ROSE VALLEY REAL ESTATE V. UNION OF INDIA (2015) 2 Cal LT 617
FACTS:
Appellant 1 is a public limited company which belongs to Rose valley group of companies, collected sum in crores by issuing non- convertible debentures from members of the public without filling proper documents either to register companies or SEBI, and was guilty of non-compliance of provisions of the SEBI Act and a monetary penalty.
SAT modified the penalty, in the meantime criminal proceeding was filed under sec. 24 of the SEBI Act is a ‘scheduled offence’ under the PMLA, 2002.The investigation was initiated by the respondent no.3.
The appellant challenged the impugned order passed by respondent no. 5 authority and the letter issued by respondent no.3 upon the respondent banks requesting them to prohibit/freeze withdrawal from the accounts maintained in branches by Rose valley group of companies with immediate effect.
ISSUE:
Whether the direction given by the respondent no.3 in impugned letter to the banks to prohibit/freeze withdrawals from the accounts maintained by appellant’s group of companies in the branches of banks is lawful or not?
While exercising power under Section 5 and 7 of PML Act, 2002, is based on reasonable belief? Is it a necessary condition precedent?
Does the power of issuing impugned letter to freeze accounts comes under the Ambit of definition ‘investigation’ [Sec. 2(na)] defined in PML Act?
As there is no reference to other scheduled offences apart from the scheduled offence in SEBI, whether this is a ground to invalidate the impugned notice?
ARGUMENTS OF APPELLANT
He Submitted that the said letter in effect amounted to attachment/seizure of the accounts of the appellant company, said power could be exercised by the respondent only under sec. 5 or sec. 7 of PML Act, after recording reasonable beliefs based on materials in possession of the concerned authority.
Further submitted that the amounts collected from the public in respect of the non- Convertible debentures had already been refunded and the same is recorded in the order of SAT.
Hence no material in possession of the respondent authority to issue such letter in connection with the offence under sec. 24 of SEBI Act.
ARGUMENTS OF RESPONDENT
The refund of sums collected from the public under such scheme per se did not absolve the appellant company from the PML Act.
The investigation was not restricted to the ‘scheduled offence’ under SEBI Act but also included within its ambit other ‘scheduled offences’ under the IPC, namely sec.420/120B in respect of which investigation is being conducted by CBI against Rose valley group of companies
The impugned letter issued by respondent no. 3 in contemplation of exercise of power under sec.5/7 of PML Act is inclusive in the word ‘investigation’ defined in sec.2(na) of PML Act.
REFERRED CASE LAW
Subrata chattoraj v. Union of India
DECISION:
Section 2(na) defines ‘investigation’. The definition is an inclusive one and therefore would empower investigating agency to take recourse to not only proceedings under the Act but also to all incidental and consequential acts that may be necessary for effectively pursuing such proceedings to ensure collection of evidence.The prime object of an investigation for an offence of money laundering is that the investigating agency must be empowered to take immediate steps so that monies credited in suspicious accounts are not spirited away rendering the proceedings under the Act nugatory and otiose.Hence, acts which are necessary and incidental for performance of a statutory power are to be inferred by necessary implication. Failure to do so, would render such statutory power a dead letter of law.
It is true that existence of reasonable belief is the condition precedent for exercise of powers u/s 5 or 7 of an accused. While, the existence of reasonable belief is not a condition precedent for commencement of investigation under the Act, such investigation may be commenced on reasonable suspicion. The absence of reasonable belief as argued by learned senior counsel does not denude the jurisdiction of the investigating agency to take incidental or consequential steps for preservation of evidence pending further investigation in contemplation of exercise of powers of seizure or attachment under the Act.
Yes, as the scope of given definition of investigation under sec.2(na) also includes the incidental and consequential acts, necessary for effective pursual of Act.
Section 68 of the Act, provides that notice or order or other proceeding under PML Act, shall not rendered invalid by reason of any mistake, defect or omission in such notice, if such notice, summon or order is otherwise in conformity with the intent and purpose of the Act. Hence mere absence of reference to other ‘scheduled offences’ in the impugned letter cannot be a ground to invalid the impugned notice under the Act.
If the respondent authorities fail to initiate proceedings under the Act in respect of the accounts/assets referred to in impugned letter within the aforesaid time frame, the respondent banks would be at liberty to permit the appellants to operate the said accounts/assets in accordance with law. Appeal is partly allowed.
CONCLUSION
The issuance of impugned letter is not traced to sec. 5 or 7 of the Act. It is traceable to incidental or consequential powers exercised by an investigating authority to give effect to the provisions of the Act and for its effective enforcement. Hence, recording of reasonable belief is not a sine qua non for taking such temporary pre-emptive measure for preservation of evidence which are undertaken in contemplation of and to the initiation of proceeding of seizure and attachment under the act.