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

Karnataka HC allowed petition for discharge in money laundering case involving siphoning of KSAMB funds through forged documents and bank transfers. Court held that petitioner, not accused in scheduled offence, cannot be prosecuted under PMLA Section 3 without evidence of knowledge that transferred funds were crime proceeds. Citing SC precedent, court found no prima facie evidence of petitioner knowingly assisting in concealing proceeds or facilitating their use. Prosecution failed to establish petitioner's active involvement in laundering process. Continuing proceedings would constitute abuse of process. Discharge granted.

---

---

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.

---