Karnataka HC dismisses pleas by DK Shivakumar, ors challenging ED summons in alleged money laundering case

Karnataka HC dismisses pleas by DK Shivakumar, ors challenging ED summons in alleged money laundering case

Aditya AK

The Karnataka High Court yesterday dismissed a batch of petitions filed by former state Home Minister DK Shivakumar and others seeking quashing of summons issued by the Enforcement Directorate (ED) in relation to a money laundering case.

Holding that an offence under Section 3 of the Prevention of Money Laundering Act (PMLA) was an independent offence, Justice Aravind Kumar saw it fit to dismiss the writ petitions challenging the issue of ED summons.

By way of background, the Income Tax department had conducted a search at various places in Delhi, resulting in the seizure of over Rs. 7 crore in cash. A complaint under Section 200 of the Code of Criminal Procedure came to be filed against DK Shivakumar and others. The jurisdictional court subsequently took cognisance of the alleged offences and the investigation in the case is ongoing.

In relation to the same search, the ED filed ECIRs against the petitioners, and issued summons to them under Section 50(2) of the PMLA for offences of money laundering.

It is against this summons that DK Shivakumar and other petitioners approached the High Court.

Appearing for Shivakumar, Senior Advocate Kapil Sibal pointed out that the complaint filed before the jurisdictional court pertained to Sections 276C(I), 277 of the Income Tax Act and Sections 193 and 199 read with Section 120B of the Indian Penal Code, which are not “scheduled offences” under the PMLA. He also argued that Section 120B of IPC cannot be invoked in the absence of a predicate offence, and that the proceedings under the PMLA cannot be continued, as offences under the IT Act were not scheduled offences.

Additional Solicitor General KM Nataraj, and Prabhuling K Navadgi appearing for the Union Finance Ministry and Standing Counsel Jeevan Neeralagi appearing for Income Tax department, contended that irrespective of the offences under IT Act, the Enforcement Directorate is empowered to investigate, and that the satisfaction of money being “proceeds of crime” would be sufficient to proceed. 

It was further clarified that the persons against whom ED summons were issued under Section 50 would not be accused, and that sanction issued under the IT Act has nothing to do with the proceedings under PMLA. He thus argued that the writ petitions were not maintainable, as it is only a show-cause notice issued to the respective petitioners to appear for investigation.

Justice Kumar agreed with the counsel for the respondents, noting that proceedings under the PMLA are independent, separate, distinct and different from the proceedings initiated for scheduled offences by other law enforcement agencies. Relying on Supreme Court judgments, he held,

“Even in case of proceeds of crime not being in possession of the alleged offenders, but if it is sought to be projected as an untainted money and sought to be ploughed into the economy, which ultimately derails the economy of the country, then, authorities under the PML Act would be empowered to proceed under the provisions of PML Act. As to whether it is proceeds of crime or its use or concealment or acquisition is to be decided only by the adjudicating authority after verifying the facts and circumstances that would be unraveled by verifying the relevant records and documents during the course of investigation…

…Thus, initiation of action under the PML Act cannot have any implication or impact in respect of registration of other cases either under the Indian Penal Code or any other penal laws.”

The Court also reiterated that a person against whom summons is issued under the PMLA may or not be guilty of the scheduled offence. That was for the investigating agencies to find out, the Court said.

“As to whether by a criminal conspiracy the offences indicated in the schedule to PML Act is made out or not would be an issue which can be unearthed only after investigation. During the course of investigation, the authorities may arrive at a conclusion that there is no necessity to further investigate the matter and it may drop the investigation or in the event of authorities finding there is some material, it may then proceed to adjudicate. It all depends on circumstances emerging from investigation in a given case.”

On the topic of Article 226 jurisdiction with respect to the quashing of show cause notice, the Court held,

“Ordinarily a writ petition would not lie against a show cause notice for the reason that it does not give raise to any cause of action. It does not amount to an adverse order which affects the right of a party unless same having been issued by a person who does not possess jurisdiction or competent to do so. In other words, a writ lies only when some right of a party is infringed or violated…

…Where a show cause notice has been issued and a writ petition is filed under Article 226 of Constitution of India against such show cause notice, it would be incumbent upon the petitioner to show to such authority that he has no power or jurisdiction to enquire into the show cause notice so issued.”

The judgment further states,

“There being no challenge to the constitutional validity of these provisions and the jurisdiction of the authority not being in serious dispute, entertaining of writ petition on the ground of investigation being hit by Article 20 of Constitution of India cannot be entertained at this stage and it would not be appropriate for this Court to express any opinion as it may prejudice rights of parties.”

Senior Advocates Kapil Sibal, CV Nagesh, and BV Acharya appeared for Sachin Narayan, an aide of DK Shivakumar. Senior Counsel Shashikiran Shetty appeared for Anjaneya Hanumanthaiah; Senior Advocates DN Nanjunda Reddy and A Shankar appeared for petitioners Rajendra N and Sunil Kumar Sharma respectively.

Additional Solicitor General KM Nataraj and Karnataka Advocate General (then Additional Solicitor General) Prabhuling Navadgi appeared for the Union Finance Ministry.

Standing Counsel Jeevan Neeralagi appeared for Income Tax department.

[Read judgment]

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