2024 (9) TMI 246 - HC - Money Laundering

Shareholding does not exempt from money laundering prosecution under Section 3 PMLA, discharge petition dismissed

HC dismissed petition seeking discharge under Section 227 CrPC in PMLA case. Court held that Section 3 PMLA encompasses indirect involvement and mere ... Money-laundering offence under PMLA Section 3 - Offences by companies and liability of persons connected (Section 70 PMLA) - Burden of proof and statutory presumption in proceedings relating to proceeds of crime (Section 24 PMLA) - Discharge under Section 227 Cr.P.C. in PMLA prosecutions - Piercing the corporate veil and shareholder liabilityDischarge under Section 227 Cr.P.C. in PMLA prosecutions - Money-laundering offence under PMLA Section 3 - Whether the petitioner (Accused No.16) is entitled to discharge under Section 227 Cr.P.C. from the prosecution under Section 3 of PMLA - HELD THAT: - The High Court held that the complaint and materials filed by the Enforcement Directorate contain material evidences connecting the petitioner to the processes of placement, layering and integration of proceeds of crime arising from the scheduled offences. The court observed that Section 3 of PMLA penalises direct or indirect attempts, assistance or participation in activities connected with proceeds of crime and is wide enough to cover indirect involvement. Given the special objectives and scheme of PMLA, a prima facie case established by the complaint is sufficient to permit trial to proceed and the standard for discharge at the stage of Section 227 Cr.P.C. in PMLA cases cannot be equated with standards under general penal provisions. Applying this principle to the material in the complaint (including the investigation summary and flowcharts and admissions concerning shareholdings and transfers), the court concluded that the complaint contains sufficient material to require the petitioner to face trial rather than be discharged. [Paras 25, 26, 27, 28, 37]Petition for discharge under Section 227 Cr.P.C. is rejected and the petitioner is not discharged from the PMLA prosecution.Offences by companies and liability of persons connected (Section 70 PMLA) - Burden of proof and statutory presumption in proceedings relating to proceeds of crime (Section 24 PMLA) - Piercing the corporate veil and shareholder liability - Whether mere status as a shareholder absolves the petitioner from prosecution under PMLA and what evidentiary burden applies to a person connected with a company - HELD THAT: - The court held that Section 70 of PMLA, read harmoniously with Section 3, contemplates liability of persons connected with a company where contraventions have occurred and makes such persons amenable to proceedings; the proviso to Section 70 places on the accused the burden to prove that contravention occurred without his/her knowledge or that due diligence was exercised. Further, Section 24 creates a presumption in proceedings relating to proceeds of crime that such proceeds are involved in money-laundering, shifting the evidential onus on the accused to rebut the presumption. Consequently, the general criminal-law principle that mere shareholding does not automatically attract criminal liability does not have the same effect in PMLA prosecutions; where material evidences in the complaint link a shareholder to the processes involving proceeds of crime, the shareholder must establish lack of knowledge or due diligence at trial to obtain exoneration. [Paras 32, 33, 34, 35, 36]Mere shareholding is not a bar to prosecution under PMLA where material evidences link the person to proceeds of crime; the petitioner bears the onus under the proviso to Section 70 and the presumptions under Section 24 to disprove knowledge or involvement.Relation between predicate offence arraignment and prosecution under PMLA - Scope of PMLA to include persons not charged in predicate offence - Whether absence of the petitioner's name as an accused in the FIR or ECIR/predicate charge-sheet precludes prosecution under PMLA - HELD THAT: - The court rejected the contention that non-arraignment in the predicate FIR/ECIR prevents a prosecution under PMLA. Relying on the principle that a person may not have committed the predicate offence but may still be involved subsequently in money-laundering, the court noted authoritative exposition that Section 3 of PMLA can apply to persons who are involved in processes connected with proceeds of crime even if they were not charged in the scheduled offence. Thus, non-inclusion in the predicate charge-sheet is not decisive at the stage of considering discharge under Section 227 Cr.P.C. [Paras 6, 21, 22]Non-arraignment in the predicate FIR/ECIR does not bar prosecution under PMLA; the question of involvement in laundering must be adjudicated at trial.Final Conclusion: The Criminal Revision is dismissed; the High Court finds that the complaint contains sufficient material to require the petitioner to stand trial under PMLA (Section 3), that liability of a person connected with a company is addressed by Sections 70 and 24 of PMLA and that absence from the predicate charge-sheet does not preclude prosecution under PMLA. Issues Involved:1. Dismissal of the petition under Section 227 of the Criminal Procedure Code for discharge.2. Allegation of money laundering under Section 3 of the Prevention of Money Laundering Act (PMLA).3. Petitioner's involvement and liability as a shareholder.4. Applicability and interpretation of Section 70 of PMLA.5. Burden of proof under Section 24 of PMLA.Issue-wise Detailed Analysis:1. Dismissal of the Petition under Section 227 Cr.P.C. for Discharge:The petitioner, Accused No.16, filed a petition under Section 227 Cr.P.C. for discharge, which was dismissed, leading to the present Criminal Revision Case. The petitioner argued that the allegations in the PMLA complaint do not prima facie constitute the offence of money laundering as defined under Section 3 of PMLA. Despite the trial court noting that the petitioner was not arraigned as an accused in the CBI charge-sheet for the predicate offences, the discharge petition was dismissed.2. Allegation of Money Laundering under Section 3 of PMLA:The case involves loans sanctioned by IDBI Bank to M/s Win Wind Oy, Finland, and M/s Axcel Sunshine Limited, British Virgin Islands, which were allegedly not utilized for their intended purposes. The petitioner was implicated in the process and activity of placement, layering, and integration of the proceeds of crime. The trial court found that the petitioner, as a major shareholder, had no direct involvement in money laundering activities, yet the discharge petition was dismissed.3. Petitioner's Involvement and Liability as a Shareholder:The petitioner contended that she was merely a shareholder and had no involvement in the administration of the company. The petitioner relied on the Supreme Court judgment in Sunil Bharti Mittal vs. CBI, which states that shareholders cannot be prosecuted in the absence of specific evidence of their involvement in the commission of a crime. The trial court, however, noted that the petitioner's status as a shareholder and the transfer of shares from her former husband, who was also an accused, were matters to be proved in trial.4. Applicability and Interpretation of Section 70 of PMLA:Section 70 of PMLA deals with offences by companies, stating that every person responsible for the conduct of the business of the company shall be deemed to be guilty of the contravention. The petitioner argued that she did not participate in any decisions or activities of the company. The court clarified that Section 70 should be read harmoniously with Section 3 of PMLA, which includes indirect involvement in money laundering activities. The court emphasized that the burden of proof lies on the petitioner to show that the contravention took place without her knowledge.5. Burden of Proof under Section 24 of PMLA:Section 24 of PMLA shifts the burden of proof to the accused to prove that the proceeds of crime are not involved in money laundering. The court stated that the petitioner must prove her innocence during the trial. The complaint contained material evidence for prosecution, and the petitioner must undergo trial to establish her lack of knowledge or involvement in money laundering activities.Conclusion:The court dismissed the Criminal Revision Case, concluding that the trial court's findings were not erroneous. The trial court is to proceed with the trial uninfluenced by the observations made in the present order. The petitioner's discharge from PMLA proceedings was denied, emphasizing the need for a trial to determine her innocence based on the material evidence available in the complaint.