State Bank of India & Ors. v Sidharth Bharatbhushan Jain & Ors. - The said section refers to property which has very wide meaning and in our view includes goods. The respondent has admitted that goods were supplied by the CD and the outstanding of Rs. 7.78 crores are not denied. The Respondents have not denied that M/s Pratap Associates is his HUF which is related party.

NCLT Ahmedabad-1 (09.11.2023) in State Bank of India & Ors. v Sidharth Bharatbhushan Jain & Ors. [IA(IBC) 109 of 2022 in CP(IB) 62 of 2021 ] held that.

• The said section refers to property which has very wide meaning and in our view includes goods. The respondent has admitted that goods were supplied by the CD and the outstanding of Rs. 7.78 crores are not denied. The Respondents have not denied that M/s Pratap Associates is his HUF which is related party. 

Blogger’s comments; The orders of the Hon’ble NCLT are “per-incuriam” on the following grounds.

1. Principal attribute of the preferential transaction is that there is transfer of property for or on account of an antecedent financial debt or operational debt or other liability………

# 43 (2) A corporate debtor shall be deemed to have given a preference, if– 

(a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and 

2. Look back period under section 43 for a related party transaction is two years.

# 43(4) A preference shall be deemed to be given at a relevant time, if –

(a) It is given to a related party (other than by reason only of being an employee), during the period of two years preceding the insolvency commencement date; or

3. As per section 44(1)(d), only the person who received the benefit can be asked to contribute.

# 44. Orders in case of preferential transactions. -

(1) The Adjudicating Authority, may, on an application made by the resolution professional or liquidator under sub-section (1) of section 43, by an order:

XXXXX

(d) require any person to pay such sums in respect of benefits received by him from the corporate debtor, such sums to the liquidator or the resolution professional, as the Adjudicating Authority may direct;

Hon’ble Supreme Court (2010.12.02)  in Siddharam Satlingappa Mhetre vs. State of Maharashtra [Criminal Appeal No. 2271 of  2010. - Arising out of SLP (Crl.) No.7615 of 2009) held that:

• "A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of coordinate jurisdiction which covered the case before it, in which case it must decide which case to follow 

• "The rule of per incuriam can be applied where a court omits to consider a binding precedent of the same court or the superior court rendered on the same issue or where a court omits to consider any statute while deciding that issue."

Excerpts of the Order;    

# 1. This is an application filed by the Resolution Professional (RP) of Sysco Industries Ltd. (Corporate Debtor) seeking the following prayers: - 

• a. That this Hon’ble Adjudicating Authority may be pleased to allow enhancement of period specified in Section-46 for a period of 5 years since financials data is only made available until financial year ending March, 2019, in interest of justice. 

• b. That this Hon’ble Adjudicating Authority may be pleased to pass appropriate orders or directions under Section 43 of the Code against the respondents to contribute an amount of Rs. 7,78,31,555/- being outstanding towards related party, in the interest of justice. 

• c. That this Hon’ble Adjudicating Authority may be pleased to pass appropriate orders or directions under Section-43 of the Code against the respondents to contribute an amount of Rs. 1,10,95,066/- towards debtor shown outstanding in the books who informs that they have already cleared the account of the Corporate Debtor, in the interest of justice. 

• d. That this Hon’ble Adjudicating Authority may be pleased to pass any further necessary orders as the Hon’ble Tribunal deems fit in the interest of justice. 

# 2. It is stated that vide order dated 08.09.2021 Corporate Debtor was admitted to CIRP in CP 62 of 2021 and applicant was appointed as IRP and was later confirmed as RP by the COC. 

# 3. It is submitted that draft transaction audit report pointed out numerous unexplained and suspicious transactions conducted by the suspended management. Copy of final transaction audit report place at Annexure C. 

# 4. Upon pointed out to COC, approval was given in COC meeting held on 14.12.2021 for filing the present IA under Section 43. 

# 5. It is stated that suspended management has not given latest financials and the Applicant had filed IA 807 of 2021 under Section 19 of the Code wherein order dated 8.12.2021 was passed directing the suspended management to submit the documents desired by RP within 7 days and in case of failure RP is free to approach local police to give assistance to RP. The RP has already filed Police complaint on E portal having request no. 20220128. However, despite efforts suspended management failed to provide latest financials of Corporate Debtor. 

# 6. The applicant submits that from the records available to the applicant and according transaction audit report following acts have been committed by the suspended management with an intent to defraud the creditors of the Corporate Debtor: - 

I. Outstanding towards related party: - 

i) The applicant submits that in the books of the Corporate Debtor for the year ending 31.03.2019 there is outstanding of Rs.7,78,31,555/- from M/s Pratap Associates who is the HUF Firm of Respondent No.3 herein. 

ii) The applicant submits that no amount is received from M/s Pratap Associates after 31.03.2019 and that no reply is received from the respondents with regards to the same outstanding. The applicant has annexed communications made to the suspended management and the auditor at ANNEXURE-F-. 

iii) It is stated that the said transaction is questionable transaction thus, falls within the ambit of Section-43 of the Code. 

II. Transactions with Debtors 

i. The applicant submits that apart of Pratap Associates there are three other debtors in the books of Corporate Debtor which were traceable wherein amount receivables was shown outstanding. These outstanding’s are as under - 

S. No.	Debtor	Amount
1.	Suvishrhu Speciality Chemicals Pvt. Ltd.	43,05,706
2.	Venkataramana Food Specialities Limited	28,47,697
3.	Vibgyor Global Trade Pvt. Ltd	39,41,663
	Total	1,10,95,066

ii. The applicant submits that thus an amount of Rs.1,10,95,066 is shown falsify outstanding in the books of the Corporate Debtor. 

iii. The applicant had contacted the above debtors and was informed that they have 

iv. no outstanding with the Corporate Debtor. The applicant has annexed communications between the applicant and the above debtors at ANNEXURE-G. 

v. The applicant submits that thus, the above outstanding in the books is nothing but an attempt to defraud the creditors. Thus, the said amount falls within the ambit of the Section-43 of the Code. 

# 7. The applicant submits that the applicant has given ample opportunities to the respondents suspended management to clarify the above actions whereby interest of other creditors is put to prejudice. The applicant submits that the suspended management  miserably failed to provide any valid explanation to the above transactions and hence the present application. 

# 8. Upon notice Respondent No. 1 to 3 have filed a common reply under diary no. 3779 dt. 7.07.2022. The summary of the response is provided below: - 

• a. Resolution Plan for the Corporate Debtor was approved vide order dated 1.7.2022 in IA 287 of 2022 by this Tribunal and the RP has become functus officio and cannot pursue the present application. 

• b. No opinion was filed which is mandatory. 

• c. Data was supplied by the Respondents to the RP. Transactions with Pratap Associates 

• d. Respondents admit that Pratap Associates and the Corporate Debtor had business transactions since 2015 and the Corporate Debtor used to supply Jari to said Pratap Associates which was further processed at the works of Pratap Associates. Due to financial difficulties the said Pratap Associates started facing financial difficulties and could not pay the Corporate Debtor. 

• e. The transaction was in ordinary course of business and no property was transferred or preference given to Pratap Associates. 

• f. Hence the transactions were not illegal and are not preferential in nature. Transactions with Debtors 

• g. It is stated that the 3 debtors (as named above in Table) are not related parties. 

• h. The only reason stated is that these debtors failed to pay and have denied any outstanding. The applicant should have called these debtors to produce bank statements evidencing proof of payment and no such inquiry was undertaken. 

• i. Transactions were in ordinary course of business. 

# 9. It is seen that resolution plan was approved on 01.07.2022, post approval of the resolution plan amendment to memo of parties was filed under diary no. 5705 dated 21.10.2022 and the same was taken on record vide order dated 31/10/2022. 

# 10. No rejoinder has been filed. A convenience chart was filed under diary no. 4141 dated 20.10.2023. 

# 11. We have heard the counsels and perused the documents filed before us. Post approval of the resolution plan the erstwhile COC as per the directions given in the resolution plan is perusing the present application. 

# 12. As regards M/s Pratap Associates who is stated to be the HUF Firm of Respondent No.3 herein it is stated that application is filed based upon the books of the Corporate Debtor for the year ending 31.03.2019 and that there is outstanding of Rs.7,78,31,555/-. 

# 13. The respondents have admitted that the amount is due and have pleaded financial difficulties as reason for non-payment besides other technical observations; however, the respondents have never denied the relationship of R-3 with the said Pratap Associates. Further no ground was shown to us besides stating that the transactions were in regular course of business and that the said Pratap Associates is facing financial difficulties. 

# 14. The applicant has placed the transaction audit report along with the application. A perusal of the same on page 59 confirms that Pratap Associates is a related party and the amount due from them is Rs. 7.78 Crores. 

# 15. As regards the amount due from debtors is concerned the applicant has not made the respondents in the present application and no statement of their bank accounts was even asked by the applicants showing payments of the amounts due to corporate debtor from the said parties. Further, no pleadings are made that these debtors are related parties of the Corporate Debtor. 

# 16. Section 43 of the Code is reproduced below: - 

43. Preferential transactions and relevant time. - 

(1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in subsection (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section 44. 

(2) A corporate debtor shall be deemed to have given a preference, if– 

• (a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and 

• (b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53. 

(3) For the purposes of sub-section (2), a preference shall not include the following transfers– 

• (a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee; 

• (b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that – 

• (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property; and 

• (ii) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property: 

• Provided that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate debtor. 

• Explanation. – For the purpose of sub-section (3) of this section, “new value” means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the resolution professional under this Code, including proceeds of such property, but does not include a financial debt or operational debt substituted for existing financial debt or operational debt. 

(4) A preference shall be deemed to be given at a relevant time, if – 

• (a) it is given to a related party (other than by reason only of being an employee), during the period of two years preceding the insolvency commencement date; or 

• (b) a preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date. 

# 17. The said section refers to property which has very wide meaning and in our view includes goods. The respondent has admitted that goods were supplied by the CD and the outstanding of Rs. 7.78 crores are not denied. The Respondents have not denied that M/s Pratap Associates is his HUF which is related party. 

# 18. It is common practice that before commencement of insolvency, the assets of the corporate debtor are stripped many a times by the management. The suspended management conceals the data from the RP during the CIRP process. In the present matter too S. 19 (2) application was filed by the RP. 

# 19. The present case falls squarely within the ambit of S. 43 of the Code so far as transactions with Pratap Associates is concerned. As such we have no hesitation to hold that transactions are hit by provisions of S. 43 of the Code. 

# 20. In terms of the above observations prayers (a) and (b) are hereby allowed. R-1 to R-3 are directed to deposit the said amount of Rs. 7.78 Crores within a period of 15 days from the date of the order with the Corporate Debtor who in turn should distribute the same to the erstwhile members of COC immediately in their respective share. 

# 21. As regards the transactions with the 3 debtors, the same are transactions in the ordinary course of business of the Corporate Debtor and as the debtors were not made a party before us and without hearing them no orders can be passed and for the reasons stated above we hold that S. 43 is not attracted upon the respondents in the matter. Accordingly, prayer (c) is denied. 

# 22. With the above directions we dispose off the present IA. No order as to cost.

-------------------------------------------

M.Suresh Khatri & Anr. Vs. Directorate of Enforcement Rep. by the Deputy Director GOI. - No report can ever form the only basis for convicting a person of an offence. The prosecution has to prove the offence by adducing evidence and this opportunity has to be given to the prosecution in this case too.

High Court Madras (23.02.2021) in M.Suresh Khatri & Anr. Vs. Directorate of Enforcement Rep. by the Deputy Director GOI. [CRL.O.P.Nos.20127 & 25688 of 2018] held that;

• It is these words which amply suggest that an opinion is to be formed only after due application of mind that there is sufficient basis for proceeding against the said accused and formation of such an opinion is to be stated in the order itself. The order is liable to be set aside if no reason is given therein while coming to the conclusion that there is prima facie case against the accused, though the order need not contain detailed reasons. A fortiori, the order would be bad in law if the reason given turns out to be ex facie incorrect.

• No report can ever form the only basis for convicting a person of an offence. The prosecution has to prove the offence by adducing evidence and this opportunity has to be given to the prosecution in this case too.

Excerpts of the Order;    

For the sake of convenience, the parties will be referred to by their names.

# 2. On a complaint lodged by the General Manager, State Bank of India (SBI), Chennai, the CBI registered an FIR in Crime No.RC.05/E/2018/CBI/BS&FC/BLR on 21.03.2018 for the offences under Sections 120-B, 420, 467, 468 and 471 IPC read with Sections 13(2) and 13(1)(d) of the Prevention of Corruption Act, 1988, against M/s.Kanishk Gold Pvt. Ltd. (in short “KGPL”), Chennai and five named accused. The sum and substance of the allegations in the FIR is that, during 2011, a consortium of 14 banks with SBI as the lead bank, had sanctioned working capital credit facilities which KGPL (A1) had allegedly diverted, resulting in loss to the banks to the tune of Rs.824.15crores as on 31.12.2017. Since the FIR disclosed the commission of a 'schedule offence' under the Prevention of Money Laundering Act, 2002 (in short “the PML Act”), the Enforcement Directorate registered a case in ECIR No.CEZOI/ 07/2018 on 22.03.2018, conducted investigation under the PML Act, collected materials and filed a complaint in C.C.No.13 of 2018 in the Court of the Principal Sessions Judge (Special Court), Chennai, against KGPL (A1), Bhoopesh Kumar Jain (A2), Mohanlal Jewellers Pvt. Ltd. (in short “MJPL”) (A3), Suresh Khatri (A4) and T.K.S.Pugazhendi (A5) for the offence under Section 3 read with 4 of the PML Act, for quashing which, MJPL (A3) has filed Crl.O.P.No.25688 of 2018 and Suresh Khatri (A4) has filed Crl.O.P.No.20127 of 2018 under Section 482 Cr.P.C.

# 3. Heard Mr.A.Ramesh, learned Senior Counsel representing Mr.Jayesh B.Dolia, learned counsel on record for MJPL (A3) and Suresh Khatri (A4) and Mr.R.Sankaranarayanan, learned Additional Solicitor General assisted by Mr.N.Ramesh, learned Special Public Prosecutor appearing for the Enforcement Directorate.

4. Before adverting to the submissions raised at the Bar, it is necessary to set out the allegations against the accused. The fact that the CBI registered a case which disclosed a 'schedule offence' under the PML Act is not in dispute. MJPL (A3) and Suresh Khatri (A4) have not been shown as accused in the FIR that has been registered by the CBI. The allegations against KGPL (A1) and the other accused in the present case are that, KGPL (A1) had obtained huge loans from the consortium of banks for their business purpose, which they diverted into the account of MJPL (A3) and that the amounts so diverted, being proceeds of crime, was projected as untainted money.

# 5. In the complaint in C.C.No.13 of 2018, the Enforcement Directorate has given the following flowcharts : . . . . . . .

# 6. In paragraph 14.4 of the complaint, it is more clearly stated as under :

• “14.4. On the basis of the Transaction Testing conducted by the Forensic Audit Team on the sample purchase transactions made by KGPL, the Forensic Audit made the following observation :

• “Mohanlal Jewellers Pvt. Ltd.: We received 3 purchase invoices of the party (Mohanlal Jewellers) amounting to a total of Rs.52.98 Crores. However, the borrower (KGPL) has not provided the purchase order, document evidencing receipt of goods and gold purity certificate, if any” 

• The Forensic Audit has further reported that on examination of the Purchase Register, it was noticed that the total purchases made by KGPL for the review period from April 01, 2009 to June 30, 2017, amounted to Rs.10,134 Crores. Further, on analysing the yearly purchase it was observed that Rs.6984 Crores, i.e., about 69% of the total purchases were made in the period FY 2013-14 to FY 2017- 18 (uptill 18th May 2017) revealed that purchases of top ten parties constitute about 65.71% of the total purchases in that period, and M/s.Mohanlal Jewellers Pvt. Ltd., are one among them, who had sold 1089105.37 gms of Gold Bullions valued at Rs.318.75 Crores to KGPL. KGPL had made the payments from their various bank accounts held inside the consortium, out of working capital borrowings, for the purchase of the Gold Bullions from M/s.Mohanlal Jewellers Pvt. Ltd. which is to the tune of Rs.318.75 Crores during the above mentioned period. The amounts were paid through RTGS into the account of M/s.Mohanlal Jewellers Pvt. Ltd. held in HDFC Bank, ITC Centre, Anna Salai, Chennai, (now transferred to R.K.Salai Branch), with Account Number 00040460000335. The purchases of Gold Bullions were made only on Sale Invoice/Vouchers issued by the Seller, viz.,M/s.Mohanlal Jewellers Pvt. Ltd. and no other documents/records for the receipt of goods in to the premises of either to the factory or corporate office of KGPL, as observed by the Forensic Audit in their Report.”

# 7. The Enforcement Directorate found Fixed Deposits to the tune of around Rs.143 crores (to be more specific, Rs.143,58,41,369.90) held in HDFC Bank, which were categorized as a part of proceeds of the crime. Thus, from the above, the crux of the allegations against MJPL (A3) and its Managing Director, Suresh Khatri (A4) is that, from the loans given to KGPL (A1), a sum of Rs.318.75 crores was transferred into the account of MJPL (A3) for the alleged purchase of gold bullions, but actually, no purchase was made and out of Rs.318.75crores. A sum of Rs.143 crores was found to be parked in the HDFC Bank in the form of 22 fixed deposits. The Enforcement Officer passed an order of interim attachment of the said 22 fixed deposits under Section 5 of the PML Act. But, the Adjudicating Authority, by order dated 17.10.2018, set aside the order of interim attachment under Section 8 of the PML Act. Challenging the same, the Enforcement Directorate has filed an appeal in the Appellate Tribunal at New Delhi in FPA-PMLA-2731/CHN/2018 & MP-PMLA-5309/CHN/2018, wherein, an order of status quo has been passed on 11.02.2018, which reads as under :

• “... ... In the meanwhile, notice be issued to respondent No.4 i.e. Mohanlal Jewellers Pvt. Ltd. for the next date. 'Status quo' shall be maintained by the appellant and respondent no.4 with regard to the attached properties.”

# 8. Mr.A.Ramesh, with great pains, took this Court through the attachment order dated 17.10.2018 and submitted that, when the Adjudicating Authority himself has held that the 22 fixed deposits with the HDFC bank are not proceeds of crime and that, the deposits were created with the loans provided by the HDFC bank, then, the prosecution of MJPL (A3) and Suresh Khatri (A4) under the PML Act is misconceived. 

# 9. Before the Adjudicating Authority, it was the case of the MJPL (A3) that for the amounts received by them from KGPL (A1), gold bullion was actually delivered to them in accordance with the trade practice that prevails amongst the bullion traders and that, the transaction between KGPL (A1) and MJPL (A3) will be squarely covered under Section 33 of the Sale of Goods Act, 1930. It is true that the Adjudicating Authority has relied upon Section 33 of the Sale of Goods Act, 1930 and has held that MJPL (A3) had delivered the gold bullions to KGPL (A1), on receipt of monies from them.

# 10. The short question is, whether the criminal Court is bound by these findings of the Adjudicating Authority or inter alia can this Court proceed to quash the criminal prosecution, based on such findings of the Adjudicating Authority, especially, when the matter is pending before the Appellate Tribunal.

# 11. Mr.A.Ramesh placed strong reliance on various judgments, to drive home the point that the findings of the Adjudicating Authority, in certain circumstances, can form the basis for quashing the parallel criminal prosecution. In recent times, the bedrock case on this subject is the judgment of the Supreme Court in Radheshyam Kejriwal Vs. State of West Bengal and Another [(2011) 3 SCC 581], wherein, the Supreme Court has quashed the prosecution under Section 56 of the Foreign Exchange Regulation Act, 1973 (In short “FERA”) against the accused therein, on the findings of the Adjudicating Authority that there was no violation of the provisions of the FERA. The ratio of the various judgments on this subject has been succinctly culled out by the Supreme Court in paragraph 38 of the said judgment.

# 12. Mr.A.Ramesh placed further reliance upon the judgment of the Supreme Court in Ashoo Surendranath Tewari Vs. Deputy Superintendent of Police, EOW, DBI and Another [(2020) 9 SCC 636], wherein, the Supreme Court has quashed the prosecution under the Prevention of Corruption Act, 1988, based on the report of the Chief Vigilance Commissioner. Thus, relying upon the aforesaid rulings and other connected rulings, Mr.A.Ramesh contended that in the teeth of the findings of the Adjudicating Authority exonerating MJPL (A3) and Suresh Khatri (A4) that the 22 fixed deposits are not proceeds of crime, the prosecution of MJPL (A3) and Suresh Khatri (A4) deserves to be quashed. 

# 13. Per contra, Mr.R.Sankaranarayanan refuted the aforesaid contentions and stated that when the Directorate has taken the order of the Adjudicating Authority on appeal, this Court cannot quash the prosecution. He further contended that the scheme of adjudication under the PML Act is substantially different from the scheme that obtains in enactments like the FERA, the Customs Act, the Central Excise Act, etc. He also placed strong reliance on Section 48 of the Evidence Act, 1872 and submitted that, any custom or usage or right etc. has to be proved by the person who asserts it, in the manner known to law before the criminal Court and a finding by an Adjudicating Authority on such a matter is not conclusive and is not binding with criminal Court.

# 14. This Court gave its anxious consideration to the rival submissions.

# 15. To recapitulate, the allegation against MJPL (A3) is that, KGPL (A1) had parked a sum of Rs.318.75 crores that was taken by them as loan from the banks into the accounts of MJPL (A3), out of which, a sum of Rs.143 crores is in the form of 22 fixed deposits. It is the specific case of the prosecution that no gold bullion was in fact supplied by MJPL (A3) and only a paper transaction was effected. Thus, the 22 fixed deposits for a sum of Rs.143 crores represents only part of the proceeds of crime. This is a seriously contested and a disputed question of fact between the Enforcement Directorate and MJPL (A3). The Adjudicating Authority has accepted the version of MJPL (A3), by relying upon a certain trade practice and also by relying upon Section 33 of the Sale of Goods Act. 

# 16. As rightly pointed by Mr.Sankaranarayanan, a custom or usage in a particular trade, has to be proved in the manner set out in Section 48 of the Evidence Act and the Court cannot take judicial notice of it. Before the Adjudicating Authority, MJPL (A3) and HDFC bank played the same tune and they were on the same page obviously because, the HDFC bank did not want to lose Rs.143 crores as it had given loans to MJPL (A3). 

# 17. Unlike the FERA, the Customs Act and the Central Excise Act, where the Adjudicating Authority deals completely with the confiscation proceedings, under the PML Act, the Adjudicating Authority interferes only to confirm the interim order of attachment passed by the Enforcement Officer under Section 5 of the PML Act. In other words, under Section 5 of the PML Act, the Enforcement Officer has the power to pass an interim order of attachment, to safeguard the proceeds of crime from disappearing and the Adjudicating Authority, who exercises powers under Section 8 of the PML Act decides, whether the interim attachment was proper or improper. He has no authority to confiscate the proceeds of crime and that power is vested once again with the Special Court under Section 8(5) to (8) of the PML Act.

# 18. In a given case, the Special Court can proceed with the trial, even if the Enforcement Officer had not passed any order under Section 5 of the PML Act. Neither in Radheshyam Kejriwal (supra) nor in Ashoo Surendranath Tewari (supra), the Supreme Court has held as a matter of thumb rule that whenever an Adjudicating Authority exonerates a person, its findings are binding on the criminal Court. In both the cases, the Supreme Court went deeply into the adjudication order and thereafter, quashed the prosecutions by holding that no useful purpose would be served by prosecuting the offender, in the light of the findings of the Adjudicating Authority.

# 19. In the case at hand, the picture is totally different. The criminal Court can independently come to a conclusion that the 22 fixed deposits were proceeds of crime and they were projected as untainted money from MJPL (A3) and Suresh Khatri (A4). The other distinguishing feature in this case is that, the total proceeds of crime is Rs.318.75crores, out of which, the 22 fixed deposits represent only Rs.143 crores and for the balance amount which has gone into the kitty of MJPL (A3), they can be prosecuted as abettors of the offence of money laundering committed by KGPL (A1). Lastly, the order of the Adjudicating Authority in this case, has not attained finality and the same is pending before the Tribunal and therefore, on this ground too, the criminal prosecution cannot be quashed.

# 20. Mr.A. Ramesh placed strong reliance on the order of cognizance dated 13.07.2018 passed by the Special Court while taking the complaint on file and submitted that the said order does not reflect application of mind. It is his main grievance that this Court had earlier failed to appreciate the fact that a three Judge Bench had decided the case in Sunil Bharti Mittal Vs. CBI [(2015) 4 SCC 609] and that judgment has to be relied upon as laying down the law on the subject and not any subsequent judgment of a two Judge Bench.

# 21. Mr.A.Ramesh further submitted that Sunil Bharti Mittal (supra) has been subsequently considered by the Supreme Court in Mehmood Ul Rehman Vs. Khazir Mohammad Tunda and Others [(2015) 12 SCC 420], where the cognizance order has been quashed, on the ground that it did not reflect application of mind. He shoved up his arguments by placing reliance on a judgment of the Karnataka High Court in S.C.Jayachandran Vs. Enforcement Directorate (W.P.No.18442 of 2017 decided on 17.12.2020), wherein, a learned Singe Judge has quashed the order of cognizance, by relying upon the judgment of the Supreme Court in Sunil Bharti Mittal (supra) and has directed the trial Court to pass orders afresh.

# 22. In criminal law, the principle of stare decisis cannot be mechanically applied. In Sunil Bharti Mittal (supra), the CBI had filed a charge sheet against Bharti Cellular Ltd. and other telecom companies and one Shyamal Ghosh. While taking cognizance, the Special Judge added Sunil Bharti Mittal, Chairman-cum-Managing Director of Bharti Cellular Ltd. and issued process to him. This was the subject matter of the challenge before the Supreme Court. The Supreme Court went into the charge sheet that was filed by the CBI and found that the CBI themselves had come to the opinion that there was no material to implicate Sunil Bharti Mittal. In fact, in paragraph 32 of the judgment, the Supreme Court held as follows :

• ”32. The fulcrum of the issue before us is the validity of that part of the impugned order vide which the two appellants who were not named in the charge-sheet, have been summoned by the Special Judge, for the reasons given therein.”

After discussing the facts, the Supreme Court held in paragraph 53 as under:

• ”53. However, the words “sufficient ground for proceeding” appearing in Section 204 are of immense importance. It is these words which amply suggest that an opinion is to be formed only after due application of mind that there is sufficient basis for proceeding against the said accused and formation of such an opinion is to be stated in the order itself. The order is liable to be set aside if no reason is given therein while coming to the conclusion that there is prima facie case against the accused, though the order need not contain detailed reasons. A fortiori, the order would be bad in law if the reason given turns out to be ex facie incorrect.”

The above passage should be seen from the context it was stated. It was stated in the context in which, Sunil Bharti Mittal was not an accused in the charge sheet and he was included as an accused by the Special Judge, while taking cognizance of the offence disclosed in the charge sheet. Similarly, in Mehmood Ul Rehman (supra), the Supreme Court dealt with a private complaint for defamation. It may be pertinent to extract paragraph 21 of the said judgment :

• ”21. Under Section 190(1)(b) CrPC, the Magistrate has the advantage of a police report and under Section 190(1)(c) CrPC, he has the information or knowledge of commission of an offence. But under Section 190(1)( a ) CrPC, he has only a complaint before him . The Code hence specifies that “a complaint of facts which constitute such offence”. Therefore, if the complaint, on the face of it, does not disclose the commission of any offence, the Magistrate shall not take cognizance under Section 190(1)(a) CrPC. The complaint is simply to be rejected.” (emphasis supplied)

# 23. However, very recently in State of Gujarat Vs. Afroz Mohammed Hasanfatta [(2019) 20 SCC 539], the Supreme Court, in paragraph 22, held as follows :

• “22. In summoning the accused, it is not necessary for the Magistrate to examine the merits and demerits of the case and whether the materials collected is adequate for supporting the conviction. The court is not required to evaluate the evidence and its merits. The standard to be adopted for summoning the accused under Section 204 CrPC is not the same at the time of framing the charge. For issuance of summons under Section 204 CrPC, the expression used is “there is sufficient ground for proceeding…”; whereas for framing the charges, the expression used in Sections 240 and 246 IPC is “there is ground for presuming that the accused has committed an offence…”. At the stage of taking cognizance of the offence based upon a police report and for issuance of summons under Section 204 CrPC, detailed enquiry regarding the merits and demerits of the case is not required. The fact that after investigation of the case, the police has filed charge-sheet along with the materials thereon may be considered as sufficient ground for proceeding for issuance of summons under Section 204 CrPC.“

The above statement of law cannot be distinguished by contending that it would apply only for a police report because, all investigations culminate in the investigating agencies filing either a police report or a complaint with the materials collected by them, for the Court to take cognizance thereon. 

# 24. In a simple private complaint case, the Magistrate may not have any materials dehors the sworn statement of the complainant to take cognizance of the offences alleged in the complaint. In such cases, it will be desirable, if the Magistrate passes an order giving reasons for taking cognizance of the offence and issuing process. In this case, along with the complaint, the Enforcement Directorate has filed 56 documents and also the statements recorded under the PML Act, in support of the allegations in the complaint.

# 25. The Supreme Court was aware that in a private complaint, apart from the complaint, there will not be any other material before the Magistrate, while taking cognizance. This is clear from the underlined portion in paragraph 21 of Mehmood Ul Rehman (supra). Superadded, we cannot lose sight of the following judgments of the Supreme Court, wherein, it has been held in no uncertain terms that failure of the Magistrate to pass a detailed cognizance order, will not vitiate the act of taking cognizance: U.P. Pollution Control Board Vs. Mohan Meakins Ltd. and others [(2000) 3 SCC 745] Kanti Bhadra Shah and another Vs. State of West Bengal [(2000) 1 SCC 722] Dy. Chief Controller of Imports & Exports Vs. Roshanlal Agarwal and others [(2003) 4 SCC 139] Jagdish Ram Vs. State of Rajasthan and another [(2004) 4 SCC 432] Bhushan Kumar and another Vs. State (NCT of Delhi) and another [(2012) 5 SCC 424] In Bhushan Kumar (supra), the Supreme Court has held in unequivocal terms that the summoning order under Section 204 Cr.P.C. requires no explicit reasons to be stated because, it is imperative that the Magistrate must have taken notice of the accusations and applied his mind to the allegations made in the police report and the materials filed therewith. Illustration (e) to Section 114 of the Evidence Act says, "The Court may presume that judicial and official acts have been regularly performed". In view of the above discussions, the cognizance order in this case does not deserve to be quashed.

# 26. Finally, Mr.A.Ramesh assailed the prosecution by submitting that the entire prosecution is founded upon a forensic audit report, but, the report itself says that, it cannot be used for any judicial purpose. This Court is unable to persuade itself to agree with the above submission because, the forensic audit report had triggered the investigation and no report can ever form the only basis for convicting a person of an offence. The prosecution has to prove the offence, by adducing evidence and this opportunity has to be given to the prosecution in this case too. In the result, the prosecution of MJPL (A3) and Suresh Khatri (A4) cannot be said to be unfounded and accordingly, these Criminal Original Petitions are dismissed. Connected Crl.M.Ps are closed.

-------------------------------------------