The Bombay High Court has imposed a cost of Rs. 1 lakh on the Enforcement Directorate (ED) for initiating an investigation in a money laundering case against a Developer.

The Court was dealing with a Criminal Revision Application, challenging the legality and validity of the Special Judge’s Order under the Prevention of Money Laundering Act, 2002 (PMLA).

A Single Bench of Justice Milind N. Jadhav remarked, “The action of Complainant as also ED in the above facts to put the criminal system into motion is clearly malafide and calls for imposition of exemplary costs. I am compelled to levy 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.”

Senior Advocate Kevic Setalvad appeared for the Applicants while APP D.S. Krishnaiyer and Advocate Shriram Shirsat appeared for the Respondents.

Factual Background

Since 2007, M/s. Kamala Developers and the Respondent were negotiating sale and purchase of commercial property in a project being developed by the said developer. Thereafter, a Renovation Agreement was executed between two companies to provide additional amenities in respect of commercial premises. A registered Sale Deed was executed between the said developer and the Respondent/Complainant for sale of the premises. Since works at the site of the subject premises were not progressing fast and causing financial loss to the Complainant, his Advocate addressed a letter to Developer because neither reply to the said letter was received nor possession was handed over. It was alleged that he was facing loss to the tune of Rs. 1.5 Lakh for every day of delay. The Complainant addressed letter to the developer, raising various disputes in respect of the subject premises stating that since OC was delayed he could not obtain statutory permissions and licenses for Residential Hotel / Guest House use in the subject premises for which the developer was liable to pay damages and called upon it to obtain the OC and get the Co-operative Housing Society registered.

The PMLA was enacted and came into effect in 2009, as a consequence of which Sections 120B, 418, 420 and 421 of the IPC (amongst others) became “scheduled” offences. Being aggrieved due to delay in getting the OC, the Respondent filed a Criminal Complaint with the Commissioner of Police against developer for cheating. Resultantly, the Applicant was arrested and was then released on bail. The developer filed a Summary Suit in the City Civil Court and in the meanwhile, an Order was passed by ED for provisional attachment under Section 5(1) of PMLA whereby the Applicant’s two flats and garage which he had purchased were attached. ED then filed a Complaint against the Applicant and others before the Additional Sessions Judge. The Metropolitan Magistrate dismissed Applicant’s discharge application and transferred the case to the Sessions Court. The Applicant was before the High Court seeking setting aside of the Special Judge’s Order issuing process.

Reasoning

The High Court after hearing the contentions of the counsel, observed, “A mere breach of promise, agreement or contract does not, ipso facto, constitute an offence of criminal breach of trust without there being a clear case of entrustment - Clearly, the allegation / charge under Section 406 of the IPC has no basis. … Thus, once it is established that there is no cheating involved under the IPC then there is no proceeds of crime involved under Section 2(1)(u) of PMLA and therefore there is no Money Laundering involved under Section 3 of PMLA in the present case.”

The Court added that there is no misappropriation of money or property by any of the parties to the transactions and there is no proceeds of crime. It further noted that the subject property stands delivered to the Complainant before OC and hence, the case of ED based on the alleged crime recorded by the Police Station is misconceived.

“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. … it is clear that prosecution and ED has not made out any case whatsoever for proceeding against the Applicants before the Court under the PMLA or even under IPC. At the highest if Complainant is aggrieved due to delay in receiving possession, his remedy lies in a Civil Court under the Sale Agreement which he has already invoked”, it also said.

The Court was of the view that the issuance of process is a clear abuse of the process of the law and ED has conducted itself in a malafide manner when the various Agreements and correspondence between the parties clearly spell out their inter se rights. It added that the ED for reasons best known to it have supported Complainant’s false case without application of mind or without going through the record.

“It is well settled by various decisions of the Supreme Court and policy of the State as also the view of international community that offence of Money Laundering is committed by an individual with a deliberate design with the motive to enhance his gains, disregarding the interest of the nation and society as a whole. It is seen that conspiracy of Money Laundering is a three staged process, it is hatched in secrecy and executed in darkness”, it also noted.

The Court held that there is nothing which prohibits a Developer from entering into a Sale Agreement and allowing execution of a simultaneous Agreement for providing additional amenities/renovation in the same premises through another entity and this is how development in Mumbai City takes place.

“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 element of delay in obtaining OC is the only cause of action pleaded in the Civil Suit by the Complainant”, it added.

The Court said that this is a fit case for imposition of exemplary costs on the Complainant and ED for invoking criminal action in the facts and harassing the Developer with criminal action.

“Mr. Gul Achhra, on behalf of Respondent No.2 who is the Complainant in the present case is directed to pay costs of Rs.1,00,000/- to the Kirtikar Law Library, High Court, Mumbai. Respondent No.3 i.e. the Enforcement Directorate is directed to pay costs of Rs. 1,00,000/- to the High Court Original Side Library, Room No.39, High Court, Mumbai”, it directed.

Accordingly, the High Court allowed the Application and cancelled the attachment of two flats and garage.

Cause Title- Rakesh Brijlal Jain and Ors. v. State of Maharashtra and Ors. (Neutral Citation: 2025:BHC-AS:2680)

Appearance:

Applicants: Senior Advocate Kevic Setalvad, Advocates Jehan Lalkaka, and Bhavesh Thakur.

Respondents: APP D.S. Krishnaiyer, Advocates Shriram Sirsat, Gul Acchra, Karishma Raje, and Shekhar Mane.

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