M/S. COCHIN MINERALS AND RUTILE LIMITED vs DIRECTORATE OF ENFORCEMENT
- Court
- Kerala High Court
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W.A. No. 1140 of 2026 1
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V
&
THE HONOURABLE MR.JUSTICE K. V. JAYAKUMAR
TH
FRIDAY, THE 5 DAY OF JUNE 2026 / 15TH JYAISHTA, 1948
WA NO. 1140 OF 2026
AGAINST THE JUDGMENT DATED 26.05.2026 IN WP(C) NO.15757
OF 2024 OF HIGH COURT OF KERALA
APPELLANTS:
1 M/S. COCHIN MINERALS AND RUTILE LIMITED
HAVING ITS REGISTERED OFFICE AT P.B. NO. 73, VIII/224,
MARKET ROAD, ALWAYE, ERNAKULAM, KERALA REP. BY CHIEF
GENERAL MANAGER (FINANCE) & COMPANY SECRETARY,
PIN - 683101
2 N.C. CHANDRASEKHARAN
SENIOR MANAGER - EDP M/S COCHIN MINERALS & RUTILE
LIMITED, P.B. NO. 73, VIII/224, MARKET ROAD, ALWAYE,
KERALA, PIN - 683101
3 ANJU RACHAEL KURUVILA
SENIOR OFFICER - EDP M/S COCHIN MINERALS & RUTILE
LIMITED, P.B. NO. 73, VIII/224, MARKET ROAD, ALWAYE,
KERALA, PIN - 683101
4 K.S. SURESH KUMAR
AGED 63 YEARS
CHIEF FINANCIAL OFFICER M/S COCHIN MINERALS & RUTILE
LIMITED, P.B. NO. 73, VIII/224, MARKET ROAD, ALWAYE,
KERALA, PIN - 683101
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W.A. No. 1140 of 2026 2
5 S.N. SASIDHARAN KARTHA
MANAGING DIRECTOR M/S COCHIN MINERALS & RUTILE LIMITED,
P.B. NO. 73, VIII/224, MARKET ROAD, ALWAYE, KERALA, PIN
- 683101
BY ADVS.
SRI. SIDDHARTH LUTHRA,
SRI. ARSHDEEP SINGH KHURANA
SRI. SULAKSHAN V.S.
SRI. KARTIKEYA DANG
SRI. HIMANSHU KASTURI
SMT. SIMRAN KHURANA
SRI. SOMANSH GUPTA
SHRI.M.GOPIKRISHNAN NAMBIAR
SHRI.K.JOHN MATHAI
SRI.JOSON MANAVALAN
SRI.KURYAN THOMAS
SHRI.PAULOSE C. ABRAHAM
SHRI.RAJA KANNAN
SRI. VIDISHA BAJAJ
RESPONDENT:
DIRECTORATE OF ENFORCEMENT
KOCHI ZONAL OFFICE REP. BY ASSISTANT DIRECTOR KANOOS
CASTLE, MULLASSERY CANAL ROAD WEST, COCHIN,
PIN - 682011
SHRI.A.R.L SUNDARESAN, ADDL.SOLICITOR GENERAL OF INDIA
SHRI. ZOHEB HUSSAIN, SPL. COUNSEL
SRI. JAYASHANKAR V. NAIR, RETAINER COUNSEL, ED.
THIS WRIT APPEAL HAVING COME UP FOR FINAL HEARING ON
05.06.2026, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
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W.A. No. 1140 of 2026 3
“CR”
J U D G M E N T
Raja Vijayaraghavan V, J.
1
In Vijay Madanlal Choudhary v. Union of India , a Three-Judge Bench
of the Apex Court was called upon to consider a wide range of challenges
concerning the constitutional validity and interpretation of various provisions of the
Prevention of Money Laundering Act, 2002 (for short, ‘PMLA’), as well as the
procedure adopted by the Enforcement Directorate (for short, ‘ED’) while inquiring
into and investigating offences under the Act.
2. In the aforesaid case, a challenge was mounted against Sections 3, 5,
8, 17, 18, 19, 24, 44, 45, 50 and 63 of the PMLA, the Schedule appended thereto,
and the practice adopted by the Enforcement Directorate of registering an
Enforcement Case Information Report (“ECIR”). The Apex Court, after undertaking
an exhaustive and detailed examination of all the contentions advanced before it,
upheld the constitutional validity of the impugned provisions. In the process, the
Court authoritatively expounded the scope, ambit, and import of several
foundational concepts under the Act, including “proceeds of crime” as defined
under Section 2(u), “scheduled offence” as defined under Section 2(y), and the
offence of money laundering under Section 3. The Court also closely examined the
1
[(2023) 12 SCC 1]
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W.A. No. 1140 of 2026 4
statutory framework governing attachment, adjudication, and confiscation under
Chapter III of the Act, as well as the powers conferred upon the authorities under
Chapter VIII. Particular emphasis was laid on the authority vested in such officials
to issue summons, compel the production of documents, and record evidence
under Section 50 of the Act.
3. Despite this authoritative and comprehensive pronouncement, the
contentions raised in the present petition suggest the controversy persists.
4. In essence, the contention of the appellants is that the registration of
an ECIR, in the absence of a crime or complaint registered by a competent
jurisdictional authority, is legally unsustainable. According to the petitioner, in the
absence of such a foundational proceeding, the Enforcement Directorate lacks the
jurisdiction to invoke its powers under the Act, including the power to issue
summons requiring a person to produce documents or to appear and give
evidence.
5. The learned Single Judge decided the issues raised by the appellants
in the writ petition against them by the judgment dated 26.05.2026. Assailing the
said judgment, the appellants have preferred this appeal.
6. The case of the petitioners as averred in the Writ Petition can be
summarised as follows:
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a. The 1st petitioner, M/s. Cochin Minerals and Rutile Limited, (‘CMRL’
for the sake of brevity) is a Public Limited Company registered with the
Registrar of Companies, Ernakulam. Petitioners 2 to 5 are employees of the
1st petitioner Company.
b. On 25.01.2019, the Income Tax Department conducted a search
under Section 132 of the Income Tax Act, 1961 (for short, ‘the IT Act’) at the
factory and office premises of the 1st petitioner Company, as well as at the
residences of its Managing Director and certain key employees. Pursuant
thereto, notices dated 29.11.2019 were issued under Sections 153A and
143A of the IT Act for the Assessment Years 2013–14 to 2019–20.
c. Subsequently, on 06.11.2020, the Company approached the Income
Tax Settlement Commission by filing an application under Section 245C of
the IT Act. The application culminated in an order dated 12.06.2023 passed
by the Interim Board for Settlement under Section 245D(4) of the IT Act.
According to the petitioners, by virtue of the said order, the 1st petitioner
was granted immunity under Section 245H of the IT Act from prosecution for
any offence under the Act relating to the aforesaid assessment years.
d. On 25.09.2023, a complaint was submitted by one Mr. Shone
George before the Ministry of Corporate Affairs (for short, “MCA”), seeking an
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investigation into the affairs of the 1st petitioner Company under Sections
210(1)(c) and 212 of the Companies Act, 2013. Thereafter, the complainant,
Mr. Shone George, approached this Court by filing a Writ Petition seeking a
direction to the MCA to conduct an investigation into the affairs of the
Company.
e. Subsequently, on 12.01.2024, the MCA passed an order under
Section 210(1)(c) of the Companies Act, 2013, appointing three Inspectors
under Section 210(3) of the Act to investigate into the affairs of the 1st
petitioner Company and to submit a report to the Central Government.
f. Thereafter, on 31.01.2024, the MCA passed an order under Sections
212(1)(a) and 212(1)(c) of the Companies Act, 2013, entrusting the
investigation into the affairs of the Company to the Serious Fraud
Investigation Office (for short, “SFIO”). On the very same day, the SFIO
issued an order under Sections 212(1) and 212(4) of the Companies Act,
2013, appointing Inspectors and Investigating Officers to carry out the
investigation. They were directed to complete the investigation within a
period of eight months and submit their report to the Central Government.
g. According to the petitioners, in view of the finality attached to the
settlement proceedings under Section 245-I of the IT Act, no further
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proceedings could have been initiated on the basis of matters that stood
concluded by the Settlement Commission proceedings.
h. While matters stood thus, it was reported in the media on
27.03.2024 that the respondent had registered a case under the provisions
of the PMLA in relation to M/s Exalogic Solutions Private Limited, one of the
entities that was also under investigation by the SFIO.
i. Thereafter, on 08.04.2024, petitioners 2 to 5 were served with
separate summonses issued by the respondent. The summonses required
petitioners 2 and 5 to appear in person before the respondent on different
dates. The petitioners contend that they were kept completely uninformed
regarding the nature of the allegations against them and that no details
whatsoever were furnished concerning the case under inquiry, the materials
relied upon, or the documents and information allegedly available with the
respondent.
j. According to the petitioners, the summonses referred to an “ECIR”.
However, neither the summonses nor the ECIR disclosed the nature of
inquiry, the allegations under investigation, or the basis on which the
proceedings had been initiated. The petitioners further contend that the
details of the scheduled offence, which constitute the jurisdictional
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foundation for the initiation of proceedings under the PMLA, were
conspicuously absent from the summonses.
k. In the aforesaid circumstances, the petitioners submitted a reply to
the respondent, contending that the proceedings initiated under the PMLA
were without jurisdiction and requesting copies of the ECIR, particulars of
the scheduled offence, and details of the allegations of money laundering. In
response, the respondent, by e-mail, declined to furnish the information
sought and merely reiterated the direction requiring the petitioners to appear
on the dates specified in the summonses.
7. It is in the above factual backdrop that the Writ Petition came to be
filed seeking the following reliefs:
A. Call for the records leading to the investigation being carried
out in ECIR/KCZO/11/2024 by the Respondent under the
provisions of Prevention of Money Laundering Act, 2002 and
to quash ECIR/KCZO/11/2024 and all investigations and
proceedings emanating therefrom by the issuance of a writ of
certiorari or such other writ, order or direction;
B. Call for the records leading to issuance of Exhibits P-6 to P-9
Summons dated 08.04.2024 and Exhibit P-11 email dated
11.04.2024 by the Respondent and quash the same by the
issuance of a writ of certiorari or such other writ, order or
direction;
C. Writ of Mandamus or any other writ, order or direction,
direct ing the respondent to comply with the request
made by the Petitioner company in Exhibit P-10 email
dated 10.04.2024.
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8. In the counter affidavit filed by the respondent, the following
contentions were raised.
a. The petition is premature and, therefore, not maintainable. According
to the respondent, an ECIR is not a statutory document but merely an
internal record maintained by the Directorate of Enforcement, and
consequently, it is neither amenable to challenge nor liable to be quashed. It
was further contended that a person who has merely been issued a
summons cannot, at that stage, be regarded as an aggrieved person so as to
invoke the writ jurisdiction of this Court.
b. The Income Tax Department, Cochin, had conducted searches under
Section 132 of the Income Tax Act, 1961, on 25.01.2019 in the case of
CMRL, a publicly listed company incorporated on 18.08.1989. According to
the respondent, Sri S.N. Sasidharan Kartha is the Managing Director of the
Company and Sri Mathew M. Cherian is one of its promoters. It was stated
that the Kerala State Industrial Development Corporation (KSIDC) holds
approximately 13% of the Company's shareholding, while public
shareholders hold about 48.75%. The search operations covered, inter alia,
the residential premises of the Managing Director and the Chief Financial
Officer of the Company, Sri. S. Suresh Kumar. According to the findings
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allegedly unearthed during the search, the Company had inflated its
expenditure by booking fictitious cash expenses under the heads of
transportation and sludge handling, aggregating to ₹133.82 crores during the
financial years 2012–13 to 2018–19. It was concluded by the IT Department
that such inflated expenditure enabled the generation of unaccounted cash,
which was subsequently utilised for making illegal payments to politicians,
political parties, media houses and public servants.
c. The statements recorded before the Income Tax Authorities from the
Chief Financial Officer and the Managing Director disclosed that such
payments had been made to ensure the smooth functioning of the
Company's business operations in the face of perceived threats of closure
and environmental challenges. It was also alleged that the Company had
booked fictitious expenditure amounting to ₹1.72 crores towards software
services purportedly rendered by Smt. Veena Vijayan and M/s. Exalogic
Solutions Private Limited, despite no services having actually been rendered.
d. The respondent relied upon certain loose sheets allegedly seized
from the residence of Sri S. Suresh Kumar, Chief Financial Officer of the
Company, during the search proceedings, as well as statements recorded
from him under Section 132(4) of the Income Tax Act and statements
recorded from the Managing Director under the same provision. According to
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the respondent, these materials substantiate the allegations regarding the
aforesaid illegal payments.
e. Subsequent to the searches conducted on 25.01.2019, the Income
Tax Department quantified the total of such bogus expenditure allegedly
utilized for cash payments at ₹135.54 crores for Assessment Years 2013-14
to 2019-20, i.e. Financial Years 2012-13 to 2018-19. CMRL approached the
Income Tax Settlement Commission and quantified the inflated expenses at
₹134.27 crores. They claimed that the payment of ₹1.72 crores towards
software services was a genuine payment. Further, out of the ₹134.27
crores, quantified by the Company herein as inflated expenses, CMRL
pleaded that a sum of ₹73.38 crores be allowed as eligible expenses incurred
for business purposes and offered the balance amount of ₹57.78 crores as
additional income. The Settlement Commission by order dated 12.06.2023
upheld the findings of the Income Tax Department with respect to inflation
of expenses, generation of cash for illegal payments, and fictitious payment
of ₹1.72 crores to Smt. Veena Vijayan and her company M/s. Exalogic
Solutions Pvt. Ltd. without rendering of services. However, the Interim Board
for Settlement, as part of settlement, allowed 70% of the amount of ₹73.38
crores claimed as eligible expenditure and disallowed the remaining 30%
thereof.
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f. Since M/s. Cochin Minerals and Rutile Limited is a publicly listed
company in which a substantial portion of the shareholding is held by public
investors and KSIDC, the alleged diversion of company funds through illegal
payments, including payments allegedly made without any legitimate
business nexus to M/s. Exalogic Solutions Private Limited and others,
resulted in financial loss to the shareholders. According to the respondent,
such diversion diminished the profits available for distribution to the
shareholders and amounted to dishonest or fraudulent removal and
concealment of company funds, attracting Section 447 of the Companies Act,
2013, the same being a scheduled offence.
g. The shareholders of the Company are victims of offences involving
cheating, criminal conspiracy, and dishonest or fraudulent removal or
concealment of property, allegedly committed by the Company and its
Directors. According to the respondent, such acts disclose cognizable
offences under the various provisions of the Indian Penal Code, 1860.
h. Pursuant to the order of the Ministry of Corporate Affairs dated
12.01.2024 under Section 210(1)(c) of the Companies Act, an investigation
was initiated, which was subsequently followed by an order under Section
212 entrusting the investigation to the Serious Fraud Investigation Office
(SFIO).
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i. The above criminal acts resulted in the generation of “proceeds of
crime” in the hands of the recipients, including M/s. Exalogic Solutions
Private Limited and others, through the commission of scheduled offences,
and that such aspects were the subject matter of inquiry and investigation by
the Directorate of Enforcement under the PMLA. The respondent also stated
that a reference under Section 66(2) of the PMLA had been forwarded to the
Kerala Police for registration of a criminal case in respect of offences
punishable under Sections 120B, 411, 420, 421 and 424 of the Indian Penal
Code, 1860.
j. It was contended that an inquiry under the PMLA can validly
commence even before the registration of a First Information Report in
respect of the scheduled offence and that the absence of such an FIR does
not preclude the authorities referred to in Section 48 of the PMLA from
initiating or proceeding with an inquiry. According to the respondent, the
powers conferred upon the authorities under the PMLA are sufficiently broad
to enable them to undertake preliminary inquiries and collect information
relating to suspected money-laundering activities, independent of the formal
registration of a criminal case for the scheduled offence.
k. The respondent further contended that the petitioners' reliance on
the immunity granted under the provisions of the IT Act is wholly
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misconceived. It was submitted that the second proviso to Section 245H of
the IT Act expressly stipulates that, on and after 01.06.2007, the Income Tax
Settlement Commission has no jurisdiction to grant immunity in respect of
offences punishable under the Indian Penal Code or under any Central
enactment other than the Income Tax Act, 1961 and the Wealth Tax Act,
1957. Consequently, any immunity granted in settlement proceedings under
the Income Tax Act cannot operate as a bar against proceedings initiated
under the PMLA or in respect of any other independent statutory offence.
l. The respondent also contended that a person summoned under
Section 50 of the PMLA is under a statutory obligation to comply with such
summons. By virtue of sub-section (3) of Section 50 of the PMLA, every
person so summoned is bound to attend, either in person or through an
authorised agent, as directed, and is further obliged to state the truth on any
matter concerning which he is examined or required to make a statement.
Such person is also bound to produce such records or documents as may be
called for by the authority conducting the inquiry. According to the
respondent, the issuance of the impugned summons was, therefore, well
within the scope of the statutory powers conferred under the Act.
9. The learned Single Judge, after careful evaluation of the facts and
circumstances, came to the conclusion that the Writ Petition was not maintainable
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W.A. No. 1140 of 2026 15
at the stage of issuance of summons. To come to the said conclusion, profuse
reliance was placed on the observations made by a learned Single Judge of this
2
Court in C.M.Raveendran v. Union of India . The learned Single Judge rejected
the contention that the immunity granted under the IT Act would not entitle the
petitioners to claim immunity from proceedings under the PMLA. For arriving at the
said conclusion, the learned Single Judge noticed the second proviso to Section
245H(1) of the IT Act. Relying on the law laid down in Vijay Madanlal (supra)
and specifically to paragraph No. 382.26, it was held that non-recording of an FIR
regarding a scheduled offence will not impede the commencement of an
inquiry/investigation for initiating civil action or provisional attachment of property,
being proceeds of crime by the authorities referred to in Section 48 of the PMLA. It
was also observed by the learned Single Judge that the existence of an FIR
involving a scheduled offence is not a precondition for issuing summons under
Section 50 of the PMLA. After the Writ Petition was heard and the same was
reserved for judgment, an affidavit was filed by the respondent stating that they
have received information that the SFIO had filed a complaint on 03.04.2025,
alleging commission of offences under the Companies Act, 2013, and the charges
referred therein, which include offence under Section 447 of the Companies Act,
constitutes scheduled offences under the PMLA. The learned Single Judge took the
view that subsequent events can also be looked into and went on to hold that the
2
[2020 SCC OnLine Ker. 7555]
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W.A. No. 1140 of 2026 16
foundation of the argument of the petitioners that the summons had been issued
without any scheduled offence disappeared. Holding so, the Writ Petition was
dismissed.
10. Sri Siddharth Luthra, the learned Senior Counsel, as instructed by
Sri Arshdeep Singh Khurana, the learned counsel, advanced the following
submissions:
a. The learned Senior Counsel submitted that the case of the appellant
was that the very registration of ECIR was without jurisdiction. According to
the learned counsel, the ECIR would constitute the very foundation and
genesis of proceedings initiated by the ED under the PMLA. Only if there
exists a scheduled offence, the ED would have the jurisdictional authority to
exercise powers under the provisions of the PMLA including the registration
of the ECIR, the issuance of summons under Section 50 of the PMLA or any
other consequential action. Reliance was placed on Ankur Agarwal v.
3
Directorate of Enforcement and Carona Ltd. v. Parvathy
4
Swaminathan & Sons to bolster his submissions.
b. It is submitted that the Apex Court in Vijay Madanlal (supra) has
emphatically held that an investigation by the ED under the PMLA must
necessarily be premised on a valid FIR/complaint registered by a competent
3
[2025:AHC-LKO:11128]
4
[(2007) 8 SCC 559]
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W.A. No. 1140 of 2026 17
investigating agency in respect of a scheduled offence under the PMLA. It is
only when the above jurisdictional facts exist that the respondent would have
jurisdiction to investigate whether the proceeds of the crime have been
laundered. In the absence of such a condition precedent, the continuance of
the proceeding is illegal and without jurisdiction. According to the learned
counsel, at the time of registration of the ECIR and issuance of summons,
there was admittedly no complaint, consequential FIR or cognizance by any
competent court in relation to any alleged scheduled offence. As the
proceedings including the summons and investigation are initiated without
jurisdiction, the same are liable to be quashed. Reliance was placed on the
law laid down in Radha Krishnan Industries v. State of Himachal
5
Pradesh to support his submissions.
c. There being no foundational fact for registration of an ECIR, if the
Enforcement Directorate was permitted to invoke its powers under the PMLA
and forced the appellants to undergo an inherently illegal investigation, it
would result in manifest injustice. Reliance is placed on South Indian Bank
Ltd v. Directorate of Enforcement and State of Punjab v. Davinder
6
Pal Singh to emphasise his point.
5
[2021) 6 SCC 771]
6
[2024:KER:53873]
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W.A. No. 1140 of 2026 18
d. It is forcefully urged that the learned Single Judge has erred in
dismissing the Writ Petition as premature on the ground that the challenge
was only against the summons issued under the PMLA. It is submitted that
the very registration of the ECIR itself was wholly without jurisdiction and
that being the case, the same was amenable to judicial review and liable to
be quashed.
e. Even assuming that the ED followed the directives in Vijay
Madanlal (supra) and initiated emergent action under the second proviso to
Section 5(1) of the PMLA, the same has to be accompanied by
contemporaneous information sent to the jurisdictional authority for the
registration of a predicate offence under Section 66(2) of the PMLA. In the
case on hand, no documents have been placed on record to establish that
such an exercise was carried out. Even otherwise, the information under
Section 66(2) of the PMLA was sent after the lapse of more than three weeks
from the registration of the ECIR. Furthermore, the respondent has not
followed the initiation of proceedings under Section 5(1) with the attachment
of the properties in terms of the second proviso to Section 5(1) of the PMLA.
f. It is submitted that the settlement commission under the IT Act
invoked powers under Section 245D and if that be the case, in view of
Section 245 I of the Income Tax Act, the order passed under Section 245D is
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conclusive in nature and no matter covered therein can be reopened in any
other proceedings under any other law for the time being in force. This
aspect of the matter was not properly appreciated by the learned Single
Judge.
g. It is submitted that the learned Single Judge has seriously erred in
relying upon the additional affidavits dated 21.05.2025 and 03.06.2025 filed
by the respondent much after the Writ Petition was reserved for judgment.
No opportunity was granted to the appellants to file a response on the merits
or to address submissions on the merits of the subsequent developments. It
is submitted that if such an opportunity was granted, the appellants could
have placed on record the proceedings pending before the High Court of
Delhi in W.P.(Crl) No.1188 of 2024 wherein the appellants herein had
challenged the very initiation of investigation by the SFIO including the
orders dated 12.01.2024 and 31.01.2024 passed by the Ministry of Corporate
Affairs under various provisions of the Companies Act. It is submitted that
the learned Single Judge of the Delhi High Court had directed the SFIO not
to proceed with the investigation report/complaint filed in the SFIO
proceedings during the pendency of the proceedings. To support his
submissions reliance is placed on Mohinder Singh Gill v. Chief Election
7
Commissioner .
7
[(1978) 1 SCC 405]
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W.A. No. 1140 of 2026 20
11. Sri. A.R.L Sundaresan, the learned Additional Solicitor General of India
and Sri. Zoheb Hussain, the learned Special Counsel, opposed the submissions
advanced by the learned Senior Counsel and they urged that the learned Single
Judge had evaluated the entire facts in its proper perspective and had taken note of
the observations of the Hon’ble Supreme Court in Vijay Madanlal (supra) while
dismissing the petition as one without merits. The following submissions were
made:
a. It is submitted that a perusal of the reliefs sought for in the writ
petition would reveal that the challenge is mounted against the ECIR which
was registered on 4.03.2024 by the ED and also Exhibit P6 to P9 summons
issued under Section 50 of the PMLA to the officers of the Company to
appear. According to the learned counsel, an ECIR is merely an internal
document as settled in Vijay Madanlal (supra) and the registration of the
same would not make the persons arrayed therein as an accused or entail
them to face prosecution under the Act.
b. It is submitted that if valid information is received, the ED can
commence an inquiry after registration of the ECIR and the fact that an FIR
has not been registered involving a scheduled offence will not come in the
way of the authorities mentioned in Section 48 to commence the enquiry. It
is submitted that only for initiation of prosecution under Section 3 of the Act
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W.A. No. 1140 of 2026 21
is the registration of scheduled offence a prerequisite. In the instant case
only an enquiry has been initiated after registration of an ECIR and the same
has not culminated in the lodging of a complaint under Section 44 of the
PMLA.
c. It is urged that the order passed by the Settlement Commission
under Section 245D(4) of the IT Act cannot stand in the way of initiation of
any action under the PMLA Act in view of the 2nd proviso to Section 245H. It
is submitted that the said order will only enable the appellant to claim
immunity under the IT Act and the Wealth Tax Act.
d. It is urged that CMRL is a publicly listed company in which 48.75 %
shares are held by the general public and 13.41 % shares are held by KSIDC,
a public sector undertaking. It has come out from the initiation of
proceedings under the IT Act and the Companies Act that funds were
diverted by CMRL to M/s. Exalogic through illegal payments without any
business relationship whatsoever thereby causing loss to the public
shareholders and KSIDC. It is submitted that by funnelling out funds by such
devious methods and by depriving the shareholders of what they were
entitled to, CMRL had committed the offence of cheating and other related
offences. This diversion of funds led to the generation of proceeds of crime
by M/s. Exalogic by way of commission of scheduled offences which is
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presently under inquiry by the ED under the provisions of the PMLA. It is
further submitted that immediately after registration of the ECIR, as
contemplated under the statute, information was forwarded to the Kerala
Police under Section 66(2) of the PMLA for registration of the crime. It is
submitted that such a course was followed by the ED to conduct a prompt
enquiry and to secure the proceeds of the crime, if, based on the enquiry,
the allegations were found to be genuine.
e. It is further submitted that commencement of the investigation by
the SFIO on the basis of directions issued by the MCA will not in any way
interdict the ED from initiating inquiry under the Act. Reliance was placed on
Section 71 of the PMLA to bring home the point that the provisions of the Act
have an overriding effect over other laws.
f. It is submitted that the summonses were issued to the appellants to
furnish details of agreements entered into between M/s. Exalogic and CMRL,
copies of invoices issued by M/s. Exalogic to CMRL against the services
rendered and the Ledger Account containing transactions between CMRL and
M/s. Exalogic. According to the learned counsel, a person summoned to give
evidence under Section 50(2) of the PMLA is bound to attend in person and
state the truth upon any subject concerning which he is being examined or is
expected to make a statement. According to the learned counsel, at the
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stage of issuance of summons, the summonee does not assume the
character of an accused.
12. We have carefully considered the submissions advanced by both sides
and have gone through the entire record.
13. We find from the records that it was on 25.01.2019 that a search was
conducted under Section 132 of the IT Act at the office and factory of CMRL and
residential premises of the principal officers. Pursuant to the search, on 29.11.2019,
notices were issued under Section 153A and Section 143(2) of the IT Act for the
Assessment Years 2013–14 to 2019–20. While so, on 06.11.2020, an application
was filed under Section 245C of the IT Act before the Settlement Commission. The
Interim Board for Settlement passed an order under Section 245D(4) of the IT Act,
granting immunity from prosecution for offences under the IT Act. However, the
Settlement Commission upheld the findings of the Income Tax Department with
respect to inflation of expenses, generation of cash for illegal payments, and
fictitious payment of ₹1.72 crores to Smt. Veena Vijayan and her company
M/s. Exalogic Solutions Pvt. Ltd. without rendering of services. As part of the
settlement, the Settlement Commission allowed 70% of the amount of ₹73.38
crores claimed as eligible expense and disallowed the balance 30% of the claim. On
25.09.2023, a complaint was lodged by a certain Mr. Shone George against CMRL
with the MCA, seeking an investigation in the affairs of the Company under Section
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W.A. No. 1140 of 2026 24
210(1)(c) and 212 of the Companies Act. Pursuant to directions issued by this Court
in a W.P.(C) No. 42092 of 2023, the MCA passed an order on 12.01.2024, ordering
that the affairs of CMRL are to be in0.v.0estigated and three Inspectors were
appointed under Section 210(3) of the Companies Act. Immediately thereafter, on
31.01.2024, the MCA passed an order under Section 212(1)(a) and (c) of the
Companies Act, assigning the investigation to be conducted by the SFIO. On the
basis of the said order, the SFIO issued an order on 31.01.2024 under Section
212(1) and 212(4) of the Companies Act, 2013 appointing Inspectors and
Investigating Officers to carry out an investigation and to conclude the same within
a period of eight months. It was thereafter that on 08.04.2024, the summons dated
08.04.2024 were issued by the ED, requiring the officers to personally appear on
11.04.2024 and 15.04.2024.
14. A copy of the summons issued to the principal employees has been
produced before this Court as Exts.P6 to P9. In the said summons, it is mentioned
that the Assistant Director, Enforcement Directorate, was issuing the same, invoking
his powers under sub-sections (2) and (3) of Section 50 of the PMLA. It is also
stated that the said officer was making an investigation under the PMLA. In the
summons, it has been mentioned that the person summoned shall appear to give
evidence and to produce records as indicated in the annexure in connection with
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the investigation or proceedings under the PMLA. The documents which were called
from Sri K.S. Suresh Kumar and Sri S.N Sasidharan Kartha are the following:
(i) Details of the entities you & your family members are
associated with.
(ii) List of the bank accounts maintained by M/s. Cochin Minerals
and Rutile Limited, Kerala, since inception to till date.
(iii) Audited Balance Sheets of M/s. Cochin Minerals and Rutile
Limited, Kerala from FY 2013 - 2014 onwards.
(iv) Documents related to Income Tax Assessment of M/s. Cochin
Minerals and Rutile Limited Kerala
(v) Copies of all agreements entered between M/s. Cochin Minerals
and Rutile Limited, Kerala and M/s. Exalogic Solutions Private
Limited / Smt. Veena Thaikkandiyil.
(vi) Copies of all invoices issued by M/s. Exalogic Solutions Private
Limited, Kerala / Smt. Veena Thaikkandiyil to M/s. Cochin
Minerals and Rutile Limited, Kerala against the services
rendered.
(vii) Ledger Account containing the transactions between M/s.
Cochin Minerals and Rutile Limited, Kerala & M/s. Exalogic
Solutions Private Limited, Kerala / Smt. Veena Thaikkandiyil.
15. In the Writ Petition, the prayer sought for was to quash the
ECIR/KCZO/11/2024 as well as the summons.
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16. The contentions advanced before us thus raise three distinct
questions:
a) The legal nature and status of the ECIR vis-a-vis an FIR under the
Code of Criminal Procedure, 1973 and whether it can be quashed;
b) Whether the power of inquiry under Section 50 of the PMLA can be
exercised without a prior FIR or complaint involving a scheduled
offence?
c) Whether the initiation of civil action under Section 5 or Section 50 of
the PMLA requires the prior registration of a scheduled offence?
17. The first question that requires a comprehensive answer is with
regard to the registration of the ECIR. It appears that despite the authoritative
pronouncement of the Apex Court with regard to the legal nature of the ECIR,
some confusion still persists. As is evident from the prayers sought in this writ
petition, the main relief sought is to quash the ECIR. To answer the said issue, we
shall refer to the relevant portions of the judgment in Vijay Madanlal (supra)
where the Apex Court had explained the subtle distinction between an ECIR and
an FIR. Paragraphs 366 to 372 of the judgment are of relevance:
366. As per the procedure prescribed by the 1973 Code, the officer
in-charge of a police station is under an obligation to record the information
relating to the commission of a cognizable offence, in terms of Section 154
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of the 1973 Code [Lalita Kumari v. State of U.P., (2014) 2 SCC 1]. There is no
corresponding provision in the 2002 Act requiring registration of offence of
money laundering. As noticed earlier, the mechanism for proceeding against
the property being proceeds of crime predicated in the 2002 Act is a sui
generis procedure. No comparison can be drawn between the mechanism
regarding prevention, investigation or trial in connection with the scheduled
offence governed by the provisions of the 1973 Code.
367. In the scheme of the 2002 Act upon identification of existence of
property being proceeds of crime, the authority under this Act is expected to
inquire into relevant aspects in relation to such property and take measures
as may be necessary and specified in the 2002 Act including to attach the
property for being dealt with as per the provisions of the 2002 Act. We have
elaborately adverted to the procedure to be followed by the authorities for
such attachment of the property being proceeds of crime and the follow-up
steps of confiscation upon confirmation of the provisional attachment order
by the adjudicating authority. For facilitating the adjudicating authority to
confirm the provisional attachment order and direct confiscation, the
authorities under the 2002 Act (i.e. Section 48) are expected to make an
inquiry and investigate. Incidentally, when sufficient credible information is
gathered by the authorities during such inquiry/investigation indicative of
involvement of any person in any process or activity connected with the
proceeds of crime, it is open to such authorities to file a formal complaint
before the Special Court naming the person concerned for offence of money
laundering under Section 3 of this Act.
368. Considering the scheme of the 2002 Act, though the offence of
money laundering is otherwise regarded as cognizable offence (cognizance
whereof can be taken only by the authorities referred to in Section 48 of this
Act and not by jurisdictional police) and punishable under Section 4 of the
2002 Act, special complaint procedure is prescribed by law. This procedure
overrides the procedure prescribed under the 1973 Code to deal with other
offences (other than money laundering offences) in the matter of registration
of offence and inquiry/investigation thereof. This special procedure must
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prevail in terms of Section 71 of the 2002 Act and also keeping in mind
Section 65 of the same Act. In other words, the offence of money laundering
cannot be registered by the jurisdictional police who is governed by the
regime under Chapter XII of the 1973 Code. The provisions of Chapter XII of
the 1973 Code do not apply in all respects to deal with information derived
relating to commission of money laundering offence much less investigation
thereof. The dispensation regarding prevention of money laundering,
attachment of proceeds of crime and inquiry/investigation of offence of
money laundering up to filing of the complaint in respect of offence under
Section 3 of the 2002 Act is fully governed by the provisions of the 2002 Act
itself. To wit, regarding survey, searches, seizures, issuing summons,
recording of statements of persons concerned and calling upon production of
documents, inquiry/investigation, arrest of persons involved in the offence of
money laundering including bail and attachment, confiscation and vesting of
property being proceeds of crime. Indeed, after arrest, the manner of
dealing with such offender involved in offence of money laundering would
then be governed by the provisions of the 1973 Code — as there are no
inconsistent provisions in the 2002 Act in regard to production of the
arrested person before the jurisdictional Magistrate within twenty-four hours
and also filing of the complaint before the Special Court within the statutory
period prescribed in the 1973 Code for filing of police report, if not released
on bail before expiry thereof.
369. Suffice it to observe that being a special legislation providing for
special mechanism regarding inquiry/investigation of offence of money
laundering, analogy cannot be drawn from the provisions of the 1973 Code,
in regard to registration of offence of money laundering and more so being a
complaint procedure prescribed under the 2002 Act. Further, the authorities
referred to in Section 48 of the 2002 Act alone are competent to file such
complaint. It is a different matter that the materials/evidence collected by
the same authorities for the purpose of civil action of attachment of proceeds
of crime and confiscation thereof may be used to prosecute the person
involved in the process or activity connected with the proceeds of crime for
offence of money laundering. Considering the mechanism of
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inquiry/investigation for proceeding against the property (being proceeds of
crime) under this Act by way of civil action (attachment and confiscation),
there is no need to formally register an ECIR, unlike registration of an FIR by
the jurisdictional police in respect of cognizable offence under the ordinary
law.
370. There is force in the stand taken by the ED that ECIR is an internal
document created by the department before initiating penal action or
prosecution against the person involved with process or activity connected
with proceeds of crime. Thus, ECIR is not a statutory document, nor there is
any provision in the 2002 Act requiring authority referred to in Section 48 to
record ECIR or to furnish copy thereof to the accused unlike Section 154 of
the 1973 Code. The fact that such ECIR has not been recorded, does not
come in the way of the authorities referred to in Section 48 of the 2002 Act
to commence inquiry/investigation for initiating civil action of attachment of
property being proceeds of crime by following prescribed procedure in that
regard.
371. The next issue is : Whether it is necessary to furnish copy of ECIR
to the person concerned apprehending arrest or at least after his arrest?
Section 19(1) of the 2002 Act postulates that after arrest, as soon as may
be, the person should be informed about the grounds for such arrest. This
stipulation is compliant with the mandate of Article 22(1) of the Constitution.
Being a special legislation and considering the complexity of the
inquiry/investigation both for the purposes of initiating civil action as well as
prosecution, non-supply of ECIR in a given case cannot be faulted. The ECIR
may contain details of the material in possession of the authority and
recording satisfaction of reason to believe that the person is guilty of money
laundering offence, if revealed before the inquiry/investigation required to
proceed against the property being proceeds of crime including to the person
involved in the process or activity connected therewith, may have deleterious
impact on the final outcome of the inquiry/investigation. So long as the
person has been informed about grounds of his arrest that is sufficient
compliance of mandate of Article 22(1) of the Constitution. Moreover, the
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arrested person before being produced before the Special Court within
twenty-four hours or for that purposes of remand on each occasion, the
court is free to look into the relevant records made available by the authority
about the involvement of the arrested person in the offence of money
laundering. In any case, upon filing of the complaint before the statutory
period provided in the 1973 Code, after arrest, the person would get all
relevant materials forming part of the complaint filed by the authority under
Section 44(1)(b) of the 2002 Act before the Special Court.
372. Viewed thus, supply of ECIR in every case to the person concerned
is not mandatory. From the submissions made across the Bar, it is noticed
that in some cases ED has furnished copy of ECIR to the person before filing
of the complaint. That does not mean that in every case same procedure
must be followed. It is enough, if ED at the time of arrest,
contemporaneously discloses the grounds of such arrest to such person.
Suffice it to observe that ECIR cannot be equated with an FIR which is
mandatorily required to be recorded and supplied to the accused as per the
provisions of the 1973 Code. Revealing a copy of an ECIR, if made
mandatory, may defeat the purpose sought to be achieved by the 2002 Act
including frustrating the attachment of property (proceeds of crime).
Non-supply of ECIR, which is essentially an internal document of ED, cannot
be cited as violation of constitutional right. Concededly, the person arrested,
in terms of Section 19 of the 2002 Act, is contemporaneously made aware
about the grounds of his arrest. This is compliant with the mandate of Article
22(1) of the Constitution. (emphasis supplied by us)
18. The Hon’ble Supreme Court drew a distinction between an ECIR and
an FIR. It was observed that an FIR under Section 154 of the Cr.P.C. is a creature of
statute. The officer in charge of a police station has a mandatory, non-discretionary
obligation to record information regarding the commission of a cognizable offence.
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There is no corresponding provision in the PMLA, requiring registration of offence of
money laundering. The Hon’ble Court held that no comparison can be drawn
between the mechanism regarding prevention, investigation or trial in connection
with the scheduled offence, while testing it against the provisions of the Cr.P.C.. It
was also pointed out that, in the scheme of the PMLA, upon identification of
existence of property, being the proceeds of crime, the authority under the Act is
expected to inquire into the relevant aspects in relation to such property and take
measures as may be necessary including the attachment of the property for being
dealt with as per the provisions of the PMLA. For facilitating the adjudicating
authority to confirm the provisional attachment, order and direct confiscation, the
authorities mentioned in Section 48 are expected to conduct inquiry and
investigation. When sufficient credible information is gathered during such
inquiry/investigation, indicative of the involvement of any person in any process or
activity connected with the proceeds of crime, it would be open to such authorities
to file a formal complaint before the Special Court, naming the person concerned
for the offence of money laundering under Section 3 of the PMLA. It was also held
that an ECIR is nothing but an internal document, created by the Department
before initiating penal action or prosecution proceedings against the person involved
with process or activity, connected with proceeds of crime. More importantly, it was
held that the fact that such ECIR has not been registered shall not come in the way
of the authorities referred to in Section 48 of the PMLA to commence
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inquiry/investigation for initiating civil action of attachment, being proceeds of crime
by following the prescribed procedure. In plain and simple words, the ECIR is not a
statutory document, and there is no provision in the PMLA, requiring the authority
mentioned in Section 48 to record ECIR or to furnish copy thereof to the accused,
as in the case of Section 154 of the Cr.P.C. As far as furnishing the copy of the ECIR
is concerned, it was observed that the ECIR may contain sensitive operational
details about the material in the ED's possession, disclosure of which could
jeopardize the investigation and frustrate the attachment of proceeds of crime.
Taking note of the above, the Apex Court has held that supply of a copy of the ECIR
would defeat the purpose sought to be achieved by the PMLA. The Apex Court has
also pithily observed that Section 19(1) of the PMLA, which requires that the
arrested person be informed of the grounds of arrest "as soon as may be" is the
only constitutionally mandated disclosure, and this satisfies the requirements of
Article 22(1). The Court further held that not only is the ECIR a non-statutory
document, but even the non-registration of an ECIR does not impede the
commencement of inquiry or civil action. If the existence of an ECIR is not a legal
prerequisite for ED action, it follows that the quashing of an ECIR is not a remedy
that would have any operative legal consequence. The prayer to quash the ECIR
was, therefore, misconceived and cannot be granted.
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19. Having held that the ECIR is a non-statutory internal document whose
registration is not mandated by the PMLA, it becomes necessary to address the
broader question of whether the initiation of inquiry under Section 50 requires a
prior registered crime or complaint involving a scheduled offence. This requires an
examination of how the PMLA conceptually distinguishes between inquiry,
investigation, and prosecution, and its relationship between the civil and penal limbs
of the Act. Such an exercise is required as the contention of the appellant is that
the commencement of inquiry or investigation for proceeding even under Section 50
of the PMLA, by the authorised officer, requires the registration of a crime/complaint
for a predicate offence. In paragraph No. 100 of the Vijay Madanlal (supra), the
Apex Court had occasion to explain the meaning of “investigation” occurring in
clause (na) of Section 2(1) of the PMLA. It was observed as under:
100. We would now elaborate upon the meaning of “investigation” in clause
(na) of Section 2(1). It includes all proceedings under the Act conducted by
the Director or an authority authorised by the Central Government under this
Act for collection of evidence. The expression “all the proceedings under this
Act” unquestionably refers to the action of attachment, adjudication and
confiscation, as well as actions undertaken by the designated authorities
mentioned in Chapter VIII PMLA, under Chapter V PMLA, and for facilitating
the adjudication by the adjudicating authority referred to in Chapter III to
adjudicate the matters in issue, including until the filing of the complaint by
the authority authorised in that behalf before the Special Courts constituted
under Chapter VII PMLA. The expression “proceedings”, therefore, need not
be given a narrow meaning only to limit it to proceedings before the court or
before the adjudicating authority as is contended but must be understood
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contextually. This is reinforced from the scheme of the Act as it recognises
that the statement recorded by the Director in the course of inquiry, to be
deemed to be judicial proceedings in terms of Section 50(4) of the 2002 Act.
Further in Paragraph Nos. 102 and 103, it was observed as under:
102. The task of the Director or an authority authorised by the Central
Government under the 2002 Act for the collection of evidence is the intrinsic
process of adjudication proceedings. In that, the evidence collected by the
authorities is placed before the adjudicating authority for determination of
the issue as to whether the provisional attachment order issued under
Section 5 deserves to be confirmed and to direct confiscation of the property
in question. The expression “investigation”, therefore, must be regarded as
interchangeable with the function of “inquiry” to be undertaken by the
authorities for submitting such evidence before the adjudicating authority.
103. In other words, merely because the expression used is
“investigation” — which is similar to the one noted in Section 2(h) of the
1973 Code, it does not limit itself to matter of investigation concerning the
offence under the Act and Section 3 in particular. It is a different matter that
the material collected during the inquiry by the authorities is utilised to
bolster the allegation in the complaint to be filed against the person from
whom the property has been recovered, being the proceeds of crime.
Further, the expression “investigation” used in the 2002 Act is
interchangeable with the function of “inquiry” to be undertaken by the
authorities under the Act, including collection of evidence for being
presented to the adjudicating authority for its consideration for confirmation
of provisional attachment order. We need to keep in mind that the expanse
of the provisions of the 2002 Act is of prevention of money laundering,
attachment of proceeds of crime, adjudication and confiscation thereof,
including vesting of it in the Central Government and also setting up of
agency and mechanism for coordinating measures for combating money
laundering. (emphasis supplied)
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20. The Hon’ble Supreme Court held that merely because the expression
“investigation” is used in the PMLA for various actions carried out by the authorised
officer, it does not limit itself to matters of “investigation” as defined in Section 2(h)
of the Cr.P.C. It was held that the expression “investigation” is interchangeable with
the function of “inquiry” to be undertaken by the authorities under the PMLA,
including collection of evidence for being presented to the adjudicating authority for
its consideration and for confirmation of provisional attachment order. It was also
held in paragraph No. 194 of Vijay Madanlal (supra) that the provisions of the
PMLA are not only to investigate into the offence of money laundering, but more
importantly, to prevent money laundering and to provide for confiscation of property
related to money laundering and matters connected therewith and incidental
thereto.
21. The Hon’ble Court has held that the PMLA is a comprehensive legislation,
which is not limited to provide for prosecution of persons involved in the offence of
money-laundering, but mainly intended to prevent money-laundering activity and
confiscate the proceeds of crime involved in money-laundering. It also provides for
prosecuting the person involved in such activity constituting the offence of
money-laundering. In other words, the role of the Authorities appointed under
Chapter VIII of the PMLA is such that they are tasked with dual role of conducting
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inquiry and collect evidence to facilitate adjudication proceedings before the
Adjudicating Authority in exercise of powers conferred upon them under Chapters
III and V of the PMLA and also to use the same materials to bolster the allegation
against the person concerned by way of a formal complaint to be filed for offence of
money-laundering under the PMLA before the Special Court, if the fact situation so
warrant. It is not as if, after every inquiry prosecution, is launched against all
persons found to be involved in the commission of the offence of money laundering.
It was held that inquiry is the foundational process and when ED receives
information suggesting the existence of proceeds of crime, it may commence an
inquiry for the purpose of gathering evidence. The officers empowered under
Section 48 are entitled to issue summons, record statements, conduct searches and
seizures with a primary objective of establishing whether the property in the
possession of any person qualifies as a “proceeds of crime” under Section 2(1)(u).
This inquiry is to initiate the civil action of attachment under Section 5 and the
adjudication process before the adjudicating authority under Section 8. The
investigation under the PMLA is not confined to collecting evidence for the
prosecution, but it includes all action taken by the ED for any purpose under the
Act. It should be borne in mind that the prosecution is the penal limb of the
enactment. It is the final consequence of the inquiry/investigation revealing
sufficient material establishing a person’s involvement or activity connected with the
proceeds of crime. It is only at this stage the authority files a formal complaint
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under Section 44(1)(b) before the Special Court. It should also be borne in mind
that prosecution is not an inevitable or automatic consequence of every inquiry. As
held by the Apex Court in paragraph No. 212 of Vijay Madanlal (supra), it is not
as if after every inquiry prosecution is launched against all persons found to be
involved in the commission of offence of money laundering. In other words, while
the civil and penal limbs are served by the same body of evidence, they operate
under different jurisdictional prerequisites. The civil action of attachment may be
initiated on the basis of material suggesting the existence of proceeds of crime,
even without a registered scheduled offence. The penal action of prosecution, on
the other hand, requires the registration of a scheduled offence as a foundational
prerequisite, since the very definition of 'proceeds of crime' under Section 2(1)(u) of
the PMLA requires that the property be derived or obtained as a result of criminal
activity relating to a scheduled offence.
22. The next question is whether the power to issue summons and record
statements under Section 50 is an exercise of the inquiry function and distinct from
investigation for the purpose of prosecuting the offender. Under Section 50, the
Director is empowered to exercise the same powers as are vested in a Civil Court
under the Code of Civil Procedure, 1908 while trying a suit in respect of matters
specified in sub-section (1). While explaining the scope and ambit of Section 50, the
Apex Court held as under in paragraph No. 338 of the judgment:
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“338. In the context of the 2002 Act, it must be remembered that the
summons is issued by the authority under Section 50 in connection with the
inquiry regarding proceeds of crime which may have been attached and
pending adjudication before the adjudicating authority. In respect of such
action, the designated officials have been empowered to summon any
person for collection of information and evidence to be presented before the
adjudicating authority. It is not necessarily for initiating a prosecution against
the noticee as such. The power entrusted to the designated officials under
this Act, though couched as investigation in real sense, is to undertake
inquiry to ascertain relevant facts to facilitate initiation of or pursuing with an
action regarding proceeds of crime, if the situation so warrants and for being
presented before the adjudicating authority. It is a different matter that the
information and evidence so collated during the inquiry made, may disclose
commission of offence of money laundering and the involvement of the
person, who has been summoned for making disclosures pursuant to the
summons issued by the authority. At this stage, there would be no formal
document indicative of likelihood of involvement of such person as an
accused of offence of money laundering. If the statement made by him
reveals the offence of money laundering or the existence of proceeds of
crime, that becomes actionable under the Act itself.
xxxx xxxxx xxxxx
342. It is, thus, clear that the power invested in the officials is one for
conducting inquiry into the matters relevant for ascertaining existence of
proceeds of crime and the involvement of persons in the process or activity
connected therewith so as to initiate appropriate action against such person
including of seizure, attachment and confiscation of the property eventually
vesting in the Central Government.
343. We are conscious of the fact that the expression used in Section
2(1)(na) of the 2002 Act is “investigation”, but there is obvious distinction in
the expression “investigation” occurring in the 1973 Code. Under Section
2(h) of the 1973 Code, the investigation is done by a “police officer” or by
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any person (other than a Magistrate) who is authorised by a Magistrate
thereby to collect the evidence regarding the crime in question. Whereas,
the investigation under Section 2(1)(na) of the 2002 Act is conducted by the
Director or by an authority authorised by the Central Government under the
2002 Act for the collection of evidence for the purpose of proceeding under
this Act. Obviously, this investigation is in the nature of inquiry to initiate
action against the proceeds of crime and prevent activity of money
laundering. In the process of such investigation, the Director or the authority
authorised by the Central Government referred to in Section 48 of the 2002
Act is empowered to resort to attachment of the proceeds of crime and for
that purpose, also to do search and seizure and to arrest the person
involved in the offence of money laundering. While doing so, the prescribed
authority (Director, Additional Director, Joint Director, Deputy Director or
Assistant Director) alone has been empowered to summon any person for
recording his statement and production of documents as may be necessary
by virtue of Section 50 of the 2002 Act. Sensu stricto, at this stage (of
issuing summons), it is not an investigation for initiating prosecution in
respect of crime of money laundering as such. That is only an incidental
matter and may be the consequence of existence of proceeds of crime and
identification of persons involved in money laundering thereof.
23. The Apex Court has held that the nominal use of the word “investigation”
in Section 50 would not transform an inquiry into a prosecution. It was held that
stricto sensu, at the stage of issuance of summons, the exercise carried out by the
ED is not an investigation for initiating prosecution in respect of an offence of
money laundering. The Court refused to hold that the word “investigation” used in
Section 50(2) conferred a power to initiate prosecution, but instead characterised it
as an inquiry power, directed at ascertaining the existence of proceeds of crime and
the involvement of persons in the process or activity connected with such proceeds.
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In other words, the power under Section 50 of the PMLA is primarily an instrument
of the civil limb of the PMLA. The prosecution of the person against whom a
summons was issued under Section 50 is a potential, but not an inevitable
consequence. The evidence obtained in consequence of the notice under Section
50 would serve both the civil action before the adjudicating authority and the penal
complaint before the Special Court. Whether prosecution follows depends on what
the inquiry reveals and whether the jurisdictional prerequisites for prosecution,
including the registration of a scheduled offence or a complaint before the
jurisdictional authority has been satisfied.
24. In that view of the matter, the prayer to quash the summons issued
under Section 50 cannot be granted. The power granted under Section 50 is
essentially a civil action, directed at ascertaining the existence of proceeds of crime.
As the Apex Court has held in Vijay Madanlal (supra), such summonses can be
issued even to witnesses in the inquiry. The existence of a prior registered
scheduled offence is not a jurisdictional prerequisite for the exercise of this power.
The recipient of the notice issued under Section 50 is not an accused as there is no
formal accusation against him at that stage. The summons is therefore legally valid
and does not require to be preceded by the registration of a crime involving a
scheduled offence.
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25. The next question is whether the non-registration of an FIR or a
non-filing of a complaint in respect of a scheduled offence would bar the ED from
initiating civil action under Section 5 or while initiating action under Section 50. To
answer the said question, it would be appropriate to refer to paragraph No. 162 of
the judgment:
162. As a matter of fact, prior to the amendment of 2015, the first
proviso acted as an impediment for taking such urgent measure even by
the authorised officer, who is no less than the rank of Deputy Director.
We must hasten to add that the nuanced distinction must be kept in
mind that to initiate “prosecution” for offence under Section 3 PMLA
registration of scheduled offence is a prerequisite, but for initiating action
of “provisional attachment” under Section 5 there need not be a
pre-registered criminal case in connection with scheduled offence. This is
because the machinery provisions cannot be construed in a manner
which would eventually frustrate the proceedings under the 2002 Act.
Such dispensation alone can secure the proceeds of crime including to
prevent and regulate the commission of offence of money laundering.
The authorised officer would, thus, be expected to and, also in a given
case, justified in acting with utmost speed to ensure that the proceeds of
crime/property is available for being proceeded with appropriately under
the 2002 Act so as not to frustrate any proceedings envisaged by the
2002 Act. (emphasis supplied)
26. In the conclusion portion, in paragraph No. 382 of the Judgment, it
was held that the fact that FIR in respect of scheduled offence has not been
recorded does not come in the way of the authorities referred to in Section 48 to
commence inquiry/investigation for initiating “civil action” of “provisional
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W.A. No. 1140 of 2026 42
attachment” of property being proceeds of crime. In other words, the Apex Court
made it unequivocally clear that the critical distinction is that the prosecution of an
accused requires a registered scheduled offence, whereas, initiation of civil action
does not. It would also be appropriate to refer to Section 66(2) of the PMLA, which
reads as under:
Section 66.
xxxx xxxx xxxx
(2) If the Director or other authority specified under sub-section (1)
is of the opinion, on the basis of information or material in his
possession, that the provisions of any other law for the time being in
force are contravened, then the Director or such other authority shall
share the information with the concerned agency for necessary action.
27. Thus, the Section 66(2) mechanism in the PMLA would act as a bridge.
When the ED proceeds to initiate civil action without a prior FIR, involving a
scheduled offence, the law requires the ED to send information to the jurisdictional
police under Section 66(2) contemporaneously. On receipt of such information, the
jurisdictional police would be obliged to register the case by way of FIR if it is a
cognizable offence or as a non-cognizable offence, as the case may be. If the
offence so reported is a scheduled offence, only in that eventuality, the property
recovered by the authorised officer would partake the colour of proceeds of crime
under Section 2(1)(u) of the PMLA , enabling him to take further action under the
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W.A. No. 1140 of 2026 43
Act in that regard. In the case on hand, it has been stated in the counter that
contemporaneous information has been passed on to the jurisdictional police, and
when no crime was registered, the information was passed on to the superior
officer. The non-registration of an FIR by the jurisdictional police in response to
Section 66(2) information does not, however, render the civil action already initiated
by the ED illegal or without jurisdiction.
28. Vehement submissions were advanced before us by the learned Senior
Counsel appearing for the appellant to bring home the point that the order of
Settlement passed under Section 245D(4) shall be conclusive as to the matters
stated therein, and no matter covered by such order shall be reopened in any
proceeding under this Act or under any other law for the time being in force. We
are afraid that the above contention cannot be accepted. The second proviso to
Section 245H states that the Settlement Commission shall not grant immunity from
prosecution for any offence under the Indian Penal Code (45 of 1860) or under any
Central Act other than this Act and the Wealth-tax Act, 1957 to a person who makes
an application under section 245C on or after the Ist day of June, 2007. Immunity
from prosecution can be granted only for any action under the IT Act and the
Wealth Tax Act. The PMLA is an independent statute with its own scheme of
enforcement. The subject matter of Settlement under the IT Act is the concealment
of income, non-payment of tax, and attendant penalties. On the other hand the
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objective of the PMLA is the process or activity connected with proceeds of crime.
Even if the Income Tax Settlement Commission determines that a taxpayer has
made full and true disclosure and grants immunity under the IT Act, that
determination operates only within the four corners of the IT Act and has no res
judicata or estoppel effect in PMLA proceedings, which involve a distinct cause of
action and a distinct legal regime. The settlement of a tax dispute cannot therefore
extinguish the offence of money laundering or the ED's jurisdiction to inquire into
the transactions leading to the proceeds of crime.
29. The appellants have raised a contention that additional affidavits were
filed by the respondent, intimating the Court about the filing of a complaint before
the jurisdictional forum by the SFIO and that too after the judgment was reserved.
The said fact was taken note of by the learned Single Judge to hold that the
substratum of the case set up no longer subsists. It was also contended that if an
opportunity was granted, the appellants could have placed on record the
interdictory orders passed in the said proceedings in a challenge mounted by the
appellants before the Delhi High Court. The filing of the complaint by the SFIO is
irrelevant to the validity of the ECIR and the issuance of summons under Section
50. We are of the view that nothing will turn on the observation made by the
learned Single Judge with regard to the filing of the SFIO complaint.
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30. In view of the discussion above, we hold that the non-registration of
an FIR or non-filing of a complaint in respect of a scheduled offence will not bar the
ED from initiating civil action under the PMLA. The registration of a scheduled
offence is a prerequisite only for penal prosecution under Section 3 and not for the
civil action of attachment under Section 5 or the exercise of inquiry powers under
Section 50 of the PMLA. As regards the prayer to quash the ECIR, we hold that
since the ECIR is not a statutory document and even the non-registration of an
ECIR does not impede the commencement of civil action, the prayer to quash the
ECIR cannot be granted in this case. The prayer sought for was, therefore, rightly
rejected by the learned Single Judge. We find no reason to interfere with the said
judgment.
This appeal is dismissed.
Sd/-
RAJA VIJAYARAGHAVAN V
JUDGE
Sd/-
K. V. JAYAKUMAR
JUDGE
APM
PS & /05/06/26