2021 (2) TMI 1356 - HC - Money Laundering

Money Laundering - proceeds of crime - diversion of funds into the shell companies - HELD THAT - There is no shred of material to show that Sivaramakrishnan was a recipient of any amount, except the salary, bonus and other emoluments, which were paid to him, in the course of his employment as Accountant in FLCI. Even the C.B.I. has not found that Sivaramakrishnan benefitted financially from the criminal activity of fudging records. Of course, these findings of the C.B.I. are not binding on the Enforcement Directorate, but, this Court cannot turn a Nelson's eye to this, especially in the light of the fact the Enforcement Directorate themselves have filed a separate complaint in C.C.No.63 of 2016 against Farouk Irani and Sherna F. Irani for diverting the loan amounts into their personal accounts and into the account of their family Trust and for projecting them as untainted money. The Enforcement Directorate cannot be agreed upon that the salaries and perquisites that were paid to Sivaramakrishnan (A.1) while he was in employment with FLCI would amount to proceeds of crime and any property purchased with that would stand tainted. Albeit the presumption under Section 24 of the PML Act, on facts, it is held that the impugned prosecution of Sivaramakrishnan (A.1) and his wife Ratha (A.2) under the PML Act is misconceived and the same is accordingly quashed. This Criminal Original Petition is allowed.

Summary

Issues Involved:
1. Quashing of proceedings in C.C.No.71 of 2016.
2. Alleged financial misconduct and diversion of funds by FLCI.
3. Criminal liability under the Prevention of Money Laundering Act (PMLA).
4. Discrimination and selective prosecution.
5. Sufficiency of evidence against Sivaramakrishnan and his wife Ratha.

Detailed Analysis:

Quashing of Proceedings in C.C.No.71 of 2016:
The petitioners sought to quash the proceedings in C.C.No.71 of 2016 pending before the Principal Sessions Court, Chennai. The case involved allegations of financial misconduct by FLCI and its officials, including Sivaramakrishnan and his wife Ratha, under the PMLA.

Alleged Financial Misconduct and Diversion of Funds by FLCI:
FLCI, a company engaged in industrial finance, faced financial difficulties after SBI and IDBI Bank sanctioned working capital credit limits. The Reserve Bank of India (RBI) inspection revealed serious irregularities and fund diversion to 15 satellite companies, leading to FLCI's account becoming a Non-Performing Asset (NPA) in 2013. This resulted in complaints by IDBI Bank and SBI, leading to CBI investigations and FIRs for offenses under various sections of the IPC against FLCI officials, including Sivaramakrishnan.

Criminal Liability under the PMLA:
The Enforcement Directorate (ED) registered a case under the PMLA based on the CBI's findings. The ED filed three separate complaints, including C.C.No.71 of 2016 against Sivaramakrishnan and his wife Ratha. The court examined whether the materials disclosed in the complaint were sufficient to establish criminal liability under the PMLA. The complaint alleged that Sivaramakrishnan, as an Accountant, made false entries in FLCI's account books, inflating its financial status and inducing banks to provide loans. However, there was no evidence that he acquired proceeds of crime beyond his salary and bonus.

Discrimination and Selective Prosecution:
The court noted that the CBI's charge sheet indicated that the diverted loan amounts benefited specific individuals and entities, not Sivaramakrishnan. The court acknowledged the petitioners' argument that the ED's selective prosecution, leaving out major beneficiaries like A.C.Muthiah and his family, merited serious consideration. However, the court could not quash the prosecution on the grounds of discrimination under Article 14 of the Constitution of India.

Sufficiency of Evidence Against Sivaramakrishnan and His Wife Ratha:
The court found that the complaint lacked evidence to show that Sivaramakrishnan acquired proceeds of crime through criminal activities. The ED's claim that salaries, bonuses, and other perquisites paid to Sivaramakrishnan were proceeds of crime was deemed far-fetched. The court highlighted that the immovable property purchased by Sivaramakrishnan was acquired from his legitimate income. The prosecution of Ratha, based on fixed deposits in her name, was also considered misconceived, as the total amount did not exceed Sivaramakrishnan's legitimate earnings.

Conclusion:
The court concluded that the prosecution of Sivaramakrishnan and his wife Ratha under the PMLA was misconceived. The salaries and perquisites paid to Sivaramakrishnan during his employment with FLCI did not amount to proceeds of crime. Consequently, the court quashed the prosecution against Sivaramakrishnan and Ratha and allowed the Criminal Original Petition.