Courts Are Not Expected To Stall Investigation, Cannot Interfere When There Is Prima Facie Material: Madras HC Dismisses Plea Against PMLA Proceedings

While dismissing a plea by a company challenging the proceedings initiated by Enforcement Directorate under the Prevention of Money Laundering Act, the Madras High Court observed that the two requirements to start an investigation by the ED are (i) commission of a predicate offence (which was a schedule offence) and (ii) prima facie material to show that such schedule offence has generated proceeds of crime. 

Justice PN Prakash and Justice Anand Venkatesh observed that once these conditions are satisfied and the court is convinced that the investigation is conducted by the Directorate within their power, then the court could not act as a "stumbling block" in the progress of the investigation.

We have to satisfy ourselves as to whether the respondent is acting within the four corners of PML Act and not misusing the powers of investigation. If we are convinced that the investigation taken up by the respondent is within their powers and there is no misuse of powers, we cannot act as a stumbling block in the further progress of the investigation conducted by the respondent. 

The court was hearing the plea by one Southern Agrifurane Industries Private Ltd for forbearing the ED from proceeding with an Enforcement Case Information Report (ECIR) on the ground that the Directorate was acting beyond jurisdiction conferred upon it by the Prevention of Money Laundering Act. 

The allegation against the company was that it had sent foreign exchanges abroad in violation of Foreign Exchange Management Rules and investigation was taken up by the ED. The Directorate passed provisional orders of seizure of certain movable and immovable properties of the petitioner company, which were not confirmed by the Competent authority. This order of the Competent Authority was later stayed by the High Court. 

Since the overseas remittances were made through the company's bank account in Axis Bank, the bank registered a complaint with the Central Crime Branch for the offences under Section 417 and 420 for cheating. Since the offence under Section 420 IPC is a schedule offence, the ED registered a case under PMLA and issued summons. This was challenged by the company in the present petition. 

The petitioner company argued that since the provisions of FEMA were not a schedule offence under the PMLA, the ED was merely taking advantage of the FIR given by the bank. It was further submitted that the alleged act of the company would only amount to a violation of FEMA and that there was no offence of cheating made out. Further, even if the allegations were taken to be true, there were no proceeds of crime and in the absence of the same, no offence under PMLA was made out. 

The court however found that an offence under Section 420 was indeed made out. According to the court, the petitioner had made false declaration which induced the authorised dealer to deliver valuable foreign exchange and such remittances in the hands of the wholly owned subsidiaries of the petitioner Company, situated outside India, would constitute proceeds of crime. Thus, it was alleged that they have siphoned off huge amounts of money. 

Therefore, since the primary requirements to start an investigation by the ED were fulfilled, the court did not find any ground to interfere with the investigation and thus dismissed the petition. 

Case Title: Southern Agrifurane Industries Private Ltd., v. The Assistant Director, Directorate of Enforcement

Citation: 2022 LiveLaw (Mad) 517

Case No: W.P.No.28140 of 2022