10 Landmark FEMA & Banking Case Laws | 2022 | Expert Analysis and Explanations

Get the inside scoop on the top 10 rulings on FEMA, Banking and Securitisation Laws that everyone is talking about! Our team of experts at Taxmann has compiled a list of landmark rulings from 2022 that are trending among the stakeholders. From settled positions of law to practical insights for professionals, this is a must-read for anyone in the industry. Don’t miss out on the latest and greatest – the Gist of these cases is presented hereunder:

1. In a landmark judgement, the Supreme Court upheld the constitutional vires of amended Section 45 and other Sections of PMLA

Case Details: Vijay Madanlal Choudhary v. Union of India
Citation: [2022] 140 taxmann.com 610 (SC)

 Judiciary and Counsel Details

• A.M. Khanwilkar, Dinesh Maheshwari & C.T. Ravikumar, JJ
• Vikram Chaudhari, Sr. Adv., Nikhil Jain, AOR, Harshit Sethi, Sangram S. Saron, Rishi Sehgal, Keshavam Chaudhari, Prabhneer Swani, Arveen SekhonHemant Shah, Vinod Kumar Jain, Satya Prakash, Advs., Suryanarayana Singh, Sr. Adv., Ms Pragati Neekhra, AOR, Kapil Sibal, Sr. Adv., Mahesh Agarwal, Anshuman Srivastava, Prasouk Jawin, Ms Rabiya Thakur, Nishant Rao, Arshit Anand, Advs., E.C. Agrawala, AOR, Kapil Sibbal, Dr Abhishek Manu Singhvi, Sr. Advs., Arijit Singh Khurana, Arshdeep Singh Khurana, Prateek K. Chadha, Ayush S., Adit S. Pujari, Amit Bhandari, Akshat Gupta, Ms Madhavi Agrawal, Vaibhav Niti, Ms Ambika Mathur, Shreedhar Kale, Raghav Tankha, Harsh Mittal, Advs., Mrs Shally Bhasin, AOR, Balaji Subramanian, Ms Ishani Banerjee, SCV Vimal Pani, Ms L Maheswari, Advs., A. Lakshminarayanan, Ramesh, Advs., Sidharth Luthra, Sr. Adv., Tarun Dua, AOR, Anant Garg, Asif Ahmad, Adityaa Raju, Advs., Mukul Rohatgi, Sr. Adv., Suhaan Mukerji, Shri Singh, Aditya Dewan, Vishal Prasad, Ms Chitralekha Das, Nikhil Parikshith, Sanjivani Pattjoshi, Bharat Monga, Pankaj Singhal, Dewang Singh Chauhan, Abhishek Manchanda, Kushagra Raghuvanshi, Chirag Madan, Ms Shubhangini Jain, Ayush Kaush, Hardik Rupal, Angaj Gautam, Yash Giri, Aaditya Raju, Sayandeep Pahari, Ms Padma Venkataraman, Advs., Vivek Reddy, Sr. Adv., Pratik Reddy, Victor Das, Ms Anwesha Padhi, Mohit Rai, Advs., Vikram Chaudhri, Sr. Adv., Atul Agarwal, Sourabh Kumar Mishra, Advs., Kumar Dushyant Singh, AOR, Vikram Chaudhry, Sr. Adv., Amit K. Nain, AOR, Ms Ria Khanna, Devanshu Yadav, Kapil Dahiya, Advs., Raktim Gogoi, Varun Shekhar, Kartikeya Singh, Samarth Shandilya, Advs., Gautam Awasthi, AOR., Ms Anzu K. Varkey, AOR, Avadh Bihari Kaushik, AOR, Anand Dilip Dagga, Adv., Tushar Mehta, SG, Suryaprakash V. Raju, ASG, Aman Lekhi, ASG, K.M. Nataraj, ASG, Kanu Agrawal, Rajat Nair, Sairica Raju, Ms Sharadha Deshmukh, Neela Kedar Gokhale, Ritwiz Rishabh, Sharath Nambiyar, Advs., A.K. Sharma, AOR, Zoheb Hussain, Ms Shraddha Deshmukh, Ms Nisha Bagchi, Binu Tamta, Advs., Arvind Kumar Sharma, AOR, Deepanshu Dutta, Sughosh Subramanyajm, Advs., Sharath Nambiar, Adv., Mukesh Kumar Maroria, AOR, Pranay Ranjan, Adv., Raj Bahadur Yadav, AOR, S.V. Raju, ASG, Anshuman Singh, Ankit Bhatia, Arpit Goel, Advs., G.S. Makker, M.K. Maroria, AOR’s, Ms Annam Venkatesh, Rajat N., Harsh Paul Singh, Vivek Gurnani, Shoaib Alvi, Om Prakash Shukla, Sanjay Kumar Tyagi, Advs., Ms Deepabali Dutta, Anvit Bhatia, Advs., S.V. Raju, Sr. ASG, Kanu Agarwal, Zoheb Hossain, Advs., S.V. Raju, Sr. ASG, Ms Aastha Mehta, Adv., Ms Deepanwita Priyanka, AOR, Ms Aishwarya Bhati, ASG, Ms Archana Pathak Dave, Adv., Ms Swarupama Chaturvedi, Adv., B.V. Balaram Das, AOR, G.S. Makker, AOR, A. Mariarputham, Sr. Adv., Avneesh Arputham, Ms Anuradha Arputham, Praveen Kr. Singh, Advs., Vijay Mandal C., Vinayak Sharma, Vats Joshi, Ms Indira B., Anuj Udupa, Advs., Syed Abdul Haseeb, Digvijay Dam, Adit Khorana, Mayank Pandey, Deepbali Datta, Advs., Jayant Kr. Sud, ASG, M.K. Maroria, AOR, Rajan Kr. Chourasia, Ms Deepabali Duttai, Om Prakash Taygi, Advs., B. Vinodh Kanna, AOR, Vansaja Shukla, Adv., Gurmeet Singh Makker, AOR, B.K. Satija, AAG, Sanjay K., Adv., Samar Vijay Singh, AAG, Ms Ruchi Kohli, AAG, Ms Dr Monika Gusain, AOR, Maninder Singh, Sr. Adv., Varun Shankar, Adv., Lakshman RS, Adv., Atharva Koppal, Adv., Divyanshu Jain, Adv., Arnav Narain, AOR, S.B. Upadhyay, Sr. Adv., Pawan R. Upadhyay, Adv., Sharmila Upadhyay, Adv., Ms Anisha Upadhyay, Adv., Sarvjit Pratap Singh, Adv., Gaurav Prakash Pathak, Adv., Nishant Kumar, Adv., S. Niranjan Reddy, Sr. Adv., Raghenth Basant, Yogesh Raavi, Anirudh Reddy, Advs., Ms Liz Mathew, AOR, Ms Roopali Lakhotia, Adv., Siddharth Aggarwal, Sr. Adv., Shishir Mathur, Adv., Shohit Chaudhry, AOR, Vikramjit Banerjee, ASG, Mukul Singh, Adv., D.L. Chidnanad, Adv., Amit Sharma, Adv., Ms Rukhimini Bobde, Adv., A.K. Sharma, AOR, Pramod K. Dubey, Sr. Adv., Vivek Jain, AOR, Ms Suchitra Kumbhat, Adv., Prithveesh MK, Adv., Gurpreet S. Parwanda, Adv., Nishanth Patil, AOR, Ms Malvika Kala, Adv., Adarsh Aggarwal, Adv., Ajay Aggarwal, Adv., Rajan Narain, AOR, SV Raju, ASG, Ms Deepabali Datta, Adv., Ms Sairica S. Raju, Adv., Amit K. Desai, Sr. Adv., S. Hari Haran, Adv., Naveen Malhotra, Adv., S. Mahesh Sahasranaman, Adv., Gopalkrishna Shenoy, Adv., Ms Jaikriti S. Jadeja, AOR, Ms Prapti Allagh, Varun K. Chopra, Advs., Dr Menaka Guruswamy, Sr. Adv., Prateek K Chadha, AOR, Ms Ayushi Rajput, Ms Radhika Dhanotia, Yash S. Vijay, Shaffi Mather, Advs., Aabad Ponda, Sr. Adv., Parmatma Singh, AOR, Ms Neha Sharma, AOR, Hitesh Kumar Sharma, S.K. Rajora, Akhileshwar Jha, E. Vinay Kumar, Advs., Dr Drs. Vipin Gupta, Parmatma Singh, AORs., Sourabh Kapoor, Adv., Neeraj Kumar Sharma, AOR, Subhash Jadhav, Chandan Singh Shekhawat, Pranav Sarthi, Ms Natabrata Bhattacharya, Advs., Ms Awantika Manohar, Ms Natasha Vinayak, AOR’s, Ms  Jaikriti S. Jadeja, AOR, Ms Prapti Allagh, Adv., Rakesh Dwivedi, Sr. Adv., Rajiv Shankar Dvivedi, AOR, Rishabh Jain, Sushant Kr. Sarkar, Ms Arti Dvivedi, Ms Jyoti Kumar Singh, Advs., Saurabh Mishra, Adv., Sunil Fernandes , AOR, Swaroop Anand, Ms Nupur Kumar, Divyansh Tiwari, Nagendra R. Naik, Advs., Pai Amit, AOR, Ms Pankhuri Bhardwaj, Saurabh Agrawal, Ms Komal Mudhra, Abhiyudaya Vats, Ms Bhavana Duhoon, Advs., Ms Christi Jain, AOR, Mahesh Jethmalani, Sr. Adv., Hitesh Jain, Subhash Jadhav, Ms Gunjan Mangla, Chadan Singh Shekhawat, Nikhil Ahuja, Pranav Sarthi, Tawanji Shukla, Advs., Ms Malvika Kapila, AOR, Ms Anjali Jha, AOR, Ms Anjali Jha Manish, AOR, Priyadarshi Manish, Ms Divyanshee Singh, Shivam Sharma, Advs., Raj Kishor Choudhary, AOR, Varun Raghavan, Shakeel Ahmed, Ms Malvika Raghavan, Advs., Satish Pandey, AOR, Akbar Ali, Prabhoo Dayal Tiwari, Salim Ansari, Rajesh Pandey, Advs., Vikas Gupta, Advs., S.K. Verma, AOR, Vishal Shrivastava, Narender Hooda, Shaurya Lamba, Ms Pallavi Hooda, Ashutosh Kumar, Ms Seema Sindhu, Ms Aalia Siddiqui, Advs., Surender Singh Hooda, Ms Preeti Singh, AOR’s., Dr G.K. Sarkar, Malbika Sarkar, Advs., Prashant Srivatav, Adv., Ayush Choudhary, Adv., Sameer Pandey, Adv., Omar Ahmed, Adv., Malak Manish Bhatt, AOR, Ms Neeha Nagpal, Vishendra Tomar, Aditya Gupta, Jaspal Singh, Advs., Vijay Aggarwal, Mudit Jain, Yugant Sharma, Advs., Ms Astha Sharma, AOR, Ms Mantika Haryani, Adv., Ajit Sharma, AOR, Prithvees MK, Adv., Nishanth Patil, AOR, Ms Shubhika Saluja, Ms Malvika Kala, Advs., Vivek Jain, AOR, Zulfiquar Memom, Mrinal Bharti, Parvez Memom, Chirag Naik, Ms Vaijayanti Sharma, Nirvikar Singh, Manish Shekhari, Palash Bhatkoti, Ms Vaijayanti Sharma, Nitin Sharma, Advs., Karan Bharihoke, Kunal Verma, E.M.S. Anam, AOR’s, Vishnu Shanker, Ms Ranjana Roy Gawai, Ms Vasudha Sen, Ujjawal Jain, Adv., Ms Divya Roy, Sunil Kumar Jain, Fuzail Ahmad Ayyubi, Irshad Ahmad, Shailesh Madiyal, AOR’s, Sudhanshu Prakash, Vaibhav Sabhrawal, Ms Rakhi M., Rajan Parmar, Vinayaka S. Pandit, Ms Neha Jain, Advs., Sruthi Iyer, Adv., Fuzail Ahmad Ayyubi, AOR, Ms Kanishka Prasad, Abbula Kalam, Ibad Mushtaq, Ms Akanksha Rai, Advs., Pawan Upadhyay, S.S. Sastry, Rajender Vats, Vipul Srivastava, Advs., Bharadwaj S., AOR, Guru Prasanna S., Adv., Ranjit Kumar Sharma, AOR, Mrs Priya Puri, AOR, Arshdeep, Sharad Puri, Ranjay Dubey, Yati Sharma, Advs., G. Sivabalamurugan, AOR, Aljo K. Joseph, AOR, Ranjan Kumar, Mrs Shelna K., Advs., Nikilesh Ramachandran, AOR, Manish Pratap Singh, Ms Mahima Bhardwaj, Advs., Vivek Narayan Sharma, AOR, Tushar Kumar, Rajeev Kumar Jha, Pranshu Kaushal, Shubham Awasthi, Ajay Singh, Abhinav Raghav, Braj K. Mishara, Vijay Kumar, Arun Raghavender, Adv., Ms Bharti Tyagi, AOR, Shantanu M. Adkar, R. Lakshmishankar, S. Udaya Kumar Sagar, Ms Bina Madhavan, Sanjay Indukuri, R. Narayan Kumar, Advs., Shanker, Ms Akanksha Mehra, Narayan Verma, Ms Rao Vishwaja, Advs., Akshay Nagarajan, Advs., Rishi Malhotra, AOR, Ms Sonia Dube, Shatadru Chakraborty, Ms Kanchan Yadav, Surbhi Anand, Advs., Tanveer Ahmed Mir, Adv., Arjun Singh Bhati, AOR, Dhruv Gupta, Vaibhav Suri, Prabhav Ralli, Ms Urja Pandey, Advs., Amit Gupta, Akhilesh Dubey, Dharmesh Joshi, Uttam Dubey, Hari Sankar Mahaptra, Bhavini Sribastava, Advs., Neeraj Kumar Sharma, AOR, Gursharan S. Virk, Nakul Mohta, Advs., Ms Misha Rohatgi, AOR, Devansh Shrivastava, Johnson Subba, Bharat Moga, Advs., Deepak Prakash, AOR, Abhishek A. Rastogi, Pratushpava Saha, Mahir Chablani, Rohit Ghosh, Ms Kanika Sharma, Advs., M.T. George, AOR, Ms Susy, Johns George, Ms Rashi Bansal, AOR, Shekhar G Devasa, Manish Tiwari, Shashi Bhushan Nagar, Prashanth R. Dixit, Ms Thashmitha K.M., Ramesh Jadhav, Ms Satvisa Pattanayak, Advs., Namit Saxena, AOR, Awnish Maithani, Ms Arushi Dhawan, M.K. Subramanian, Advs., Ritesh Patil, Adv., Shamik Shirishbhai Sanjanwala, AOR, Ms Diksha Rai, AOR, Ankit Agarwal, Prateek Bhardwaj, Advs., Mahfooz Ahsan Nazki, AOR, Polanki Gowtham, Shaik Mohamad Haneef, T. Vijaya Bhaskar Reddy, K.V. Girish Chowdary, Ms Rajeswari Mukherjee, Devendra Kumar Singh, Advs., Karunakar Mahalik, AOR, B. Paramesh, Roopam Rai, Shyam Sundar Rai, Manoranjan Mishra, Ms Gouranga Biswal, Advs., Mrs Anil Katiyar, AOR, Syed Ahmed Saud, Daanish Ahmad Syed, Mohd. Parvez Dabas, Uzmi Jameel Husain, Aqib Baig, Advs., Mohd. Shahib, Sunil Saraogi, Sarabjot Singh, Advs., Dr Sujay Kantawala, Azmat Hayat Amanullah, AOR, Nishant Awana, Sagar Chauhan, Ms Nitya Sharma, Gaurav T. Shahi, Devansh Malhotra, Sujit Sahoo, Aditya Talpade, Divyesh Pratap Singh, Advs., Ms Srishti Singh, Gautam Talukdar, AOR’s, A.P. Singh, Shreyansh Rathi, Advs., Sarvesh Singh Baghel, AOR, Mukhtar Alam, Ms Natasha, Advs., B. Krishna Prasad, AOR, M B R S Raju, Adv., Balaji Srinivasan, AOR, Mrs Lakshmi Rao, Prateek Yadav, Ms Garima Jain, Ms Aakriti Priya, Shiva Krishnamuriti, Advs., V. Shyamohan, Ms Jaspreet Gogia, AOR’s, Mandakini Singh, Ms Ashima Mandla, Ms Mandakini Singh, Karanvir Gogia, Ms Shivangi Singhal, Ms Ashima Mandla, Advs., O.P. Gaggar, AOR, Ashoka Kumar Thakur, Imran Khan, Advs., Anil K. Chopra, AOR, Shreeyash U. Lalit, Mahesh Kumar, Vishal Sharma, Ms Devika Khanna, Advs., Mrs V.D. Khanna, Aniruddha P. Mayee, AOR, Chirag M. Shroff, AOR’s, Amandeep Mehta, Gaurav Malhotra, Advs., Samir Ali Khan, AOR, Rahul Chitnis, Adv., Sachin Patil, AOR, Aaditya A. Pande, Geo Joseph, Ms Shwetal Shepal, Advs., V.N. Raghupathy, Nishe Rajen Shonker, AOR’s, Anu K. Joy, Adv., Alim Anvar, Aakash Kakade, Advs., Somanatha Padhan, AOR, Swetab Kumar, Sukhada Kakade, Advs., Vishal Mahajan, AAG, Anil Kumar, Suraj Kumar, Advs. Dinesh Kumar Sabharwal, Sameer Bhatnagar, Advs. Syed Mehdi Imam, AOR V. Vasudevan, Adv. Aswathi M.K., AOR Birj Kant Mishra, Ms Maneesha Kongovi, R. Sudhinder, Ms Prerana Amitabh, Shivabhushan Hatti, Shashank Dixit, Advs. R. Gopalakrishan, V. Vasudev, Adv. Malak Manish Bhatt, AOR’s Gautam Khazanchi, Ms Neeha Nagpal, Anshuman Sinha, Vijay K. Pande, Advs. Ms Jaikriti S. Jadeja, AOR Pragya Sharma, Vinay Prakash, Amit, Maneesh Saxena, Vipin Kumar Saxena, Ms Kajal Rani, Advs. Ms Natasha Dalmia, Anand Varma, Parmatma Singh, AOR’s A. Selvin Raja, AOR Tanveer Ahmed Mir, Adv Arjun Singh Bhati, AOR Dhruv Gupta, Vaibhav Suri, Prabhav Ralli, Ms Urja Pandey, Abhimanyu Bhandari, Ms Kartika Sharma, Arav Pandit, Shreyansh Agrawal, Advs. Rooh-e-hina Dua, AOR, Rajive Bhalla, Rajiv Malhotra, Yajur Bhalla, Deepak Samota, Sumeir Ahuja, Advs., Shubham Bhalla, AOR, V. Purushothaman Reddy, Gurusharan S. Virk, Nakul Mohta, Advs. Ms Misha Rohatgi Mohta, AOR Devansh Shrivastava, Johnson Subba, Aakash Kakade, Adv’s, Somanath Padhan, AOR, Ashok Anand, Rakesh Kr. Singh, Swetab Kumar, Advs. Rajiv Shankar Dvivedi, AOR, Rakesh Dwivedi, Sr. Adv., Rishabh Jain, Sushant Kr. Sarkar, Jyoti Kumar Singh, Ms Arti Dvivedi, Saurabh Mishra, Adv’s, Sachin Jolly, Akshay Anand, Adv’s, S. Hariharan, Adv., Ms Jaikriti S. Jadeja, AOR, Vikas Singh, Sr. Adv., Vishal Gosain, Adv., Nagarkatti Kartik Uday, AOR, Ms Deepika Kalia, Ms Adya Rajkotia Luthra, Sandeep Sharma, Sunny Choudhary, Advs. E.C. Agrawala, Ms Jaikriti S. Jadeja, Raj Kamal, AOR’s Abhimanyu Bhandari, Ms Kartika Sharma, Arav Pandit, Ms Ananya Skri, Akarsh Sharma, Shreyansh Agrawal, Adv’s M.K. Maroria, AOR, Wills Mathews, Mathen Joseph, Devendra Kumar Tiwari, Paul John Edison, Rakesh Garg, Ashish Gopal Garg, Adv’s, Ms Shweta Garg, Anshuman Srivastava, AOR’s, Navanjay Mahapatra, Adv., S.V. Raju, ASG, S.A. Haseeb, Adv., N. Hariharan, Sr. Adv., Ankur Chawla, Naveen Malhotra, S. Mahesh Sahasranaman, Gopalkrishna Shenoy, Advs., V.K. Biju, AOR Ria Sachthey, Chetanya Singh, Amlendu Kumar Akhilesh Kumar Jha, Abhay Pratap Singh, Shaji George, Vijay Laxmi, Advs., T.G. Narayanan Nair, Ms Shweta Garg, G. Prakash, AOR’s, Sanjay Jain, ASG D. Kumanan, Narender Kumar Verma, Pranav Sachdeva, K. Paari Vendhan & Ms Uma Devi. M, AOR’s for the Appearing Parties.

Expression ‘investigation’ in clause (na) of section 2(1) of PML Act does not limit itself to matter of investigation concerning offence under Act and is interchangeable with function of ‘inquiry’ to be undertaken by Authorities under PML Act

All properties recovered or attached by investigating agency in connection with criminal activity relating to a scheduled offence under general law cannot be regarded as proceeds of crime; it is only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence can be regarded as proceeds of crime

Expression ‘and’ occurring in section 3 of PML Act has to be construed as ‘or’, to give full play to said provision so as to include ‘every’ process or activity indulged into by anyone; projecting or claiming property as untainted property would constitute an offence of money-laundering on its own, being an independent process or activity

Provision in form of section 5 provides for a balancing arrangement to secure interest of person as well as to ensure that proceeds of crime remain available for being dealt with in manner provided by PML Act

Direction under section 8(4) of PML Act for taking possession of property in question before a formal order of confiscation is passed merely on basis of confirmation of provisional attachment order, should be an exception and not a rule

There are stringent safeguards provided under section 17 of PML Act and Rules framed regarding process of searches and seizures concerning offence of money-laundering and for prevention of money-laundering including attachment of proceeds of crime and, therefore, challenge to deletion of proviso to sub-section (1) of section 17 stands rejected

Even under section 18 of PML Act, Authority authorised to exercise power of search of person is obliged to adhere to identical inbuilt safeguards as in case of exercise of power under section 17 and, therefore, challenge to deletion of proviso to sub-section (1) of section 18 also stands rejected

Safeguards provided in PML Act and preconditions to be fulfilled by Authorised Officer before effecting arrest, as contained in section 19 of PML Act, are equally stringent and of higher standard, those safeguards ensure that Authorised Officers do not act arbitrarily, but make them accountable for their judgment about necessity to arrest any person as being involved in commission of offence of money-laundering even before filing of complaint before Special Court under section 44(1)(b) in that regard and, therefore, section 19 is valid

Section 24 has reasonable nexus with purposes and objects sought to be achieved by PML Act and cannot be regarded as manifestly arbitrary or unconstitutional

Proviso to section 144(1) of PML Act is to be regarded as directory in nature and this provision is also read down to mean that Special Court may exercise judicial discretion on case-to-case basis and same is not arbitrary or unconstitutional

Reasons which weighed with Supreme Court in Nikesh Tarachand Shah v. Union of India [2017] 87 taxmann.com 257/145 SCL 96 for declaring twin conditions in section 45(1) of PML Act, as it stood at relevant time, as unconstitutional in no way obliterated provision from statute book and, therefore, it was open to Parliament to cure defect noted by Supreme Court so as to revive same provision in existing form

Process envisaged by section 50 of PML Act is in nature of an inquiry against proceeds of crime and is not ‘investigation’ in strict sense of term for initiating prosecution and Authorities under PML Act (referred to in section 48), are not police officers as such

Section 63 of PML Act providing for punishment regarding false information or failure to give information does not suffer from any vice of arbitrariness

Inclusion or exclusion of any particular offence in Schedule to PML Act is a matter of legislative policy; nature or class of any predicate offence has no bearing on validity of Schedule or any prescription thereunder

ECIR is an internal document of ED and fact that FIR in respect of scheduled offence has not been recorded does not come in way of Authorities referred to in section 48 of PML Act to commence inquiry/investigation for initiating civil action of provisional attachment of property being proceeds of crime

Corrective measures are to be taken as regards serious grievance made about vacancies in Appellate Tribunal despite serious prejudice being caused on account of provisional attachment order and in some cases, taking over possession of property so attached

Facts of the Case

The petitioners had challenged the validity and interpretation of certain provisions of the Prevention of Money Laundering Act, 2002 and the procedure followed by the Enforcement Directorate while investigating offences under the PMLA.

One of those challenges was also presented earlier before the Supreme Court in the matter of “Nikesh Tarachand Shah v. Union of India”, whereby the petitioners had challenged the constitutional validity of Section 45(1) of the Prevention of Money Laundering Act, 2002 to the extent that it imposed two additional conditions for granting bail to a person accused of a crime under Part A of Schedule of PMLA.

Questions Raised Before the Court

(a) Whether the 2018 amendment to the bail conditions under the PMLA constitutional?

(b) Does the Nikesh Tarachand Shah v. Union of India judgement lay down the correct proposition of law on bail conditions?

(c) Whether Section 8 provisions concerning the possession of the property under PMLA violate the right to property under Article 300A?

Section 45(1) before and after the 2018 amendment was as follows:

Supreme Court Held

The two conditions under Section 45(1) were – (a) the Prosecutor is given an opportunity to oppose the bail application, and (b) there are reasonable grounds for believing that the accused is not guilty of such offence and he is not likely to commit any offence while on bail.

Prior to the 2018 amendment, Section 45(1) only covered those offences which were punishable for a term of imprisonment of more than three years under Part A of the Schedule to PMLA. The Supreme Court declared such conditions to be unconstitutional, being violative of Articles 14 and 21 of the Constitution, as the conditions were restricted only to a particular class of offences and not to all offences under the Act.

However, post amendment, Section 45(1) talks about ‘offence under this Act’ without specifying any particular offence.

Section 45 of the Act takes away the presumption of innocence usually afforded to the accused persons under Criminal law. To be granted bail, the accused must prove prima facie that they were not guilty and satisfy the Court that they will not commit any further offence. The petitioners argued that the amendment undermined the Judgement and re-established the original twin conditions. The provisions of Section 45 of PMLA impose stringent conditions of bail on a person accused of an offence under the Act.

The petitioners also challenged the validity of Section 8(4), which allows the Enforcement Directorate to take possession of the attached property at the stage of confirmation of provisional attachment made by the Adjudicating Authority. This deprivation of a person’s right to property is unconstitutional and violates Article 300A. Further, the period of attachment increased from 90 days to 365 days is also unreasonable.

Ruling

The reasons which weighed with this Court in Nikesh Tarachand Shah for declaring the twin conditions in Section 45(1) of the 2002 Act, as it stood at the relevant time, as unconstitutional in no way obliterated the provision from the statute book; and it was open to the Parliament to cure the defect noted by this Court to revive the same provision in the existing form.

The provision of Section 45 of the 2002 Act, as applicable post amendment of 2018, is reasonable, has direct nexus with the purposes and objects sought to be achieved by the 2002 Act and does not suffer from the vice of arbitrariness or unreasonableness.

The challenge to the validity of Section 8(4) of the 2002 Act is also rejected subject to Section 8 being invoked and operated in accordance with the meaning assigned to it hereinabove.

2. Inherited property of an issueless and heirless female Hindu dying intestate goes back to the source: SC

Case Details: Arunachala Gounder v. Ponnusamy
Citation: [2022] 134 taxmann.com 232 (SC)

Judiciary and Counsel Details

• S. Abdul Nazeer & Krishna Murari, JJ.
• P.V. Yogeswaran, AOR, Ashish Kumar Upadhyay, Jaiyesh Bakhshi, Y. Lokesh, V. Sibi Kargil, Ms V. Keerthana & Anubhav Chaturvedi, Advs. for the Appellant. 
• K.K. Mani, AOR & Ms T. Archana, Adv. for the Respondent.

Inherited property of an issueless and heirless female Hindu dying intestate goes to heirs of source of her inheritance

Facts of the Case

The property in question was admittedly the self-acquired property of Marappa Gounder (deceased). The property was purchased through Court auction sale by Mr Marappa Gounder on 15-12-1938. After his death, the property was inherited by his sole surviving daughter Kupayee Ammal. Later on, Kupayee Ammal also died issueless in 1967. The appellant raised two questions before the court.

(a) Whether the late Gounder’s sole surviving daughter Kupayee Ammal could inherit the same by inheritance and the property shall not devolve by survivorship to the father’s brother’s son. This question arose because Marappa Gounder died before the commencement of the Hindu Succession Act, 1956.

(b) The next question was regarding the order of succession after the death of daughter, which was after the enactment of the Hindu Succession Act, 1956.

Supreme Court Held

The Supreme Court held that

“if a property of a male Hindu dying intestate is a self-acquired property or obtained in the partition of a co-parcenery or a family property, the same would devolve by inheritance and not by survivorship, and a daughter of such a male Hindu would be entitled to inherit such property in preference to other collaterals.”

The court held that this right is well recognised under the old customary Hindu Law and by various judicial pronouncements. Therefore the property was rightly inherited by Kupayee Ammal (daughter).

As far as the question regarding the order of succession after the death of Kupayee Ammal is concerned, the court held that Section 15 and 16 of the Indian Succession Act, 1956 clearly defines the order of the succession after the death of a female.

The Court held that if a female Hindu dies intestate without leaving any issue, then the property inherited by her from her father or mother would go to the heirs of her father, whereas the property inherited from her husband or father-in-law would go to the heirs of the husband.

In case a female Hindu dies, leaving behind her husband or any issue, then Section 15(1)(a) comes into operation. The properties left behind by her, including the properties which she inherited from her parents, devolves simultaneously upon her husband and her issues as provided in Section 15(1)(a) of the Act.

The primary aim of the legislature in enacting Section 15(2) is to ensure that inherited property of a female Hindu dying issueless and intestate go back to the source. Section 15(1)(d) provides that failing all heirs of the female specified in Entries (a)-(c), but not until then, and all her property howsoever acquired will devolve upon the heirs of the father.

The devolution upon the heirs of the father shall be in the same order if a female Hindu dies intestate without leaving any issue. The property inherited by her from her father or mother would go to the heirs of her father. Whereas the property inherited from her husband or father-in-law would go to the heirs of the husband according to the same rules as would have applied if the property had belonged to the father and he had died intestate in respect thereof immediately after her death.

3. Bank can file a writ petition under Article 32 against RBI directions which are based on a Supreme Court’s judgement: SC

Case Details: HDFC Bank Ltd. v. Union of India
Citation: [2022] 143 taxmann.com 1 (SC)

Judiciary and Counsel Details

• B.R. Gavai & C.T. Ravikumar, JJ.
• Prashant Bhushan, Adv., Pranav Sachdeva, AOR, Jatin Bhardwaj, Ms Neha Rathi, Advs., O.P. Gaggar, AOR, Divyanshu Sahay, Ms Shradha Narayan, Akshay Sahay, Rajesh Kumar, Advs. Gaurav Goel, AOR, Rajesh Kumar Gautam, AOR, Anand Gautam, Nipun Sharma, Sachin Singh, Vidur Ahluwalia, Anant Vikram Singh, Advs., Sanjay Kapur, AOR, Ms Megha Karnwal, Arjun Bhatia, Ms Shubhra Kapur, Ms Akshata Joshi, Advs., Mukul Rohatgi, Sr. Adv., Pranaya Goyal, AOR, Firasat Ali Siddiqi, Sarfaraj Khan, Arvind Kumar, Vijay Pal, Pramod Kumar Singh, Advs., Ram Swarup Sharma, Ms Praveena Gautam, AORs, Pawan Shukla, Aman Sharma, Raja Ram, Aman Rastogi, Advs., Dushyant Dave, Sr. Adv., Raj Bahadur Yadav, AOR, Rakesh Dwivedi, Sr. Adv., Ms Misha, Siddhant Kant, Ms Mahima Sareen, Moulshree Shukla, Eklavya Dwivedi, Rahul Gupta, Krishnan Singhal, Advs., S.S. Shroff, AOR, Jaideep Gupta, Sr. Adv., Kuldeep S. Parihar, Adv. H.S. Parihar, AOR, Ms Ikshita Parihar, Adll., K.V. Vishwanathan, Sr. Adv., Aman Raj Gandhi, AOR & Prashant Bhushan, AOR for the Appearing Parties.

Bank can file writ petition in Supreme Court under article 32 against RBI directions to disclose information of clients to protect fundamental right of privacy of its clients who are citizens of India

Facts of the Case

In the instant case, a question was raised before the Court whether a writ under Article 32 could be filed against the RBI’s directions based on the Supreme Court’s judgement.

The HDFC Bank (petitioner) challenged the RBI’s directions to the petitioner to disclose certain information. The petitioner argued that such direction is contrary to the RTI Act, the RBI Act and the Banking Regulation Act, 1949, and it also adversely affects the right to privacy of such Banks and their consumers.

The council objected that no petition could be filed in this case as the RBI has issued such directions in view of the decision of the Supreme Court in the case of Jayantilal N. Mistry and Girish Mittal.

Supreme Court Held

The Court found that the judgement of the Supreme Court in the case of Jayantilal N. Mistry did not take into consideration the aspect of balancing the right to information and the right to privacy.

The Court further held that this Court being the Apex Court, no litigant has any opportunity of approaching any higher forum to question its decision. The only remedy available to the petitioners would be to approach this Court by way of a writ petition under Article 32 of the Constitution of India for the protection of the fundamental rights of their customers, who are citizens of India. As such, the petitioners would have no other remedy than to approach this Court. Therefore, the preliminary objection raised by the petitioner was rejected.

4. SC upholds constitutional validity of 2020 amendments made to FCRA; credits Parliament for timely corrective actions

Case Details: Noel Harper v. Union of India
Citation: [2022] 137 taxmann.com 130 (SC)

Judiciary and Counsel Details

• A.M. Khanwilkar, Dinesh Maheshwari & C.T. Ravikumar, JJ.
• Gopal Sankaranarayanan, Sr. Adv., Ashishek Jabaraj, Adv., Ms Srishti Agnihotri, AOR, Ms Nupur Raut, Ms Ishita Chowdhury, Ms Sanjana Grace Thomas, Advs., Gautam Jha, AOR, Piyush Chhabra, Bripendra Singh, Advs. & Praveen Swarup, AOR for the Petitioner. 
• Tushar Mehta, Ld. S.G., Kanu Aggrawal, Adv., M.K. Maroria, Sanjay Kapur, AORs, Mrs Swarupama Chaturvedi, AOR, Ms Sanmaya Kapoor & Ms Himanshi Goel, Advs. for the Respondent.

Amendment to sections 7, 12A and 17 vide Foreign Contribution (Regulation) Amendment Act, 2020 provides regulatory mechanism to ensure that foreign contribution received from foreign source is utilized only for purpose by recipient itself for which it has been so permitted and purpose of said amendment is also to identify key functionaries of registered association so that they can be made accountable for violations, if any, said amendments are intra vires Constitution and, thus, cannot be said to be irrational, arbitrary and unreasonable

Facts of the Case

In the instant case in the matter of Noel Harper v. Union of India – [2022] 137 taxmann.com 130 (SC), petitions were filed under Article 32 of the Constitution of India assailing the constitutional validity of the amendments to the provisions of the Foreign Contribution (Regulation) Act, 2010 vide the Foreign Contribution (Regulation) Amendment Act, 2020.

The case of the petitioner was that Sections 7, 12(1A), 12A, and 17(1), were manifestly arbitrary, unreasonable, and impinging upon the fundamental rights guaranteed to the petitioners under Articles 14, 19, and 21 of the Constitution.

The Amendments are summarized hereunder:

(a) Amendment to Section 7: The amendment prohibited transferring the funds by the NGO which has received foreign funds to other NGOs in India, even when the receiving NGO, itself having FCRA registration.

(b) Insertion of Section 12(1A): Section 2(1A) envisaged that every person who makes an application under subsection (1) of Section 12 is obliged/required to open FCRA account in the manner specified in Section 17 and mention details of such account in his application

(c) Insertion of section 12A: Section 12A mandated that the person concerned who seeks prior permission or prior approval under Section 11, or makes an application for grant of certificate under Section 12, including for renewal of certificate under Section 16, to provide as identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries.

(d) Amendment to Section 17: Section 17(1) mandated opening of “FCRA account” and receiving of foreign contribution only at one bank at New Delhi, i.e., New Delhi Main Branch of the State Bank of India, 11, Sansad Marg, New Delhi.

Supreme Court Held

Upholding the constitutional validity of the FCRA 2020 Amendments, the Supreme Court held that Sections 7, 12(1A), 12A and 17 of the 2010 Act are intra vires the Constitution and the Principal Act (FCRA, 2010). The Supreme Court credited the Parliament for having taken recourse to corrective dispensation for eradicating the mischief, which any sovereign country can ill-afford.

The Court said that merely because the registered association has been compelled to open FCRA account in the designated bank at the centralised location for receipt/inflow of foreign contribution from foreign source, it does not follow that such a requirement would be manifestly arbitrary or unreasonable.

It is only a one-time exercise to be complied with for availing the permission accorded by the Central Government under the Act to be a certified association or person given permission to receive foreign contribution as a precondition. Therefore, sections 12(1A) and 17 are not violative of Articles 14, 19 and 21 of the Constitution.

The amended Section 7 of FCRA postulates complete prohibition on the transfer of foreign contribution to other person – not even to a person having certificate of registration under the Act. In other words, a person who is registered and granted a certificate or has obtained prior permission under the Act to receive foreign contribution will henceforth be required to utilise the amount “itself” and not through any other person.

The legislative intent is to introduce strict dispensation qua the recipient of foreign contribution to utilise the same “itself” for the purposes for which it has been permitted as per the certificate of registration or permission granted under the Act by the Central Government.

Hon’ble Court held that Section 12A to be read down and construed as permitting the key functionaries/office bearers of the applicant (associations/NGOs) who are Indian nationals, to produce Indian Passport for the purpose of their identification(like foreign nationals functionaries are allowed to produce their Passports for same purpose. That shall be regarded as substantial compliance of the mandate in Section 12A concerning identification.

5. Attachment effected under Benami Transactions (Prohibition) Act can be questioned/challenged only under the said Act: NCLAT

Case Details: C Ramasubramaniam Liquidator of Padmaadevi Sugars Ltd. v. Deputy Commissioner of Income-tax (BenamiProhibition)
Citation: [2022] 145 taxmann.com 303 (NCLAT-Chennai)

Judiciary and Counsel Details

• M. Venugopal, Judicial Member & Kanthi Narahari, Technical Member
• S. Sathiyanarayanan, Adv. for the Appellant. 
• Rajkumar Jhabakh, Adv. for the Respondent.

An attachment effected under Benami Transactions (Prohibition) Act, 1988 can be questioned/challenged only under said Act, which is inbuilt and self-contained one and NCLAT is not empowered to determine points/issues pertaining to attachment under Benami Transactions (Prohibition) Act

Facts of the Case

In the instant case, the following questions were raised before the National Company Law Appellate Tribunal (NCLAT):

(a) Whether an attachment effected under Benami Transactions (Prohibition) Act can be questioned/challenged under the said Act only?

(b) Whether the Appellate Tribunal is empowered to determine issues/points pertaining to an attachment under the said Act?

NCLAT Held

In the instant case, the corporate debtor was ordered to be liquidated by the Adjudicating Authority and the Dy. CIT (Benami Prohibition) (hereinafter referred to as the respondent) provisionally attached the property under Section 24(1) of the Benami Transactions (Prohibition) Act, 1988.

After that, the appellant-liquidator filed an application before the NCLT stating that the attachment of the immovable property of the corporate debtor by the respondent was illegal and the said properties were not the company’s properties. Thus, the same couldn’t fall under the liquidation estate.

However, the NCLT dismissed the application and held that the liquidator had to take appropriate steps before the concerned forum to get an order to remove the attachment. An appeal was made to the NCLAT against the order passed by the NCLT.

The appellant contended that the impugned order passed by the Adjudicating Authority was incorrect in law, as the respondent was not justified in passing the order of attachment of the immovable property of the corporate debtor when a moratorium under Section 14 was in force.

NCLAT Ruling

The NCLAT held that an attachment effected under ‘The Benami Transactions (Prohibition) Act, 1988 can be questioned/challenged only under the said Act, which is an inbuilt and a self–contained one, and the Appellate Tribunal is not empowered to determine the issues/points pertaining to the attachment under the said Act.

The NCLAT further held that the appellant was not entitled to prefer an application to the Adjudicating Authority under Section 60 of the IBC challenging the provisional attachment of the immovable property of the corporate debtor. Therefore, an appeal against the order of the Adjudicating Authority (NCLT) was devoid of merits.

Accordingly, the appeal was to be dismissed.

6. Civil Court can entertain and try borrower suit against Bank/FI; however, it can’t transfer the suit to DRT

Case Details: Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services Ltd.
Citation: [2022] 144 taxmann.com 193 (SC)

Judiciary and Counsel Details

• Sanjay Kishan Kaul, Abhay S. Oka & Vikram Nath, JJ.

Civil Court can entertain & try borrower’s suit against a Bank/FI which has applied to DRT for recovery; However, Civil Court cannot transfer such suit to DRT

Facts of the Case

In the instant case, the Supreme Court held that Civil Courts could entertain and try borrower suits against Bank/FI; however, it could not transfer such suits to DRT.

The appellant bank had applied to the Debts Recovery Tribunal (DRT) to recover the amounts due from the borrower under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB).

The respondent (borrower) defended the proceedings and filed a Civil Suit before the Kolkata High Court against the appellant. The respondent, inter alia, claimed a decree for the sale of the pledged shares, recovery of sale proceeds, and an inquiry into the losses suffered by the respondent, along with a decree for payment of money after the same.

Supreme Court Held

After that, the appellant filed an application seeking rejection of the plaint and dismissal of the suits filed by the respondent. It was claimed that the suits were not maintainable and that the High Court lacked jurisdiction as the same exclusively vested with the DRT.

The High Court, through a single judge, allowed both the applications of the appellant and directed the suits to be taken off. Later, the Division Bench of the High Court opined that as per the view of the Court in Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation, a suit filed by a borrower against the Bank was not barred before the Civil Court. However, a suit filed by the Bank against the borrower was barred.

Thereafter, an appeal was made to the Supreme Court against the order passed by the High Court. As the two judges bench of the Apex Court noticed the conflicting views expressed in the judgement, the Apex Court referred the following issues to a larger bench:

(a) “Whether an independent suit filed by a borrower against a Bank or Financial Institution, which has applied for recovery of its loan against the plaintiff under the RDB Act, is liable to be transferred and tried along with the application under the RDB Act by the DRT?

(b) If the answer is in the affirmative, can such a transfer be ordered by a court only with the consent of the plaintiff?

(c) Is the jurisdiction of a Civil Court to try a suit filed by a borrower against a Bank or Financial Institution ousted by virtue of the scheme of the RDB Act in relation to the proceedings for recovery of debt by a Bank or Financial Institution?”

The Supreme Court observed that the jurisdiction of a Civil Court to try a suit filed by a borrower against a Bank or Financial Institution in relation to the proceedings for recovery of debt by a Bank or Financial Institution is not ousted by virtue of the scheme of the RDB Act.

The Supreme Court held that in the absence of any such power existing in the Civil Court, an independent suit filed by a borrower against a Bank or Financial Institution, which has applied for the recovery of its loan against the plaintiff under the RDB Act, cannot be transferred and tried along with the application under the RDB Act by the DRT under the RDB Act, as it is a matter of option of the defendant in the claim under the RDB Act.

The Supreme Court further held that since the Civil Court has no power to transfer the borrower’s suit against Bank/FI to DRT, there is no question of transfer of the suit, whether by consent of the plaintiff-borrower or otherwise.

7. PMLA: SC directs Trial Court to reconsider bail plea afresh as the medical report of petitioner showed blockages of arteries

Case Details: Chander Prakash Wadhwa v. State (NCT of Delhi)
Citation: [2022] 143 taxmann.com 348 (SC)

Judiciary and Counsel Details

• Uday Umesh Lalit, CJI & Bela M. Trivedi, J.
• L.K. Singh, Manoj Singh, Advs., Sanjay Kumar Visen, AOR, Ms Ritu Rastogi, Ms Mohini Kumari, & Aman, Advs. for the Petitioner.

Medical report of petitioner showed that he was suffering from trigeminal neuralgia and had about 80 per cent blockage in one left artery and 90 per cent blockage in another artery along with 50 per cent blockage in third artery, report being given well after disposal of bail application by Trial Court, petitioner would be entitled to file fresh application for bail on projected medical grounds

Facts of the Case

The petitioner was arrested in two cases. The Economic Offences Wing lodged the first case, and the Directorate of Enforcement lodged the second one for the offences punishable under the Prevention of Money Laundering Act, 2002.

During the first case, the petitioner was granted the facility of interim bail for a while because of his medical condition. The petitioner was arrested in connection with the second case by the Directorate of Enforcement. Since then, he has been in custody.

During the second case, the Trial Court rejected the prayer for bail, and the petitioner had not raised any further challenge on that behalf. In that matter, the report from the Medical Board was called for by this Court, and after examining the report, it was found that the medical condition of the petitioner was quite stable. In light of the said report, the request for interim bail was rejected by this Court.

Later, relying on certain certificates, including one given by the Senior Medical Officer, prayer for bail on the medical condition was made to the Apex Court. The medical report stated that there was about 80% blockage in one left artery, 90% blockage in another artery and 50% blockage in the third artery. Further, the petitioner was also suffering from trigeminal neuralgia.

Supreme Court Held

After considering the requisite reports, the Supreme Court held that the petitioner was entitled either to file a fresh application for bail on the projected medical ground before the Trial Court or raise the challenge to the order on the grounds of merits and the projected medical condition of the petitioner.

8. Bail can be granted to a money laundering accused only if twin conditions under Section 45(1) of PMLA are satisfied: HC

Case Details: Gautam Thapar v. Directorate of Enforcement
Citation: [2022] 136 taxmann.com 77 (Delhi)

Judiciary and Counsel Details

• Manoj Kumar Ohri, J.
• Mukul Rohatgi, Sr. Adv., Sandeep Kapur, Virinder Pal Singh Sandhu, Vivek Suri, Ms Niharika Karanjawala, Abhimanshu Dhyani, Sahil Modi & Ms Kajal, Advs. for the Petitioner. 
• Amit Mahajan, CGSC & Kritagya Kumar Kait, Adv. for the Respondent.

Term loan taken by company ‘OBPL’ was routed from one group company to another and eventually used for purpose other than sanctioned and applicant, being founder and chairman of OBPL was instrumental in generation of proceeds of crime and was ultimate beneficiary of money laundering scheme, hence, applicant was not entitled to be released on bail under section 45

Facts of the Case

In the instant case, an application was filed under Section 439 of Cr.P.C seeking regular Bail in a complaint filed under section 44/45 of the Prevention of Money Laundering Act, 2002.

The case was that after the removal of the MD and CEO of Yes Bank Ltd., certain complaints were filed assailing his role in the grant of various credit facilities to borrowers in violation of banking norms and against receipt of illegal gratification, which resulted in a considerable loss to the bank. One of these complaints was in relation to M/s. Oyster Buildwell Pvt. Ltd. ( ‘OBPL’), a real estate company, which was extended credit facilities to the tune of Rs. 514.27 crores, resulting in a loss of Rs. 466.51 crores to the bank.

As per the complaint, certain bank officials colluded with the applicant for the grant of term loan, which was ostensibly obtained by ‘OBPL’ to furnish security deposit in favor of Jhabua Power and Investments Limited (JPIL). However, in reality, the same was sought with malafide intentions to be siphoned off and diverted towards repayment of facilities availed of by Avantha Group companies and for meeting other expenses. The bank was fully aware of the real purpose for which the loan was obtained. Reportedly, public money under the garb of the term loan was siphoned off in this way, resulting in the generation of ‘proceeds of crime’ and its layering and ultimate projection as untainted money.

As a result, the complaint was registered under Sections 120B/406/420/468/471 by the CBI against OBPL, the applicant, and others, for having committed criminal breach of trust, cheating, criminal conspiracy, and forgery for diversion/misappropriation of the public money during the period from 2017 to 2019. The investigation in the case is stated to be still pending. The defendant applied for Bail.

High Court Held

The High Court observed that Bail could be granted to a money-laundering accused only if the twin conditions under Section 45(1) of PMLA are satisfied. Twin conditions for granting Bail are – (i) the Public Prosecutor shall be allowed to oppose the application for release, and (ii) where the Public Prosecutor opposes such application, the Court should be satisfied that there are reasonable grounds for believing that the accused is not guilty of the offence and that he is not likely to commit any offence while on Bail.

“The Court stated that these twin parameters should be considered while granting Bail to a money laundering accused apart from aspects to be considered in matters of regular Bail under section 439 Cr.P.C.. For granting regular Bail under section 439 Cr.P.C., a Court must consider aspects, including but not limited to, the larger interest of the State or public, whether the accused is a flight risk, whether there is a likelihood of his tampering with evidence, whether there is a likelihood of his influencing witnesses, etc. Apart from these, another factor relevant to the question of Bail would be the gravity of the alleged offence and/or nature of the allegations levelled, which may serve as an additional test and can be applied while keeping in view the severity of the punishment that the offence entails.

The limitations so imposed were in addition to those imposed under Cr.P.C. and had an overriding effect over the provisions of the Code, in case there occurred any inconsistency between the provisions of the two. Though stringent, they were held by the Supreme Court to be mandatory. Apart from these, another factor relevant to the question of Bail would be the gravity of the alleged offence and/or nature of the allegations levelled, which may serve as an additional test and can be applied while keeping in view the severity of the punishment that the offence entails.”

Said the Court

On prima facie reading of the material placed on record and considering the parameters of Section 45(1) PMLA as well as the gravity of the alleged offences, the High Court observed that it cannot be held that the applicant was not guilty of the alleged offences or that he was not likely to commit any such offence while on Bail and, accordingly, dismissed the bail application.

9. No vicarious liability of persons under Section 141 of Negotiable Instrument Act unless the entity has committed an offence as principal accused: SC

Case Details: Dilip Hariramani v. Bank of Baroda
Citation: [2022] 138 taxmann.com 186 (SC)

Judiciary and Counsel Details

• Ajay Rastogi & Sanjiv Khanna, JJ.
• Pramod Kumar Dubey, Sr. Adv., Ravi Sharma, AOR, Madhulika Rai Sharma, Anurag Andley, Shashan Dewan, Ms Pinky Dubey, Prince Kumar & Anjani Kumar Rai, Advs. for the Petitioner. 
• Ms Praveena Gautam, AOR, Pawan Shukla, Raja Ram, Aman S. Sharma & Aman Rastogi, Advs. for the Respondent.

Provisions of section 141 impose vicarious liability by deeming fiction, which presupposes and requires commission of offence by company or firm and, therefore, unless company or firm has committed offence as a principal accused, persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable

Facts of the Case

In the instant case, the respondent – Bank of Baroda, had granted term loans and cash credit facility to a partnership firm – M/s. Global Packaging. It was alleged that in part repayment of the loan, the firm, through its authorised signatory, Simaiya Hariramani, had issued three cheques of Rs. 25,00,000 each.

However, the cheques were dishonoured on presentation due to insufficient funds. The Bank, through its Branch Manager, issued a demand notice to Simaiya Hariramani under Section 138 of the NI Act. Thereafter, it filed a complaint under Section 138 of the NI Act, against Simaiya Hariramani and the appellant, a partner of the firm.

The firm was not made an accused. The appellant and Simaiya Hariramani were convicted by the Judicial Magistrate First Class, Balodabazar, Chhattisgarh, under Section 138 of the NI Act. The High Court dismissed the appeal of the appellant.

Supreme Court Held

On appeal, the Apex Court held that the provisions of Section 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable.

The Court stated that Section 141 of the NI Act extends vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of Section 141 has been satisfied. Such person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commits the offence as the primary offender.

In view of the above, the Apex Court set aside the impugned judgment of the High Court, which confirmed the conviction and order of sentence passed by the Sessions Court, and the order of conviction passed by the Judicial Magistrate First Class.

10. State Laws such as Kerala/Gujarat Money Lenders Act have no application to NBFCs registered under RBI Act: SC

Case Details: Nedumpilli Finance Co. Ltd. v. State of Kerala
Citation: [2022] 138 taxmann.com 191 (SC)

Judiciary and Counsel Details

• Hemant Gupta & V. Ramasubramanian, JJ.
• Ms Bina Mahadavan, Tushar Gupta, Advs., K.V. Mohan, AOR, K.V. Balakrishnan, Sanjeev Singh, Ms Kajal Bhatia, Dashmeet Uppal, Advs., Sudhansu Palo, AOR, Naresh Kaushik, Vardhman Kaushik, Manoj Joshi, Anand Singh, Advs., Mrs Lalita Kaushik, AOR, R. Anand Padmanabhan, Adv. A. Raghunath, Pradeep Kumar Bakshi, AORs, Vaibhav Sharma, Adv. Guru Krishna Kumar, Sr. Adv., Nikhil Swami, Ms Divya Swami, Advs., Mrs Prabha Swami, AOR, Ms Archana Pathak Dave, Adv., Ms Deepanwita Priyanka, AOR, Jaideep Gupta, Sr. Adv., Nishe Rajen Shonker, AOR, Mrs Anu K. Joy, Alim Anvar, Advs., Shyam Divan, Sr. Adv., Anuj B., Ms Chaitanya S., P.S.S. Bhargava, Shikhar Mehra, Manu Nair, Neelabh Shreesh, Advs., S.S. Shroff, AOR, Hitesh Kumar Sharma, Akhileshwar Jha, Ms Deepati S. Rana, Advs., M.T. George, AOR, Mrs Susy Abraham, Johns George, Advs., S. Gowthaman, AOR, Ms M. Venmani, Advs., Challa Kodanda Ram, Sr. Adv., Balaji Srinivasan, AOR, Ms Prateek Yadav, Ramesh Babu M.R., Ms Manisha Singh, Ms Tanya Chudhary, Advs., Ms Aparna Sinha, Tanmaya Agarwal, M.P. Vinod, Abhisth Kumar, Vikas Mehta, Jogy Scaria, C.K. Sasi, Ms Mukti Chowdhary and E.M.S. Anam, AORs for the Appearing Parties.

Law relating to registration and regulation of NBFCs are covered under RBI Act and, thus, Kerala Money Lenders Act and Gujarat Money Lenders Act would have no application to NBFCs registered under RBI Act and regulated by RBI

Question Before the Apex Court

In the instant case, the question that arose before the Apex Court for consideration was whether NBFCs regulated by the Reserve Bank of India could also be regulated by State enactments such as Kerala Money Lenders Act, 1958 (“Kerala Act”) and Gujarat Money Lenders Act, 2011 (“Gujarat Act”).

Supreme Court Held

The Court held that one of the objects of the RBI Act, 1934 is

“to operate the currency and credit system of the country to its advantage”.

The Court observed that the RBI Act provides a supervisory role for the RBI to oversee the functioning of NBFCs. From the time of their incorporation till the time of their closure, all activities of NBFCs automatically come under the scanner of RBI.

Consequently, the single aspect of taking care of the interest of the borrowers sought to be achieved by the State enactments gets subsumed in the RBI Act itself.

The power to determine policy and issue directions, available under Section 45JA, can always be invoked by RBI.

The Court highlighted that Section 45L(1)(b) confers power upon the RBI to give directions to NBFCs “relating to the conduct of business by them”. Therefore, to say that RBI has no power in respect of such an important aspect may not be correct. The fact that RBI generally leaves it to the market forces to determine the rate of interest without any direct intervention is not something that could be taken advantage of by the State of Kerala to step in and prescribe the maximum rate of interest chargeable by NBFCs on the loans advanced by them.

In view of the above, the Apex Court concluded that the Kerala Act and the Gujarat Act will have no application to NBFCs registered under the RBI Act and regulated by RBI.