M/S KIMS Healthcare Management Limited & M/S KIMS Bellerose Institute of Medical Sciences Pvt. Ltd. v Adjudicating Authority (Under the Prevention of Money Laundering Act) & The Assistant Director, Directorate of Enforcement, Cochin Zonal Office, and Others

## `IN THE HIGH COURT OF KERALA AT ERNAKULAM` ## `PRESENT` ``` THE HONOURABLE MR.JUSTICE ZIYAD RAHMAN A.A. ``` ``` WEDNESDAY, THE 6[TH] DAY OF DECEMBER 2023 / 15TH AGRAHAYANA, 1945 ``` ``` WP(CRL.) NO. 16 OF 2022 ``` ## `PETITIONER/S:` ``` 1M/S. KIMS HEALTHCARE MANAGEMENT LIMITED ANAMUKHAM, P.B.NO.1, ANAYARA P.O., THIRUVANANTHAPURAM - 695 029, REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR, DR.M.I.SAHADULLA. 2M/S.KIMS BELLEROSE INSTITUTE OF MEDICAL SCIENCES PVT.LTD.(PREVIOUSLY KNOWN AS M/S.BELLEROSE INSTITUTE OF MEDICAL SCIENCES PVT.LTD.), THUTHOTTY JUNCTION, KUDAMALOOR P.O., KOTTAYAM - 686 017 HAVING ITS REGISTERED OFFICE AT KIMS, ANAMUKHAM, P.B.NO.1, ANAYARA P.O., THIRUVANANTHAPURAM - 695 029 REPRESENTED BY ITS CHAIRMAN, DR.M.I.SAHADULLA. 3DR.M.I.SAHADULLA,AGED 76 YEARS,S/O.ILLIAS MOHAMMED, RESIDING AT RASTANURA, 66, RPD MARG, KURAVANKONAM, KOWDIAR P.O., THIRUVANANTHAPURAM - 695 003. 4E.M.NAJEEB,AGED 67 YEARS,S/O.ELLIAS MOHAMMED, DIRECTOR, KIMS HEALTHCARE MANAGEMENT LIMITED, ANMUKHAM, P.B.NO.1, ANAYARA P.O., THIRUVANANTHAPURAM - 695 029, RESIDING AT PADIYATH HOUSE, 66, RPD MARG, KOWDIAR P.O., THIRUVANANTHAPURAM - 695 003. BY ADVS. S.SREEKUMAR (SR.) M.SREEKUMAR RESPONDENT/S: 1THE ADJUDICATING AUTHORITY (UNDER THE PREVENTION OF MONEY LAUNDERING ACT) ROOM NO.26, 4TH FLOOR, JEEVAN DEEP BUILDING, PARLIAMENT STREET, NEW DELHI - 110 001, REPRESENTED BY ITS CHAIRPERSON. 2THE ASSISTANT DIRECTOR,DIRECTORATE OF ENFORCEMENT, COCHIN ZONAL OFFICE, KANOOS CASTLE, A.K.SHESHADIRI ROAD, COCHIN - 682 011. 3JUBEY M.DEVASIA,PADINJAREKALAYIL HOUSE, KUDAMALOOR P.O., KOTTAYAM 686 017. 4BEVIS THOMAS,PADINJAREKALAYIL HOUSE, KUDAMALOOR P.O., KOTTAYAM - 686 017. BY ADVS. FOR R1 AND R2 BY SRI.A.R.L.SUNDARESH, ADDL.SOLICITOR GENERAL SRI. JAISHANKAR V.NAIR THIS WRIT PETITION (CRIMINAL) HAVING BEEN FINALLY HEARD ON 06.12.2023 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` ## `RESPONDENT/S:` WP(CRL) No.16 of 2022 2 ## `JUDGMENT` ``` This Writ Petition is filed by the ``` ``` petitioners,challengingtheproceedings ``` ``` initiated against them under the provisions of the Prevention of Money Laundering Act, 2002 ``` ``` (for short, ‘PMLA’) as evidenced by Exhibits P20 and P21. The predicate offences alleged ``` ``` against the petitioners, based on which the said ``` ``` proceedings initiated are under sections ``` ``` 409,420,467,468,471 and 120B of the Indian Penal ``` ``` Code, registered as per Crime No 411 of 2019 of ``` ``` Crime Branch, Kottayam. The prayers sought in ``` ``` the writ petition are as follows: ``` ``` 1.call for the records leading to the proceedings of ECIR/KCZO/28/2020 initiated by the 2[nd] respondent against the petitioners and Exhibits P20 and P21 notices issued by the 1[st] respondent and quash the same by issue of writ of certiorari or by other writ or direction as may be necessary in the interest of justice; ``` ``` 2.Declare that the proceedings initiated as ECIR/KCZO/28/2020 by the 2[nd] respondent as against the petitioners and the Exhibits P20 and P21 show cause notices are without jurisdiction and authority ``` WP(CRL) No.16 of 2022 3 ``` and no proceeding can be initiated under the Prevention of Money Laundering Act against the petitioners on the basis of Exhibit P12 FIR alone. ``` ``` 2.The facts in brief which led to the ``` ``` filing of this writ petition are as follows: ``` ``` Earlier, Exhibit P12 FIR was registered against petitioners 3 and 4 and six others by the Crime Branch, Kottayam, as Crime No.411/2019, based on Exhibit P11 complaint submitted by the 3rd and 4th respondents for the offences referred to above. Petitioners 3 and 4 ``` ``` were the accused Nos.1 and 2, in the said crime. The allegations raised in Exhibit P11 complaint ``` ``` were as follows: ``` ``` 2.1. The respondents 3 and 4 were the ``` ``` Promoters and Directors of M/s.Bellerose ``` ``` Institute of Medical Sciences Pvt. Ltd., a ``` ``` company registered under the Companies Act, ``` ``` which was running a hospital. Due to certain ``` ``` financial difficulties, they found it difficult ``` ``` to continue the management of the said hospital, ``` WP(CRL) No.16 of 2022 4 ``` and accordingly, they entered into an agreement ``` ``` with M/s.KIMS Healthcare Management Limited, in which the accused persons were the directors, to ``` ``` transfer the shares of M/s.Bellerose Institute of Medical Sciences Pvt. Ltd. on the condition that the transferee company shall invest in ``` ``` their company and manage the same. ``` ``` 2.2.Accordingly,aMemorandumof ``` ``` Understanding was entered into on 31.12.2012, pursuant to which, the respondents 3 and 4 herein transferred their 55% of shareholdings in their company for a consideration of ``` ``` Rs.8,25,00,000/- in favour of KIMS Healthcare Management Ltd. Thereafter, the 3[rd] petitioner ``` ``` along with the some other persons were inducted in M/s. Bellerose Institute of Medical Sciences Pvt Ltd as directors. The name of the said ``` ``` company was changed to M/s KIMS Bellerose Institute of Medical Sciences Pvt Ltd. It is alleged that, later, the accused persons ``` WP(CRL) No.16 of 2022 5 ``` obtained a credit facility to the tune of Rs.43 ``` ``` Crores from South Indian Bank without informing the respondents 3 and 4, by creating charge over the properties of the said Company. The said credit facility was availed by them for constructing the building and purchasing pediatric ventilators to be used in the hospital run by the company of respondents 3 and 4. It was further alleged that the said amounts were subsequently diverted by the accused persons to the shell companies of M/s. KIMS Healthcare Management Limited with the intention to cheat respondents 3 and 4. Certain amounts were allegedly transferred to the account of the 3[rd] petitioner as well. It was also alleged that the share capital of KIMS Bellerose Institute of Medical Sciences Pvt. Ltd. was increased from 5,50,000,00 (shares of Rs.10 each) to 6,50,00,000 (shares of 10 each) without informing respondents 3 and 4 and thereby ``` WP(CRL) No.16 of 2022 6 ``` altering the shareholding pattern to the disadvantage of the said respondents. Further allegation is that the accused persons have purchased certain second-hand medical equipment for installation in the hospital by creating forged invoices and showing high prices, thereby misappropriating the amounts as well. The Crime was registered based on the said complaint. ``` ``` 3.The Investigation was conducted by the Crime Branch and Exhibit P18 final report was ``` ``` submitted by them after recording the statements of 70 witnesses and examining 54 documents, with ``` ``` the conclusion that, no offences were made out ``` ``` and the Crime was referred as a mistake of fact. ``` ``` 4.In the meanwhile, based on the crime registered by the Crime Branch, the 2[nd] ``` ``` respondent conducted an inspection on 26.10.2021 ``` ``` and 27.10.2021 in the premises of the 1[st] ``` ``` petitioner at Thiruvananthapuram, invoking the powers under the Prevention of Money-Laundering ``` WP(CRL) No.16 of 2022 7 ``` Act, 2002 and seized certain documents as evidenced ``` ``` by Exhibit P13 seizure memo. Thereafter, a summons ``` ``` was issued by the 2[nd] respondent to the petitioners 3 and 4, and their statements were recorded. Pursuant to the said proceedings, a notice under Section 8 of the PMLA Act was issued to the 3[rd] and 4[th] petitioners ``` ``` to show cause as to why the records seized in the search shall not be retained by the 2[nd] respondent, as evidenced by Exhibits P20 and P21. This Writ ``` ``` Petition was submitted by the petitioners at that juncture challenging the said proceedings seeking the prayers as referred to above. During the ``` ``` pendency of this Writ Petition summons were issued ``` ``` by the 2[nd] respondent to the 2[nd] and 3[rd] petitioners invoking the powers under section 50 of the PMLA. ``` ``` 5.A detailed counter affidavit was ``` ``` submitted by the 2[nd] respondent opposing the ``` ``` prayers sought in the writ petition. In the said counter affidavit, the 2[nd]respondent ``` ``` specifically challenged the maintainability of ``` ``` the writ petition on the ground that, according ``` WP(CRL) No.16 of 2022 8 ``` to the 2[nd] respondent, the petitioners have rushed to this Court without resorting to the statutory remedies available under the PMLA. The petitioners ``` ``` also filed a reply affidavit to the counter affidavit filed by the 2[nd] respondent. ``` ``` 6.While the Writ Petition was pending ``` ``` consideration, the petitioners and the respondents 3 and 4 were claimed to have arrived at a settlement of their disputes. On the basis of their settlement, the parties have entered into Exhibit P35 share transfer agreement. As ``` ``` per the terms and conditions of Exhibit P35, shares were transferred in favour of the ``` ``` petitioners herein for a total consideration of ``` ``` Rs.20 Crores. As per clause 3.2 of Exhibit P35 agreement, parties have agreed that the proceedings in Crime No.411/2019 of Crime Branch, which is the subject matter of ``` ``` this case, will be settled. As part of the same, ``` WP(CRL) No.16 of 2022 9 ``` respondents 3 and 4 have specifically agreed ``` ``` that they will not raise/file any objection against the closure of the said crime against the accused persons, and they shall not pursue the case in any manner. They have also agreed to execute an affidavit on the date of the share transfer and cause the said affidavit to be filed with Judicial First Class Magistrate Court-III, Kottayam, where the closure report submitted by the Police was pending consideration. As per Clause 3.4 of Exhibit P35, ``` ``` they further agreed that M/s KIMS Healthcare Management Limited and M/s KIMS Bellerose ``` ``` Institute of Medical Sciences Pvt. Ltd have no ``` ``` objection whatsoever in quashing Crime No.426/2019 registered against respondents 3 and 4. They further agreed not to pursue the ``` ``` said criminal case any further and also agreed ``` ``` to execute an affidavit on the date of share transfer and caused the said affidavit to be ``` WP(CRL) No.16 of 2022 10 ``` filed before the Judicial First Class Magistrate ``` ``` Court-III, Kottayam, where Crime No.426/2019 was pending. ``` ``` 7.Evidently, the amounts were transferred ``` ``` as agreed, and the transfer of shares as per the terms and conditions in Exhibit P35 was also given effect. Exhibit P36 is the affidavit ``` ``` executed by respondents 3 and 4 before a Notary Public wherein the filing of the refer report in ``` ``` Crime No.411/2019 by the Crime Branch was ``` ``` specifically referred to, and they have conveyed their no objection whatsoever in accepting the said report filed by the Investigating Officer in the above case. The affidavit was executed ``` ``` on 7.8.2023, and it is reported that it has already been placed on record before the jurisdictional court. ``` ``` 8.However, subsequently, respondents 3 and 4 filed a protest complaint dated 7.9.2023 before the Judicial First Class Magistrate ``` WP(CRL) No.16 of 2022 11 ``` Court-III, Kottayam, against the final report, ``` ``` the copy of which is produced in this Writ ``` ``` Petition as Exhibit P39. ``` `9. After considering the refer report of` ``` the police and the protest complaint submitted ``` ``` by respondents 3 and 4, the learned Magistrate, ``` ``` as per the proceedings dated 7.9.2023, passed ``` ``` the following order: ``` ``` “Petitioner absent, represented. Respondent ``` ``` absent, represented. Protest complaint filed. Refer accepted.” ``` ``` On the same day, a further order was passed on the protest complaint to call the same on ``` ``` 30.09.2023. Thereafter, the protest complaint ``` ``` was posted on various dates, and the proceedings ``` ``` are pending consideration. It is in those circumstances that the prayers sought in the ``` ``` Writ Petition are to be considered. ``` ``` 10. Heard Sri. S.Sreekumar, the learned Senior Counsel assisted by Sri. M. Sreekumar, ``` WP(CRL) No.16 of 2022 12 ``` learned counsel appearing for the petitioners, ``` ``` Sri.A.R.L.Sundaresh, the learned Additional Solicitor General of India assisted by Adv. ``` ``` Jaishankar V. Nair appearing for the respondents ``` ``` 1 and 2. Even though notices were served on respondents 3 and 4, no one appeared on their behalf. ``` ``` 11.Even though the petitioners raised ``` ``` several contentions with regard to the ``` ``` sustainability of the allegations raised against ``` ``` them in the complaint and also the legal validity of the proceedings initiated at the ``` ``` instance of the 2[nd]respondent under the ``` ``` provisions of PMLA, on account of subsequent ``` ``` developments after filing the Writ Petition, the zone of consideration has now been narrowed down ``` ``` to the issue as to whether the proceedings under ``` ``` the PMLA Act could be continued in view of the ``` ``` acceptance of the refer report submitted by the Police. ``` WP(CRL) No.16 of 2022 13 ``` 12.The specific contention raised by the ``` ``` learned Senior Counsel appearing for the ``` ``` petitioners is that consequent to the acceptance ``` ``` of the refer report submitted by the police, the predicate offences based on which the proceedings under the PMLA were initiated are no longer in existence. Therefore, in the light of the principles laid down by the Hon’ble Supreme Court in Vijay Madanlal Choudhary and Ors. v. ``` ``` Union of India and Ors. [SLP(Crl) No.4634/2014], ``` ``` the proceedings cannot be continued. ``` ``` 13.On the other hand, the learned ``` ``` Additional Solicitor General of India opposed the said application by pointing out that this is a case in which it cannot be held that the predicate offences are no longer in existence. It was pointed out that the protest complaint ``` ``` submitted by the defacto complainantin the ``` ``` crime is pending consideration, and therefore, the ``` ``` observations made by the Hon’ble Supreme Court ``` WP(CRL) No.16 of 2022 14 ``` inVijay Madanlal Choudhary’s case (supra) ``` ``` cannot be made applicable to the facts of this case. It was also contended that the nature of ``` ``` the allegations raised is misappropriation of huge amounts based on forged documents, and some ``` ``` of the offences are non-compoundable. Therefore, ``` ``` even if a settlement was assumed to have taken place between the parties, that cannot result in quashing of the proceedings, contents the ``` ``` learned Additional Solicitor General of India. ``` ``` 14. However, as regards the contention of the Learned ASG, with respect to the non- compoundable nature of the offences, I find that ``` ``` the same is not sustainable. It is to be noted that the question of quashing the proceedings in respect of non-compoundable offences does not arise in this case. For compounding an offence, ``` ``` there must be a final report submitted by the ``` ``` police implicating the accused persons for the offences. Here, in this case, after ``` WP(CRL) No.16 of 2022 15 ``` investigation, the Police found that no offences ``` ``` were made out and submitted a refer report under Section 173(2) of Cr.PC. The settlement, as ``` ``` evidenced by Exhibit P35 and P36 between the parties, was to the effect that the defacto ``` ``` complainant will convey their no objection in accepting the said final report submitted by the ``` ``` police before jurisdictional court, and they ``` ``` have conveyed their no objection by submitting ``` ``` Exhibits P36 affidavit sworn by them before the ``` ``` Court. Therefore, the contention of the learned counsel with regard to the acceptance of ``` ``` composition in a case of non-compoundable ``` ``` offences is not at all a relevant factor in this ``` ``` case. Several decisions were relied on by the ``` ``` learned Senior Counsel to support the said ``` ``` contention, and in the light of the peculiar ``` ``` facts and circumstances of the case, as referred ``` ``` to above, those decisions do not have any applicability to the facts of this case. ``` WP(CRL) No.16 of 2022 16 ``` 15. Now, the crucial question is whether the ``` ``` continuation of the proceedings under the PMLA in this case is legally sustainable. It is now well settled that one of the basic requirements for initiating proceedings under the PMLA is the ``` ``` commission of an act or indulgence in any process of activity connected with the “proceeds ``` ``` of crime” by the accused persons. The expression “Proceeds of Crime” has been clearly defined under Section 2(u) of the Act, which reads as follows: ``` ``` “2(u) ‘proceeds of crime’ means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad.” ``` ``` Section 3, which enables the 2[nd] respondent to ``` ## `initiate the proceedings, reads as follows:` ``` 3.Offence of money-laundering.- Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including ``` WP(CRL) No.16 of 2022 17 ``` its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money- laundering. ``` ``` Explanation.- For the removal of doubts, it is hereby clarified that,- (i)a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:- ``` - _`(a) concealment; or`_ ``` (b)possession; or ``` - _`(c) acquisition; or`_ - _`(d) use; or`_ - _`(e) projecting as untainted property; or`_ - _`(f) claiming as untainted property,`_ ``` in any manner whatsoever ``` ``` (ii)the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever]” ``` ``` The Hon’ble Supreme Court in Vijay Madanlal ``` WP(CRL) No.16 of 2022 18 ``` Choudhary’s case (supra), after elaborately ``` ``` discussing the statutory provisions as well as the object and reasons behind the enactment of the PMLA, came to a specific conclusion that in the absence of a predicate offence, the proceedings initiated under the PMLA cannot be ``` ``` continued. The relevant observations made by the ``` ``` Hon’ble Supreme Court in this regard in paragraphs 52 to 54 are as follows: ``` ``` “52. The next question is: whether the offence under Section 3 is a standalone offence? Indeed, it is dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence. Nevertheless, it is concerning the process or activity connected with such property, which constitutes offence of money- laundering. The property must qualify the definition of “proceeds of crime” under Section 2(1)(u) of the 2002 Act. As observed earlier, all or whole of the crime property linked to scheduled offence need not be regarded as proceeds of crime, but all properties qualifying the definition of “proceeds of crime” under Section 2(1)(u) will necessarily be crime properties. Indeed, in the event of acquittal of the person concerned or being absolved from allegation of criminal activity relating to scheduled offence, and if it is ``` WP(CRL) No.16 of 2022 19 ``` established in the court of law that the crime property in the concerned case has been rightfully owned and possessed by him, such a property by no stretch of imagination can be termed as crime property and ex-consequenti proceeds of crime within the meaning of Section 2(1)(u) as it stands today. On the other hand, in the trial in connection with the scheduled offence, the Court would be obliged to direct return of such property as belonging to him. It would be then paradoxical to still regard such property as proceeds of crime despite such adjudication by a Court of competent jurisdiction. It is well within the jurisdiction of the concerned Court trying the scheduled offence to pronounce on that matter. ``` ``` 53. Be it noted that the authority of the Authorised Officer under the 2002 Act to prosecute any person for offence of money laundering gets triggered only if there exists proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act and further it is involved in any process or activity. Not even in a case of existence of undisclosed income and irrespective of its volume, the definition of “proceeds of crime” under Section 2(1)(u) will get attracted, unless the property has been derived or obtained as a result of criminal activity relating to a scheduled offence. It is possible that in a given case after the discovery of huge volume of undisclosed property, the authorised officer may be advisedtosendinformationtothe jurisdictional police (under Section 66(2) of the 2002 Act) for registration of a scheduled offence ``` WP(CRL) No.16 of 2022 20 ``` contemporaneously,includingforfurther investigation in a pending case, if any. On receipt of such information, the jurisdictional police would be obliged to register the case by way of FIR if it is a cognizable offence or as a non-cognizable offence (NC case), as the case may be. If the offence so reported is a scheduled offence, only in that eventuality, the property recovered by the authorised officer would partake the colour of proceeds of crime under Section 2(1) ``` ``` (u) of the 2002 Act, enabling him to take further action under the Act in that regard. ``` ``` 54. Even though, the 2002 Act is a complete Code in itself, it is only in respect of matters connected with offence of money laundering, and for that, existence of proceeds of crime within the meaning of Section 2(1)(u) of the Act is quintessential. Absent existence of proceeds of crime, as aforesaid, the authorities under the 2002 Act cannot step in or initiate any prosecution.” ``` ``` 16.Thus, the position of law in this regard ``` ``` is well settled. The existence of a predicate ``` ``` offence is a pre-requisite for initiating or ``` ``` continuing the proceedings under the PMLA. ``` ``` Therefore, the question to be considered in this ``` ``` case is whether the predicate offences exist. While considering the said question, the crucial ``` WP(CRL) No.16 of 2022 21 ``` document to be considered is Exhibit P18 refer ``` ``` report submitted by the Crime Branch in which, it is reported that the offences were not found out and the case was referred as a mistake of fact. On going through Exhibit P18 refer report, ``` ``` it can be seen that, the allegations raised by the respondents 3 and 4 were investigated into and found to be not correct. Besides the statements of witnesses (70 nos), the Crime ``` ``` Branch also relied on scientific reports such as report of the handwriting experts and found that the signatures alleged to have been forged by the accused persons were genuine. Besides the same, the allegation of misappropriation of funds was also found to be not correct. Anyhow, I am not going into the contents of Exhibit P18 in detail, as the questions regarding the ``` ``` sustainability and other matters relating to the conclusions arrived by the police, are not matters within the zone of consideration of this ``` WP(CRL) No.16 of 2022 22 ``` Writ Petition. ``` ``` 17.For the purpose of disposal of the Writ Petition, the only relevant question is as to ``` ``` whether the acceptance of the final report/refer report by the jurisdictional court will have any impact on proceedings under the PMLA. ``` ``` 18.There is a controversy as to whether the ``` ``` final report was actually accepted or not. The learned Additional Solicitor General of India ``` ``` contended that on carefully scrutinizing the order passed by the learned Magistrate on ``` ``` 7.9.2023, it cannot be concluded that the ``` ``` contents of the refer report were accepted. It ``` ``` was pointed out that, in the said order, it is ``` ``` specifically mentioned that, “…. protest complaint ``` ``` filed, Refer accepted”. According to the learned ``` ``` DSG, what the learned Magistrate did was to ``` ``` accept the refer report into the file, and since ``` ``` the protest complaint was submitted, the ``` ``` proceedings were adjourned for a detailed ``` WP(CRL) No.16 of 2022 23 ``` consideration of the contents of the protest complaint and to take a decision as to whether refer report is to be accepted or not, at a later point of time. ``` ``` 19. However, the said contention does not appear to be convincing. Of course, it is true that no detailed discussions were made by the learned Magistrate in the order. However, the interpretation as adopted by the learned DSG cannot be accepted because of the reason that the submission of a refer report or final report, whatever be the nomenclature, is a statutory mandate as per section 173(2) of the Code of Criminal Procedure (Cr.PC) upon completion of the investigation. Since filing the final report is a mandatory procedure, a formal order for accepting that report into the files is not at all necessary by the jurisdictional court. The learned Magistrate cannot refuse to take the refer report into the ``` WP(CRL) No.16 of 2022 24 ``` file, unless any defects or incompleteness in ``` ``` the said report are noted. In this case, no such defects or incompleteness are noted, and instead, the report as such was accepted. The term ‘refer accepted’, therefore, can only indicate that the conclusion arrived at by the Crime Branch in the refer report as such was accepted by the learned Magistrate, and the defacto complainant was granted an opportunity ``` ``` to pursue the protest complaint. ``` ``` 20.There is yet another reason that fortifies the said view. As mentioned above, on the basis of the settlement arrived between the parties, as evidenced by Exhibit P35, respondents 3 and 4 have executed an affidavit conveying their no objection in accepting the closure report submitted by the Crime Branch before the jurisdictional court. The said ``` ``` affidavit and other documents evidencing the settlement were reported to have been submitted ``` WP(CRL) No.16 of 2022 25 ``` before the learned Magistrate as well. The order ``` ``` dated 7.9.2023 was passed by the learned ``` ``` Magistrate in such circumstances. Therefore, I ``` ``` do not find any valid reasons to entertain the ``` ``` objection raised by the learned DSG in this regard. The only conclusion possible is that, by ``` ``` virtue of the order dated 7.9.2023, the learned ``` ``` Magistrate accepted the conclusion arrived at by ``` ``` the Crime Branch after the investigation. ``` ``` 21. Then, the next question that would ``` ``` arise is what would be the consequence of the protest complaint, which is now pending ``` ``` consideration before the learned Magistrate, in ``` ``` relation to the proceedings initiated under the provisions of the PMLA. It is to be noted in ``` ``` this regard that the procedure to be adopted and the options available before the learned ``` ``` Magistrate when a refer report is submitted by ``` ``` the Police were elaborately discussed by this Court inParameswaran Nair v. Surendran and ``` WP(CRL) No.16 of 2022 26 ``` Another[2009(1)KLT 794]. The relevant paragraphs ``` ## `of the said decision are as follows:` ``` “15. In practice when a complainant receives a notice from the Magistrate intimating the submission of a final report by the police to the effect that no offence is made out, informing that the report is being considered by the Magistrate, he files a complaint which in common usage is termed protest complaint. So long as cognizance was not taken on the first complaint and only an order for investigation under S.156(3) at pre- cognizance stage was ordered, the complaint is not effaced from the file. Hence the Magistrate at the stage of considering the final report under S.173(2) is entitled to take cognizance of the offence on the materials furnished by the police under S.190(1)(b) rejecting the opinion of the police or is entitled to take cognizance under S.190(1)(a) on the original complaint after recording the statement of the complainant and his witnesses as provided under S.200 or even direct investigation under S.202 and conduct an inquiry and decide whether on all these materials whether process is to be issued under S.204. The protest complaint if any filed at that stage cannot be treated as the second complaint, attracting the limitations of a second complaint. Such a protest complaint can only be treated as an objection to the final ``` WP(CRL) No.16 of 2022 27 ``` report submitted under S.173(2). On filing of such a protest complaint or an objection to the final report, Magistrate is bound to consider the final report with the documents and statements produced and decide whether cognizance is to be taken on the police report under S.190(1) (b) of the Code. If not Magistrate can record the statement of the complainant and his witnesses and even can direct an investigation under S.202 and based on the inquiry decide whether process is to be issued under S.204 or complaint is to be dismissed under S.203. ``` ``` 16. If Magistrate finds that in spite of all the objections raised, the final report is to be accepted he can accept it and drop the proceeding. At that stage Magistrate can entertain a second complaint. But such a complaint will lie only if there was manifest error or manifest miscarriage of justice or new facts which the complainant had no knowledge of or with reasonable diligence could not have brought forward in the previous proceedings. The Magistrate cannot therefore ignore the final report altogether and consider only the protest complaint and the sworn statement of the witnesses recorded in that enquiry. 17. The well settled legal propositions can be summed up as follows: (1) When a final report is made by an officer of the Police Station under sub-s.(2) of S.173 of Code of ``` WP(CRL) No.16 of 2022 28 ``` Criminal Procedure, if the Magistrate is not inclined to take cognizance of the offence and issue process, notice mustbeissuedtothe complainant/firstinformantand opportunity is to be granted to him to make his submissions to persuade the Magistrate to take cognizance of the offence and issue process. ``` ``` (2) The Magistrate is not bound by the opinion of the investigating officer. He can disregard the report and take the view that there is sufficient ground for proceeding further and take cognizance of the offence and issue process. If the Magistrate decides to disregard the report and take cognizance of the offence and issue process to the accused, it is not mandatory to issue notice to the complainant. Notice is mandatory if the Magistrate is inclined to accept the report. ``` ``` (3) Magistrate can direct further investigation under sub-s.(3) of S.156. ``` ``` (4) Magistrate can take cognizance on the final report itself under S.190(1)(b) disregarding the opinion of the police and issue summons. ``` ``` (5) Magistrate can take cognizance on the original complaint, where investigation under sub-s.(3) of ``` WP(CRL) No.16 of 2022 29 ``` S.156 was earlier ordered and record the statement of the complainant and the witnesses as provided under S.200 and can conduct an inquiry, In that inquiry Magistrate can direct investigation by a police officer or such other officer as provided under S.202 and based on the report and all these materials decide whether cognizance of the offence is to be taken and process is to be issued. (6) If the Magistrate accepts the report and drop the proceedings after granting opportunity to the complainant, though complainant can thereafter file a second complaint it will lie only if there was a manifesterrorormanifest miscarriage of justice in the previous order or there is any exceptional circumstances like new facts which the complainant had no knowledge of or with due diligence could not have brought forward in the previous proceedings.” ``` ``` 22.Thus, it is evident that, when a refer ``` ``` report is submitted, the options available ``` ``` before the learned Magistrate are: (1) He can accept the report and drop the proceedings or (2) reject the police report and conduct an ``` WP(CRL) No.16 of 2022 30 ``` inquiry on the basis of the original complaint ``` ``` submitted or direct further investigation (3) to conduct an inquiry on the basis of the protest complaint submitted and to take cognizance thereon. In this case, the learned Magistrate has opted to accept the refer report, and further proceedings on the protest complaint are pending consideration. ``` ``` 23.In this regard, the crucial aspect to be noticed is that, in the protest complaint submitted by respondents 3 and 4, which is produced on record as Exhibit P39, the 3rd respondent had raised a new and different allegation which was not there in the original complaint or was the subject matter of the investigation conducted by the Crime Branch. Of course, it is true that, the 3rd respondent in ``` ``` Exhibit P39 reiterated the allegations initially ``` ``` raised in the first complaint also, but absolutely nothing is mentioned with respect to ``` WP(CRL) No.16 of 2022 31 ``` the conclusion arrived by the Crime Branch, on ``` ``` the allegations which were raised in the original complaint submitted. Of course, in ``` ``` Ext.P39 complaint, a general statement to the ``` ``` effect that the Investigating Officer had not ``` ``` investigated the matter fairly and the finding was not correct as it is contrary to the ``` ``` established provisions of law, is seen made. ``` ``` However, he did not pinpoint any deficiencies or ``` ``` loopholes in the investigation conducted by the Crime Branch. ``` ``` 24.Another important aspect to be noticed ``` ``` is that he submitted Exhibit P39 protest complaint after he entered into the settlement agreement, as evidenced by Exhibit P35 and the execution of the affidavit evidenced by Exhibit P16, wherein he expressed his no objection in ``` ``` accepting the closure report submitted by the ``` ``` Police. It is to be noted that Exhibits P35 and ``` ``` 36 are dated 7.8.2023, and Exhibit P39 is dated ``` WP(CRL) No.16 of 2022 32 ``` 7.9.2023. Despite the above, absolutely no references were made in Exhibit P39 as to the settlement arrived between the parties and ``` ``` conspicuously, they are also not disputing the ``` ``` genuineness of Exhibits P35 and P36. Therefore, ``` ``` it can be safely concluded that they have not retracted from the affidavit which they had sworn as evidenced by Exhibit P36. ``` ``` 25.Another important factor to be noticed ``` ``` in this regard is that, the main focus in Exhibit P39 protest complaint submitted by the ``` ``` 3[rd] respondent is relating to a new allegation ``` ``` which he raised in connection with the creation ``` ``` of certain building tax receipts pertaining to the building of the Company. The offences ``` ``` alleged in the said complaint are under Sections ``` ``` 120B, 406 and 468 of IPC. It is to be noted in ``` ``` this regard that offences under sections 406 and ``` ``` 468 of IPC are not included in the schedule of PMLA. ``` WP(CRL) No.16 of 2022 33 ``` 26. It is true that, the offence under Section 120B is included in the schedule. However, as far as the said offence is ``` ``` concerned, unless the criminal conspiracy ``` ``` relates to the commission of the offences coming ``` ``` within the schedule of PMLA, such conspiracy cannot be treated as a predicate offence. As far as the offence under Section 120B is concerned, which is criminal conspiracy, the character and ``` ``` punishment depend upon the offences, for the commission of which, the criminal conspiracy was entered into. Therefore, the criminal conspiracy has no independent existence as it will always depend upon the offence for which the conspiracy was entered. In this case, even going by Exhibit P39, the protest complaint submitted by the 3rd respondent, the criminal conspiracy was ``` ``` allegedly entered into by the accused persons for the commission of the offences under Sections 406 and 468 of IPC, which are not ``` WP(CRL) No.16 of 2022 34 ``` scheduled offences under the PMLA. Therefore, ``` ``` even if cognizance is to be taken for the offences referred to above, the same would not justify the initiation or continuation of the ``` ``` proceedings under PMLA as it cannot be held that ``` ``` those are predicate offences which would enable ``` ``` the 2[nd] respondent to continue the proceedings. 27.Thus,fromalltheaforesaid ``` ``` observations, the only irresistible conclusion possible is that, the predicate offences, based on which proceedings were initiated under the PMLA, are no longer in existence. Therefore, in the light of the observations made by the ``` ``` Hon’ble Supreme Court inVijay Madanlal ``` ``` Choudhary’scase(supra),thepresent ``` ``` proceedings are without any legal sanction, and therefore, interference is required. ``` ``` In such circumstances, this Writ Petition is ``` ``` allowed, and all proceedings pursuant to ECIR/KCZO/28/2020 initiated by the 2nd ``` WP(CRL) No.16 of 2022 35 ``` respondent, including all further proceedings ``` ``` pursuant to Exhibits P20 and P21, are hereby quashed. However, it is hereby clarified that the observations and findings made in this judgment would not preclude the authorities concerned from invoking the provisions of PMLA in case the predicate offences were later made out. ``` ``` Sd/- ``` ``` ZIYAD RAHMAN A.A. JUDGE ``` pkk WP(CRL) No.16 of 2022 36 ## `APPENDIX OF WP(CRL.) 16/2022` ``` PETITIONER’S EXHIBITS ``` |`EXHIBIT P1`|`TRUE COPY OF MEMORANDUM OF UNDERSTANDING`| |---|---| ||`DATED 31/12/2012 EXECUTED BETWEEN 1ST`| ||`PETITIONER, BELLEROSE AND RESPONDENTS 3 AND`| ||`4.`| |`EXHIBIT P2`|`TRUE COPY OF SHARE PURCHASE AGREEMENT (SPA)`| ||`WAS EXECUTED BETWEEN RESPONDENTS 3 &`| ||`4,BELLEROSE AND 1ST PETITIONER ON`| ||`20/4/2013.`| |`EXHIBIT P3`|`TRUE COPY OF SHARE SUBSCRIPTION AND`| ||`SHAREHOLDER'S AGREEMENT (SSSA) EXECUTED ON`| ||`20/4/2013.`| |`EXHIBIT P4`|`TRUE COPY OF MINUTES OF 23RD MEETING OF THE`| ||`BOARD OF DIRECTORS HELD ON 31/10/2013.`| |`EXHIBIT P5`|`TRUE COPY OF CERTIFICATE NO.9/2018-19 DATED`| ||`16/6/2018.`| |`EXHIBIT P6`|`TRUE COPY OF THE PETITION IN CP NO.14/2018`| ||`FILED BEFORE THE NCLT CHENNAI DATED MARCH,`| ||`2018.`| |`EXHIBIT P7`|`TRUE COPY OF ORDER IN IA NO.193/2018 IN CP`| ||`NO.14/2018 OF THE NCLT CHENNAI DATED`| ||`6/9/2018.`| |`EXHIBIT P8`|`TRUE COPY OF ORDER OF NATIONAL COMPANY LAW`| ||`APPELLATE TRIBUNAL NEW DELHI (NCLAT) IN`| ||`COMPANY NO.377/2018 DATED 10/12/2018.`| |`EXHIBIT P9`|`TRUE COPY OF ORDER DATED 28/1/2019 IN CIVIL`| ||`APPEAL NO.869/2019 OF THE HON'BLE SUPREME`| ||`COURT OF INDIA.`| |`EXHIBIT P10`|`TRUE COPY OF ORDER DATED 29/3/2019 IN CIVIL`| ||`APPEAL NO.869/2019 OF THE HON'BLE SUPREME`| ||`COURT OF INDIA.`| |`EXHIBIT P11`|`TRUE COPY OF COMPLAINT DATED 9/3/2019 FILED`| ||`BY RESPONDENTS 3 AND 4 BEFORE THE DISTRICT`| ||`POLICE CHIEF, KOTTAYAM.`| |`EXHIBIT P12`|`TRUE COPY OF FIR IN CRIME NO.411/2019 OF`| ||`CRIME BRANCH POLICE STATION DATED`| ||`20/7/2019.`| |`EXHIBIT P13`|`TRUE COPY OF SEIZURE MEMO (INVENTORY OF`| ||`ITEMS) SEIZED IN THE SEARCH CONDUCTED ON`| ||`26/10/2021 & 27/10/2021 FROM THE PREMISES`| ||`OF THE 1ST PETITIONER.`| |`EXHIBIT P14`|`TRUE COPY OF SEIZURE MEMO (INVENTORY OF`| ||`ITEMS) SEIZED IN THE SEARCH CONDUCTED ON`| ||`26/10/2021 & 27/10/2021 FROM THE PREMISES`| ||`OF THE 2ND PETITIONER.`| |`EXHIBIT P15`|`TRUE`<br>`COPY`<br>`OF`<br>`SUMMONS`| ||`NO.PMLA/SUMMON/KCZO/2021/14`<br>`DATED`| WP(CRL) No.16 of 2022 37 ||`23/11/2021 ISSUED TO THE 3RD PETITIONER.`| |---|---| |`EXHIBIT P16`|`TRUE`<br>`COPY`<br>`OF`<br>`SUMMONS`| ||`F.NO.ECIR/KCZO/28/2020/PKA DATED 27/10/2021`| ||`ISSUED TO THE 4TH PETITIONER.`| |`EXHIBIT P17`|`TRUE COPY OF THE COMMON ORDER IN`| ||`CRL.M.C.NO.6289/2019 DATED 2/12/2021 OF`| ||`THIS HON'BLE COURT.`| |`EXHIBIT P18`|`TRUE COPY OF FINAL REPORT DATED 29/11/2021`| ||`IN CRIME NO.411/2019 OF CRIME BRANCH POLICE`| ||`STATION.`| |`EXHIBIT P19`|`TRUE COPY OF CERTIFICATE DATED 28/10/2021`| ||`OF SOUTH INDIAN BANK.`| |`EXHIBIT P20`|`TRUE COPY OF SHOW CAUSE NOTICE OA 593/2021`| ||`DATED 10/12/2021 ISSUED BY THE 1ST`| ||`RESPONDENT TO 1ST PETITIONER.`| |`EXHIBIT P21`|`TRUE COPY OF SHOW CAUSE NOTICE OA 593/2021`| ||`DATED 10/12/2021 ISSUED BY THE 1ST`| ||`RESPONDENT ISSUED TO THE 2ND PETITIONER.`| |`EXHIBIT P22`|`TRUE COPY OF STATEMENT OF ACCOUNTS OF 1ST`| ||`PETITIONER MAINTAINED WITH STATE BANK OF`| ||`INDIA,`<br>`COMMERCIAL`<br>`BRANCH,`| ||`THIRUVANANTHAPURAM.`| |`EXHIBIT P23`|`TRUE COPY OF STATEMENT OF ACCOUNTS OF 2ND`| ||`PETITIONER MAINTAINED WITH STATE BANK OF`| ||`INDIA,`<br>`COMMERCIAL`<br>`BRANCH,`| ||`THIRUVANANTHAPURAM.`| |`EXHIBIT P24`|`TRUE COPY OF THE STATEMENT OF ACCOUNTS OF`| ||`2ND PETITIONER COMPANY MAINTAINED WITH`| ||`SOUTH INDIA BANK LIMITED.`| |`EXHIBIT P25`|`TRUE COPY OF THE LETTER DATED 4/9/2013`| ||`ISSUED BY PRINCIPAL ARCHITECT OF RJB`| ||`ARCHITECTS PVT.LTD.`| |`EXHIBIT P26`|`TRUE COPY OF THE REPORT AND CERTIFICATION`| ||`OF STRUCTURAL REVIEW & STRENGTHENING`| ||`ACTIVITIES DATED 30/1/2014 ISSUED BY RJB`| ||`ARCHITECTS PVT.LTD.`| |`EXHIBIT P27`|`TRUE COPY OF ORDER OF NATIONAL COMPANY LAW`| ||`APPELLATE TRIBUNAL, CHENNAI BENCH IN`| ||`COMPANY APPEAL NO.49/2022 DATED 07.02.2022.`| |`EXHIBIT P28`|`TRUE COPY OF ORDER OF THE NATIONAL COMPANY`| ||`LAW APPELLATE TRIBUNAL, CHENNAI BENCH IN`| ||`COMPANY`<br>`APPEAL`<br>`NO.310/2021`<br>`DATED`| ||`27.01.2022.`| |`EXHIBIT P29`|`TRUE COPY OF THE NO DUE CERTIFICATE DATED`| ||`12.5.2022 ISSUED BY THE STATE BANK OF`| ||`INDIA.`| |`EXHIBIT P30`|`TRUE COPY OF THE COMMON ORDER OF NATIONAL`| ||`COMPANY LAW TRIBUNAL, KOCHI BENCH DATED`| ||`10.6.2022`<br>`IN`<br>`IBA/42/KOB/2020`<br>`&`| ||`IBA/45/KOB/2020.`| WP(CRL) No.16 of 2022 38 |`EXHIBIT P31`|`TRUE`<br>`COPY`<br>`OF`<br>`THE`<br>`SUMMONS`| |---|---| ||`F.NO.ECIR/KCZO/28/2020 ISSUED BY THE 2ND`| ||`RESPONDENT TO THE 3RD PETITIONER DATED`| ||`03..03..2023`| |`EXHIBIT P32`|`TRUE COPY OF THE REPLY DATED 11..03..2023`| ||`FILED BY THE 3RD PETITIONER BEFORE THE 2ND`| ||`RESPONDENT.`| |`EXHIBIT P33`|`TRUE COPY OF THE EMAIL DATED 13..03..2023`| ||`ISSUED BY THE 2ND RESPONDENT TO THE 3RD`| ||`PETITIONER`| |`EXHIBIT P34`|`TRUE`<br>`COPY`<br>`OF`<br>`THE`<br>`SUMMONS`| ||`F.NO.ECIR/KCZO/28/2020 ISSUED BY THE 2ND`| ||`RESPONDENT TO THE 4TH PETITIONER DATED`| ||`14..03..2023`| |`EXHIBIT P35`|`TRUE COPY OF THE SHARE PURCHASE AGREEMENT`| ||`DATED 07..08..2023 ENTERED INTO BETWEEN THE`| ||`PARTIES.`| |`EXHIBIT P36`|`TRUE COPY OF THE AFFIDAVIT SWORN BY`| ||`RESPONDENTS 3 & 4 DATED 07..08.2023 AND`| ||`FILED BEFORE THE JUDICIAL FIRST CLASS`| ||`MAGISTRATE COURT-III, KOTTAYAM IN CRIME`| ||`NO.CBPS 411/2019`| |`EXHIBIT P37`|`TRUE COPY OF THE ORDER OF THE JUDICIAL`| ||`FIRST CLASS MAGISTRATE COURT-III, KOTTAYAM`| ||`DATED 07..09..2023 IN CRIME NO.411/2019 OF`| ||`CBCID, KOTTAYAM`| |`EXHIBIT P38`|`TRUE COPY OF THE ORDER SHEET IN CMP`| ||`NO.4661/2023 IN CRIME NO.411/2019 OF CBCID,`| ||`KOTTAYAM ON THE FILE OF THE JUDICIAL FIRST`| ||`CLASS MAGISTRATE COURT-III, KOTTAYAM`| |`EXHIBIT P39`|`TRUE COPY OF THE PROTEST COMPLAINT DATED`| ||`07..09..2023 FILED BY THE 3RD RESPONDENT`| ||`BEFORE THE JUDICIAL FIRST CLASS MAGISTRATE`| ||`COURT-III, KOTTAYAM`|