justice V Kameshwar Rao and S Rachaiah held thus while dismissing an appeal filed by R M Manjunath Gowda, former Chairman of Shivamogga DCC Bank, challenging a single judge order which had dismissed its petition seeking to quash the summons issued by the Enforcement Directorate.

The bench said, “There is no dispute that there is a predicate offence against the other accused and in furtherance of that, the Authorities are justified in summoning any person whose attendance is necessary for investigation purpose.”

As per the prosecution's case an FIR was registered by Doddapete Police Station, Shivamogga and a charge sheet dated 18.10.2014 was filed alleging offences punishable under Sections 409, 120B, 201 read with Section 37 of IPC. In this case, the appellant was not arraigned as an accused.

Subsequently, on a further investigation under Section 173(8) of Cr.PC, a charge sheet was filed against the appellant for the offences punishable under Sections 409 and 202 read with Section 36 of IPC. Another crime dated 29.05.2014 was registered against the appellant for the offences under Sections 13(i)(e) read with 13(ii) of the Prevention of Corruption Act, 1988, and a charge sheet dated 20.03.2018 was filed. Following which, the ED issued summons to him under Section 50 of the PMLA Act.

The petitioner's counsel contended that the respondent's claim that the proceeds of crime arising out of the case registered with Doddapete Police Station, Shimoga, involves a schedule offence is a misconceived argument.

It was said that though the appellant was initially dropped as accused in the Chargesheet on further investigation he has been arrayed as accused for charges under Sections 409, 202 read with 36 of IPC. The cognizance of this final report/charge sheet has not been taken as yet. The offences are not scheduled offences under PMLA. Thus, the respondents cannot step in and register ECIR treating the appellant as an accused under PMLA.

The agency opposed the plea, contending that as Chairman, the appellant had administrative control over the bank and its employees. [Accused No.1 in predicate offence, Shobha was appointed during the tenure of the appellant. The Doddapete Police registered FIR in respect of issuance of fraudulent gold loans issued by the Shivamogga DCC Bank against fake gold, by creating fake documents leading to misappropriation of about Rs.63 crores.

Relying on Apex Court judgment in the case of Vijay Madanlal Choudhary, it was submitted that the existence of a predicate offence is sufficient for the registration of ECIR and commencement of investigation under PMLA. The investigation can cover even those who are not accused of the predicate offence.

Referring to Section 50(2) of PMLA Act, it was said that it uses the expression "any person" and as such, it is immaterial whether the appellant is accused in the predicate offence or under any proceedings under the PMLA for the purpose of summoning him.

Finally, it was argued that the appellant, being the Chairman, would have valuable information about the processes followed for verifying the loan application, verifying security and for grant and issuance of loans. Therefore, the respondent-Authority is well justified in summoning the appellant to record his evidence.

Findings:

Court rejected the contention of the petitioner that once the appellant has been dropped from charges of a predicate offence, he cannot be summoned although predicate offence may continue against other accused is concerned.

The court said “Section 50(2) uses the expression "any person" and as such, it is immaterial whether the appellant is an accused or not as long as the predicate offence is pending in jurisdictional Court for which summoning has been done for recording evidence or production of documents during the course of investigation or proceedings under the Act.”

It noted that FIR No.325/2014 is in respect of issuance of fraudulent gold loans issued by the Shivamogga DCC Bank against fake gold, by creating fake documents leading to misappropriation of about Rs.63 Crores. The Police have filed a charge sheet in FIR No.325/2014 under various sections of IPC including Section 471 and Section 120(B), both of which are scheduled offences under PMLA and in the said charge sheet, appellant was arraigned as Accused No.15, but the appellant was dropped from the charge sheet; an additional charge sheet was filed for the offences under Sections 409, 202 read with Section 36 of IPC and added back as accused No.15.

The court said, “So, the predicate offence being pending, the appellant can be summoned.”

Further it held that “In view of the settled position of law as noted above, suffice it would be to state, there is no illegality in the issuance of summons to the appellant. In fact on the basis of the aforesaid conclusion of ours, it necessarily follows that a challenge to summons is not maintainable in view of the judgment in the case of Kirit Shrimankar (supra), wherein the Supreme Court has held, mere summons does not constitute a positive action entitling the petitioner to question it in a writ petition.”

It agreed with the Additional Solicitor General Aravind Kamath's submission that the summons does not make any allegations against the appellant and merely requires him to appear before the Authority. There is no adverse order against the appellant. Under such circumstances, there was no cause of action to file a writ petition.

It held that “The present appeal filed by the appellant is totally misconceived; the learned Single Judge is justified in rejecting the writ petition. We also dismiss the appeal; the impugned order dated 20.02.2024 passed by the learned Single Judge in WP No.22780/2023 is upheld.”

Appearance: Senior Advocate Jayakumar S Patil for Advocate Varun Jayakumar Patil for Appellant.

Additional Solicitor General Aravind Kamath a/w CGC Madhukar M Deshpande for Respondents

Citation No: 2025 LiveLaw (Kar) 122

Case Title: R M Manjunath Gowda AND Directorate of Enforcement

Case No: WA NO. 497 OF 2024

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