Offences Under IPC Or Arms Act Discovered By ED While Searching Under FEMA Can Be Treated As Predicate Offences Under PMLA: Punjab & Haryana HC

The Punjab & Haryana High Court has dismissed the plea seeking quashing of the Enforcement Case Information Report (ECIR) lodged under PMLA on the basis of a search conducted under the Foreign Exchange Management Act, 1999 (FEMA).

The predicate offence was the FIR lodged pertaining to visa fraud under Sections 472 (Making or possessing counterfeit seal, etc., with intent to commit forgery punishable under section 46), 473 (Making or possessing counterfeit seal, etc., with intent to commit forgery punishable otherwise) and arms act.

While dismissing the plea, the Court rejected the contention that FIR registered under the IPC and Arms Act after conducting a search by ED under FEMA cannot be treated as a predicate offence under PMLA.

It was submitted that searches were conducted by ED under Section 37 of FEMA upon receiving the information of grave violation under FEMA as the petitioner allegedly was obtaining education visas for students, by falsely claiming that he had two colleges in Australia.

Justice Anoop Chitkara observed, "The Enforcement Directorate is created under Section 36 of the FEMA, 1999, and they have powers to conduct searches under Section 37 of FEMA. However, the officers, while conducting searches under Sec/on 37 of FEMA, can exercise the powers like those conferred on Income tax authorities under Income Tax Act, 1961, and Section 37(3) FEMA makes it mandatory that the officer shall exercise such powers subject to such limitations laid down under Income Tax Act, 1961."

Pritpal Singh moved the High Court seeking quashing of ECIR based on predicate offence wherein two FIRs were lodged, (first) FIR under Sections 472 (Making or possessing counterfeit seal, etc., with intent to commit forgery punishable under section 46), 473 (Making or possessing counterfeit seal, etc., with intent to commit forgery punishable otherwise) 384 (extortion), 420 (Cheating and dishonestly inducing delivery of property), 120-B (Criminal Conspiracy) of IPC and (Second) FIR under Section 30 of Arms Act in 2017.

It was alleged that the petitioner and associates incorporated the company M/s Seabird International Pvt. Ltd. in 2015 in Punjab's Mohali, by which accused persons were committing a serious violation of forex through RTGS payments.

When the company was searched by ED, counterfeit Government Authorities seals, seals of different banks along other forged documents were recovered and a replica of a handgun was also found in the petitioner's residence, ED told the Court.

In a statement recorded under Section 37 of FEMA, Singh allegedly stated that his company along with his partners was dealing with immigration-related services and they used to provide false documents for processing visa applications.

After the registration of two FIRs, the Enforcement Directorate filed a complaint before the Special Judge, Mohali, under Sections 44 and 45 of the PMLA Act for the commission of an offence punishable under section 3 read with S. 70 and 4 of the PMLA Act.

After hearing the submissions, the Court noted that Section 66 of PMLA authorizes the officials to disclose the information. However, the initial search conducted in 2017 was not conducted under the provisions of PMLA as such information could not have been supplied under Section 66 of PMLA.

"Be that as it may, neither perusal of the petition refers to the closure of ECIR nor complaint by claiming the search to be the initial information to be without authority of law nor counsel for the petitioner addressed any such arguments in the Court. Without such pleadings and arguments, even Counsel for the Enforcement Directorate could not have replied," it added.

The Court said that once the petitioner has not taken up these points, the Court does not deem it appropriate to adjudicate about irregularity or illegality about an aspect of such information and leave it open to be taken up either at the time of framing of charges or at the time of trial if petitioner so desires.

Furthermore, the Court rejected the argument that ECIR was lodged under the provisions of PMLA without any predicate offence. "On the face of it, this argument is factually incorrect...the Enforcement Directorate, which is the creation of Section 36 of FEMA, had acted under the provisions of Section 37 of FEMA and not Sections 17, 18, and 50 of PMLA. ECIR was recorded after registration of FIR by Punjab Police," the judge said.

The Court also noted that the Enforcement Directorate conducted the searches under Section 37 of FEMA and not under Sections 17 and 18 of PMLA. After that, they sent a communication to the concerned Senior Superintendent of Police who had registered the two FIRs.

Neither the petition nor the counsel for the petitioner claims that the first FIR has been closed or the accused were discharged or resulted in acquittal, as such predicate offence is still subsisting and this Court cannot quash ECIR and consequent complaint once the predicate offence, i.e., first FIR is still subsisting, it added.

Regarding the second FIR lodged in 2017 under Section 30 of the Arms Act, the Court noted that the cancellation report was filed in 2019 and since the maximum punishment for the offence is 6 months, it will be barred by limitation and the Court cannot take cognizance in accordance with Section 468 CrPC.

"Thus, it can be said that a cancellation report filed by the police under Section 30 of the Arms Act has to be accepted. Even this Court presumes that if FIR No. 158 (second) is closed, it would not help the petitioner because FIR No. 118 (first) is still subsisting," the Court concluded.

While noting as the first FIR includes Sections  472 and 473 of IPC and which comes under the scheduled offences, "the Enforcement Directorate was well within the scope of PMLA, 2002 to launch prosecution by filing a complaint for violation of Sections 3 and 4 of PMLA based on the predicate offense under Section 472 and 473 IPC."

Mr. D.S. Sobti Advocate for the petitioner.

Mr. Shobit Phutela, Sr. Panel Counsel for respondents No.1 and 3.

Mr. Sunish Bindlish, Advocate with Ms. Sidhi Bansal, Advocate for respondent No.2.

Title: Pritpal v. ED & Ors.

Citation: 2024 LiveLaw (PH) 217

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