2025 (9) TMI 998 - HC - Money Laundering

PMLA prosecution unsustainable where predicate offence finally discharged; money-laundering under Section 3 requires established scheduled offence

Krishna Shantaram Chamankar, Prasanna Shantaram Chamankar, K.S. Chamankar Enterprises Versus Union of India, The Deputy Director (Prevention of Money Laundering Act), Directorate of Enforcement, Mumbai, The State of Maharashtra.

HC held that where petitioners were finally discharged of the predicate offence, prosecution under the PMLA is unsustainable. Applying the binding ... Maintainability of PMLA prosecution post-final discharge/quashing of the predicate offence -activity relating to proceeds of crime - discharge of the Petitioners by the trial Court from the predicate offence - HELD THAT:- It be noted here that, the decision in the case of Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT (LB)], is rendered by a three Judge Bench of the Hon’ble Supreme Court squarely applies to the Petitioners and has its own binding effect. Conclusions, reads as under : “382.8 The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property, which constitutes the offence of money laundering. The authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the 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 any one claiming such property being the property linked to stated scheduled offence through him.” It is an admitted fact on record that, the Petitioners have been discharged by the trial Court from the predicate offence registered by the ACB, Mumbai Division, by its Order dated 31st July 2021 and the said Order has attained finality. Therefore the ECIR and the charge-sheet filed thereof, registered by Respondent No. 2 qua the Petitioners, deserves to be quashed and set aside - Petition is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether initiation and continuation of prosecution under the Prevention of Money Laundering Act (PMLA) against persons is maintainable where the predicate scheduled offence, on which the PMLA prosecution is based, has resulted in final discharge or quashing of the scheduled offence proceedings. 2. Whether a final order of discharge/acquittal in the scheduled offence operates to preclude prosecution for money laundering in respect of the same persons and the same property alleged to be proceeds of the scheduled offence. 3. The extent to which prior judicial authorities - including a binding multi-judge Supreme Court ruling and subsequent single-judge or bench decisions - govern the consequence of discharge/quashing of the scheduled offence on parallel PMLA proceedings, and whether such authorities are distinguishable or applicable on facts. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of PMLA prosecution post-final discharge/quashing of the scheduled offence Legal framework: PMLA criminalizes activity relating to proceeds of crime generated by a scheduled offence; Section 3 of the Money Laundering statute (referred to in the judgment) predicates liability on illegal gain as a result of criminal activity relating to a scheduled offence. Prosecution under PMLA is conditioned on the existence of a scheduled offence committed by some person and on linking property to such offence. Precedent treatment: The Court considered (a) a binding multi-judge Supreme Court ruling which held that a person finally discharged or acquitted of the scheduled offence cannot be subject to money-laundering prosecution in respect of property alleged to be linked to that scheduled offence; (b) a subsequent Supreme Court pronouncement clarifying that persons shown in a PMLA complaint who were not accused in the scheduled offence nonetheless benefit from acquittal or discharge of all accused in the scheduled offence or from quashing of scheduled offence proceedings; and (c) a single-judge High Court decision suggesting that PMLA prosecution may continue notwithstanding discharge/quashing of the scheduled offence, which the Court treated as non-binding and requiring careful factual application. Interpretation and reasoning: The Court emphasized the dependency of the PMLA offence on the antecedent commission of a scheduled offence and on the existence of proceeds traceable to that offence. It reasoned that prosecution under PMLA cannot rest on a mere notional assertion that a scheduled offence occurred; there must be a valid predicate registered with the competent forum. Where the scheduled offence proceedings against the particular persons have been finally concluded by discharge/acquittal or quashing, the foundation for attributing proceeds-of-crime status to property owned or dealt with by those persons collapses. The Court distinguished non-binding contrary High Court authority on the ground of its limited precedential value and the need to apply higher-court rulings in their factual context. Ratio vs. Obiter: The conclusion that PMLA prosecution cannot be maintained against persons finally discharged of the scheduled offence, insofar as it rests on the binding multi-judge Supreme Court ruling, is treated as ratio. Observations about the non-binding nature of the single-judge High Court decision and the need for case-by-case analysis are obiter aids to application. Conclusion: The Court held that where the scheduled offence has resulted in a final discharge of the accused and that order has attained finality, the related PMLA proceedings and any charge-sheet based on that predicate offence against those persons are not maintainable and deserve to be quashed. Issue 2 - Effect of discharge/acquittal of scheduled offence on persons not accused in the scheduled offence but implicated in PMLA complaint Legal framework: PMLA prosecutions may name persons who allegedly participated in concealment, transfer, or use of proceeds of crime and such persons need not have been accused in the original scheduled offence; however, the substantive PMLA offence is tied to the existence of proceeds derived from a scheduled offence. Precedent treatment: The Court relied upon the later Supreme Court pronouncement recognizing that even persons who were not accused in the scheduled offence still derive benefit if the scheduled offence proceedings are quashed or all accused are acquitted or discharged; that ruling was applied to affirm that the benefit extends to PMLA defendants shown in the complaint. Interpretation and reasoning: The Court reasoned that permitting PMLA prosecution to continue against persons who were not parties to the scheduled offence, where the scheduled offence proceedings have been finally quashed/discharged, would permit enforcement agencies to pursue collateral liability despite the absence of a proven predicate. Such an approach would undermine the statutory dependency between scheduled offences and money-laundering offences and risk prosecutorial overreach. Ratio vs. Obiter: The holding that non-scheduled-offence accused in a PMLA complaint benefit from quashing/discharge of the scheduled offence is treated as part of the binding ratio insofar as it follows and applies the Supreme Court pronouncement referred to in the judgment. Conclusion: The Court concluded that persons shown as accused in PMLA proceedings who were not accused in the scheduled offence nonetheless obtain the benefit of final quashing/discharge of the scheduled offence; accordingly PMLA proceedings against them, insofar as based on that predicate, cannot be maintained. Issue 3 - Precedential hierarchy and application: binding value of multi-judge Supreme Court ruling versus single-judge High Court views Legal framework: Lower courts must follow binding multi-judge Supreme Court decisions; single-judge High Court decisions are persuasive but not binding on coordinate or higher courts. Precedent treatment: The Court reiterated that the three-judge Supreme Court ruling (binding) embodies the controlling legal proposition about the dependency of PMLA liability on a valid and extant scheduled offence; the later Supreme Court decision did not displace that proposition but affirmed the protective effect of discharge/quashing on PMLA defendants. The single-judge High Court decision taking a contrary view was held to have no binding effect on the Court and to require careful fact-specific application. Interpretation and reasoning: The Court explained that where lower-court authority conflicts with a binding Supreme Court ruling, the Supreme Court ratio prevails. The single-judge High Court conclusion was acknowledged but treated as inapplicable to the facts where the scheduled offence order had attained finality, and where the Supreme Court ratio directly governs. Ratio vs. Obiter: The determination that the binding multi-judge Supreme Court ratio governs and that contrary single-judge High Court views are not binding is ratio for purposes of the present adjudication; remarks about the need for case-by-case analysis where factual matrices differ are obiter. Conclusion: Precedential hierarchy mandates application of the binding multi-judge Supreme Court proposition; contrary single-judge High Court decisions do not displace that rule and must be applied only with caution to differing facts. Final operative conclusion applied to the facts Given the admitted and uncontested final discharge of the accused from the scheduled offence and the attainment of finality of that order, the Court applied the binding legal proposition that no offence of money laundering can be sustained against those persons in respect of property alleged to be linked to the quashed/discharged scheduled offence, and accordingly quashed the ECIR/charge-sheet and allowed the petition as prayed.