Appeal overturns property attachment under Prevention of Money Laundering Act

Manturi Shashi Kumar and another. Versus The Director, Directorate of Enforcement, Basheerbagh, Hyderabad

Manturi Shashi Kumar and another. Versus The Director, Directorate of Enforcement, Basheerbagh, Hyderabad - TMI Issues Involved:
1. Legality of the attachment of properties under the Prevention of Money Laundering Act (PMLA) following the closure of the predicate offence.
2. Applicability of Section 320 of the Code of Criminal Procedure (Cr.P.C) regarding compounding of offences and its effect on acquittal.
3. Jurisdiction of the Special Court under Rule 3-A of the Prevention of Money Laundering (Restoration of Property) Rules, 2016.

Summary:

1. Legality of the attachment of properties under PMLA following the closure of the predicate offence:

The appellants filed a writ petition seeking the release of their property from attachment, which was dismissed by the learned Single Judge. The properties were attached following the registration of a case under PMLA after appellant No. 1 was implicated in a criminal case for predicate offences. The criminal case was later closed through a compromise in Lok Adalat, leading to the acquittal of appellant No. 1. The learned Single Judge held that the acquittal was on compromise and not on merit, and thus did not grant relief to the appellants, directing them instead to approach the designated court under Rule 3-A of the Prevention of Money Laundering (Restoration of Property) Rules, 2016.

2. Applicability of Section 320 Cr.P.C regarding compounding of offences and its effect on acquittal:

The appellants argued that compounding of an offence under Section 320 Cr.P.C has the effect of acquittal of the accused, and thus, continuing with the attachment of property under PMLA was not justified. The court noted that Section 320 Cr.P.C allows for the compounding of offences, which results in the acquittal of the accused. Therefore, the closure of the criminal case through Lok Adalat had the effect of acquittal of appellant No. 1.

3. Jurisdiction of the Special Court under Rule 3-A of the Prevention of Money Laundering (Restoration of Property) Rules, 2016:

The respondents contended that the appellants should have approached the designated court under Rule 3-A for the release of the attached property. However, the court observed that Rule 3-A is primarily meant for claimants seeking restoration of property lost due to the predicate offence, which may not apply when the predicate offence itself has been compounded under Section 320 Cr.P.C.

Court's Analysis and Conclusion:

The court referred to the Supreme Court's decision in Vijay Madanlal Choudhary v. Union of India, which emphasized that the offence under Section 3 of PMLA is dependent on the illegal gain of property as a result of criminal activity related to a scheduled offence. If the person is acquitted or the criminal case is quashed, there can be no offence of money laundering against them. The court found that the learned Single Judge erred in refusing relief to the appellants based on the nature of their acquittal. Since the criminal case involving the predicate offence was closed, the continuation of the attachment of the properties was not justified.

Final Judgment:

The court allowed the appeal, setting aside the order of the learned Single Judge, and directed the respondents to release the properties of the appellants from attachment.