2016 (11) TMI 1190 - HC - Money Laundering

Show cause notices under Section 13 of the Prevention of Money Laundering Act, 2002 (PMLA) - Held that - No interference at the show cause notice stage is warranted in the interest of clean and honest administration. NSEL, as aforesaid, vide order dated 4th November, 2015 has already been held to be a reporting entity and guilty of failure to comply with the provisions of PMLA. The petitioners were admittedly Non-executive Directors of NSEL. Section 13 empowers the respondent to issue directions to any of the employees of a reporting entity to comply with specific instructions or to send reports at such intervals as may be prescribed on the measures it is taking and to impose monetary penalty on any of the employees of a reporting entity . In exercise of such power, in my view the respondent is within its right to issue impugned show cause notices to the petitioners. At this stage, need not say anything further for the fear of affecting the proceedings before the respondent.

Summary

Issues:
Impugning show cause notices under Section 13 of the Prevention of Money Laundering Act, 2002 (PMLA) for mental and physical harassment and seeking compensation.

Detailed Analysis:

1. Impugned Show Cause Notices:
The petition challenges show cause notices issued under the PMLA to three petitioners who were non-executive directors of a company found guilty of PMLA violations. The petitioners argue that the notices are malicious, lack basis for implicating them, and fail to specify their roles in the contravention. They claim the notices affect their dignity and reputation, citing legal precedents like Gorkha Security Services and CCE Vs. Champdany Industries Ltd.

2. Legal Standpoints:
The Court considered various legal precedents like Special Director Vs. Mohd. Ghulam Ghouse and Maruti Suzuki India Ltd. Vs. India Tourism Development Corporation Ltd. The Court noted that challenging show cause notices prematurely is discouraged unless the notice is wholly without jurisdiction or illegal. The senior counsel for the petitioners argued against the legality of the notices based on the PMLA provisions and the lack of satisfaction by the respondent regarding the petitioners' responsibility.

3. Contentions and Rejoinders:
The senior counsel for the petitioners contended that the show cause notices were deficient and premature, drawing parallels with the Negotiable Instruments Act. The respondent's counsel argued in favor of the notices' legality, invoking principles of natural justice and the duty of reporting entities under the PMLA. The petitioners' counsel reiterated their arguments, citing legal cases on the liability of non-executive directors.

4. Court's Decision:
The Court found the petition challenging the show cause notices to be not maintainable. It emphasized that unless a notice is issued without authority or jurisdiction, or is patently illegal, it does not provide a cause of action for a petition under Article 226 of the Constitution. The Court referred to legal precedents like Shri Anant R. Kulkarni and Farida Begum Biswas to support its decision. The Court dismissed the petition, leaving the petitioners the option to raise their contentions before the respondent if aggrieved.

5. Conclusion:
The Court concluded that interference at the show cause notice stage was unwarranted for a clean and honest administration. It upheld the respondent's right to issue the impugned notices based on the PMLA provisions and the company's previous violations. The Court dismissed the petition, allowing the petitioners to pursue their grievances through the respondent's process.

This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive understanding of the Court's decision and the arguments presented by both parties.