Karnataka High Court quashes ED proceedings against Sammaan Capital

The Karnataka High Court on Thursday quashed the money laundering case lodged by the Directorate of Enforcement (ED) against non-banking finance company (NBFC) Sammaan Capital, formerly known as India Bulls Housing Finance Ltd [Sammaan Capital Limited v. Directorate of Enforcement].

Justice M Nagaprasanna responded to a submission made by ED counsel Anuparna Bordoloi that the agency was not proceeding with the investigation in the Enforcement Case Information Report (ECIR) or taking any precipitative action against Sammaan Capital.

"Why should it remain on their heads? We will close it. They are NBFCs, when will you take action? If the ED is soft pedalling it, then there is no pedal at all," the Court said.

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.

"Therefore it is virtually a nullity that the proceedings before the concerned court is now standing acceptance of a B report," the Court observed.

It held that the effect of a B-report would virtually release Sammaan from the offences.

"The Apex Court has not observed with regards to what would happen if a B report is filed and it being accepted by the concerned court. That was not one of the circumstances that the Apex Court considered in para 467. But the effect of the order is the closure of the proceedings itself. The reason would be that acceptance of and termination of the proceedings upon such acceptance and the said acceptance becoming final would virtually mean that the petitioners are discharged from the offences that were alleged against the petitioner. It would attempt to discharge the petitioner which the Apex Court observed in para 467."

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.

"On these factors and in the light of the law laid down in the case of Vijay Madanlal Choudhary the proceedings under the PMLA initiated by the ED cannot be permitted to be continued in the peculiar facts of this case as the foundation has gone, the superstructure cannot remain."

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