HC faults ED for ‘mala-fide’ probe, slaps ₹1 lakh fine

The Bombay High Court ruled the ED's probe into a contractual dispute was mala-fide, imposing ₹1 lakh fines on both the agency and the complainant.

MUMBAI: The Bombay high court on Tuesday ruled that the Enforcement Directorate (ED) had launched a probe with “mala-fide intentions” into a contractual dispute and imposed a fine of ₹1 lakh each on the agency (ED) and the complainant in the case.

HC faults ED for ‘mala-fide’ probe, slaps ₹1 lakh fine

“The present case before me is a classic case of oppression in the garb of implementation of PMLA (Prevention of Money Laundering Act),” said the single judge bench of justice Milind Jadhav. “The action of complainant as also ED to put the criminal system into motion is clearly mala-fide and calls for imposition of exemplary costs...because a strong message needs to be sent to the law enforcement agencies like ED that they should conduct themselves within the parameters of law and that they cannot take law into their own hands without application of mind and harass citizens,” said justice Jadhav.

The bench was hearing a plea filed by developers Rakesh Jain and his son Akshay Jain, challenging the special PMLA court’s order dated August 8, 2014, whereby the court took cognisance of the charge-sheet filed by ED against the Jains and issued processes against them.

The Jains argued that no offence was made out against them under sections 406 (criminal breach of trust), 418 (cheating with knowledge that wrongful loss would be caused), 420 (cheating) and 120B (criminal conspiracy) of the Indian Penal Code, 1860 and therefore the ED could not have initiated the money laundering probe.

The money laundering case stems from a first information report (FIR) registered at the Vile Parle police station based on a complaint by Gul Achhra, a representative of GK Solutions Private Limited.

In 2007, GK Solutions had purchased two floors in Ashok Enclave in Malad West from Kamla Developers, which is owned by the Jains, and engaged Sadguru Enterprises for renovating the space into a hotel/ guest house for a consideration of ₹4.57 crore, payable in three instalments subject to completion of work.

Accordingly, Sadguru started the work and GK Solutions paid the first two instalments, but deducted ₹30.67 lakh from the third instalment, purportedly on account of some incomplete work.

As disputes started between the parties, Achhra from GK Solutions approached the Malad police station and the Economic Offences Wing (EOW) of Mumbai police with a complaint against the Jains, but was told the matter was civil in nature and no criminal conspiracy was involved in it. Achhra then approached the Vile Parle magistrate’s court and obtained an order directing the police to register an FIR and investigate the allegations.

A year later, the Vile Parle police filed a charge-sheet against the Jains after which ED launched a money laundering probe, showing the entire contractual amount of ₹4.57 crore as proceeds of crime.

Responding to the plea filed by Jains, the high court held that there was no element of cheating or criminal breach of trust in the entire episode. The ED had taken up the case assuming Sadguru Enterprises had not done any work, although this was not even the case of the complainant, the court said. The money received by Sadguru Enterprises after completion of work and its further transmission to Kamala Developers “cannot be deemed to be proceeds of crime or by any stretch of imagination as money laundering,” the court noted.

The ED conducted itself in a mala-fide manner when the various agreements and correspondence between the parties clearly spelt out their inter-se rights. “The ED, for reasons best known to it, has supported the complainant’s false case without application of mind or without going through the record,” the court said while striking down the criminal proceedings and imposing a fine of ₹1 lakh on the ED and Achhra.

The operationalisation of the order, however, has been stayed by the court for four weeks, following a request made on behalf of the ED.