Karnataka HC to rehear ED in Sammaan Capital money laundering case in view of pending Supreme Court matter

The Karnataka High Court said on Monday that it was not made aware of Supreme Court orders in a matter related to Sammaan Capital (formerly Indiabulls Housing Finance Limited) while it quashed Directorate of Enforcement (ED) proceedings against the non-banking finance company last week.

Addressing Advocate Anuparna Bordoloi, appearing for the ED, Justice M Nagaprasanna said,

"You did not bring it to my notice in the Indiabulls matter Supreme Court has issued certain directions. Delhi High Court's judgment is sent back permitting review to be filed. All that why you did not tell?"

Counsel for ED said that instructions were not given to her. The Court then asked Additional Solicitor General of India Aravind Kamath to make arguments for the ED on Tuesday, when it re-hears the matter.

The Court had quashed ED proceedings against Sammaan Capital on the ground that the 5 predicate offences - on which basis the Enforcement Case Information Report (ECIR) was filed - had been dropped. It had relied on the counsel's submission that the ED was not taking precipitative action against Sammaan Capital. Today, the Court said,

"There is a multi-layering fraud that the Apex Court has told, SEBI is monitoring, that is the allegation. I am not saying what is there. If you don't bring it to the notice of the Court what shall I do tell me? It's a very serious matter, I have quashed it."

Justice Nagaprasanna said that he was perusing the papers and had not yet signed the judgment quashing the proceedings when he found the discrepancies.

The matter will be heard in the Karnataka High Court on August 18 at 10:30 AM.

5 FIRs were registered against Sammaan Capital between 2017 and 2021, on the basis of which the ED registered an ECIR under the Prevention of Money Laundering Act (PMLA), 2002.

The Court noted that in 2 of these FIRs, the closure report (B-report) was accepted by the lower courts and proceedings against Sammaan Capital were closed. In the other 2 FIRs, the chargesheet filed by the police did not name the NBFC as an accused due to lack of evidence against the company. In the fifth FIR, the B-report was filed by the police after investigation in 2022. The concerned court has not yet accepted the report since 4 years, because the complainant in the said FIR had not appeared despite 10 notices being sent.

Justice Nagaprasanna said that the lower court could wait for the complainant, but could not become the reason for the ED proceeding with the case. The Court underscored that without the FIRs standing as foundational predicate offences upon which the ED had filed the ECIR, the agency would have no cause to proceed against Sammaan.

Senior Advocates Prabhuling Navadgi and Dhyan Chinnappa along with Advocates Chintan Chinnappa, Laksh Khanna and Venkatesh Kamath appeared for Sammaan Capital last week. 

The matter before the Supreme Court is a petition filed by NGO Citizens Whistleblower Forum seeking an investigation into alleged financial irregularities and fund diversion by Sammaan Capital, then known as Indiabulls Housing Finance Limited (IHFL). The plea sought a court-monitored probe into alleged round-tripping of funds and money laundering by IHFL and its promoters.

In a previous hearing, it was submitted that the Securities and Exchange Board of India (SEBI) had filed a report on irregularities by IHFL with respect to quid-pro-quo arrangements in loans given to six corporate groups. The Court had noted,

"It has been asserted that the aforesaid Report constitutes sufficient material for the purpose of registration of FIR by the CBI for a comprehensive investigation into the multi-layered financial transactions."

The ED had told the Supreme Court that a complaint filed by the agency in this regard was rejected by a magistrate. It was also submitted that no cognizance was taken by the Economic Offences Wing (EOW) on complaints by the ED. The Court was assured that a joint meeting of senior officers of the Central Bureau of Investigation (CBI), the ED, the Serious Fraud Investigation Office (SFIO) and the SEBI shall be convened. It was also told that a fresh complaint would be submitted by the ED to the CBI.

On the last date of hearing, on July 28, the Court slammed the CBI and the Delhi Police for not filing a status report on the case.

"Owing to the sheer negligence demonstrated by the Central Bureau of Investigation and the Delhi Police, Economic Offences Wing in not even filing a status report and their utter failure to apprise this Court about the steps taken, if any, with respect to the registration of RC or investigation in furtherance thereto, we ordinarily would have summoned the Heads of the Investigating Agencies."

However, ASG SV Raju managed to persuade the Court not to summon the officials in question. He assured the Court that the status reports would be filed in two weeks. The matter is listed for hearing before a Bench of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana on August 18.