New Delhi: The Bombay High Court has come down heavily on the Enforcement Directorate (ED) for initiating a money laundering investigation on insufficient grounds, observing that central agencies should act within the ambit of the law instead of taking it into their own hands to harass citizens. The court imposed a Rs 1 lakh penalty on the agency for “malafide” action.
Criticising the ED for applying provisions of the Prevention of Money Laundering Act (PMLA) in a civil dispute, a single-judge bench of the Bombay HC Tuesday disposed of a nearly eight-year-old criminal application filed by a Mumbai-based developer Rakesh Jain.
He had been booked and charge-sheeted by the ED for receiving proceeds of crime from partner firms in exchange for renovation work that was not carried out, based on the allegations of property purchaser Gul Achhra. Since a lower court had ordered proceedings against Rakesh Jain, he challenged the case itself in the Bombay HC.
Justice Milind Jadhav observed that the ED’s case proceeded on a “completely erroneous assumption” and that the actions of Gul Achhra, the complainant, and the ED to “put the criminal system into motion is clearly malafide” and called for the imposition of “exemplary costs”.
“I am compelled to levy exemplary costs because a strong message needs to be sent to the Law Enforcement Agencies like ED that they should conduct themselves within the parameters of law and that they cannot take law into their own hands without application of mind and harass citizens,” the 60-page judgment said. The Bombay HC also imposed a penalty of Rs 1 lakh on Gul Achhra.
Also Read: Shocker in Supreme Court as ED lawyer calls agency’s Chhattisgarh liquor scam affidavit ‘fishy’
The case
In March 2014, the ED filed a prosecution complaint against Rakesh Jain, partner at Kamla Developers; Dhirendra Rajithram Shukla of Sadguru Enterprises; Kiran Shelar of Abhinav Trading Co.; and the firm Rajesh Chemoplast on the allegations that they laundered nearly Rs 4.27 crore from an unfulfilled contract.
Laying out the facts of the case, the judge noted ED’s allegations that Rakesh Jain had convinced Gul Achhra of G.K. Solutions to purchase at 6.5 crore two floors at a commercial property he built and enter a renovation contract with a friendly firm, Sadguru Enterprises, for Rs 4.57 crore. Sadguru Enterprises was also supposed to provide additional amenities to develop the properties into a hotel.
According to the case records referred to by the judge, the amount agreed upon for renovation was to be paid by Gul Achhra in three instalments—Rs 2 crore on 18 April 2007; Rs 1.5 crore on 10 May 2007; and Rs 1.07 crore on 31 July 2007. This was subject to the completion of the agreed upon work.
On 9 July 2007, Gul Achhra received a letter from Rakesh Jain saying that the property was almost ready for possession. In his response, Gul Achhra said it should be handed over by 31 July that year with an occupancy certificate and the renovation completed according to the contract or else he would seek a refund of the Rs 3.5 crore he had paid already, along with an 18 percent interest outlined in the sale deed.
However, a dispute arose over the completion of the work and Gul Achhra paid the last instalment on 24 October 2007 with a deduction of Rs 30.67 lakh from the contracted amount.
As the dispute continued, Kamala Developers argued that since the renovation had changed the look of the property from the structure sanctioned by the Municipal Corporation for Greater Mumbai, it was being denied an occupancy certificate.
In June 2009, Gul Achhra approached Mumbai Police to register a criminal case of cheating against Kamala Developers. However, the Mumbai Police Economic Offences Wing assessed that the case was a civil dispute.
Gul Achhra continued to press for a criminal case and submitted a complaint to Malad Police station alleging that he had paid Rakesh Jain Rs 10.28 crore (the total price of the property plus renovation), but some work, like the construction of the hotel reception counter, travel desk, and cyber cafe; installation of air conditioners and carpets, and additional work in the pantry and store room, remained incomplete.
Failing to get a case registered, Gul Achhra moved the Andheri court against Sadguru Enterprise, accusing the firm of cheating him of Rs 4.27 crore in the name of renovation. The court ordered the Vile Parle police station to register a case.
The Vile Parle police station investigated the case and filed a chargesheet in August 2010 under Indian Penal Code (IPC) Sections 406 (criminal breach of trust), 418 (cheating with the knowledge of causing wrongful loss), 420 (cheating and dishonestly inducing delivery of property) and 120B (criminal conspiracy). This was later forwarded to the ED, which opened an Enforcement Case Information Report (ECIR) in March 2013.
Rakesh Jain moved to have the chargesheets filed by the Mumbai Police and then those by the ED quashed at the lower court. Failing this, he moved a criminal application in the Bombay HC in 2016.
‘Completely erroneous assumption’
In its Tuesday order, the Bombay HC judge noted that ED’s case was that Rakesh Jain had received Rs 4.27 crore from Dhirendra Rajitram Shukla and Kiran Shelar, which they had received from Gul Achhra for renovation of the commercial property. However, ED alleged that neither the additional amenities were provided nor the money was refunded to Gul Achhra.
The judge said the ED’s definition of the payment received by Sadguru Enterprises from Gul Achhra as proceeds of crime was an “enigma” and highlighted there was a clear contract between the firms for the renovation work.
He also refuted ED’s allegations that the money transferred by Sadguru Enterprises to Rakesh Jain’s firm was proceeds of crime since there was no such prohibition on transferring money between them because of their shared business relationship.
“From the above charge of ED and definition of ‘proceeds of crime’, the case of ED proceeds on a completely erroneous assumption. According to ED, the property (proceeds of crime) in question is the amount of Rs 4,57,84,400/- received by M/s. Sadguru Enterprises from the Complainant,” Justice Jadhav said in the order. “However, admittedly, this amount is received under a mutual contract / agreement dated 16.04.2007 between M/s. Sadguru Enterprises and Respondent No.2.”
Moreover, he observed that there was no obligation for Gul Achhra to comply with the terms of the contract and pay the various instalments if no work had been done—as both ED and the complainant had alleged.
“Respondent No. 2 has not denied the Agreement nor can he deny the same because he has not only acknowledged the said Agreement as having been executed, but in turn has also complied with his own obligations under the same Agreement. The question before the Court is, ‘Why has ED ignored this Agreement?’” the judge remarked.
“The fallacy in ED’s charge / claim is that after receiving the above amount M/s. Sadguru Enterprises has not provided any services to Respondent No.2,” he said.
The ED’s charge, he said, “falls flat” because Gul Achhra has clearly acknowledged that Sadguru Enterprises has delivered its obligations under the agreement for which he paid them Rs 4.57 crore on the fulfilment of the additional amenities.
Further dissecting ED’s allegations, Justice Jadhav said that the entire claim of the proceeds of crime has emanated from the agency’s failure to identify that there was no scheduled offence of cheating in the matter.
“In the facts discussed above, alleged criminal activity relating to a scheduled offence of cheating is not made out at all in the first place as a result of which there is no criminal activity by either M/s. Sadguru Enterprises or Applicant No.1. Rights of parties are clearly governed by the Agreement dated 16.04.2007,” the Bombay HC judge remarked. “ED has failed miserably to acknowledge the same for reasons best known to it. There is a serious lacunae in the application of mind by ED.”
(Edited by Sanya Mathur)
Also Read: Why SC pulled up Centre for ‘making submissions against law’ to deny bail to woman in PMLA case