PMLA Note

Mott MacDonald Private Limited (MMPL) received a summons from the Directorate of Enforcement regarding a contract between MMPL's previous entity, Dalal Consultants and Engineers Private Limited, and Prakash Industries Limited. The current management of MMPL is not aware of this contract as it was entered into prior to MMPL acquiring the company in 2001. Under the terms of acquisition, the previous management is responsible for any liabilities from business activities before the acquisition. At this stage, there is insufficient information to determine if MMPL is at risk of prosecution under the Prevention of Money Laundering Act since the summons does not provide details of the investigation.

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PMLA Note

Uploaded by

Sachin Sharma

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Background:

In 2001 Mott MacDonald International Limited (MMIL) by way of an agreement of sale of

shares (SPA) dated 13 September 2001 acquired took over the management and controlling
interest of Dalal Consultants and Engineers Private Limited (‘the Company’) through share
purchase. Thereafter, its name was changed to Mott MacDonald Private Limited (MMPL) by
which it is presently known. The Board was also replaced, and hence the present-day
directors were not a part of business and operations the Company prior to Completion of
Share Purchase by MMIL.

On 25 April.04. 2022 we received a summons dated 22 February.02.2022 from the

Directorate of Eenforcement, Chandigarh (ED) under section 50 (2) and 50 (3) of the
prevention of Money Laundering Act, 2002 (hereinafter referred to as PMLA). In this
summons we have been asked for certain information/ documents related to a contract
entered into between MMPL (erstwhile Dalal Consultants and Engineers Private Limited)
and Prakash Industries Limited (PIL) No further details regarding the investigation by the ED
under PMLA have been shared or are available with us at this time.

It should be noted that currently it is PIL that is being investigated by the ED, and MMPL is
being requested to assist through the provision of information. MMPL is not being
investigated. The note below looks at the risk of this situation was to change.

Key Points:

Our current management isn’t aware of any contract or business entered between the
Company and PIL. The contract seems to be prior to 2001. Presently as per our document we
have no information or documents relating to any contract or business with PIL. As per our
document retention policy we are only obligated to retain documents for 15 years and the
transaction with PIL seems to be older than 15 years.

Under Clause 3 of the SPA the vendors being the Management prior to 2001 viz. Mr.
Ramesh Lallubhai Dalal and Mr. Anand Ramesh Dalal have undertaken to the resposnsibilty
and liability and have undertaken to hold the Purchaser i.e. MMIL free and harmless for any
regarding the business and activities of the Company prior to the Completion of purchase of
shares by MMIL.

As the current management was not in-charge of any business or transaction prior to
Completion of purchase of shares by MMIL they cannot be held liable for any acts done
prior to it.

Set out below is a high level summary of the law, as the facts are not currently known, as
there does not appear to be any obvious risk of MMPL being liable.Based on the limited
information mentioned can only give a brief overview of the law in the present situation:

1. Under PMLA , the term “person” includes a company.

2. An offence of money laundering is made out under the Act iof any person is inter alia
knowingly party in any process connected with proceeds of crime. Such activity involves
possession of proceeds of crime which are either in its original form or converted in any other
form of property.

3. Under PMLA, the offence of money laundering is punishable with mandatory

imprisonment and also fine.

4. Since, the Company is not a natural person, the punishment of imprisonment cannot
attractapply. However, in case the charge of money laundering is made out and proven, the
Company would be liable to pay a for fine. [See Standard Chartered Bank vs ED (2005) 4
SCC 530)]

5. Based on the summons received and the information available to us, there is nothing to
suggest that MMPL is guilty of an offence under the Act. Accordingly comment cannot be
made about the riskAs on date, the Company has been served with Summons under Sec. 50
of the Act.

6. The summons does not reveal the charges being investigated by the ED or the details of
complaint

7. Therefore, at this stage it would not be possible to comment on the prospects of

prosecution as well as the risk assessment to the Company.

8. Nonetheless, it can be stated with certainty that the mandatory term of punishment would
not attract in the case of the Company.

9. However, Aas far as the role of the directors/Chairman, etc. is concerned, they cannot be
held vicariously liable for the acts of the company in the absence of any specific role unless
the statute itself fastens the liability (for instance, NI Act). Only those who have perpetrated
the offence (ie the directors at the time) would be held liable. [See Sunil Bharti Mittal v. CBI
(2015) 4 SCC 609] But, given the limited information nothing can be stated with certainty
regarding the imputations qua the directors/chairman at this nascent stage.