2025 (1) TMI 434 - HC - Money Laundering

Money laundering charges quashed under Section 482 as petitioners never possessed or controlled proceeds of crime

The HC quashed money laundering proceedings against petitioners under Section 482 Cr.P.C., finding no ingredients of money laundering offense existed. The ... Money Laundering - proceeds of crime - scheduled offence - ambit and scope of exercise of inherent power of this Court saved under Section 482 Cr. P.C. for quashing of a complaint/FIR - HELD THAT:- The consistent view of the Constitutional Courts that it is neither possible not desirable to lay down any inflexible rule which would govern the exercise of inherent jurisdiction and no legislative enactment dealing with procedure can provide for all cases that may possibly arise, thus suggesting that the courts have inherent powers apart from provisions of law which are necessary for proper discharge of functions and duties imposed upon them by law. That is the doctrine which finds expression in Section 482 Cr. P.C. which merely recognises and preserves the inherent power of the High Court to do the right and to undo the wrong in the course of administration of justice on the principle “that when the law gives a person anything, it gives him that without which it cannot exist” and that the inherent power is exercised ex debito justitiae to do real and substantial justice for the administration of which alone the courts exist and that the authority of court exists for advancement of justice and if any attempt is made to abuse the authority so as to produce injustice, the court has power to prevent abuse and that it would be an abuse of process of court to allow any action which would result in injustice and prevent promotion of justice and that in exercise of powers, the court would be justified to quash any proceeding if it finds that the initiation/continuance of it amounts to abuse of process of court or quashing of these proceedings would otherwise serve the ends of justice. Perusal of the record tends to show that initially the investigation in the matter was initiated by the ACB upon registration of FIR 4/2020 under the J&K Prevention of Corruption Act, wherein crux of the composite allegations against the petitioners in both the petitions was that the Society was falsely created which succeeded in obtaining the loan from the Bank on a false premise, which loan had been sanctioned by the Bank illegally and fraudulently without following Standard Operative Procedure, proper documentation, KYC norms, inasmuch as without obtaining tangible security and that the whole exercise had been undertaken by the accused persons including the petitioners herein at the behest and instance of Chairman of the Bank being petitioner, who was alleged to be the kingpin in the whole affair and upon completion of the investigation in the said FIR, charge-sheet came to be laid before the competent court against the petitioners, which is pending trial and whether the accused persons including the petitioners herein committed a scheduled offence is for the court of competent jurisdiction to decide. Further perusal of the record tends to show and as has been noticed in the preceding paras, admittedly no money was transferred to the accounts of the petitioners herein, therefore, there was no occasion for the petitioners herein to indulge in any activity associated with the so called “proceeds of crime” as the money that has been released out of the sanctioned loan, which is described as the “proceeds of crime” in the complaint, had admittedly been transferred/credited directly into the accounts of the land owners and the petitioners herein had never been in possession or control of the said money, which is alleged to have been laundered - In the instant case, “proceeds of crime” in favour of the petitioners would have arisen only had the petitioners developed the plots in the colony and sold them to earn profit in the process, in that, the said profits would have been the “proceeds of crime” and any activity related to such profits may have resulted in money-laundering, which stage in the instant case has not reached. Conclusion - None of the ingredients of the offence of money-laundering against the petitioners herein is found to be existing in the present case, more so in view of the fact that an act of mortgaging the property with the Bank for securing the loan that is said to have been obtained fraudulently without following Banking rules and regulations cannot by any stretch of imagination be termed as money-laundering and that the act of the petitioners herein of having fraudulently secured loan for development and establishment of satellite township by submitting false documents, at the most makes out a case for forgery or Bank fraud. Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe judgment revolves around several core legal questions, including:Whether the registration of the Enforcement Case Information Report (ECIR) and the subsequent complaint under the Prevention of Money-Laundering Act, 2002 (PMLA) against the petitioners is justified.Whether the petitioners were in possession of 'proceeds of crime' as required under the PMLA.Whether the transactions between the landowners and the Society were genuine, and if the funds transferred to the landowners' accounts could be considered 'proceeds of crime.'Whether the actions of the petitioners constituted money-laundering under the PMLA.Whether the proceedings under the PMLA amounted to abuse of process and violated the principles of justice.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification of ECIR and Complaint under PMLARelevant Legal Framework and Precedents: The PMLA defines 'money-laundering' and 'proceeds of crime' under Sections 2(1)(p), 2(1)(u), 3, and 4. The court referenced the precedents set in State of Haryana vs. Bhajan Lal and Vijay Mananlal Choudhary vs. Union of India.Court's Interpretation and Reasoning: The court examined whether the funds involved could be considered 'proceeds of crime' and if the petitioners engaged in money-laundering activities.Key Evidence and Findings: The funds were directly transferred to the landowners' accounts, not to the petitioners, suggesting no possession by the petitioners.Application of Law to Facts: The absence of 'proceeds of crime' in the petitioners' possession negated the basis for the money-laundering charge.Treatment of Competing Arguments: The Directorate argued the existence of a conspiracy and fictitious Society; however, the court found no evidence of the petitioners possessing or laundering the funds.Conclusions: The ECIR and complaint lacked justification as the petitioners did not possess 'proceeds of crime.'Issue 2: Possession of 'Proceeds of Crime'Relevant Legal Framework and Precedents: The definition of 'proceeds of crime' under Section 2(1)(u) of the PMLA.Court's Interpretation and Reasoning: The court emphasized the necessity of possession of 'proceeds of crime' for a money-laundering charge.Key Evidence and Findings: Funds were transferred to landowners, not to the petitioners.Application of Law to Facts: The court found no evidence of the petitioners possessing or controlling the funds.Treatment of Competing Arguments: The Directorate's claim of conspiracy was unsubstantiated by evidence of possession.Conclusions: The petitioners did not possess 'proceeds of crime,' negating the money-laundering charge.Issue 3: Genuine Nature of TransactionsRelevant Legal Framework and Precedents: The court considered the Supreme Court's orders regarding the release of funds to landowners.Court's Interpretation and Reasoning: The transactions were deemed genuine as per the Supreme Court's decision to release funds to landowners.Key Evidence and Findings: The Supreme Court's order facilitated the withdrawal of funds by landowners.Application of Law to Facts: The genuine nature of transactions negated the characterization of funds as 'proceeds of crime.'Treatment of Competing Arguments: The Directorate's assertion of fictitious transactions was countered by the Supreme Court's decision.Conclusions: The transactions were genuine, and funds were not 'proceeds of crime.'Issue 4: Money-Laundering under PMLARelevant Legal Framework and Precedents: Sections 3 and 4 of the PMLA.Court's Interpretation and Reasoning: The absence of possession of 'proceeds of crime' precluded a charge of money-laundering.Key Evidence and Findings: No evidence of petitioners' involvement in money-laundering activities.Application of Law to Facts: Without possession or control of funds, the petitioners could not be charged with money-laundering.Treatment of Competing Arguments: The Directorate's allegations lacked evidence of money-laundering activities by the petitioners.Conclusions: The petitioners did not commit money-laundering under the PMLA.Issue 5: Abuse of Process and Violation of Justice PrinciplesRelevant Legal Framework and Precedents: The court referenced Section 482 of the Cr.P.C. regarding the quashing of proceedings.Court's Interpretation and Reasoning: The proceedings were deemed an abuse of process due to the lack of evidence against the petitioners.Key Evidence and Findings: The absence of 'proceeds of crime' and genuine transactions supported the petitioners' case.Application of Law to Facts: The proceedings were quashed as they constituted an abuse of process and overreach of the Supreme Court's orders.Treatment of Competing Arguments: The Directorate's pursuit of charges was unsupported by evidence and contradicted by higher court rulings.Conclusions: The proceedings were an abuse of process and violated justice principles.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'Absent existence of 'proceeds of crime', as aforesaid, the authorities under the 2002 Act cannot step in or initiate any prosecution.'Core Principles Established: The possession of 'proceeds of crime' is essential for a money-laundering charge; genuine transactions negate such charges.Final Determinations on Each Issue: The court quashed the complaints against the petitioners, finding no evidence of money-laundering or possession of 'proceeds of crime.'