Supreme Court Sets Aside Stay on Investigation in Money Laundering Case: Directorate of Enforcement vs. Niraj Tyagi & Ors. (2024)

Introduction

Date of the Judgment: 13th February 2024
Citation: 2024 INSC 106
Judges: Bela M. Trivedi, J., Prasanna B. Varale, J.
Can High Courts stay investigations of criminal cases, especially when financial irregularities and money laundering are alleged? The Supreme Court of India recently addressed this critical question, setting aside interim orders that had halted investigations into a complex financial dispute. This judgment underscores the principle that investigations should proceed without undue interference, especially when serious economic offenses are suspected. The bench comprised of Justices Bela M. Trivedi and Prasanna B. Varale, with Justice Bela M. Trivedi authoring the judgment.

Case Background

The case revolves around a financial dispute involving India Bulls Housing Finance Limited (IHFL), a non-banking financial institution, and the Shipra Group. IHFL had sanctioned loans of ₹2,801 crores to the Shipra Group between 2017 and 2020, secured by shares of various companies, including M/s Kadam Developers Pvt. Ltd. (M/s Kadam). When the Shipra Group defaulted on repayments, IHFL initiated recovery proceedings, which led to the sale of M/s Kadam’s shares to Final Step Developers P. Ltd., a subsidiary of M3M India P. Ltd., for ₹750 crores. The funds for this purchase were provided by IHFL itself through a loan to M3M India.

Subsequently, the mortgaged properties, including a 73-acre land parcel in Noida and the ‘Shipra Mall’ in Ghaziabad, were also sold by IHFL to recover its dues. This series of transactions led to multiple FIRs being filed against IHFL and its officers, alleging fraud, forgery, and conspiracy. These FIRs claimed that IHFL had undervalued the properties and shares, causing significant losses to the Shipra Group. Additionally, the Yamuna Expressway Industrial Development Authority (YEIDA) filed an FIR alleging that IHFL had transferred shares of M/s Kadam without seeking their permission, violating the terms of the sub-lease.

Timeline:

Course of Proceedings

Following the registration of multiple FIRs, IHFL and its officers filed a writ petition before the Supreme Court (W.P. (Crl) No. 166 of 2023). The Supreme Court, on 04.07.2023, directed the petitioners to approach the respective jurisdictional High Courts to challenge the FIRs and the Enforcement Case Information Report (ECIR) registered by the Directorate of Enforcement (ED). The Supreme Court also granted interim protection to the financial institution and its officers, directing that no coercive steps be taken against them until the High Court’s decision.

Subsequently, the High Court of Judicature at Allahabad, based on the Supreme Court’s order, stayed the proceedings of the FIRs and the ECIR. The High Court also directed that no coercive action be taken against the concerned respondents pending the writ petitions. The Directorate of Enforcement, aggrieved by these interim orders, filed the present appeals before the Supreme Court.

Legal Framework

The judgment primarily revolves around the interpretation and application of Section 482 of the Code of Criminal Procedure (CrPC), which grants inherent powers to the High Court to prevent abuse of the legal process. The Supreme Court emphasized that these powers must be exercised sparingly and with circumspection, particularly when it comes to staying investigations of cognizable offenses. The Court referred to its earlier decision in Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra and Others [(2021) SCC Online SC 315], which laid down guidelines for High Courts while considering stay of investigations.

The Court reiterated that police have a statutory right and duty to investigate cognizable offenses, and courts should not thwart such investigations unless no offense is disclosed in the FIR. The power to quash should be an exception rather than a rule, and courts should not delve into the merits of the allegations at the initial stage of investigation. The Court also noted that an order not to arrest an accused is akin to granting anticipatory bail under Section 438 of the CrPC, which requires a separate application and satisfaction of specific conditions.

Arguments

Arguments by the Directorate of Enforcement (Appellant):

• The Additional Solicitor General (ASG) argued that the Supreme Court’s earlier order staying the ECIR and FIRs was passed without hearing the ED.
• The ASG contended that the High Court, without assigning cogent reasons, stayed the proceedings of the ECIR and FIRs, under the guise of following the Supreme Court’s order.
• The ASG heavily relied on the decision of the Three-Judge Bench in Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra and Others [(2021) SCC Online SC 315], submitting that the Supreme Court has strongly deprecated the practice of courts granting interim orders staying the investigation or directing the investigating agencies not to take coercive actions against the accused.
• The ED argued that the High Court’s orders were in direct violation of settled legal principles.

Arguments by the Respondents (Accused):

• The respondents argued that the complainant, Shipra Group, had failed in all proceedings under the SARFAESI Act and before the High Court and had taken recourse to criminal proceedings to create fear amongst the financial institution and its officers.
• The respondents submitted that the High Court, considering the order passed by the Supreme Court in Gagan Banga’s case, had rightly protected the financial institution and its officers who had discharged their duties for the recovery of dues.
• The respondents relied on the decisions of the Supreme Court in K. Virupaksha and Another vs. State of Karnataka and Another [(2020) 4 SCC 440] and A.P. Mahesh Cooperative Urban Bank Shareholders Welfare Association vs. Ramesh Kumar Bung and Others [(2021) 9 SCC 152], to submit that even in the case of Neeharika Infrastructure (supra), the discretion has been conferred on the High Court to pass interim orders in exceptional cases for not taking coercive steps against the accused pending the proceedings, particularly when the proceedings under the SARFAESI Act were initiated against the borrowers.
• The respondents argued that the borrowers should not be permitted to prosecute the financial institution or its officers or the purchasers just to instill fear in their mind, which would affect the economic health of the nation.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues addressed by the Court were:

1. Whether the High Court was justified in staying the investigations of the FIRs and the ECIR, particularly when the investigations were at a nascent stage.
2. Whether the High Court’s orders were in consonance with the settled legal position regarding the exercise of powers under Section 482 of the CrPC.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court relied on the following authorities:

• Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra and Others [(2021) SCC Online SC 315] – This case laid down guidelines for High Courts while considering stay of investigations under Section 482 of the CrPC. The Supreme Court heavily relied on this judgment to emphasize that High Courts should not routinely stay investigations, especially at a nascent stage. It was held that police have a statutory right to investigate cognizable offences, and courts should not thwart such investigations unless no offence is disclosed in the FIR.
• State of Telangana vs. Habib Abdullah Jeelani and Others [2017 (2) SCC 779] – This case emphasized that a direction not to arrest an accused in proceedings under Section 482 of the CrPC amounts to an order under Section 438 of the CrPC, without the satisfaction of the conditions of that provision.
• K. Virupaksha and Another vs. State of Karnataka and Another [(2020) 4 SCC 440] – This case was cited by the respondents to argue that the High Court has the discretion to pass interim orders for not taking coercive steps against the accused in exceptional cases. However, the Supreme Court did not find this argument persuasive in the present case.
• A.P. Mahesh Cooperative Urban Bank Shareholders Welfare Association vs. Ramesh Kumar Bung and Others [(2021) 9 SCC 152] – This case was also cited by the respondents to support their argument that the High Court has the discretion to pass interim orders. However, the Supreme Court distinguished this case and held that the High Court’s orders were not in line with settled legal principles.

The Supreme Court also considered the following legal provisions:

• Section 482 of the Code of Criminal Procedure (CrPC) – This section grants inherent powers to the High Court to prevent abuse of the legal process. The Supreme Court emphasized that these powers must be exercised sparingly and with circumspection.
• Section 438 of the Code of Criminal Procedure (CrPC) – This section deals with anticipatory bail. The Supreme Court noted that an order not to arrest an accused is akin to granting anticipatory bail without the necessary conditions being met.

Judgment

How each authority was viewed by the Court:

• Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra and Others [(2021) SCC Online SC 315]*: This authority was followed by the Supreme Court. The court reiterated the guidelines laid down in this case, emphasizing that High Courts should not routinely stay investigations.
• State of Telangana vs. Habib Abdullah Jeelani and Others [2017 (2) SCC 779]*: This authority was followed by the Supreme Court. The court reiterated the principle that a direction not to arrest is akin to granting anticipatory bail without the necessary conditions being met.
• K. Virupaksha and Another vs. State of Karnataka and Another [(2020) 4 SCC 440]*: This authority was distinguished by the Supreme Court. The court held that the facts of this case were different, and the High Court’s orders were not in line with settled legal principles.
• A.P. Mahesh Cooperative Urban Bank Shareholders Welfare Association vs. Ramesh Kumar Bung and Others [(2021) 9 SCC 152]*: This authority was also distinguished by the Supreme Court. The court held that the facts of this case were different, and the High Court’s orders were not in line with settled legal principles.

The Supreme Court set aside the interim orders passed by the High Court, stating that they were in utter disregard of the guidelines issued in Neeharika Infrastructure. The Court emphasized that the inherent powers under Section 482 of the CrPC do not confer arbitrary jurisdiction on the High Court to act according to its whims or caprice. The Court reiterated that the statutory power has to be exercised sparingly with circumspection and in the rarest of rare cases.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to uphold the rule of law and ensure that investigations of cognizable offenses are not unduly hampered. The Court emphasized the importance of allowing investigating agencies to carry out their duties without interference, particularly in cases involving economic offenses. The Court’s reasoning was also influenced by the need to maintain judicial discipline and ensure that High Courts follow the guidelines laid down by the Supreme Court.

The court’s reasoning was heavily based on legal principles and precedents, with a focus on the importance of allowing investigations to proceed without undue interference. The factual aspects of the case were considered, but the legal framework and established guidelines played a more significant role in the court’s decision.

The Supreme Court considered the arguments made by the respondents that the FIRs were malicious and an abuse of process, but it did not delve into the merits of these submissions. Instead, the Court emphasized that the High Court should examine these issues in the pending writ petitions. The Court also considered the argument that the High Court has the discretion to pass interim orders in exceptional cases but held that the High Court’s orders were not in line with settled legal principles.

The Supreme Court’s decision was based on a step-by-step analysis of the legal framework, the facts of the case, and the arguments made by both parties. The Court’s reasoning was clear, logical, and well-supported by legal precedents.

“In our opinion, it’s a matter of serious concern that despite the legal position settled by this Court in catena of decisions, the High Court has passed the impugned orders staying the investigations of the FIRs and ECIR in question in utter disregard of the said settled legal position.”

“The statutory power has to be exercised sparingly with circumspection and in the rarest of rare cases.”

“The impugned orders passed by the High Court being not in consonance with the settled legal position, the same deserve to be set aside and are hereby set aside.”

Key Takeaways

• High Courts should not routinely stay investigations of cognizable offenses, especially at a nascent stage.
• The inherent powers of the High Court under Section 482 of the CrPC must be exercised sparingly and with circumspection.
• Orders not to arrest an accused are akin to granting anticipatory bail and should not be passed without the satisfaction of the conditions under Section 438 of the CrPC.
• Accused individuals seeking protection from arrest should apply for anticipatory bail before the competent court.
• The judgment reinforces the principle that investigations should proceed without undue interference, particularly in cases involving economic offenses.
• The judgment emphasizes the need for judicial discipline and adherence to the guidelines laid down by the Supreme Court.

Directions

The Supreme Court clarified that it had not expressed any opinion on the merits of the writ petitions pending before the High Court. The Court directed that it would be open for the concerned respondents-accused to take all legal contentions or take recourse to the legal remedies as may be available to them in accordance with the law. The High Court was directed to decide the writ petitions on their own merits.

Specific Amendments Analysis

Omitted as not applicable.

Development of Law

The ratio decidendi of this case is that High Courts should not routinely stay investigations of cognizable offenses, particularly at a nascent stage, and that orders not to arrest an accused are akin to granting anticipatory bail. This judgment reinforces the guidelines laid down in Neeharika Infrastructure and clarifies the limitations on the High Court’s inherent powers under Section 482 of the CrPC. The judgment does not introduce any new legal principles but reaffirms the existing legal position and emphasizes the need for judicial discipline.

Conclusion

The Supreme Court, in this judgment, set aside the interim orders passed by the High Court of Judicature at Allahabad, which had stayed the investigations of FIRs and the ECIR. The Supreme Court held that the High Court’s orders were in violation of settled legal principles and the guidelines laid down in Neeharika Infrastructure. The Supreme Court emphasized that investigations should proceed without undue interference and that High Courts should exercise their inherent powers under Section 482 of the CrPC sparingly and with circumspection. The judgment reinforces the importance of upholding the rule of law and allowing investigating agencies to carry out their duties effectively.