2024 (7) TMI 1523 - HC - Money Laundering

Petitioner discharged from money laundering case lacking evidence of knowledge that transferred funds were crime proceeds under PMLA Section 3

Mr. Dennis Sagaya Jude Son of Jayaseelan Versus The Directorate of Enforcement & The Deputy Director The Directorate of Enforcement, Bangalore

Karnataka HC allowed petition for discharge in money laundering case involving siphoning of KSAMB funds through forged documents and bank transfers. Court ... Money Laundering - scheduled offence - siphoning of funds - misappropriation of funds of the KSAMB by opening bank accounts by forging the documents and thereafter transferring to different accounts in various other banks - petitioner who is not an accused in the scheduled offence can be prosecuted for the offence under Section 3 punishable under Section 4 of PMLA in the absence of knowledge that the money transferred to his account and utilised were from the proceeds of the crime - HELD THAT:- The Hon’ble Supreme Court in the case of Sh. Satish Mehra v. Delhi Administration & Anr [1996 (7) TMI 555 - SUPREME COURT] construed the provisions of Section 226 of Cr.P.C., which obliges the prosecution to describe the charge brought against the accused and to state by what evidence the guilt of the accused would be proved and Section 228 of Cr.P.C. which provides for framing of the charge upon grave suspicion of commission of offence, and opined that if a “Judge is fairly certain that there is no prospect of the case ending in conviction the valuable time of the Court should not be wasted for holding a trial only for the purpose of formally completing the procedure to the pronounce the conclusion on a future date.” It further held that if a “Judge is almost certain that the trial would be an exercise in futility or a sheer waste of time it is advisable to truncate” the proceedings the stage of discharge under Section 227 of Cr.P.C. The petitioner is required to rebut the presumption under Section 24 of the Act, 2002, only if there is sufficient evidence or any specific allegation to establish that the petitioner knowingly assisted in concealing the proceeds of the crime or facilitated the use of such proceeds to project illicit proceeds as untainted property. In the case at hand, the petitioner's conduct exhibits neither indirect attempt to indulge, nor active involvement in any process connected with the proceeds of crime as to launder their illicit origin into untainted property. It is apposite to add, at the risk of repetition, that no prima facie evidence has been adduced by the prosecution indicating proof of having knowingly assisted on part of the petitioner herein or having knowingly been a party, in relation to the commission of the offence of money laundering. The continuance of the impugned proceedings on the file of the learned Principal City Civil and Sessions Judge at Bangalore (Special Judge) shall be an abuse of process of law - petition allowed. Issues Involved:1. Prima facie evidence of knowledge of funds being derived from criminal activity.2. Prosecution under Section 3 punishable under Section 4 of PMLA without knowledge of illicit origin of funds.Issue-wise Detailed Analysis:1. Prima facie evidence of knowledge of funds being derived from criminal activity:The case revolves around the petitioner-accused No.17, who challenges the cognizance taken by the Principal City Civil and Sessions Judge at Bangalore for offences under Section 3 read with Section 70 of the Prevention of Money Laundering Act, 2002 (PMLA) and Section 4 of PMLA. The prosecution's case alleges that the petitioner, along with officials from KSAMB and Syndicate Bank, misappropriated funds by forging documents and transferring money across various accounts. The Enforcement Directorate's investigation revealed that the petitioner allegedly admitted to receiving proceeds of the crime without his knowledge and transferring them as instructed by accused No.5.The petitioner's counsel argued that the investigation does not establish that the petitioner knowingly assisted in concealing or utilizing the proceeds of the crime. The absence of essential elements to constitute the offence under Section 3 read with Section 70, punishable under Section 4 of PMLA, was highlighted, suggesting that the prosecution of the petitioner would be an abuse of the legal process.Conversely, the respondent's counsel contended that the material collected during the investigation clearly establishes the petitioner's knowing assistance in concealing the proceeds of the crime in collusion with accused No.5. It was argued that the possession of proceeds of crime is key to the offence of money laundering, and the petitioner must rebut the presumption under Section 24 of the Act.2. Prosecution under Section 3 punishable under Section 4 of PMLA without knowledge of illicit origin of funds:The court examined the provisions of PMLA, particularly Section 3, which defines money laundering and includes activities like concealment, possession, acquisition, or use of proceeds of crime, projecting or claiming them as untainted property. The explanation to Section 3 clarifies that involvement in money laundering can be direct or indirect and is a continuing offence.The court referred to several precedents, including the Supreme Court's rulings in Pavana Dibbur and Anoop Bartaria, which elucidate that an individual can be deemed guilty under Section 3 if they knowingly assisted in concealing the proceeds of the crime, regardless of their connection to the scheduled offence. The essential elements to constitute an offence under Section 3 were reiterated, including involvement with the proceeds of crime, direct or indirect engagement, knowledge or reason to believe the property is derived from criminal activity, and intent to project the proceeds as untainted money.In this case, the petitioner's statement indicated that the receipt of funds was without his knowledge and that he acted on the instructions of accused No.5. The prosecution failed to provide prima facie evidence indicating that the petitioner had knowledge of the funds being derived from criminal activity or that he knowingly assisted in concealing or utilizing the proceeds to project them as untainted money.The court highlighted that the petitioner is not involved in the alleged commission of the scheduled offence and that the complaint does not contain specific allegations against the petitioner. The Supreme Court's guidance in Sh. Satish Mehra v. Delhi Administration & Anr was cited, emphasizing that if there is no prospect of conviction, the trial should not proceed.Conclusion:The court concluded that there is no prima facie evidence to indicate that the petitioner had knowledge of the illicit origin of the funds or knowingly assisted in concealing or utilizing the proceeds of the crime. The continuation of the impugned proceedings would be an abuse of the process of law. Accordingly, the petition was allowed, and the proceedings in Spl.C.C.No.731/2023 were quashed.