2022 (9) TMI 1448 - HC - Money Laundering

High Court rules money laundering trial can proceed independently but must await scheduled offence trial to prevent contradictory outcomes.

M/s. JAGATI PUBLICATION LTD Versus ENFORCEMENT DIRECTORATE

The High Court quashed the Special Court's order directing the trial for money laundering to precede the trial for the scheduled offence. It ruled that ... Money Laundering - scheduled offence - proceeds of crime - Seeking a correction in the appropriate procedure to be followed while conducting enquiry and trial of offences classified as “scheduled offences” under the Prevention of Money Laundering Act, 2002 - HELD THAT:- In Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT], Supreme Court was called upon to deal with the pleas concerning validity and interpretation of certain provisions of PMLA and the procedure followed by the Enforcement Directorate while inquiring into/investigating offences under PMLA. Following the decision of the Supreme Court in Nikesh Tarachand Shah v. Union of India [2017 (11) TMI 1336 - SUPREME COURT], Parliament amended Section 45 of PMLA vide Act 13 of 2018 so as to remove the defect noted in the said decision and to revive the effect of the twin conditions specified in Section 45 to offences under PMLA. Supreme Court has expressed the view that expression proceeds of crime which is the very essence of the offence of money laundering needs to be construed strictly. Only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence can be regarded as proceeds of crime. On the above basis, Supreme Court has held that in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction either on account of discharge or acquittal or quashing of the criminal case (scheduled offence), there can be no action for money laundering against such a person or a person claiming through him in relation to the property linked to the stated scheduled offence. No other view is possible - Supreme Court expressed the view that it is unfathomable as to how the action of confiscation can be resorted to in respect of property in the event of acquittal or discharge of the person in connection with the scheduled offence. The above decision of the Supreme Court has now cleared the legal position. It succinctly sums up that offence under Section 3 is dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence. In the event of acquittal of the person concerned or being absolved from the allegation of criminal activity relating to scheduled offence and if it is established that crime property in the concerned case is rightly owned and possessed by the concerned person, such a property by no stretch of imagination can be termed as crime property. Thus, Supreme Court has rendered a clear and categorical finding that offence under Section 3 of PMLA is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. If the person is finally discharged/acquitted of the scheduled offence or criminal case against him is quashed by a Court of competent jurisdiction, there can be no offence of money laundering against him or anyone claiming such property being the property linked to stated scheduled offence through him. Section 44 of PMLA clarifies that notwithstanding anything in CrPC, any scheduled offence and an offence punishable under Section 4 of PMLA are to be tried by the Special Court having territorial jurisdiction. However, if the Court which had taken cognizance of the scheduled offence is other than the Special Court which has taken cognizance of the complaint of the offence of money laundering, the authority authorized under the PMLA to file complaint shall file an application before the Special Court trying the scheduled offence and on such application being filed, the Special Court shall commit the case relating to the scheduled offence to the Special Court, which shall thereafter proceed with the case from the stage at which it is committed. The purpose behind this provision is to ensure that the scheduled offence and the offence of money laundering under PMLA are not tried by two different Courts which may lead to contrary/conflicting verdicts - Section 235 of CrPC says that after hearing arguments and point of law, the judge shall give a judgment in the case, which may either be of acquittal or of conviction. It is on this basis, Supreme Court has observed that conviction under Section 4 of PMLA for committing offence under Section 3 is dependent upon conviction for a scheduled offence; if there is no crime there cannot be any proceeds of crime. And if there are no proceeds of crime, the offence of money laundering cannot be sustained. The position which emerges is that existence of scheduled offence and proceeds of crime being the property derived or obtained as a result of criminal activity relating to the scheduled offence are sine qua non for not only initiating prosecution under PMLA, but also for continuation thereof. In the absence of these two conditions, the Special Court dealing with the offence under PMLA would not be competent to pronounce on the guilt or otherwise of the person concerned accused of money laundering. Petition allowed. Issues Involved:1. Whether the offence of money laundering under Section 3 of PMLA is a standalone offence.2. Whether the trial for money laundering should precede, follow, or be conducted simultaneously with the trial for the scheduled offence.3. The impact of the Supreme Court decision in Vijay Madanlal Choudhary v. Union of India on the trial procedures under PMLA.Issue-wise Detailed Analysis:1. Standalone Nature of Money Laundering Offence:The petitioner contended that the offence of money laundering is not a standalone offence and should be dependent on the outcome of the trial for the scheduled offence. The respondent argued that money laundering is a standalone offence, independent of the scheduled offence. The Special Court initially held that money laundering is a standalone offence and should precede the trial for the scheduled offence. However, the Supreme Court in Vijay Madanlal Choudhary clarified that the offence under Section 3 of PMLA is dependent on the illegal gain of property as a result of criminal activity relating to a scheduled offence.2. Sequence of Trials:The petitioner argued that the trial for the scheduled offence should precede or be conducted simultaneously with the trial for money laundering to ensure a fair trial. The respondent maintained that the trial for money laundering could proceed independently. The Special Court ruled that the trial for money laundering should precede the trial for the scheduled offence. However, the Supreme Court in Vijay Madanlal Choudhary emphasized that the existence of proceeds of crime is essential for initiating prosecution under PMLA, and in the event of acquittal in the scheduled offence, the offence of money laundering cannot be sustained.3. Impact of Supreme Court Decision in Vijay Madanlal Choudhary:The Supreme Court decision in Vijay Madanlal Choudhary significantly impacted the interpretation and application of PMLA. The Court clarified that the offence of money laundering is dependent on the wrongful and illegal gain of property from a scheduled offence. It also highlighted that if the accused is acquitted of the scheduled offence, there can be no prosecution for money laundering. This decision overruled the earlier view that money laundering is a standalone offence and can be tried independently of the scheduled offence.Conclusion:The High Court quashed the Special Court's order dated 11.01.2021, which held that the trial for money laundering should precede the trial for the scheduled offence. The High Court directed that while the trial for money laundering can proceed independently, it should await the outcome of the trial for the scheduled offence to avoid paradoxical results. This decision aligns with the Supreme Court's ruling in Vijay Madanlal Choudhary, ensuring that the trial for money laundering is contingent on the outcome of the trial for the scheduled offence. The Criminal Petition was allowed to this extent, and any pending miscellaneous petitions were closed.