India: White Collar Updates

DATE

DETAILS OF THE RECENT DEVELOPMENTS

CASES

13.12.2022

A loan of Rs. 1 crore was extended to Anil Ramrao Naik (accused) to pay for a property for which a Memorandum of Understanding (MoU) for repayment was entered into between the parties. The accused issued two cheques to the complainant which did not mention any date or the name of the payee. The construction of the building on the plot could not get completed and the complainant opted for refund along with interest. The accused filed a civil suit praying for the extension of time to repay the amount to the complainant in terms of the MoU.

After the suit was filed by the accused, the complainant deposited the two cheques which were dishonoured. Subsequently, the complainant filed two complaints under section 138 of the Negotiable Instruments Act, 1881 (NI Act) before the trial court while admitting that she had filled in the name of the payee and date. The trial court acquitted the accused, holding that when the civil suit was pending, the complainant was not justified in completing the cheques without authority of the accused.

The question before the High Court was whether the complainant was justified in putting name of the payee and date on the cheques.

The court did not find filling in the name of the payee improper as the cheques were given to the complainant for this reason in the first place. The court referred to Section 87 of the NI Act and held that unilaterally filling in the dates on the cheques without the authority of the accused would amount to "material alterations" rendering the negotiable instrument (cheques) void. The prosecution under Section 138 NI Act therefore could not have been initiated for want of valid cheque.

M/s. Pinak Bharat and Company v. Anil Ramrao Naik, Criminal Appeal Nos. 1630 and 1631 of 2021

[Bombay High Court]

14.12.2022

The Hon'ble Supreme Court has issued notice in the Special Leave Petition against the order of NCLAT, wherein the NCLAT had upheld the decision of NCLT holding that NCLT is not empowered to deal with matters falling under the purview of PMLA and that moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) would not apply to actions initiated by the ED.

On the last date of hearing, the Hon'ble Supreme Court granted interim relief to the petitioner permitting the CIRP of Corporate Debtor to be conducted on 'as is where is' and 'whatever there is' basis, during the pendency of the petition challenging the provisional attachment order passed against the Corporate Debtor under PMLA. The Bench also cautioned that the Resolution Plan would not be approved by the Adjudicating Authority without the permission of the Supreme Court.

Ashok Kumar Sarawagi v Enforcement Directorate & Anr., SLP (Civil) Diary No(s). 300092/2022

[Supreme Court of India]

16.12.2022

A Drug Inspector inspected the appellant's premises and alleged contravention of Section 18(c) of the Drugs and Cosmetics Act, 1940 read with Rule 65(5)(1)(b) of the Drugs and Cosmetics Rules, 1945. It was alleged that the appellants broke up the bulk quantities of raw material chemicals and sold it to different distributors. The Drug Inspector issued a show cause memo to the appellants after nearly three years. After the lapse of one year and four months, a complaint was filed against the appellants.

In the High Court of Madras, the appellants sought quashing of the complaint which was dismissed with the observation that a trial was necessary to ascertain the facts of the case and an order was passed to expedite the trial. Aggrieved, the appellants filed an appeal before the Hon'ble Supreme Court of India.

While allowing the appeal, the Supreme Court held that the High Court had failed to take into consideration the peculiar facts and circumstances of the case wherein the respondent provided no explanation for the extraordinary delay of more than four years between the initial site inspection, the show cause notice and the complaint.

Hasmukhlal D. Vohra & Anr. v. The State of Tamil Nadu, Criminal Appeal No. 2310 of 2022

[Supreme Court of India]

19.12.2022

A case was registered under Foreign Exchange Management Act (FEMA) against Southern Agrifurane Industries Pvt. Ltd. (Company) alleging outward foreign remittances in violation of Foreign Exchange Management Rules and investigation was taken up by the ED. Subsequently, the ED passed provisional attachment order for seizure of certain movable and immovable properties of the company. Since the overseas remittances were made through the company's bank account in Axis Bank, the bank registered a complaint with the Central Crime Branch alleging cheating under Sections 417 and 420 Indian Penal Code, 1860 (IPC). In pursuance of the same, the ED registered a case under the Prevention of Money Laundering Act, 2002 (PMLA) in furtherance of commission of a scheduled offence under Section 420 IPC.

The company approached the Hon'ble High Court seeking quashing of the PMLA case on the ground that the provisions of FEMA were not a scheduled offence under the PMLA and that the ED was merely taking advantage of the FIR registered on the complaint of the bank and also, that while there has been a violation of FEMA, an offence of cheating could not be made out.

The Madras High Court while dismissing the plea held that an offence of cheating under Section 420 IPC was indeed made out as the company had made false declaration which induced the authorised dealer to deliver valuable foreign exchange and remittances to the wholly owned subsidiaries of the company. The Hon'ble Court also observed that there are two requirements to start an investigation by the ED: (i) commission of a predicate offence (which was a schedule offence) and (ii) prima facie material to show that such schedule offence has generated proceeds of crime.

Southern Agrifurane Industries Private Ltd., v. The Assistant Director, Directorate of Enforcement, WP No. 28140 of 2022

[Madras High Court]

20.12.2022

An FIR was registered against one Debabrata Halder for offences under Sections 420/406/408/409/467/468/120B of the Indian Penal Code, 1860 (IPC) and an ECIR was registered for investigation of offences punishable under Prevention of Money Laundering Act, 2002 (PMLA).

During the course of investigation, Debabrata Halder was arrested under Section 19 of PMLA. Meanwhile, the ED filed its final report under Section 45 of PMLA against other accused persons including Debabrata Halder alleging commission of offence under Section 3 of PMLA punishable under Section 4 of PMLA. The special court granted bail to Debabrata Halder observing that there is no prayer for further investigation in the case and no purpose would be served by keeping the accused in the custody for indefinite period. The other accused who had surrendered were also granted bail by the Special Court on the ground that they were on a different footing than the accused who was arrested.

The High Court while setting aside the bail granted observed that there is difference with regard to releasing a person on bail who has appeared in response to summons and a person who was arrested in the course of investigation under PMLA by the investigating authorities invoking their powers under Section 19 PMLA.

Enforcement Directorate v. Shri Debabrata Halder, CRM (SB) 93 of 2022

[Calcutta High Court]

DATE

DETAILS OF THE RECENT DEVELOPMENTS

CASES

13.12.2022

A loan of Rs. 1 crore was extended to Anil Ramrao Naik (accused) to pay for a property for which a Memorandum of Understanding (MoU) for repayment was entered into between the parties. The accused issued two cheques to the complainant which did not mention any date or the name of the payee. The construction of the building on the plot could not get completed and the complainant opted for refund along with interest. The accused filed a civil suit praying for the extension of time to repay the amount to the complainant in terms of the MoU.

After the suit was filed by the accused, the complainant deposited the two cheques which were dishonoured. Subsequently, the complainant filed two complaints under section 138 of the Negotiable Instruments Act, 1881 (NI Act) before the trial court while admitting that she had filled in the name of the payee and date. The trial court acquitted the accused, holding that when the civil suit was pending, the complainant was not justified in completing the cheques without authority of the accused.

The question before the High Court was whether the complainant was justified in putting name of the payee and date on the cheques.

The court did not find filling in the name of the payee improper as the cheques were given to the complainant for this reason in the first place. The court referred to Section 87 of the NI Act and held that unilaterally filling in the dates on the cheques without the authority of the accused would amount to "material alterations" rendering the negotiable instrument (cheques) void. The prosecution under Section 138 NI Act therefore could not have been initiated for want of valid cheque.

M/s. Pinak Bharat and Company v. Anil Ramrao Naik, Criminal Appeal Nos. 1630 and 1631 of 2021

[Bombay High Court]

14.12.2022

The Hon'ble Supreme Court has issued notice in the Special Leave Petition against the order of NCLAT, wherein the NCLAT had upheld the decision of NCLT holding that NCLT is not empowered to deal with matters falling under the purview of PMLA and that moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) would not apply to actions initiated by the ED.

On the last date of hearing, the Hon'ble Supreme Court granted interim relief to the petitioner permitting the CIRP of Corporate Debtor to be conducted on 'as is where is' and 'whatever there is' basis, during the pendency of the petition challenging the provisional attachment order passed against the Corporate Debtor under PMLA. The Bench also cautioned that the Resolution Plan would not be approved by the Adjudicating Authority without the permission of the Supreme Court.

Ashok Kumar Sarawagi v Enforcement Directorate & Anr., SLP (Civil) Diary No(s). 300092/2022

[Supreme Court of India]

16.12.2022

A Drug Inspector inspected the appellant's premises and alleged contravention of Section 18(c) of the Drugs and Cosmetics Act, 1940 read with Rule 65(5)(1)(b) of the Drugs and Cosmetics Rules, 1945. It was alleged that the appellants broke up the bulk quantities of raw material chemicals and sold it to different distributors. The Drug Inspector issued a show cause memo to the appellants after nearly three years. After the lapse of one year and four months, a complaint was filed against the appellants.

In the High Court of Madras, the appellants sought quashing of the complaint which was dismissed with the observation that a trial was necessary to ascertain the facts of the case and an order was passed to expedite the trial. Aggrieved, the appellants filed an appeal before the Hon'ble Supreme Court of India.

While allowing the appeal, the Supreme Court held that the High Court had failed to take into consideration the peculiar facts and circumstances of the case wherein the respondent provided no explanation for the extraordinary delay of more than four years between the initial site inspection, the show cause notice and the complaint.

Hasmukhlal D. Vohra & Anr. v. The State of Tamil Nadu, Criminal Appeal No. 2310 of 2022

[Supreme Court of India]

19.12.2022

A case was registered under Foreign Exchange Management Act (FEMA) against Southern Agrifurane Industries Pvt. Ltd. (Company) alleging outward foreign remittances in violation of Foreign Exchange Management Rules and investigation was taken up by the ED. Subsequently, the ED passed provisional attachment order for seizure of certain movable and immovable properties of the company. Since the overseas remittances were made through the company's bank account in Axis Bank, the bank registered a complaint with the Central Crime Branch alleging cheating under Sections 417 and 420 Indian Penal Code, 1860 (IPC). In pursuance of the same, the ED registered a case under the Prevention of Money Laundering Act, 2002 (PMLA) in furtherance of commission of a scheduled offence under Section 420 IPC.

The company approached the Hon'ble High Court seeking quashing of the PMLA case on the ground that the provisions of FEMA were not a scheduled offence under the PMLA and that the ED was merely taking advantage of the FIR registered on the complaint of the bank and also, that while there has been a violation of FEMA, an offence of cheating could not be made out.

The Madras High Court while dismissing the plea held that an offence of cheating under Section 420 IPC was indeed made out as the company had made false declaration which induced the authorised dealer to deliver valuable foreign exchange and remittances to the wholly owned subsidiaries of the company. The Hon'ble Court also observed that there are two requirements to start an investigation by the ED: (i) commission of a predicate offence (which was a schedule offence) and (ii) prima facie material to show that such schedule offence has generated proceeds of crime.

Southern Agrifurane Industries Private Ltd., v. The Assistant Director, Directorate of Enforcement, WP No. 28140 of 2022

[Madras High Court]

20.12.2022

An FIR was registered against one Debabrata Halder for offences under Sections 420/406/408/409/467/468/120B of the Indian Penal Code, 1860 (IPC) and an ECIR was registered for investigation of offences punishable under Prevention of Money Laundering Act, 2002 (PMLA).

During the course of investigation, Debabrata Halder was arrested under Section 19 of PMLA. Meanwhile, the ED filed its final report under Section 45 of PMLA against other accused persons including Debabrata Halder alleging commission of offence under Section 3 of PMLA punishable under Section 4 of PMLA. The special court granted bail to Debabrata Halder observing that there is no prayer for further investigation in the case and no purpose would be served by keeping the accused in the custody for indefinite period. The other accused who had surrendered were also granted bail by the Special Court on the ground that they were on a different footing than the accused who was arrested.

The High Court while setting aside the bail granted observed that there is difference with regard to releasing a person on bail who has appeared in response to summons and a person who was arrested in the course of investigation under PMLA by the investigating authorities invoking their powers under Section 19 PMLA.

Enforcement Directorate v. Shri Debabrata Halder, CRM (SB) 93 of 2022

[Calcutta High Court]