2019 (6) TMI 329 - HC - Money Laundering

Offence under PMLA - provisional attachment - HELD THAT - It is not an appropriate case where the discretion, extraordinary in nature available to this Court should be exercised in favour of persons against whom there are serious allegations of money laundering and who are prima facie found to be not co-operating in the matter of investigation and enquiry into the matter. Even though Shri Vikram Chaudhary, learned Senior Counsel had tried to indicate before us that all these allegations are false, in the peculiar facts and circumstances of this case, we are of the considered view that it is not appropriate for us to interfere into the matter when petitioner can very well show-cause to the provisional attachment order passed, demonstrate its bona fides before the competent adjudicating authority and after the competent adjudicating authority passes an appropriate order, the same can be challenged in accordance with law and therefore conscious of the fact that various writ petitions challenging the constitutional validity of the said provisions are pending before this Court and we had granted some interim relief in this case, at this stage, looking to the totality of the facts and circumstances of the case, we are not inclined to exercise our extraordinary jurisdiction and interfere into the matter. We dismiss the petition with liberty to the petitioner to show-cause to the impugned action taken and take recourse to such remedy as is permissible under law.

Issues Involved:

1. Challenge to the provisional attachment order under the Prevention of Money-Laundering Act, 2002 (PMLA).
2. Constitutional validity of Sections 5(1), 5(5), 8(3), 8(5), and 8(6) of the PMLA.
3. Preliminary objection regarding the maintainability of the writ petition.
4. The distinction between a company and its shareholders.
5. Application of the doctrine of lifting the corporate veil.
6. Discretionary relief under Article 226 of the Constitution.

Issue-Wise Detailed Analysis:

1. Challenge to the Provisional Attachment Order:
The petitioner challenged the provisional attachment order dated 28.03.2019, issued under the second proviso to Section 5(1) of the PMLA, arguing that the Enforcement Directorate's action was arbitrary and capricious, involving property valued at over ?120 crores.

2. Constitutional Validity of PMLA Sections:
The petitioner sought to declare Sections 5(1), 5(5), 8(3), 8(5), and 8(6) of the PMLA as unconstitutional, arbitrary, and ultra vires of Articles 14, 19, and 21 of the Constitution of India. The court noted that similar petitions challenging these provisions were pending and had granted interim protections in related matters.

3. Preliminary Objection on Maintainability:
The Union of India, through the Solicitor General, raised a preliminary objection to the maintainability of the petition, arguing that the petitioner had an efficacious alternate remedy of showing cause before the competent adjudicating authority and, if necessary, appealing to the Appellate Tribunal under Section 26 and further to the High Court under Section 42 of the PMLA.

4. Distinction Between Company and Shareholders:
The petitioner, Wave Hospitality Pvt. Ltd., argued that it is a separate legal entity under the Companies Act, distinct from its shareholders, and entitled to protect its property rights. The court referred to the Supreme Court judgment in Electronics Corporation of India Ltd. & Ors. v. Secretary, Revenue Department, Govt. of Andhra Pradesh & Ors., which emphasized the distinction between a company and its shareholders.

5. Doctrine of Lifting the Corporate Veil:
The court considered the theory of lifting the corporate veil, which allows courts to disregard the separate legal personality of a company to impose liability on individuals exercising control over it. The court noted that this principle is applied restrictively and only when the company is a sham created to avoid liability. The court found that the petitioner company was controlled by individuals like Deepak Talwar and Aditya Talwar, who were involved in money laundering and had not cooperated with the investigation.

6. Discretionary Relief Under Article 226:
The court held that the exercise of discretion under Article 226 is an equitable remedy and can be denied if the conduct of the parties is not genuine or bona fide. The court referred to the Supreme Court judgments in Parbatbhai Aahir Alias Parbatbhai Bhimsinhbhai Karmur & Ors. vs. State of Gujarat & Anr. and Satya Pal Anand vs. State of Madhya Pradesh & Ors., which support the refusal of discretionary relief when statutory remedies are available and the process of law is potentially being misused.

Conclusion:
The court dismissed the petition, granting the petitioner liberty to show cause to the provisional attachment order and pursue available statutory remedies. The court emphasized that it was not appropriate to exercise its extraordinary jurisdiction given the serious allegations of money laundering and the availability of efficacious alternate remedies.

← Previous Next →