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TMI Blog2022 (6) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... a bio-mass power generation plant in Hiriyur, Karnataka sometime in 1991. The plant is stated to be functional as on date. On 15.12.2004, RK Company and Mudajaya Corporation, a Malaysian company (for brevity "Mudajaya"), joined hands and incorporated R.K.M. Powergen Pvt. Ltd., the petitioner herein (for brevity "RKM Company") under the Companies Act, 1956, having its registered Office in Chennai, with the object of setting up coal-based power plants in India. ii. On 13.07.2005, RK Company and Mudajaya entered into a joint venture agreement, in and by which, Mudajaya agreed to invest in the shares of RKM company at a premium. iii. While so, on 13.11.2006, the Ministry of Coal invited applications for allotment of 38 coal blocks stating that a preferential allotment will be given to power plants based on coal as feed as well to cement and steel sectors. The said advertisement stated that no land would be allotted as such, but only an area would be designated for excavation of coal. The coal so excavated was to be used for captive consumption for the power generation plant that was to be set up by the allottee(s). iv. In response to the said advertisement, RKM Company submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers - (2014) 9 SCC 516, held that coal block allocations made through the screening committee route as well as the government dispensation route were illegal. Vide further proceedings dated 24.09.2014, all coal block allocations, barring two allocations made to Sasan Power Limited (UMPP) and two allocations made to a Central Government public sector undertaking not having any joint venture, were cancelled. xi. Accordingly, the CBI started registering FIRs qua each coal block allotment in order to find out if there was any irregularity in the allotment process. One such FIR registered by the CBI is FIR No.RC 219 2014E 0018 dated 07.08.2014 for the offences under Section 420 read with Section 120-B IPC and Section 13(1)(d) of the Prevention of Corruption Act, against unknown public servants in respect of coal block allotment made to Fatehpur East Coal Pvt. Ltd. xii. Since the case registered by the CBI disclosed a scheduled offence under the PML Act, the Enforcement Directorate registered a case in ECIR/CEZO-1/PMLA/2015 on 07.01.2015 and took up investigation of the same under the PML Act. xiii. Be it stated, the ECIR registered by the Enforcement Directorate is almost a reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. In view of the above, prima facie, there appears to be an offence of Money Laundering defined u/s 3 of the Prevention of Money Laundering Act, 2002." Simultaneously, the CBI and the Enforcement Directorate began their investigations by summoning the officers of RKM Company for interrogation from time to time. xiv. The Enforcement Directorate passed an order dated 20.02.2015 freezing all the bank accounts of RKM Company paralyzing their business operations. xv. Ergo, RKM Company filed writ petitions in W.P. Nos.7854, 10643, 14448 and 15317 of 2015, before this Court challenging the action of the Enforcement Directorate, which were allowed vide a common order dated 26.08.2015 RKM Powergen Pvt. Ltd. vs. The Joint Director, Enforcement Directorate - (2015 WLR 851). xvi. As alluded to above, RKM Company completed the construction of the power plants in Ucchpinda Village in Chhattisgarh and the first unit of 360 MW power plant was commissioned on 27.11.2015 and coal for this power plant was being purchased from Coal India and other subsidiaries of the Central Government. xvii. The second power plant unit was commissioned on 12.02.2016 and a power purchase agreement was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord for the petitioner/RKM Company and Mr. R. Sankaranarayanan, learned Additional Solicitor General for the Enforcement Directorate. 4 Mr.R.Sankaranarayanan, learned Additional Solicitor General, representing the Enforcement Directorate, raised a preliminary objection that this Court has no jurisdiction to entertain this writ petition and the remedy, if any, is before the Supreme Court. 5 On merits, Mr. Sankaranarayanan, learned Additional Solicitor General, stoutly defended the action of the Enforcement Directorate by contending that during investigation by the Enforcement Directorate, they stumbled upon "round tripping" transactions between the Indian and the overseas entities. He also submitted a flow chart in support of the stand of the Enforcement Directorate. To be more precise, we extract the relevant portion from the written submissions of the Enforcement Directorate: "7. RKMPPL applied to the Power Finance Corporation (PFC), New Delhi on 07.01.2005 seeking financial assistance and PFC by sanctioning the loan on 02.08.2007 made the first disbursement on 26.06.2009. RKMPPL have availed financial assistance from the consortium of lenders led by PFC to the extent of Rs.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of maintainability was required to be tested at the threshold, we heard the learned counsel on either side and vide an order dated 15.02.2021, we concluded that the writ petition under Article 226 was maintainable. Our conclusions were as under: "14. Mr.B.Kumar contended that, challenging the directions issued by the Enforcement Directorate to the various banks, for freezing the accounts of the petitioner Company, the petitioner Company filed four writ petitions viz., W.P.Nos.7854, 10643, 14448 and 15317 of 2015 in this Court and when these writ petitions came up before a learned Single Judge, the Enforcement Directorate filed a counter and took a stand that the cases should be heard by the Supreme Court and not by this Court, in view of the order dated 25.07.2014 (supra) passed by the Supreme Court; therefore, the learned Single Judge of this Court passed the following order on 17.06.2015: "3. In the light of the stand taken by the respondent/Enforcement Directorate in the counter affidavit, this Court is not inclined to pass any orders, based on the said request of the learned Senior Counsel appearing for the petitioner. However, the petitioner is at liberty to submit su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all contentions before the High Court, we cannot wash our hands off and say that the petitioner Company should have to go to the Supreme Court. With the above finding of ours, on the question of maintainability, we adjourn this case to 07.03.2022." 11 Thereafter, we adjourned this case, from time to time, to enable the Enforcement Directorate to test the correctness of the aforesaid order. After giving sufficient opportunities, we had proceeded to hear the matter finally. 12 Though we have held that the writ petition is maintainable, the question is whether this finding must necessarily result in a writ being issued in terms of the prayer sought by the petitioner/RKM Company. There is a subtle, yet, vital difference between the maintainability of a petition and the refusal to exercise jurisdiction on the facts of a given case. In the former case, the Court lacks the inherent jurisdiction to entertain a cause before it. In the latter case, the Court chooses to decline exercising its jurisdiction as a measure of self-imposed restraint. 13 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Chief Justice of the Delhi High Court to try the coal block allocation cases. The Court had also appointed a Special Public Prosecutor to conduct the prosecutions of the cases filed by the CBI and had proceeded to issue the following direction: "10. All cases pending before different courts in Delhi pertaining to coal block allocation matters shall stand transferred to the Court of the Special Judge as aforenoted. We also make it clear that any prayer for stay or impeding the progress in the investigation/trial can be made only before this Court and no other court shall entertain the same." 16 We also notice that the CBI and the Enforcement Directorate have been periodically filing detailed status reports of the various prosecutions conducted by them (See the series of orders collectively reported as "Manohar Lal Sharma v Union of India (2017) 11 SCC 731)". Having carefully considered the various orders/directions passed by the Supreme Court, we are of the considered opinion that judicial propriety and institutional comity require us to refrain from exercising our jurisdiction under Article 226 by venturing to interdict the investigation of alleged offences under the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [or abroad]; Explanation.-For the removal of doubts, it is hereby clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence." 20 On a combined reading of Sections 3 and 2(u) of the PML Act, 2002, the following are the ingredients of the offence of money-laundering: i. There should have been a criminal activity relating to a scheduled offence under the PML Act; ii. The scheduled offence should have resulted in the generation of proceeds of crime; and iii. The proceeds of crime so generated should have been projected or claimed as untainted money. 21 The first limb is the case registered by the CBI registered in FIR NoRC 219 2014E 0018 on 07.08.2014 for the offences under Section 420 IPC and Section 13(1)(d) of the Prevention of Corruption Act, which are, admittedly, scheduled offences under the PML Act. 22 The Enforcement Directorate then went about searching for proceeds of crime by summoning and interrogating the officers of RKM Company during 2015. It is not the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, etc. It is the case of the Enforcement Directorate, as discernable from the ECIR, that a 10 rupee share of RKM Company was sold at a premium of Rs.240. In this way, it is contended that the Malaysian promoter had paid only Rs.1174.92 crore for acquiring 26% equity, whereas, the Indian promoter paid Rs.133.75 crore for acquiring 74% of the equity in RKM Company which resulted in substantial financial benefit to the RKM Company. 25 In this connection, our attention was invited to the letters dated 04.07.2008 and 28.09.2012 issued by the Reserve Bank of India to RKM Company acknowledging the statutory declarations made by them under the Foreign Exchange Management (Transfer or issue of security by a Person Resident Outside India), Regulations 2000. These communications clearly demonstrate that the sale of shares with a face value of Rs.10/- each at a premium of Rs.240/- per share was reported to the Reserve Bank of India by submitting the statutory declarations. This belies the contention of the Enforcement Directorate that RKM Company engaged in a clandestine deal with Mudajaya. On the contrary, these facts were fully reported to the Reserve Bank as statutorily required under Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by RKM Company, be it noted, this falls within the domain of the Customs authorities under the Customs Act. Moreover, these imports of plant and machinery were made by RKM Company for commissioning their power plant in Ucchpinda Village in Chhattisgarh during 2011 and after the said imports, the power plant itself has been commissioned, as stated above. In any event, as on date there is no predicate office under the Customs Act, 1962. The Enforcement Directorate cannot exercise its powers of investigation under the PML Act, 2002 to discover the existence of a predicate offence which is tantamount to putting the cart before the horse. 30 We are aware of the legal position that the Enforcement Directorate was created under the Foreign Exchange Regulation Act, 1973, which was subsequently replaced by the Foreign Exchange Management Act, 1999 (for brevity "the FEMA"). Chapter VI of the FEMA is titled "Directorate of Enforcement". When the PML Act came into force, the officers of the Enforcement Directorate were empowered to conduct investigations under the PML Act too. Thus, an officer of the Directorate of Enforcement could wear two hats, one, while investigating a case under the FEM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not interdicting the investigation under the PML Act, 2002 insofar as they relate to the predicate offences in the FIR registered by the CBI for the coal block cases. 34 Therefore, on the facts and circumstances of the case, we find that the Enforcement Directorate cannot exercise its powers of investigation to discover the existence of a predicate offence under the FEMA or the Customs Act. In plainer terms, the jurisdictional condition for exercising the powers of investigation cannot be made the subject matter of investigation. The Enforcement Directorate's powers of investigation are statutory in nature. It must follow that the power of investigation must, therefore, be exercised strictly on the terms in which it is granted. We notice the sapient observations of the Chief Justice Y.V. Chandrachud in State of West Bengal v Swapan Kumar Guha (1982) 1 SCC 561 which run thus: "There is no such thing like unfettered discretion in the realm of powers defined by statutes and indeed, unlimited discretion in that sphere can become a ruthless destroyer of personal freedom. The power to investigate into cognizable offences must, therefore, be exercised strictly on the condition on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l life guaranteed under Article 21 of the Constitution of India, for, ours is not a police State. 36 From 2015 till today, the Enforcement Directorate has been unable to pin RKM Company to the ground by collecting evidence showing that they had committed an offence under the PML Act. Instead, the Enforcement Directorate has been freezing the bank accounts of RKM Company, summoning their officers, both present and former, including women, in order to find out if any offence has been committed by them under enactments other than the PML Act. A Constitutional Court cannot afford to shut its eyes when a citizen is being harassed in the name of investigation. 37 We may demonstrate the fallacy in the stand of the Enforcement Directorate with the following hypothetical example. Let us assume for a moment that during investigation under the PML Act, the officers of the Enforcement Directorate search the house of an accused. During the search, they discover a dead body buried in the house and suspect the commission of an offence under Section 302 IPC. Can they be permitted to record the statement of the accused qua discovery of the body in the house? Such a statement, if it is confessiona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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