2025 (10) TMI 331 - SC - Money Laundering

Refusal to quash PMLA cognizance; transactions through bank not automatically 'proceeds of crime' under s.2(1)(u)

JSW Steel Limited Etc. Versus Deputy Director, Directorate of Enforcement Etc.

SC declined to quash cognizance or interdict proceedings under PMLA, holding that the contention that entire bank balances are 'proceeds of crime' is ... Money Laundering - entire banking operations tainted - unpaid consideration for iron ore supplied by AMC, can be treated as “proceeds of crime” or not - whether its withdrawal post-PAO constitutes an offence under Section 3 PMLA? - ED submitted that, possession of confirmed attached property by the accused, in defiance of lawful attachment, squarely falls within Section 8(4) of PMLA and constitutes “concealment, possession, acquisition and use” of proceeds of crime punishable under Section 3 of PMLA. HELD THAT:- The apprehension that the entire account balance constitutes proceeds of crime is misplaced, particularly when the admitted position is that payments were made and received through regular banking channels and are duly reflected in the books of account. Viewed thus, the appropriate course would be to permit the statutory process to run its route to reach its logical conclusion. Interference at this stage would prejudge issues that are squarely within the domain of the Appellate Tribunal, including whether the attached property represents “proceeds of crime” within the meaning of Section 2(1)(u) PMLA and whether the withdrawals were in violation of law. It is unable to hold that the case for quashing the cognizance order or interdicting proceedings is made out. The allegations, at this stage, are confined to the recovery of the quantified amount of INR 33.80 Crore and do not extend to fastening criminal liability upon the appellants beyond that process. The apprehension of arbitrary prosecution is, therefore, misplaced. SC declined to interfere with the proceedings at this stage. The appellants shall be at liberty to pursue their statutory appeals before the Appellate Tribunal, which shall decide the same on their own merits and in accordance with law, uninfluenced by any observations contained herein above. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings and cognizance taken under the Prevention of Money Laundering Act (PMLA) can be quashed or interdicted where the predicate criminal proceedings have dropped or do not name the proposed accused, and where it is contended that, in view of such dropping, there is no live scheduled offence giving rise to 'proceeds of crime'. 2. Whether specific withdrawals from bank accounts (including withdrawals from accounts subject to provisional attachment orders) and the nature of cash-credit/overdraft facilities can constitute 'possession, acquisition, use or concealment' of 'proceeds of crime' so as to attract liability under Section 3 PMLA, and whether a specified quantum in bank accounts may be validly attached under Sections 2(1)(v), 2(1)(u) and Section 5 PMLA. 3. Whether exercise of extraordinary constitutional jurisdiction to quash PMLA criminal proceedings is appropriate when an alternative, efficacious, and statutorily provided appellate remedy under Section 26 PMLA is available and actively pursued, and what is the scope for such interference when statutory appeals are pending. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of PMLA proceedings where predicate offence was dropped/not pursued in predicate investigation Legal framework: The PMLA requires that 'proceeds of crime' be derived from scheduled offences; criminal culpability under Section 3 depends upon the existence or demonstrable link to such proceeds as defined in Section 2(1)(u). The ECIR and subsequent complaint under PMLA rely on predicate facts established by investigative agencies. Precedent Treatment: Reliance was urged on the decision that quashing/discharge in predicate proceedings may vitiate PMLA action. The Court noted prior authorities invoked by parties and referenced the judgment in which the CBI had earlier been directed to investigate mining allegations, but also considered that the ECIR does not name the appellants and that the CBI supplementary report dropped charges against them. Interpretation and reasoning: The Court examined whether the absence of a presently live scheduled offence ipso facto nullifies the PMLA complaint. It observed that the ED's complaint is predicated on a quantified sum alleged to be unpaid consideration for illegally mined ore and that the PMLA proceeding in question alleges dissipation of that quantified amount post-attachment. The Court concluded that the question whether the quantified amount constitutes 'proceeds of crime' is a matter squarely for the statutory adjudicatory process (Adjudicating Authority/Appellate Tribunal) and should not be pre-emptively resolved in writ jurisdiction absent patent illegality. Ratio vs. Obiter: Ratio - Where predicate proceedings have not resulted in a presently effective bar to PMLA action, the determination whether a specified fund constitutes proceeds of crime must be left to the statutory machinery; absence of naming in ECIR or earlier dropping in another investigation does not automatically oust PMLA jurisdiction in respect of a distinct allegation (concealment/possession post-PAO) of laundering. Conclusion: The Court declined to quash PMLA proceedings on the ground that predicate proceedings had dropped earlier charges; the determination of whether the sum is proceeds of crime is to be adjudicated through the PMLA fora. Issue 2 - Characterisation of withdrawals/cash-credit accounts and effect of provisional attachment orders Legal framework: Sections 5 and 8 PMLA permit provisional attachment and confirmation of specified amounts; Section 2(1)(v) defines 'property' to include bank accounts; Section 3 criminalises dealing with proceeds of crime including possession and concealment. The law on stays/marks of lien and effect of withdrawals during pendency of proceedings was also engaged. Precedent Treatment: Parties relied upon various authorities on treatment of bank accounts as property and on how cash-credit facilities should be treated. The Court noted an argument invoking a High Court decision on the nature of cash-credit accounts but did not adopt a blanket rule disallowing attachment of such facilities. Interpretation and reasoning: The Court accepted that bank accounts are 'property' and that attachment may specify a quantum. However, it also emphasised that the present controversy concerns a particular quantified claim (INR 33.80 Crore) alleged to represent unpaid consideration and the allegation that withdrawals after PAO frustrated recovery. The Court refrained from adjudicating contested factual questions - (i) whether withdrawals were made in collusion with bank officials, (ii) whether lien was wrongfully lifted, and (iii) whether withdrawals occurred in breach of legally effective restraints - since these are matters for the Adjudicating Authority/Tribunal to determine on evidence and on merits. Ratio vs. Obiter: Ratio - Attachment of specified sums from bank accounts falls within PMLA scheme and questions about the nature of particular withdrawals and the legitimacy of dealing with attached funds are to be decided by the statutory adjudicatory forum. Obiter - Observations that cash-credit accounts may not always equate to identifiable property were not determinative; no categorical rule was laid down in this judgment. Conclusion: The Court declined to treat the pleaded withdrawals as conclusively constituting an offence under Section 3 PMLA at the interlocutory stage; factual adjudication as to whether specified sums are 'proceeds of crime' and whether withdrawals violated PAOs must be left to the PMLA adjudicatory process. Issue 3 - Appropriateness of exercise of extraordinary jurisdiction when statutory appeals under Section 26 PMLA are pending Legal framework: The constitutional and appellate jurisdiction of superior courts is to be exercised sparingly where an efficacious statutory remedy exists and is being pursued; principles articulated in prior decisions discourage bypassing designated statutory forums except for patent illegality or jurisdictional error. Precedent Treatment: The Court relied on established principle that statutory remedies must ordinarily be exhausted; reference was made to prior authority cautioning against constitutional interference when statutory appellate mechanisms are available and actively pursued. Interpretation and reasoning: The Court found that appellants had invoked the statutory appeal remedy under Section 26 PMLA and those appeals remained pending. There was no finding of patent illegality or jurisdictional error in the impugned proceedings justifying extraordinary interference. The Court emphasized non-prejudgment of issues by permitting the statutory process to run its course, and directed that the Appellate Tribunal decide the pending appeals on their merits uninfluenced by observations made by the Court. Ratio vs. Obiter: Ratio - Where an efficacious statutory remedy exists and is being actively pursued, extraordinary writ relief to quash criminal PMLA proceedings should not ordinarily be granted absent demonstrable patent illegality or jurisdictional error. Obiter - The Court's admonition that its observations shall not influence the Appellate Tribunal is clarificatory guidance. Conclusion: The Court declined to exercise extraordinary jurisdiction to quash the cognizance order or interdict ongoing PMLA proceedings while statutory appeals are pending; appellants were directed to pursue remedies before the Appellate Tribunal. Cross-references and Consolidated Conclusion These issues are interconnected: the question whether a fund constitutes 'proceeds of crime' (Issue 1) and whether specific withdrawals constitute laundering (Issue 2) are essentially questions of fact and law within the PMLA adjudicatory scheme; accordingly (Issue 3) the proper forum for resolution is the statutory machinery (Adjudicating Authority and Appellate Tribunal). The Court therefore declined to interfere, holding that interlocutory quashing is inappropriate absent patent illegality, and left factual and legal determinations to the statutory process while preserving the appellants' right to press their statutory appeals.