Court holds that personal acts of company directors cannot be automatically attributed to the company under Prevention of Money Laundering Act, 2002; issues notice and stays further proceedings pending detailed material from Enforcement Directorate.
In a significant development concerning the application of the Prevention of Money Laundering Act, 2002 (PMLA), the Delhi High Court on October 5, 2026, stayed the operation of a trial court's order framing charges against M/s Sujata Hotels Pvt. Ltd. The company had been charged under Section 4 read with Section 3 of the PMLA, following allegations of manipulation in the tendering process for hotel contracts awarded by IRCTC and related land transactions.
The case revolves around accusations that the petitioner company was involved in manipulating the tender process for operating BNR Hotels at Ranchi and Puri and unlawfully transferring land at an undervalued price to M/s DMCPL, a company allegedly benefiting from the scheme. Crucially, the land sale deeds cited in the case were executed by individuals who were directors of the petitioner company, but the company itself was not a party to those deeds.
Senior Advocate Shadan Farasat, representing Sujata Hotels, argued that the trial court's order improperly attributed the personal transactions of the directors to the company without specific material establishing such a connection. He relied on Section 70 of the PMLA, which outlines the liability of companies and persons in charge, emphasizing that company liability cannot be presumed solely on the basis of directors' actions unless there is clear evidence linking those acts to the company.
Justice Sachin Datta, presiding over the case, noted the necessity of distinguishing between the personal acts of directors and acts attributable to the company itself. The court observed that the trial court's order contained broad conclusions about the company's involvement without identifying precise evidence connecting the company to the alleged contraventions under Section 3 of the PMLA. The judge highlighted that mere association of directors with certain acts does not automatically render the company culpable.
In light of these considerations, the High Court issued notice to the respondents, including the Directorate of Enforcement, directing them to produce specific material that establishes the petitioner company's involvement in activities covered by Section 3 of the PMLA. Pending this, the court stayed the framing of charges and further proceedings against Sujata Hotels Pvt. Ltd. in the case registered as Ct. Case No. 22/2019.
The Directorate of Enforcement has been granted four weeks to file its reply with supporting evidence. The matter is scheduled for further hearing on December 3, 2026.
This judgment underscores the principle that corporate liability under anti-money laundering laws requires a clear, evidentiary nexus between the company and the alleged unlawful acts, and that personal misconduct by directors cannot be automatically imputed to the company without substantive proof.
Bottom Line:
Prevention of Money Laundering Act, 2002 - Framing of charge against company - Mere personal acts of directors cannot automatically be attributed to company - Specific material connecting company with contravention under Section 3 PMLA is necessary - Pending consideration, Delhi High Court stayed operation of order framing charge against petitioner company.
Statutory provision(s):
Prevention of Money Laundering Act, 2002 Sections 3, 4, 70
M/s Sujata Hotels Pvt. Ltd. v. Directorate of Enforcement, (Delhi) : Law Finder Doc Id # 2991981
