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Synopsis

The Karnataka High Court in Bengaluru recently dismissed a writ appeal filed by former bank chairman Sri. R M Manjunath Gowda. The division bench comprising Justice V Kameswar Rao and Justice S Rachaiah, supported the enforcement powers granted to the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA).

Mr. Gowda, a 62-year-old former chairman of Shivamogga DCC Bank, had served in his role for 23 years from 1997 to 2020. He challenged the summons issued by the ED as part of an investigation into a case involving fraudulent gold loans and the alleged misappropriation of around Rs.63 crores.

A case was first registered against Mr. Gowda, the appellant, in 2014 at Doddapete Police Station, leading to a charge sheet dated October 18, 2014, under Sections 409, 120B, and 201 of the IPC. However, he was not initially named as an accused. Following further investigation under Section 173(8) of CrPC, a new charge sheet was filed against him in 2021 under Sections 409 and 202 of the IPC.

Additionally, a separate case under the Prevention of Corruption Act, 1988, was also registered against him in May 2014, with a charge sheet filed in March 2018.

The appellant argued before the single judge that none of the offences he was charged with fell under the scheduled offences listed in the Prevention of Money Laundering Act (PMLA), which would justify the ED’s involvement. He contended that although he was initially named as Accused No.15 in the 2014 case, his name was later dropped. The additional charge sheet filed against him in 2021 included offences not mentioned in the PMLA schedule. Furthermore, he asserted that the offence under Section 13(i)(e) of the Prevention of Corruption Act is not a scheduled offence under PMLA unless linked to allegations under Sections 13(i)(a) to (d).

The central issue in the appeal was whether the ED had the legal right to summon him under Section 50 of the PMLA despite his removal from some charges.

Senior Counsel Jayakumar S. Patil for the appellant, referring to the judgment in Vijay Madanlal Choudhary and Others Vs. Union of India and Others (2022), argued that the ED cannot start the proceedings against any person on notional basis or on the assumption that a schedule offence has been committed unless it is so registered with the jurisdictional police.

ASGI Aravind Kamath, for the ED, by referring to the judgment of the Supreme Court in Vijay Madanlal Choudhary (supra) and Pavana Dibbur Vs. Directorate of Enforcement (2023) argued that existence of predicate offence is sufficient for the registration of ECIR and commencement of investigation under PMLA. Also, the investigation can cover even those who are not accused of the predicate offence.

He said that although an unconnected person cannot be summoned in a case under PMLA, but someone like the appellant, who was the chairman of the bank and had access to information, could be summoned.

Section 50(2) uses the expression "any person" and as such, it is immaterial whether the appellant is accused in the predicate offence or under any proceedings under the PMLA, for the purpose of summoning him, he contended. 

Furthermore, he pointed out that predicate offences related to fraudulent gold loans issued under the appellant’s chairmanship were under investigation. While the appellant had not disputed the allegations or the misappropriation of Rs. 63 crore, which qualifies as "proceeds of crime" under PMLA, his knowledge of the bank’s procedures for loan approvals and verification made his testimony crucial. Understanding the bank’s modus operandi is essential to tracing the money trail, and as chairman, the appellant would have insights into these processes, ASGI contended. 

The high court division bench, referring to Section 50 of the PMLA which pertains to powers of authorities regarding summons, production of documents and to give evidence, etc. explained that the ED has the authority to summon 'any person' it deems necessary to provide evidence or documents during an investigation.

"...it is immaterial whether the appellant is an accused or not as long as the predicate offence is pending in jurisdictional Court for which summoning has been done for recording evidence or production of documents during the course of investigation or proceedings under the Act," court emphasised.

The court further clarified that this power is not dependent on whether the person is officially accused of a crime. Instead, the summons is a tool used to gather facts that might help uncover money laundering activities.

Court pointed out that the police initially filed a charge sheet in FIR No. 325/2014 under various IPC sections, including Sections 471 and 120B, which were scheduled offences under PMLA, naming the appellant as Accused No.15. Though his name was later dropped, a subsequent charge sheet added him back under Sections 409, 202 read with Section 36 of IPC. Since the predicate offence remains pending, the appellant can still be summoned, court opined. 

The judgment clarified that even if a person is not directly charged with a predicate offence at the time of the summons, the ED can still require that person to appear in connection with the investigation. Court pointed to earlier decisions, including those from the Supreme Court, which support the view that the summons is part of the investigatory process. Its purpose is to help the authorities collect information and documents that could be essential to the case.

"The Authorities are justified in summoning any person whose attendance is necessary for investigation purpose," court said. 

It also noted that the summons should not be seen as a sign of guilt but rather as a routine part of gathering evidence.

Further, referring to the judgment of the Madras High Court in the case of K.Govindaraj Vs. Union of India and Others (2024), wherein reference had been made to the interim order passed by the Supreme Court, it was stated that the Supreme Court had clearly said that the persons to whom summons are issued under Section 50(2) of the Act, are obliged to respect and respond to the said summons.

In addition, the court addressed concerns about constitutional rights. Mr. Gowda had raised issues regarding Article 20(3) of the Constitution, which protects against self-incrimination. The bench explained that the summons does not force a person to testify against themselves in a criminal trial. Instead, it is meant to help collect evidence in the early stages of an investigation.

Accordingly, court dismissed the appeal.

Case Title: R M Manjunath Gowda Vs. Directorate Of Enforcement And Another