2022 (9) TMI 1427 - HC - Money Laundering

Court Invalidates PMLA Summons Due to Quashed Criminal Cases

The court allowed the writ petitions, concluding that the proceedings under ECIR/MDSZO/21/2021 were not legally sustainable due to the quashing and ... Seeking grant of bail - money laundering - proceeds of crime - applicability of legal maxim sublato fundamento cadit opus (foundation being removed, structure/work falls) - maintainability of petition challenged for the reason that they are highly premature, because, as per Section 50 of the Prevention of Money-laundering Act, the petitioners cannot be said to be aggrieved persons by mere issuance of summons. Effect of stay orders - HELD THAT:- The effect of an order of stay means that the operation of the impugned order is stayed or stands stalled as if the impugned order does not exist. Therefore, to bring the parties to the proceedings from taking further action in relation to the subject matter pending the final adjudication, stay order is granted in the interest of both parties. During the currency of stay order, if any proceedings are permitted to go on and in the meanwhile, if any damage has been caused to the reputation or the goodwill of the parties, the same cannot be compensated. Whereas if the Department waits for the final outcome of the proceedings, no prejudice would be caused to them - since the ECIR itself was only on the basis of the said three First Information Reports, when the proceedings pursuant to the said First Information Reports have been stayed by the High Court, whether the ECIR, which is also pursuant to the First Information Reports, can be proceeded with, is a question that stares at open. The considered answer is in the negative. Generally, the summons are issued for appearance of a party on a particular date. If a party does not appear on the given date, fresh summons demanding the appearance of the person have to be issued. In the present cases, in view of the reasonings and the findings as stated, the last of the summons issued to the petitioners for their appearance on 09.05.2022 have elapsed. Petition allowed. Issues Involved:1. Legality of the summons issued under the Prevention of Money-laundering Act (PMLA).2. Validity of proceedings initiated under ECIR/MDSZO/21/2021.3. Impact of quashing and staying of related criminal cases on PMLA proceedings.Issue-wise Detailed Analysis:1. Legality of the Summons Issued under the PMLA:The petitioners challenged the summons issued under Section 50 of the PMLA, arguing that without a valid predicate offense, the proceedings under the PMLA cannot be sustained. They contended that the summons were issued without any material evidence linking them to proceeds of crime, thus violating their rights under Article 20(2) of the Constitution.The court referred to the Supreme Court's judgment in *Vijay Madanlal Choudhary and others v. Union of India and others, 2022 (10) SCALE 577*, which held that if the criminal case against a person is quashed, there can be no offense of money laundering against that person. The court found that since the proceedings in C.C.No.25 of 2021 were quashed, the respondent department could not proceed against the individuals involved in that case.2. Validity of Proceedings Initiated under ECIR/MDSZO/21/2021:The petitioners argued that the ECIR proceedings were initiated based on three First Information Reports (FIRs) which culminated in C.C.No.19 of 2020, C.C.No.24 of 2021, and C.C.No.25 of 2021. They contended that since the proceedings in C.C.No.25 of 2021 were quashed and the proceedings in the other two cases were stayed, there was no jurisdictional basis for the ECIR.The court agreed, stating that the existence of jurisdictional facts is a sine qua non for the exercise of power by a court of limited jurisdiction. Since the proceedings in the related criminal cases were either quashed or stayed, the ECIR could not be sustained.3. Impact of Quashing and Staying of Related Criminal Cases on PMLA Proceedings:The petitioners argued that the quashing of C.C.No.25 of 2021 and the stay on C.C.No.19 of 2020 and C.C.No.24 of 2021 meant that there were no live proceedings to support the ECIR under the PMLA. They cited the Supreme Court's judgment in *Arun Kumar and others v. Union of India and others, (2007) 1 SCC 732*, which held that the existence of jurisdictional facts is a condition precedent for the exercise of power by a court.The court held that during the period of stay, the proceedings under the PMLA could not continue. It emphasized that the stay order eclipses the proceedings, making them non-operational until the stay is lifted or the cases are finally decided. Therefore, the respondent department was directed to refrain from proceeding further under the ECIR until the related criminal cases were resolved.Conclusion:The court allowed the writ petitions, concluding that the proceedings under ECIR/MDSZO/21/2021 were not legally sustainable due to the quashing and staying of the related criminal cases. The respondent department was directed to await the final outcome of the criminal cases before taking any further action under the PMLA. Consequently, the summons issued to the petitioners were deemed invalid, and the proceedings under the ECIR were stayed.