2022 (6) TMI 1420 - HC - Money Laundering

Maintainability of writ petition under Article 226 of the Constitution - Seeking forbearance from investigating under PMLA on the premise that the investigation is without jurisdiction - round tripping transactions between the Indian and the overseas entities - HELD THAT - The jurisdiction of this Court under Article 226 of the Constitution is a basic feature of the Constitution of India and cannot be taken away even by a constitutional amendment - In that view of the matter, it cannot be contended, with any degree of seriousness, that a High Court does not possess the inherent jurisdiction to issue a writ in an appropriate case. It is also well settled that the High Court can issue a writ of mandamus to stop an investigation where it is found that the investigating officer was misusing his powers of investigation. Nevertheless, the existence of jurisdiction is one aspect, and the manner of its exercise is quite another. The power of a High Court to issue high prerogative writs like a mandamus, certiorari, etc., flows from its plenary power under Article 226 of the Constitution of India and is discretionary in nature. Therefore, it does not imply that because the High Court is vested with jurisdiction to issue an appropriate writ, it must necessarily follow that a writ must issue in all cases. The remedy is discretionary in nature and must be exercised in consonance with sound judicial principles. On perusing the order in MANOHAR LAL SHARMA VERSUS THE PRINCIPAL SECRETARY OTHERS 2014 (7) TMI 1380 - SUPREME COURT passed by the Supreme Court. What is discernable is that the CBI is conducting a Courtmonitored investigation into the coal block allocations, by issuing various directions from time to time. The Court had taken note of the fact that a Special Judge had been notified by the Chief Justice of the Delhi High Court to try the coal block allocation cases. It is noticed that the CBI and the Enforcement Directorate have been periodically filing detailed status reports of the various prosecutions conducted by them. Coming to the allegation of round tripping which was strenuously pursued by the learned Additional Solicitor General, it is necessary to briefly notice the import of this expression. Round tripping can be defined as a practice by which funds are transferred from one country to another and transferred back to the origin country for purposes like black money laundering or to get the benefit of tax concession/evasion/avoidance from countries like Mauritius, which enjoy low taxes, etc. - even according to the Enforcement Directorate, no mining was carried out and on the other hand, RKM Company had expended funds from its coffers on mine development activities. Once it is held that RKM Company had not derived any benefit from the allocation of the coal block, it follows that the corpus delicti of the offence viz., the proceeds of crime, does not exist. The allegation of round-tripping, even assuming there is one, as alleged by the Enforcement Directorate, is a criminal activity, falling within the domain of Foreign Exchange Management Act (FEMA), there is no arrest provision under the provisions of FEMA, whereas, threat of arrest looms large in an investigation under the PML Act with bail conditions being very stringent. The Enforcement Directorate cannot exercise its powers of investigation to discover the existence of a predicate offence under the FEMA or the Customs Act. Thus, in the absence of there being any predicate offence under the Customs Act, 1962, for the present, and the fact that the alleged offence under the FEMA, 1999, is not a predicate offence under the PML Act, 2002, it follows that there cannot be any offence of money laundering under Section 3 of the PML Act, 2002 qua these offences. A writ of mandamus is issued restraining the Enforcement Directorate from exercising its powers under the PML Act, 2002, qua the investigation of alleged money-laundering in respect of these offences alone - Petition disposed off.

Issues Involved:
1. Jurisdiction of the High Court under Article 226 of the Constitution.
2. Validity of the Enforcement Directorate's investigation under the PML Act.
3. Allegations of "round tripping" and their implications.
4. The relationship between the PML Act, FEMA, and Customs Act.
5. The impact of the Supreme Court's directions in related coal block allocation cases.

Detailed Analysis:

Jurisdiction of the High Court under Article 226:
The High Court addressed the preliminary objection regarding its jurisdiction to entertain the writ petition. The Court concluded that the writ petition under Article 226 was maintainable, citing a previous instance where the Supreme Court permitted the petitioner to raise all contentions before the High Court. The Court emphasized that its jurisdiction under Article 226 is a basic feature of the Constitution and cannot be taken away even by a constitutional amendment. The Court can issue a writ of mandamus to stop an investigation if it finds that the investigating officer is misusing his powers.

Validity of the Enforcement Directorate's Investigation under the PML Act:
The Court examined whether the Enforcement Directorate's (ED) investigation under the PML Act was valid. The ED's case was grounded on the allegation that the petitioner company had obtained the allocation of Fatehpur East Coal Block by misrepresenting facts, which led to the generation of proceeds of crime. However, the Court found that no mining activity was carried out, and no proceeds of crime were generated. The Court held that the ED could not continue its investigation under the PML Act in the absence of any proceeds of crime.

Allegations of "Round Tripping" and Their Implications:
The ED alleged "round tripping" transactions between the Indian and overseas entities, suggesting that the petitioner company engaged in money laundering. The Court noted that the transactions were reported to the Reserve Bank of India as required by law, and there was no clandestine deal. The Court found that the ED's allegations were not substantiated by evidence and that the ED could not proceed with the investigation based on these allegations.

Relationship Between the PML Act, FEMA, and Customs Act:
The Court discussed the interplay between the PML Act, FEMA, and the Customs Act. It noted that while the ED could investigate under the PML Act, it could not investigate under FEMA or the Customs Act using the powers granted under the PML Act. The Court emphasized that the ED's powers of investigation must be exercised strictly within the terms of the PML Act and that any information related to other statutes should be shared with the relevant agencies as per Section 66(2) of the PML Act.

Impact of the Supreme Court's Directions in Related Coal Block Allocation Cases:
The Court acknowledged that the Supreme Court was monitoring the investigation into coal block allocations and had issued various directions. The Court decided to refrain from interfering with the investigation of alleged offences under the PML Act related to the coal block scam cases being monitored by the Supreme Court. However, the Court found that the ED's investigation into the petitioner company for alleged violations under FEMA and the Customs Act was beyond its jurisdiction under the PML Act.

Conclusion:
The Court issued a writ of mandamus restraining the ED from exercising its powers under the PML Act concerning the investigation of alleged money laundering related to offences under FEMA and the Customs Act. The Court clarified that it did not interfere with the investigation of money laundering allegations related to the predicate offences forming the subject matter of the CBI's FIR, which would proceed as per the Supreme Court's directions. The writ petition was disposed of on these terms, with no order as to costs.

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