2025 (12) TMI 226 - HC - Money Laundering

Non-speaking discharge order under PMLA Section 24 set aside; granite quarrying charges upheld at prima facie stage

S. Nagarajan Versus Directorate of Enforcement Rep. by the Assistant Director, Government of India, Chennai

HC considered two criminal revision petitions. In the money-laundering matter, HC held the trial court's order dismissing discharge to be a non-speaking ... Money Laundering - existence of sufficient grounds for proceeding against the revision petitioner and that the impugned order does not call for interference or not - non-speaking order - non-application of mind - violation of principles of natural justice - HELD THAT:- Since the order of the learned trial Judge is virtually non-speaking and is further vitiated by non-application of mind, it has to be set aside on that sole ground and the matter remanded. While an appeal is a continuation of the original proceeding and the appellate court is obliged to re-examine the record both on facts and law, the revisional court has to primarily see if the order of the trial court suffers from any perversity or irregularity. There is no demonstration as to how prima facie case is made out against the revision petitioner. Prosecution under PMLA is a serious thing. Reverse burden is cast on the accused. There are presumptive provisions against the accused. Therefore, the prosecution must establish the foundational facts which show that the offence of money laundering has been prima facie committed. The court below was obliged to scan the materials on record and give a finding if there is sufficient ground for proceeding against the accused. No such exercise appears to have been undertaken by the trial court. Such an exercise was warranted because in the complaint filed by the authorised officer of the ED, copies of confessional statements of the co-accused in the predicative offence have been relied upon. An order dismissing a discharge petition ought to contain proper reasons. Mere employment of stereotyped expressions would not suffice. For instance, the complaint relies on the statement of the revision petitioner recorded under Section 50 of the PMLA. In the impugned order, the learned Trial Judge merely refers to this and stops there. The contents of the statement have not even been adverted to. Of course, an order dismissing a discharge petition ought not to read like a judgment convicting the accused. The order impugned in this criminal revision case is set aside and the matter is remitted to the file of the learned trial Judge to pass orders afresh on merits and in accordance with law. It is needless to mention that the accused will have to be heard before a fresh order is passed - The criminal revision petition is allowed. Illicit quarrying of granite in Madurai District - offence under Sections 120(b), 447, 379, 409, 411, 429, 434, 468, 471, 304(ii), 109, and 511 IPC r/w sections 109, 106, 119 and 202 IPC and Section 3(a) & 4(a) of Explosive Substances Act, 1908 and Section 3 of Tamil Nadu Public Property (Prevention of Damage and Loss) Act, 1992 - HELD THAT:- At the time of framing the charges, the Court has to accept the material brought on record by the prosecution and elaborate enquiry is impermissible - It is repeatedly held by the High Courts and Supreme Court that at the stage of framing charges, the Court has to see whether the material brought on record reasonably connect the accused with the crime. The Court need not conduct a detailed trial or weigh the evidence in depth. No more is required to be enquired into only the prima facie case is to be seen. There was prima facie material available to frame charges, we find no merit in the Criminal Revision Case and hence, the Criminal Revision Case is deserves to be dismissed - this Criminal Revision Case stands dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the trial court's order dismissing the discharge application under Section 227 CrPC in a prosecution under the Prevention of Money Laundering Act, 2002 was vitiated by non-application of mind and absence of reasons, warranting interference in revision. 1.2 Whether, on the materials relied upon in the complaint, there existed a prima facie case of 'money laundering' under Section 3 of the Prevention of Money Laundering Act, 2002 (punishable under Section 4), justifying refusal of discharge. 1.3 Whether prosecution for IPC offences (as predicate/scheduled offences) in the factual context of alleged illegal granite quarrying was barred or displaced by the special regime under the Mines and Minerals (Development and Regulation) Act, 1957 and the Tamil Nadu Minor Mineral Concession Rules, 1959. 1.4 Whether the Enforcement Directorate could, at the stage of prosecution under the Prevention of Money Laundering Act, 2002, rely on materials and statements collected in the investigation of the predicate offence, including confessional statements and evaluation reports, for establishing 'proceeds of crime'. 1.5 What is the scope of judicial scrutiny at the stage of discharge/framing of charge in a prosecution under the Prevention of Money Laundering Act, 2002. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Validity of the trial court's order dismissing discharge under Section 227 CrPC in PMLA prosecution Legal framework (as discussed) 2.1.1 The revisional court is to examine whether the order of the trial court suffers from perversity or irregularity, unlike an appellate court which re-examines facts and law as a continuation of the original proceedings. 2.1.2 An order dismissing a discharge petition under Section 227 CrPC must contain 'proper reasons' and show a broad discussion of the factual matrix, though it need not read like a judgment of conviction. Interpretation and reasoning 2.1.3 One member of the Bench examined the trial court's order and noted that: (a) Paragraph 77 of the impugned order concluded that there were materials to proceed against the petitioner for various IPC offences, Explosive Substances Act offences and TNPPDL Act offences, as though dealing with a discharge petition in prosecution for predicate offences, ignoring that the proceeding before the trial court was a PMLA prosecution. (b) The first 24 paragraphs merely restated the accused's contentions; paragraphs 27-73 reproduced the Enforcement Directorate's stand; and paragraphs 74-76 contained only generic observations about prima facie case, procedure followed under PMLA and the need for 'elaborate trial'. (c) There was no discussion of the materials on record; no demonstration of how a prima facie case of money laundering was made out against the revision petitioner; and no analysis of specific documents, including the statement of the petitioner recorded under Section 50 of the PMLA, whose contents were not adverted to. (d) In view of the serious nature of PMLA prosecution, the reverse burden and presumptions against the accused, the prosecution must establish 'foundational facts' showing that the offence of money laundering is prima facie committed; the trial court was obliged to scan the materials and record whether there were sufficient grounds for proceeding, which it failed to do. (e) Mere use of stereotyped expressions such as 'prima facie' and 'elaborate trial' without a reasoned assessment amounted to non-application of mind. 2.1.4 On this view, the impugned order was termed 'perverse' and a 'non-speaking' order, vitiated by casual approach in a matter concerning liberty. 2.1.5 The other member of the Bench, however, proceeded on the basis that the trial court had relied on the materials produced by the Enforcement Directorate-collector's report, evaluation reports, bank statements, property documents, etc.-and had correctly concluded that there was prima facie material to frame charge under Section 3/4 PMLA, finding no illegality in dismissal of the discharge application. Conclusions 2.1.6 One member held that the trial court's order was unsustainable for want of proper application of mind and reasons, set it aside and remitted the matter to the trial court for a fresh order on merits after hearing the accused. 2.1.7 The other member held that the trial court's order disclosed no error warranting interference and that the criminal revision deserved dismissal. 2.2 Existence of prima facie case under Section 3 PMLA and the concept of 'proceeds of crime' Legal framework (as discussed) 2.2.1 Section 3 PMLA defines the offence of money laundering as direct or indirect involvement in any process or activity connected with 'proceeds of crime' including concealment, possession, acquisition, use and projecting or claiming it as untainted property. 2.2.2 'Proceeds of crime' under Section 2(1)(u) PMLA means any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, or the value of such property. 2.2.3 It was noticed, relying on a Supreme Court decision in Vijay Madanlal Chaudhary, that: (a) The offence of money laundering is an independent offence regarding the process/activity connected with proceeds of crime; (b) It is distinct from, though dependent upon the existence of, criminal activity relating to a scheduled offence from which the proceeds of crime are derived. Interpretation and reasoning 2.2.4 The complaint alleged that: (a) The accused, through OGPL, illegally quarried granite from Government poramboke land and adjoining TAMIN lease areas by merging pits and using excess transport permits, in violation of lease conditions and in conspiracy with TAMIN officials. (b) Evaluation by the Deputy Director, Geology and Mining quantified illegally transported granite and its value at Rs.256.44 crores; this was the wrongful loss to the exchequer and wrongful gain to the accused. (c) On the basis of such criminal activity relating to scheduled offences (Sections 120B, 420, 467, 471, 304(ii) IPC etc. read with Explosive Substances Act provisions), OGPL and its directors laundered the proceeds of crime and acquired properties and fixed deposits; specific immovable properties and deposits were identified as either directly derived from, or held as equivalent value of, the proceeds of crime. 2.2.5 One member of the Bench held that the trial court had not undertaken the requisite scrutiny of these materials to determine whether foundational facts of money laundering were made out and thus no conclusion could yet be drawn on the existence of prima facie proceeds of crime as against the revision petitioner; a fresh reasoned order from the trial court was necessary. 2.2.6 The other member held that: (a) The jurisdictional police had investigated the predicate offences, including Sections 420, 467, 471 read with 120B IPC, and quantified proceeds of crime at Rs.256.44 crores based on pit measurements, transport permits and evaluation reports. (b) The Enforcement Directorate's complaint was based on prima facie material: collector's report, evidence from officials, balance sheets, bank statements, Government orders canceling the quarry lease, evaluation letters of mining officials and property documents. (c) These materials prima facie showed criminal activity relating to scheduled offences, generation of proceeds of crime, their acquisition and possession by the accused, and their projection as untainted property, attracting Section 3 PMLA. (d) The contention that there was 'no proceeds of crime' or that the Enforcement Directorate had not investigated generation of proceeds of crime was without merit. Conclusions 2.2.7 One member concluded that, due to the inadequacy of the trial court's reasoning, no final view on prima facie guilt could be validated in revision and the matter needed to be remanded. 2.2.8 The other member concluded that sufficient prima facie material existed to proceed under Section 3/4 PMLA, and therefore discharge was rightly refused. 2.3 Legality of invoking IPC offences in addition to Mines and Minerals legislation in the factual context of illegal quarrying Interpretation and reasoning 2.3.1 The revision petitioner argued that any violations in quarry operations could only be prosecuted under the Mines and Minerals (Development and Regulation) Act, 1957 and Tamil Nadu Minor Minerals Concession Rules, 1959, and that invocation of IPC provisions (Sections 420, 467, 471, 304(ii) etc.) was unlawful. 2.3.2 The Court (through one member) noted the nature of allegations in the predicate offence: (a) Public servants of TAMIN allegedly abetted illegal quarrying by inducing other accused, failing to prevent criminal acts, fabricating and concealing information, misusing official position and sharing in sale proceeds. (b) Explosives were allegedly used with evil intention to illegally mine granite in Government poramboke land, knowing that human life would be endangered. (c) The accused allegedly misrepresented they would quarry only in licensed areas, violated lease conditions, trespassed into Government/TAMIN land, prepared forged documents and cheated the Government. (d) Deep trenches were allegedly created in Government land without safety measures, endangering public life. 2.3.3 On these allegations, it was held that the charges under Sections 120B, 411, 420, 471, 304(ii) IPC and other IPC provisions in the predicate case could not be termed illegal merely because MMDR Act and mineral rules were also applicable. The complaint disclosed distinct elements of cheating, forgery, conspiracy and other IPC offences beyond mere regulatory violations. Conclusions 2.3.4 The Court (through one member) held that there was no illegality in framing charges under IPC for the predicate offences; the existence of a special statute regarding minerals did not exclude prosecution for distinct IPC offences arising from the same acts. 2.4 Use of materials from predicate-offence investigation and admissibility of statements/confessional material under PMLA Legal framework (as discussed) 2.4.1 Under Section 50 PMLA, officers of the Enforcement Directorate have powers to summon persons, enforce attendance and record statements. Such officers are not 'police officers' for the purposes of the Indian Evidence Act, 1872. 2.4.2 A Supreme Court decision in Vijay Madanlal Chaudhary was referred to, where it was held (paragraph 431) that statements recorded up to the stage when a person is arrayed as an accused can be relied upon and are not hit by Article 20(3) of the Constitution. 2.4.3 Section 44 PMLA (and its Explanation) permits filing of supplementary complaints and continuation of investigation under PMLA even after filing the initial complaint. Interpretation and reasoning 2.4.4 The revision petitioner contended that: (a) The Enforcement Directorate had merely adopted the evaluation report and material from the predicate offence without independent PMLA investigation, rendering the complaint baseless. (b) Reliance on confession statements of the accused was contrary to Section 25 of the Indian Evidence Act and Article 20(3) of the Constitution. (c) Citing only the Investigating Officer of the predicate offence as witness and lack of 'independent' witnesses in the PMLA case vitiated the complaint. 2.4.5 The Court (through one member) rejected these objections: (a) It is settled that where one offence (PMLA) is dependent upon another (predicate offence), the investigator of the subsequent offence can rely on materials collected in the investigation of the predicate offence. (b) There is no bar in PMLA against using evaluation reports, statements and final reports from the predicate case; whether such materials can ultimately be marked in evidence and proved through appropriate witnesses is a matter for trial. (c) Under Section 50 PMLA, statements given to Enforcement Directorate officers are not hit by Section 25 Evidence Act, as such officers are not 'police officers'; issues of voluntariness or coercion must be decided at trial, not at discharge stage. (d) There is also no bar on citing the Investigating Officer of the predicate case as a witness in the PMLA prosecution; further witnesses can be examined and supplementary materials filed even after framing of charge, as recognised by the Explanation to Section 44. Conclusions 2.4.6 The Court (through one member) held that reliance by the Enforcement Directorate on statements recorded under Section 50 PMLA and on materials, including evaluation reports and charge sheet of the predicate offence, was legally permissible at this stage, and the objections to admissibility and sufficiency were matters for trial. 2.5 Scope of scrutiny at discharge/framing of charge in PMLA prosecutions Legal framework (as discussed) 2.5.1 The Court set out the general grounds for discharge in a criminal case: (i) Evidence produced is not sufficient; (ii) No ground exists for proceeding against the accused; (iii) Required sanction is not obtained; (iv) Prosecution is barred by limitation; (v) Proceedings are precluded by a prior judgment of the High Court. 2.5.2 At the stage of framing charge: (a) The trial court must hear the public prosecutor and defence; (b) If there is ground for presuming that the accused has committed an offence, charges shall be framed in writing; (c) The court must accept the material brought on record by the prosecution at that stage; elaborate enquiry or weighing of evidence in depth is impermissible; (d) The court has to see whether the material reasonably connects the accused with the crime and whether a prima facie case exists; detailed evaluation is reserved for trial. Interpretation and reasoning 2.5.3 One member applied these principles to hold that the trial court had to at least broadly discuss the factual matrix and materials, especially in a PMLA case involving reverse burden and statutory presumptions, before rejecting discharge; mere formulaic reference to prima facie evidence without linkage to specific documents was inadequate. 2.5.4 The other member applied the same principles to hold that, given the collector's report, evaluation reports, bank statements and property acquisitions allegedly representing proceeds of crime, there was sufficient material to reasonably connect the accused to the PMLA offence; deeper examination or acceptance of defence contentions was not warranted at the discharge stage. Conclusions 2.5.5 One member concluded that the trial court failed to properly exercise its jurisdiction under Section 227 CrPC in the PMLA context and that a fresh, reasoned order was required. 2.5.6 The other member concluded that the trial court had correctly applied the limited test at the stage of charge and that the revision petition lacked merit.