The Madras High Court while quashing proceedings under Prevention of Money Laundering Act held that the property purchased from salaries and perquisites paid during employment would not be proceeds of crime.
The Enforcement Directorate has stated how the accused, Sivaramakrishnan, as Accountant, had made false entries in the account books and had inflated the financial status of the company, and had induced the banks to give loans to FLCI.
There is absolutely no mention in the complaint that he had acquired any proceeds of crime by that activity, apart from his salary and bonus. It is true that the criminal activity had resulted in proceeds of crime, coming into the kitty of FLCI and going into the accounts of shell companies and into the accounts of Farouq Irani and his family and not to the family of the employees of FLCI like Sivaramakrishnan.
Sivaramakrishnan’s only duty in FLCI was to engage in criminal activities for which, he was paid a salary. If that had been the case of the Enforcement Directorate or the CBI, then, one can say that the monthly salary earned by him was proceeds of crime.
For example, if a company engages a master forger on a monthly salary to forge documents and help the company to earn profits, then, the salaries paid to the master forger will undoubtedly come within the ambit of the proceeds of crime and he can be prosecuted under the PML Act.
The FLCI’s only job was to engage in criminal activities. In fact, Sivaramakrishnan joined FLCI in the year 1997 the subject loan of Rs.20 crores was given by the SBI on 08.02.2005; similarly, the IDBI Bank sanctioned the loan of Rs.18 crores only on 17.08.2005; only thereafter, the diversion of funds had taken place into the shell companies of FLCI and the proceeds of crime generated.
The division bench of Justices P.N.Prakash and V.Sivagnanam noted that C.B.I. has not found that Sivaramakrishnan benefited financially from the criminal activity of fudging records. Of course, these findings of the C.B.I. are not binding on the Enforcement Directorate, but, this Court cannot turn a Nelson’s eye to this, especially in the light of the fact the Enforcement Directorate themselves have filed a separate complaint against Farouk Irani and Sherna F. Irani for diverting the loan amounts into their personal accounts and into the account of their family Trust and for projecting them as untainted money.
The court disagreed with the observation of the Enforcement Directorate that the salaries and perquisites that were paid to Sivaramakrishnan (A.1) while he was in employment with FLCI would amount to proceeds of crime and any property purchased with that would stand tainted.
Therefore, the court held that the presumption under Section 24 of the PML Act, on facts, the impugned prosecution of Sivaramakrishnan and his wife Ratha under the PML Act is misconceived and the same is accordingly quashed.
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