Predicate offence required for money laundering; commercial investment allegations were insufficient, and the FIR and ECIR were quashed.
An FIR based on foreign investment, share valuation, and company expenditure did not disclose cheating, criminal breach of trust, or criminal conspiracy because there was no showing of dishonest inducement, entrustment of property, or any illegal agreement; the investment was treated as a commercial arrangement and the allegations under the IPC were quashed. On the same factual basis, the PMLA proceedings could not survive once the predicate allegations failed to disclose a cognizable offence, and there was no concrete material showing proceeds of crime or other incriminating material to sustain money-laundering action. The ECIR and connected PMLA proceedings were therefore quashed, and the request for supply of the ECIR became infructuous.
Issues: (i) Whether the FIR discloses the ingredients of cheating, criminal breach of trust, or criminal conspiracy so as to justify continuation of the criminal proceedings; (ii) Whether the PMLA investigation and ECIR can survive when the predicate allegations do not disclose a cognizable offence and no substantive material shows money laundering or proceeds of crime.
Issue (i): Whether the FIR discloses the ingredients of cheating, criminal breach of trust, or criminal conspiracy so as to justify continuation of the criminal proceedings
Analysis: The allegations rested on receipt of foreign investment, valuation of shares, and expenditure of company funds. The Court found that the foreign investor was not shown to be an aggrieved person who had been deceived, and no entrustment of property was shown to sustain criminal breach of trust. The investment transaction was treated as a commercial arrangement, supported by valuation material and regulatory correspondence, and the mere allegation of a high share premium did not establish dishonesty, inducement, or an unlawful agreement. The allegation of conspiracy was held to be unsupported by any material showing an illegal objective or illegal means.
Conclusion: No offence under Sections 406, 420, or 120B of the Indian Penal Code, 1860 was made out, and the FIR was liable to be quashed.
Issue (ii): Whether the PMLA investigation and ECIR can survive when the predicate allegations do not disclose a cognizable offence and no substantive material shows money laundering or proceeds of crime
Analysis: The PMLA proceedings were founded on the same factual basis as the FIR. Once the predicate allegations were found not to disclose a cognizable offence, the substratum for money laundering proceedings fell away. The Court also noted the absence of any concrete material showing proceeds of crime, and held that the investigation had not yielded incriminating material sufficient to sustain action under the PMLA. In view of the quashing of the predicate FIR, the ECIR and proceedings emanating from it could not stand independently. The request for supply of the ECIR consequently became unnecessary.
Conclusion: The ECIR and the PMLA proceedings were quashed, and the prayer for supply of the ECIR became infructuous.
Final Conclusion: The criminal and money-laundering proceedings were held unsustainable on the facts and law, and the connected writ petitions were finally allowed with consequential relief.
Ratio Decidendi: A money-laundering prosecution cannot survive without a legally sustainable predicate offence, and a commercial investment transaction does not constitute cheating or criminal breach of trust in the absence of dishonest inducement, entrustment, or material showing an illegal conspiracy.
TaxTMI 
AI Drafter ✕
TaxTMI 
