2024 (1) TMI 336 - HC - Money Laundering

High Court dismisses writ appeals challenging provisional attachment orders in money laundering cases

The AP HC dismissed writ appeals challenging provisional attachment orders in money laundering cases. The court held that economic offences cannot be ... Money Laundering - provisional attachment order - economic offences can be quashed at the investigation stage on the ground that the matter had been settled between the parties as they were public wrongs committed against the society? HELD THAT:- In the case of Ram Kishan Fauji [2017 (3) TMI 1780 - SUPREME COURT], the Apex Court had not accepted the view expressed by a full Bench of the Andhra Pradesh High Court, wherein it held that, when the power was exercised under Article 226 of the Constitution for quashing of a criminal proceeding, there was exercise of criminal jurisdiction. A distinction was sought to be made between proceedings for quashing of the FIR under Section 482 of the Criminal Procedure Code and the powers exercisable by the High Court under Article 226 of the Constitution for quashing of criminal proceedings. The present writ appeals are not maintainable and are accordingly dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an intra-court appeal under Clause 15 of the Letters Patent is maintainable against an order passed under Article 226 of the Constitution quashing investigation/proceedings initiated under the Prevention of Money Laundering Act, 2002 (PMLA, 2002) and ancillary orders (ECIR, provisional attachment, original complaint). 2. Whether quashing of predicate FIR(s) arising from disputes between rival groups in a society (public wrongs alleged in economic/offence context) at the investigation stage bars initiation or continuation of proceedings under the PMLA, 2002 - i.e., whether money-laundering proceedings can subsist where the scheduled offence/predicate FIR has been quashed. 3. Application and effect of binding precedents on (a) the relationship between quashing of predicate offences and viability of money-laundering charges, and (b) the scope of Letters Patent clauses in relation to criminal jurisdiction exercised via writ petitions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of intra-court appeal under Letters Patent against Article 226 orders quashing criminal proceedings Legal framework: Clause 15 of the Letters Patent permits intra-court appeals to a Division Bench from orders of a single Judge, subject to exceptions where appeals are barred in matters involving criminal jurisdiction. The constitutional power under Article 226 permits High Courts to issue writs, including quashing criminal proceedings; Section 482 Cr.P.C. confers inherent jurisdiction to quash FIRs/proceedings. Precedent treatment: The judgment follows the ratio of the Apex Court in Ram Kishan Fauji which rejected a view that Article 226 quashing orders are not 'criminal jurisdiction' for the purpose of Letters Patent appeal bars. Earlier contrasting approaches by some High Courts were considered and expressly disapproved by the Apex Court. Interpretation and reasoning: The Court adopts the Apex Court's broad conception of 'criminal jurisdiction' as used in Letters Patent clauses, observing that the subject matter - inception and consequence of criminal proceedings - is determinative, not the procedural vehicle (Article 226 writ vs. Section 482 Cr.P.C.). Allowing intramural appeals only where the order arose under Article 226 but barring them where the same relief is sought under Section 482 Cr.P.C. would produce anomalous results and undermine the legislative intent behind the Letters Patent bar. The Court therefore applies Ram Kishan Fauji to conclude that appeals are barred. Ratio vs. Obiter: Ratio - The decision that an intra-court appeal under Clause 15 is not maintainable where the single Judge's order quashes criminal proceedings under Article 226, because such matters fall within the ambit of criminal jurisdiction for purposes of the Letters Patent bar, follows the binding precedent and constitutes the Court's operative ratio in these appeals. Obiter - ancillary comments on procedural anomalies that would result from a contrary view are explanatory but support the ratio. Conclusion: The writ appeals are not maintainable and must be dismissed on the ground of the Letters Patent bar as clarified by the Apex Court in Ram Kishan Fauji; consequently the Court refrains from deciding substantive contested questions regarding the merits of the PMLA investigation and related orders. Issue 2 - Effect of quashing of predicate FIR(s) on proceedings under the PMLA, 2002 (money-laundering investigation) Legal framework: Section 3 of PMLA, 2002 criminalises offences relating to proceeds of crime derived from scheduled offences; the investigation under PMLA ordinarily depends on the existence or pendency of a scheduled offence registered with the jurisdictional police or before a competent forum. Precedent treatment: The Court records and summarises the Apex Court's reasoning in Vijay Madanlal Choudhary (and subsequent reaffirmation in Nik Nish Retail Ltd.) which holds that if a predicate offence is quashed by a Court of competent jurisdiction, there can be no offence of money-laundering linked to that predicate act; prosecution under PMLA cannot proceed on a notional basis without a registered/pending scheduled offence. Interpretation and reasoning: The writ Court in the underlying petition quashed the ECIR and related PMLA orders following Vijay Madanlal Choudhary, treating the quashing of the FIRs as undermining the statutory foundation for money-laundering proceedings. In the present appeal the appellants challenged that quashal on public-wrong/economic-offence policy grounds, contending that economic offences cannot be quashed merely because parties have settled disputes between themselves. The present Division Bench recognises these contentions and the settled Apex Court law but expressly refrains from adjudicating the substantive conflict because the appeal is dismissed as not maintainable under Ram Kishan Fauji. Ratio vs. Obiter: Obiter (in relation to the present appeal) - The Court does not pronounce new law or depart from Vijay Madanlal; it records the precedent and acknowledges its application by the writ Court, but declines to express further opinion on the viability of quashing economic offences at investigation stage in the context of PMLA where predicate FIRs are quashed, because maintainability bars adjudication here. The statements summarising Vijay Madanlal are treated as authoritative background rather than fresh ratio of this Bench. Conclusion: Although precedent supports that quashing of predicate offences negates money-laundering charges dependent on them, the Court does not decide the substantive issue in these appeals due to the non-maintainability ruling; therefore no alteration of the writ Court's quashal is undertaken on the basis of PMLA substantive law. Issue 3 - Relationship between settlement/consent among disputing parties and quashing of FIRs leading to PMLA consequences Legal framework: Quashing of FIRs or criminal proceedings may be sought under Article 226 or Section 482 Cr.P.C. where the Court is satisfied that the FIR arises out of matters susceptible to compromise/settlement or is otherwise fit for quashal; PMLA proceedings derive validity from existence of scheduled offences. Precedent treatment: The Court notes the factual matrix where earlier civil/management disputes between rival groups in a registered society led to agreement to refer disputes to arbitration and led to subsequent petitions and an affidavit by the complainant consenting to quash the FIRs; the writ Court relied on Vijay Madanlal to quash PMLA actions following quashal of predicate FIRs. The present Bench, however, does not entertain a substantive re-examination in light of the maintainability bar established by Ram Kishan Fauji. Interpretation and reasoning: The Court recognises the policy argument advanced by appellants - that public wrongs and alleged economic offences should not be quashed merely on inter se settlement - but confines itself to procedural law: where the Letters Patent bar applies to intra-court appeals in criminal matters, the appellate forum cannot entertain the challenge. The Court indicates that the proper route to challenge quashal is by proceedings competent to attack the underlying quashing order (as noted in subsequent Apex rulings), but does not engage in evaluating whether settlement/consent was an appropriate foundation for quashal in this record. Ratio vs. Obiter: Obiter - observations that issues of settlement vs. public wrongs raise difficult policy questions and that appropriate remedies exist to challenge quashal are not adjudicative conclusions in this appeal but procedural guidance; no substantive ratio on this issue is laid down by the Court. Conclusion: The Court declines to decide whether settlement among parties justified quashal of FIRs leading to extinguishment of PMLA proceedings; the appeal is dismissed on the maintainability ground, leaving any substantive contest about the propriety of quashal to be litigated in appropriate proceedings where jurisdictional bars do not apply.