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Synopsis

The Bombay High Court imposed exemplary costs of ₹1 lakh on the Enforcement Directorate (ED), while also directing the complainant in the case to pay ₹1 lakh for harassment of a developer with baseless allegations of money laundering.

A Single judge bench, presided over by Justice Milind N. Jadhav, criticised the ED, deeming the agency’s actions as “a classic case of oppression in the garb of implementation of PMLA (Prevention of Money Laundering Act).”

The court emphasised that the actions of the complainant and the ED represented a deliberate attempt to misuse criminal law provisions to pursue what was fundamentally a civil dispute. It observed: “Merely by alleging preposterous submissions and arguments and using terminologies and definitive words like layering and and integrating funds to be ‘proceeds of crime’ without application of mind is nothing but an exercise of oppression on the part of ED.”

The case originated from two agreements executed in 2007 between the complainant and two entities, M/s Kamala Developers and M/s Sadguru Enterprises. The agreements included a registered sale agreement with M/s Kamala Developers for the purchase of a commercial property and a renovation agreement with M/s Sadguru Enterprises for converting the premises into a residential hotel or guest house by providing additional amenities. The complainant paid over ₹10 crore under these agreements but became dissatisfied due to delays in obtaining the Occupancy Certificate (OC). Efforts to seek redress through the Malad Police Station and the Economic Offences Wing (EOW) proved unsuccessful, as both declined to register a case, classifying the matter as a civil dispute. Consequently, the complainant approached the Metropolitan Magistrate’s Court, which directed the Vile Parle Police to register an FIR. This eventually led to an investigation by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA).

The ED alleged that ₹4.27 crore received by the developer's associate company were “proceeds of crime” linked to fraudulent activities. However, the developers contended that they had fulfilled all contractual obligations, and any outstanding issues related to delays were already being addressed in a civil suit. It was further argued that the sale and renovation agreements were valid and executed transparently. The complainant had paid subsequent installments after confirming the satisfactory progress of work.

Dismissing the ED’s contentions as “highly preposterous”, the court noted: “How Money Laundering is involved in the present case and invoked when the Agreements are executed and are delivered fully is only a figment of imagination of the ED.”

The court criticised the agency for failing to establish even a prima facie case of cheating, criminal breach of trust, or money laundering. “There is no misappropriation of money or property by any of the parties to the transactions. There is no proceeds of crime… In the present case, once it is established that there is no offence under Sections 406,418 and 420 IPC then the question of Money Laundering under Section 3 of PMLA does not arise,” stated the court.

The court further observed that the dispute stemmed from contractual obligations, with the complainant himself acknowledging receipt of substantial work. The complainant had also filed a civil suit for recovery of funds, reinforcing the nature of the dispute.

“I am fully convinced that this is a fit case for imposition of exemplary costs on the Complainant and ED for invoking criminal action in the present facts and harassing the Developer with criminal action,” the court said.

The court underscored that invoking criminal law for a contractual dispute was a misuse of the legal system and stated that it was compelled to send a “strong message” to law enforcement agencies “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.”

As a result, the court quashed the criminal proceedings and set aside the ED’s attachment of properties.

 

Cause Title: Rakesh Brijlal Jain v State of Maharashtra [CRA No. 379 OF 2016]

Appearances: Mr. Kevic Setalvad, Senior Advocate a/w. Mr. Jehan Lalkaka i./by Mr. Bhavesh Thakur, Advocates for Applicants; Dr. D.S. Krishnaiyer, APP for State.; Mr. Gul Achhra for Respondent No.2 appearing as party in person.; Mr. Shriram Shirsat a/w. Ms. Karishma Raje and Mr. Shekhar Mane, Advocates for Respondent No.3 - ED.