2025 (7) TMI 1008 - HC - Money Laundering

Money laundering charges can proceed even when excluded from underlying scheduled offence reports under PMLA Section 3

The Kerala HC dismissed a petition challenging money laundering charges despite the petitioner's name being excluded from final reports in the underlying ... Money Laundering - proceeds of crime - non-inclusion of the petitioner’s name in the final reports will, by itself, lead to his exoneration in the offence of money laundering under Section 3, punishable under Section 4 of the PMLA - HELD THAT:- Any person, who directly or indirectly attempts to indulge or knowingly assists or gets actually involved in any process or activity connected with the proceeds of crime is guilty of the offence of money laundering. The process and activities connected with the proceeds of crime are concealment or possession or acquisition or use of proceeds of crime as well as projection or claiming of proceeds of crime as untainted property in any manner whatsoever. Going by the expansive meaning of the expression in Section 2(u), 'proceeds of crime' takes in any property obtained directly or indirectly as a result of criminal activity. As per Section 2(v) 'property' means property or assets of any description, whether corporeal or incorporeal, movable or immovable, tangible or intangible, including deeds and instruments. A conjoint reading of the above provisions leaves no room for doubt that any person indulging, involving or attempting, or even assisting in doing any of the processes or activities enumerated in the explanation to Section 3 is guilty of the offence of money laundering. In Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT (LB)], the Apex Court has held that if a person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the court of competent jurisdiction, there can be no offence of money laundering against him or anyone, claiming such property to be the property linked to the scheduled offence through him. In the petitioner's case, apart from the allegation of having cheated the parents of prospective students, regarding which the final reports are filed, there is a separate allegation that the proceeds of crime generated by cheating the parents were used for construction works of the South Kerala Diocese and is thus involved in the use and concealment of the proceeds of crime. The findings in Vijay Madanlal Choudhary will not be of any help to the petitioner, since the discussion therein is not concerning a situation like the present where money laundering is alleged as a distinct offence. In Pavana Dibbur the Apex Court held that a person not involved in the original criminal activity that had resulted in the generation of proceeds of crime can be prosecuted under the PMLA if he is found to have been involved in the concealment, possession, acquisition, user etc. in relation to the proceeds of crime. If so, a person, whose name was included in the FIR registered for the scheduled offence but omitted in the final report, can also be prosecuted under the PMLA, if he is allegedly involved in the concealment or use of the proceeds of crime. The reason being that, the allegation regarding a person’s involvement in process or activities connected with the proceeds of crime can subsist independently, even if his involvement in generation of the funds, i.e., proceeds of crime, is not proved - Application dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:(a) Whether non-inclusion of the petitioner's name in the final reports filed by the Crime Branch in relation to the scheduled offences (alleged cheating and criminal conspiracy) amounts to exoneration of the petitioner from the predicate offence, thereby precluding prosecution under the Prevention of Money Laundering Act, 2002 (PMLA).(b) Whether the offence under Section 3 of the PMLA is a stand-alone offence independent of the scheduled offence, and if so, whether prosecution under PMLA can continue against a person not accused in the predicate offence but alleged to be involved in the concealment, possession, acquisition, or use of proceeds of crime.(c) The applicability and interpretation of relevant Supreme Court and High Court precedents concerning the relationship between scheduled offences and money laundering offences under the PMLA.(d) Whether the continuance of proceedings under the PMLA against the petitioner without his being accused of the predicate offence constitutes an abuse of process of court.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Effect of Non-Inclusion in Final Reports on Exoneration from Predicate OffenceRelevant Legal Framework and Precedents: The petitioner relied on the Apex Court decision in Vijay Madanlal Choudhary and Others v. Union of India, particularly paragraph 467(d), which states that once a person is fully discharged or acquitted of the scheduled offence, or if the criminal case against him is quashed, there can be no offence of money laundering against that person. The petitioner also cited decisions of the Telangana High Court and this Court emphasizing that absence of a predicate offence bars PMLA prosecution.Court's Interpretation and Reasoning: The Court examined the specific language of Section 3 of the PMLA and the explanatory notes, which define money laundering as any process or activity connected with the proceeds of crime, including concealment, possession, acquisition, use, or projecting the proceeds as untainted property. The Court noted that the offence under Section 3 is independent and distinct from the scheduled offence, although it must be connected to proceeds of crime derived from a scheduled offence.Key Evidence and Findings: The Crime Branch investigation omitted the petitioner's name from the final reports concerning the scheduled offence of cheating and criminal conspiracy, suggesting no direct involvement in the original criminal activity. However, the Enforcement Directorate's investigation revealed that the petitioner allegedly facilitated the transfer and use of proceeds of crime (collected money) for infrastructure development and payments related to the Diocese, indicating involvement in the use and concealment of proceeds of crime.Application of Law to Facts: The Court held that non-inclusion in the final report on the predicate offence does not automatically exonerate the petitioner from prosecution under the PMLA. The offence under Section 3 can be committed by a person not accused in the scheduled offence but who knowingly assists or is involved in activities connected with the proceeds of crime. The Court relied on the Apex Court's decision in Pavana Dibbur v. Directorate of Enforcement, which clarifies that prosecution under PMLA can proceed against persons unconnected with the original criminal activity but involved in laundering proceeds.Treatment of Competing Arguments: The petitioner's argument that omission from the final report equates to exoneration was rejected. The Court distinguished the facts from Vijay Madanlal Choudhary, noting that the petitioner's alleged role in handling proceeds of crime is a separate offence under the PMLA. The Enforcement Directorate's argument that the petitioner's involvement in the trail of tainted money suffices for PMLA prosecution was accepted.Conclusion: Non-inclusion in the final reports on the predicate offence does not preclude prosecution under PMLA if there is evidence of involvement in the proceeds of crime.Issue (b): Whether Section 3 of PMLA Constitutes a Stand-Alone OffenceRelevant Legal Framework and Precedents: Section 3 of the PMLA criminalizes the offence of money laundering, defined expansively to include various processes connected with proceeds of crime. The Apex Court in Vijay Madanlal Choudhary clarified that money laundering is an independent offence distinct from the scheduled offence, though it must relate to proceeds of crime derived from such offence. Pavana Dibbur further emphasized that a person not involved in the original scheduled offence can still be prosecuted under PMLA if involved in laundering activities.Court's Interpretation and Reasoning: The Court underscored that the offence under Section 3 is a continuing offence involving activities connected with proceeds of crime. The Court highlighted that the PMLA offence can be committed even if the accused was not part of the predicate offence, provided the scheduled offence exists and proceeds of crime are involved.Key Evidence and Findings: The Enforcement Directorate's investigation revealed that the petitioner directed parents to hand over money to certain officials, and that substantial amounts were used for infrastructure and other payments by the Diocese, indicating involvement in laundering activities.Application of Law to Facts: The Court applied the principle that money laundering is a distinct offence to the facts, holding that the petitioner's alleged involvement in the use and concealment of proceeds of crime suffices to maintain the PMLA proceedings.Treatment of Competing Arguments: The petitioner's contention that PMLA proceedings cannot continue without predicate offence prosecution was rejected, relying on authoritative precedents.Conclusion: Section 3 of PMLA is a stand-alone offence, and prosecution can proceed against persons involved in laundering activities even if not accused in the predicate offence.Issue (c): Applicability of Precedents on Relationship Between Scheduled Offence and Money LaunderingRelevant Legal Framework and Precedents: The Court extensively referred to the Apex Court decisions in Vijay Madanlal Choudhary and Pavana Dibbur, and the High Court decisions in M/s. Smartcoin Financials Pvt. Ltd. and P. Rajendran, which clarify the interplay between predicate offences and money laundering.Court's Interpretation and Reasoning: The Court carefully distinguished the facts of the present case from those in Vijay Madanlal Choudhary, emphasizing that the petitioner is alleged to be involved in laundering proceeds of crime, which is a separate offence. The Court agreed with the reasoning in Pavana Dibbur that a person need not be accused in the scheduled offence to be prosecuted under PMLA.Key Evidence and Findings: The Enforcement Directorate's detailed investigation and complaint highlighted the petitioner's role in the flow and utilization of proceeds of crime, supporting the continuation of PMLA proceedings.Application of Law to Facts: The Court applied the principles from the cited precedents to uphold the distinct nature of money laundering offences and reject the petitioner's claim of automatic exoneration.Treatment of Competing Arguments: The petitioner's reliance on precedents was accepted only to the extent that acquittal or quashing of the predicate offence bars PMLA prosecution. However, since the petitioner is not acquitted or discharged and is alleged to be involved in laundering, the precedents support continuation of prosecution.Conclusion: The precedents confirm that PMLA offences are independent and can be prosecuted even if the accused is not charged in the predicate offence, provided the scheduled offence exists.Issue (d): Allegation of Abuse of Process of Court by Continuing PMLA ProceedingsRelevant Legal Framework and Precedents: The petitioner argued that continuing PMLA proceedings without predicate offence prosecution amounts to abuse of process. The Court considered this in light of the legal framework and precedents discussed above.Court's Interpretation and Reasoning: The Court rejected this contention, holding that the PMLA offence is distinct and can be pursued independently. The Court found that the petitioner's alleged involvement in the proceeds of crime justified continuation of proceedings.Key Evidence and Findings: The Enforcement Directorate's complaint detailed the petitioner's role in directing parents to pay money and subsequent use of the funds, establishing a nexus with laundering activities.Application of Law to Facts: The Court applied the principle that involvement in laundering activities, even without predicate offence accusation, is sufficient to sustain PMLA prosecution, negating the claim of abuse of process.Conclusion: Continuance of PMLA proceedings against the petitioner is not an abuse of process.3. SIGNIFICANT HOLDINGS'From the bare language of Section 3 of the 2002 Act, it is amply clear that the offence of money laundering is an independent offence regarding the process or activity connected with the proceeds of crime which had been derived or obtained as a result of criminal activity relating to or in relation to a scheduled offence... involvement in any one of such process or activity connected with the proceeds of crime would constitute offence of money laundering. This offence otherwise has nothing to do with the criminal activity relating to a scheduled offence - except the proceeds of crime derived or obtained as a result of that crime.''It is not necessary that a person against whom the offence under Section 3 PMLA is alleged must have been shown as the accused in the scheduled offence... the conditions precedent for attracting the offence under Section 3 PMLA are that there must be a scheduled offence and that there must be proceeds of crime in relation to the scheduled offence.''If the prosecution for the scheduled offence ends in the acquittal of all the accused or discharge of all the accused or the proceedings of the scheduled offence are quashed in its entirety, the scheduled offence will not exist, and therefore, no one can be prosecuted for the offence punishable under Section 3 PMLA as there will not be any proceeds of crime.''A person not involved in the original criminal activity that had resulted in the generation of proceeds of crime can be prosecuted under the PMLA if he is found to have been involved in the concealment, possession, acquisition, user etc. in relation to the proceeds of crime.'The Court concluded that the petitioner's non-inclusion in the final reports on the predicate offence does not preclude prosecution under the PMLA, given the specific allegations of involvement in laundering activities. The offence under Section 3 of the PMLA is a stand-alone offence, and continuance of proceedings against the petitioner is justified and not an abuse of process.