PMLA authorities cannot prosecute on notional basis without registered scheduled offence with jurisdictional police

The HC granted interim stay of summons issued to District Collectors in money laundering proceedings. The court held that PMLA authorities cannot prosecute on notional basis or assumption that scheduled offence was committed unless registered with jurisdictional police and pending enquiry/trial. Following SC precedent in Vijay Madanlal Choudhary, the court ruled that proceeds of crime under Section 2(1)(u) PMLA must exist before authorities can initiate prosecution. Mere existence of undisclosed income cannot establish proceeds of crime unless property derived from criminal activity relating to scheduled offence. The court found the enquiry contemplated by impugned summons exceeded respondent's jurisdiction, being merely an attempt to investigate possibility of identifying proceeds of crime from unregistered criminal activity.

---

---

Issues Involved:
1. Jurisdiction and Authority of Enforcement Directorate under PMLA, 2002.
2. Maintainability of Writ Petitions by State Government.
3. Interim Stay of Impugned Summons.
4. Interpretation and Application of PMLA, 2002 Provisions.

Summary:

Jurisdiction and Authority of Enforcement Directorate under PMLA, 2002:
The appellants challenged the summons issued to District Collectors under the PMLA, 2002, arguing that the Enforcement Directorate (ED) exceeded its jurisdiction. They contended that the ED cannot initiate action under PMLA, 2002 for matters outside its scope, terming the proceedings as "malice in law" and a "colourable exercise of power." The ED's actions were alleged to usurp state powers, violating constitutional federalism principles. The court noted that the ED's summons aimed to investigate sand mining activities, which did not directly relate to proceeds of crime under PMLA, 2002. The court found the ED's investigation to be a "fishing expedition" rather than a legitimate inquiry into money laundering.

Maintainability of Writ Petitions by State Government:
The respondent argued that the writ petitions were not maintainable as the State Government was not an "aggrieved person." However, the court held that the State Government could maintain the petitions, as they raised serious issues about the jurisdictional invasion by the ED. The court recognized the State's right to challenge actions that allegedly usurped its powers and affected its administration.

Interim Stay of Impugned Summons:
The court granted an interim stay on the operation of the impugned summons, finding a prima facie case in favor of the petitioners. The court acknowledged the balance of convenience and the potential legal injury to the State Government, justifying the stay. The court emphasized that its observations were preliminary and would not influence the final decision on the main writ petitions.

Interpretation and Application of PMLA, 2002 Provisions:
The court referred to the Supreme Court's interpretation of PMLA, 2002 in the case of Vijay Madanlal Choudhary v. Union of India, emphasizing that the ED could only prosecute if there existed "proceeds of crime" related to a scheduled offense. The court noted that the ED's investigation lacked a direct link to proceeds of crime, as required under PMLA, 2002. The court highlighted that the ED's inquiry appeared to be an attempt to identify potential offenses rather than investigating established proceeds of crime.

Conclusion:
The court found that the ED's summons and investigation exceeded its jurisdiction under PMLA, 2002, and granted an interim stay on the summons. The writ petitions were deemed maintainable, and the court scheduled further hearings for a detailed examination of the issues. The court's interim observations were made to decide the stay and would not affect the final judgment on the main petitions.

---