Case BriefsHigh Courts

Orissa High Court: S.K. Panigrahi, J., while addressing a matter with regard to money laundering by way of ponzi schemes, stated that,

“Act of money laundering is done in an exotic fashion encompassing a series of actions by the proverbial renting of credibility from the innocent investors.”

Petitioner has sought bail in a complaint case pending before Sessions Judge, Special Court under PMLA.


Case under Sections 406, 420, 468, 471 and 34 of Penal Code and Sections 4, 5 and 6 of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was registered on the basis of a complaint alleging that the complainant had been cheated and defrauded by alluring to invest Rs 10,000 in the attractive investment scheme of Fine Indiasales (P) Ltd.

Complainant further submitted that he had introduced 20 more people to invest in the said scheme.

Complainant neither received the financial product nor the product voucher as per the agreement with FIPL.

FIPL collected huge amounts of money from the public and ultimately duped huge amount from innocent public by giving false assurance of high return for their deposit of money.

In view of the above, complainant requested for an investigation.

FIPL floated a fraudulent scheme

According to the investigation it was found that, FIPL had floated a fraudulent scheme with a terminal ulterior motive to siphon off the funds collected from public.

Ponzi Scheme

The advertised scheme of FIPL, ex-facie appeared to be a bodacious Ponzi scheme, inducing the susceptible depositors by way of misrepresentation, promising immediate refund in case of any default and timely payment of return on the part of FIPL.

Investigation prima facie established that the accused persons connected with  FIPL not only criminally conspired and cheated the depositors but also lured them into the scheme with a rogue mindset.

Machiavellian Layering | Shell Companies

Investigation revealed that the said money, stained with the sweat, tears and blood of multitudes of innocent people has since been moved around and subjected to Machiavellian layering through a myriad of shell companies and bogus transactions.

The collected amount was immediately transferred to different bank accounts of individuals as well as firms under the management and control of the Promotors/Directors/Shareholders of the said FIPL which is nothing but an act of sheltering.

Money Laundering

Modus Operandi adopted while transferring the prodigious sum of ill-gotten wealth with the singular intention of concealing the original source of funds and to project the tainted money as untainted ex facie constitute the offence of money laundering.

Court’s Observation

On the cursory look, Court prima facie observed that dishonesty, untruth and greed eroded the faith of common investors.

One of the significant stages of money laundering is “layering”, and in the present case, multiple use of corporate vehicles was done and the amount was layered further.

The act money laundering involves the process of placement, layering and integration of “proceeds of crime” as envisaged under Section 2 (u) of the Act, derived from criminal activity into mainstream fiscal markets and transmuted into legitimate assets.

“…laundering of tainted money having its origins in large scale economic crimes pose a solemn threat not only to the economic stability of nations but also to their integrity and sovereignty.”

Proceeds of Crime

Petitioner along with others attempted to project the “proceeds of crime” as untainted money by transferring the same to different bank accounts in a bid to camouflage it and project it to be genuine transactions.

Financial Terrorism

Bench added to its analysis that, offence of money laundering is nothing but an act of “financial terrorism” that poses a serious threat not only to the financial system of the country but also to the integrity and sovereignty of a nation.

Supreme Court’s opinion

Supreme Court of India has consistently held that economic offences are sui generis in nature as they stifle the delicate economic fabric of a society.

Faustain bargain

Perpetrators of such deviant “schemes,” including the petitioner in the present case, who promise utopia to their unsuspecting investors seem to have entered in a proverbial “Faustian bargain” and are grossly unmindful of untold miseries of the faceless multitudes who are left high and dry and consigned to the flames of suffering.

Reputational Damage of the Country

Abuse of financial system in the manner that occurred in the present case can inflict the reputation of the country in the world of business and commerce.

Alleged offence of money laundering committed by the petitioner is serious in nature and the petitioner’s role is not unblemished.

Hence, Court refused bail to the accused/petitioner. [Mohammad Arif v. Directorate of Enforcement, Govt. of India, 2020 SCC OnLine Ori 544 , decided on 13-07-2020]

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Case BriefsCOVID 19High Courts

Gujarat High Court: Paresh Upadhyay, J., while addressing a matter with regard to granting bail to the migrant workers who were locked in jails, stated that,

“instead of sending these labourers back to their hometown when they wished to go back due to no money, work and food, they were locked in jails.”

“These migrants are more the victims certainly not criminals.”

Present application was filed for regular bail. He was punishable for the offences under Sections 143, 144, 147, 148, 149, 186, 332, 333, 336, 337, 427 and 188 of Penal Code, 1860 and Section 135(1) of the Gujarat Police Act, Section 3 of Epidemic Act, 1897, Section 51(b) of the Disaster Management Act and Section 3(1) and 3(2)(e) of the Prevention of Damage to Public Property Act.

Advocates on behalf of the applicants submitted that  of the total 33 applicants, 32 are from the State of Jharkhand and one is from the State of West Bengal.

The stated applicants were migrant workers and in the new lockdown they were all without any work, money and food, thus under the said circumstances they wished to go back to their home which led to an untoward incident.

Since 18-05-2020, applicants are in jail.

“…fit case to exercise the discretion to release the applicants on bail, in exercise of powers under Section 439 of the Code of Criminal Procedure, 1973.”

-High Court

Court noted that instead of sending the above-stated labourers back to their home towns when they were out of money, food and work, they were locked up in the jails.

In view of the above, bench said that,

Applicants are more the victims, certainly not the criminals. Thus, the said applicants immediately needs to be set free on furnishing person bond without any conditions.

Thus, the application has been allowed. [Ravi v. State of Gujarat, 2020 SCC OnLine Guj 930, decided on 23-06-2020]

Case BriefsHigh Courts

Gauhati High Court: A Division Bench of Ajai Lamba, CJ and Soumitra Saikia, J., asked Prashant Dhanda, IFS holding the post of Managing Director, Guwahati Smart City Limited, Kamrup to file a point wise response in the from of an affidavit on the following points:

  1. When grant for making Guwahati a Smart City was received, and how much?
  2. How much money is available as on date with Guwahati Smart City Limited?
  3. How much ground work has been done in Guwahati to set up Master System Integrated Project?
  4. Under the Financial Regulations, which is the quickest transparent mode of inviting service provider for making Guwahati a Smart City?
  5. We have also asked Mr Dhanda to give us inputs as to which cities in the country have been converted into Smart Cities and how are they graded in quality? Who are the service providers for these projects?

Court gave liberty to Mr Dhanda with regard to directly interacting with service providers for cities graded as as smartest in the country and enquire about the mode through which the task was given to them.

Bench was pained,

On observing that Rs 400 Crores was made available to Guwahati Smart City Limited, however, since 2017/2018, no effective work has been done.

Thus Court took judicial notice of the fact that while money is lying unused, city has not been provided with the facilities required under Smart City Projects.

“…value of money has been reduced and, therefore, the public exchequer has been put at a loss.”

Court directed Mr Dhanda to furnish the resolutions passed by Guwahati Smart City Limited.

Court has further been informed that an exercise/survey is being carried by Guwahati Municipal Corporation for de-congesting the crowded market areas.

On the above being completed, report be placed before the Court.

Guwahati Development Department is directed to apprise the Court as to whether all the roads that could possibly be widened have been widened. In case, on account of land constraints roads cannot be widened, whether a plan to provide flyovers has been conceived or not.

Fire Brigade Department and Assam Disaster Management Department are also required to be involved in this exercise, because at a number of places within the city of Guwahati, fire brigades cannot reach.

In case of a mishap, if fire brigade is unable to approach, there can be number of fatality. In such circumstances, such areas be identified by Fire Brigade Department and Assam Disaster Management Department and the Court be apprised.

Matter to be listed on 4th June, 2020. [Rita Das Mozumdar v. State of Assam, 2020 SCC OnLine Gau 2001 , decided on 29-05-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): Coram of Justice Tarun Agarwala (Presiding Officer), Justice M.T. Joshi (Judicial Member), and Dr C.K.G. Nair (Member), dismissed the appeal filed by the appellant and affirmed the order passed by the Whole Time Member (‘WTM’) of SEBI.

WTM had passed an order against the appellants under Section 11 and 11B of SEBI Act directing them to refund the money collected by the Company during their respective period of directorship through the issuance of Non-Convertible Debentures (‘NCDs’) including the application money collected from investors along with interest at the rate of 15% p.a. The appellants were appointed as directors from 2009 to 2013. During the financial years 2010-11, 2011-12, 2012-13, the Company made an offer of NCDs and raised an amount of Rs. 9.06 crores from 4,518 allottees. Since there was a violation of the SEBI Act, Companies Act, and Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 (ILDS Regulations), SEBI passed an order of debarment and refund to investors against the Company and its directors/promoters. The appellants were directors of the company during the time when the NCDs were issued. Accordingly, an interim order was passed against the appellants and a show-cause notice was issued to show cause as to why suitable direction under Section 11 and 11B read with Section 73(2) of the Companies Act should not be passed against them. After giving an opportunity of hearing, the WTM found the appellants were involved in the issuance of the offer of NCDs during the time when they were directors which was in violation of the Companies Act and ILDS Regulations. Accordingly, the WTM issued directions for a refund of the money along with interest, etc.

The appellants contended that the said order was erroneous since there was no finding that the appellants were “officers in default” and consequently, the mandate provided under Section 73(2) of the Companies Act cannot be invoked. In support of this submission, the appellants have placed reliance upon Pritha Bag v. SEBI, 2019 SCC OnLine SAT 110.

The Tribunal held that the decision of the Tribunal in Pritha Bag case was not applicable to the facts and circumstances of the present case. The WTM came to the conclusion that the appellants were “officers in default” by relying on the definition as under Section 5(g) of the Companies Act. No evidence was filed to show that any of the officers set out in clauses (a) to (c) of Section 5 of the Companies Act was entrusted to discharge the obligation contained in Section 73 of the Companies Act. In Pritha Bag case, there was no finding that the appellant in that appeal was an “officer in default” and, therefore, the Tribunal had held that the mandate provided under Section 73(2) of the Companies Act could not be invoked. The said decision was also distinguishable on the ground that there was a managing director in that company who was responsible for the affairs of the company. Moreover, on perusal of the impugned order, the appellants had admitted before the WTM that they were aware of the collection of the money from the investors by the company and further submitted that the appellants were willing to make a refund to the investors. In the light of such admission, the appellants could not escape the liability of refund of the amount along with interest as directed by the WTM. [Saikat Brahmachari v. SEBI, 2019 SCC OnLine SAT 200, decided on 14-11-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for Electricity (APTEL): A Division Bench of Manjula Chellur, J. (Member) and S.D. Dubey, (Technical Member) passed an order for implementation of the Tribunal’s order for the payment of the sum of money due with interest.

An application for the implementation of the order was made by the appellant when after a reasonable time the respondent didn’t pay any heed towards the order against them.

Aman Anand, Aman Dixit, counsels for the appellant submitted that the order was received for the payment after increasing the recovery of interim transfer of lignite to 85 percent in place of 70 percent. It was submitted by the appellant that no appeal was pending against the said order. Hence, this application.

R.K. Mehta, Himanshi Andley, P.N. Bhandari, counsels for the respondents, submitted that the matter related to the increase in the tariff was pending in the Commission and that the appellant had rushed to the tribunal prematurely in order to prejudice the pending decision of the Commission.

The Tribunal after submission by the parties held that although the matter is pending in the Commission the payment due is for the previous year and thus the same is to be made by the respondent as per the order of the Tribunal. It was further reiterated that, the said order was passed by this Tribunal at the premise of financial hardship to the generator which was being allowed considerably at less transfer price than they actually claimed. The Court concluded that, the maintenance of judicial discipline is a part of our judicial process. Thus, the order was made for the implementation of the order of the Tribunal in its true spirit.[Barmer Lignite Mining Co. Ltd. v. Rajasthan Electricity Regulatory Commission, 2019 SCC OnLine APTEL 27, decided on 17-05-2019]