Should ED Be Granted Hearing Before Predicate Offence Is Quashed? Supreme Court To Consider

Whether the Enforcement Directorate should be granted a hearing before a predicate offence is quashed? The Supreme Court is set to consider this issue. 

The Court said that this issue raised by Additional Solicitor General SV Raju is "pertinent".

The bench comprising Justices Surya Kant and Justice Dipankar Dutta was hearing a plea by ED against Bombay HC judgment which quashed the FIR against India Bulls Housing Finance Limited Company(respondent). 

ASG SV Raju, appearing on behalf of ED, argued that the FIR in question was wrongly quashed, which significantly affected the agency's right to conduct a thorough investigation.

Justice Surya Kant pointed out that the Bombay High Court's order did not contain any adverse comments against the ED. He indicated that if there was any incriminating evidence, the High Court did not preclude further legal action or investigation.

ASG SV Raju responded that Delhi High Court said that the Bombay HC has already quashed the matter. He asserted that the ED investigation had successfully established the commission of money laundering offence and questioned the Bombay High Court's heavy reliance on the aspect of malafides to quash the FIR. This can mean that influential persons can get their proxies to file bogus complaints deliberately with the intention of getting them quashed and such a scenario can affect the agency's right to investigate the offence. 

As per the Supreme Court's judgment in Vijay Madanlal Choudhary case, PMLA case is not sustainable if the predicate offence is quashed.

The bench then formulated a hypothetical scenario and asked, “Suppose FIR is not there. No complaint was made. Then what is your legal position?”

“I’ve no authority unless there’s a predicate offence", ASG admitted. But he added, “Suppose I investigate offence X and some other offence Y is found, PMLA gives me the right to send it to the jurisdictional police”.

ASG SV Raju also expressed his concerns over the High Court's handling of the matter.

He submitted,  “High Court says no proof is produced. This is unheard in criminal jurisprudence. Proof comes at the time of the investigation. It's absolutely shocking. Right from Lalita Kumari judgment you’ve held- it is to be seen from the averments made whether an offence is made out or not? Not if they are correct or not?”

ASG SV Raju requested, “ Leave it open for us to file independent FIR

Justice Surya Kant asked, “Where have you been prevented by HC?”

ASG SV Raju submitted, “It should not come in my way. ED can file an FIR.”

The judge responded, “That is for you to take a call. There’s no impediment in HC order.”

Senior Advocate Kapil Sibal, representing respondents, said that they’ve no issues if there’s an observation ED can take actions in accordance with law.

ASG SV Raju also raised the issue whether the ED should be granted a hearing before a predicate offense is quashed. Acknowledging that the issue raised is pertinent, the bench adjourned the matter for further hearing. 

 BACKGROUND OF THE CASE

The original complainant Ashutosh Vijay Kamble had purchased shares of Indiabulls Housing Finance Ltd company( ‘the company) for the first time on 17/03/2021. He is a resident of Dadar who shifted to Wada, District Palghar where he obtained a room on leave and license basis on 26/03/2021. Within less than 10 days, he approached the police raising his grievance of fraud played by the company. On 03/04/2021 he filed the complaint before the Magistrate under Section 156(3) of the Cr.P.C.

On 07/04/2021, Magistrate proceeded to pass the impugned order directing the registration of F.I.R. His complaint was that the company had committed fraud on innocent investors by rigging the shares. He also alleged that the funds were siphoned to Mauritius and then pumped back illegally.

Aggrieved by the said order, the company filed a petition under Article 226 of the Constitution of India & Section 482 of the Code of Criminal Procedure, 1973 for quashing of the order dated 07th April 2021 passed by the Judicial Magistrate First Class, Wada.

The Bombay High Court found that the complaint failed to meet the basic requirement of including an affidavit to support its contents. Additionally, the complaint lacked necessary details, and only vague statements were made, leading the Court to question its credibility.

The High Court further noted that the complainant had purchased 800 shares in a single transaction and had no evidence of regular trading in shares.

The Court deemed the claim of regular share trading as falsified. Furthermore, it was deemed implausible that the complainant could have thoroughly studied the balance sheet of the Company, covering several years data, in such a limited timeframe between share purchase and lodging the complaint.

Based on these findings, the High Court concluded that the lodging of the complaint against the Petitioner Company and the continuation of legal proceedings were an abuse of process of law. Consequently, the Court exercised its inherent powers under Section 482 of the Code of Criminal Procedure, 1973, to secure the ends of justice and dismissed the complaint against the company.

Case title: ED v. India Bulls Housing Finance Limited

Citation: Diary No 26629/2022

For petitioner: ASG SV Raju

For respondent: Senior Advocate Kapil Sibal, Senior Advocate Mahesh Jethmalani