AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 1031
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....first listed on 2nd August, 2022 when Mr. Anurag Ahluwalia, Ld. Counsel for the Respondents made a preliminary objection with regards to the maintainability of the petition on the ground of lack of territorial jurisdiction. The said preliminary objection was rejected, placing reliance on order dated 2nd June, 2022 passed in W.P. (C) 6354/2022 titled 'M/S Incred Financial Services Ltd. vs. Deputy Director, Directorate of Enforcement'. In addition, on the said date, status quo was directed. The relevant extract of the order directing status quo is extracted as under: 6. Till the next date of listing, the respondent shall stand restrained from taking further steps as contemplated under Section 8 of Prevention of Money Laundering Act, 2002. The petitioner shall also stand restrained from disposing of or creating any third party rights or encumbering the property which forms subject matter of the provisional order of attachment. 4. Thereafter, on 19th January, 2023, ld. Counsel for the Petitioner informed the Court that the closure report in the case has been filed in the predicate offence and accepted by the Special Court under PMLA, Greater Bombay. Even discharge orders ha....
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.... under Sections 420, 406 and 34 of the Indian Penal Code, 1860. It is this very FIR in which the Special Court's order dated 24th August, 2022 has been passed discharging the accused Sh. Babulal Mulchand Varma and Sh. Kamalkishor Gokalchand Gupta. The relevant extract of the said order is set out herein below: "xxx xxx xxx 18. In this way, the above order passed by the Ld. 3rd JMFC, Aurangabad, having competent jurisdiction clearly indicates that not only the police authority concerned but also the Court having competent jurisdiction finally closed further proceedings in respect of FIR No.109/2020 regarding Scheduled Offence and corresponding Miscellaneous Application No.434/2021 was finally disposed of. It is necessary to note that, ED was quite aware of this fact since it was brought on record by the accused, yet, did not challenge the 'C' Summary acceptance to the Competent Court having jurisdiction to deal with the same. Nor ED had initiated any proceedings independently or through Yes Bank, Mumbai whose money allegedly was relating to the transaction in question under the FIR No.109/2020, for revival of 'C' Final Report ('C' Summary) a....
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....hat the company has also been discharged. The relevant extract of the said order reads as under: "2. Sum and substance of all these applications is that City Chowk Police Station, Aurangabad filed Closure Report (C Summary) in respect of FIR No.109/2020 relating to the scheduled offence and the same was accepted by the Ld.3rd J.M.F.C., Aurangabad vide order dt.12.02.2021. Thereafter, the case relating to Scheduled Offence had been closed noting no objection of the informant of the said FIR No.109/2020. After that, the Hon'ble Supreme Court of India in Spl. Leave to Appeal (Crl.)No.5720/2022, Babulal Varma & Anr. Vs. Enforcement Directorate, Mumbai & Anr. passed an order dt.23.08.2022 permitting petitioners to withdraw the said Spl.Leave to Appeal in light of recent judgment passed in Vijay Madanlal Choudhary & Ors. Vs. Union of India and Ors. [SLP (Criminal) No.4634 of 2014, decided on 27.07.2022], with liberty to avail appropriate remedies as per law. 3. In all these applications it is specifically contended that, the term 'Proceeds Of Crime' defined under the Prevention Of Money Laundering Act (hereinafter referred to as 'the PML Act') is bas....
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....istence of a criminal complaint pending enquiry and/or trial would be necessary. Further, if the person in question has been finally discharged or acquitted of the scheduled/predicate offence, there can be no offence of money laundering against the said person. The relevant paragraphs of the judgment in Vijay Madanlal Choudhary (supra) are set out below: "281. The next question is: whether the offence under Section 3 is a standalone offence? Indeed, it is dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence. Nevertheless, it is concerning the process or activity connected with such property, which constitutes offence of money-laundering. The property must qualify the definition of "proceeds of crime" under Section 2(1)(u) of the 2002 Act. As observed earlier, all or whole of the crime property linked to scheduled offence need not be regarded as proceeds of crime, but all properties qualifying the definition of "proceeds of crime" under Section 2(1)(u) will necessarily be crime properties. Indeed, in the event of acquittal of the person concerned or being absolved from allegation of criminal activity relatin....
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....y to such information, the authorised officer under the 2002 Act can take recourse to appropriate remedy, as may be permissible in law to ensure that the culprits do not go unpunished and the proceeds of crime are secured and dealt with as per the dispensation provided for in the 2002 Act. Suffice it to observe that the amendment effected in 2015 in the second proviso has reasonable nexus with the object sought to be achieved by the 2002 Act. xxxx xxxx xxxx 295. As aforesaid, in this backdrop the amendment Act 2 of 2013 came into being. Considering the purport of the amended provisions and the experience of implementing/enforcement agencies, further changes became necessary to strengthen the mechanism regarding prevention of money-laundering. It is not right in assuming that the attachment of property (provisional) under the second proviso, as amended, has no link with the scheduled offence. Inasmuch as Section 5(1) envisages that such an action can be initiated only on the basis of material in possession of the authorised officer indicative of any person being in possession of proceeds of crime. The precondition for being proceeds of crime is that the property ha....
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....nected 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." 13. Thus, insofar as M/s Omkar Realtors and Developers Private Limited is concerned, considering that the basis of the PAO was FIR No. 109/2020 i.e., the scheduled offence, and given that the Petitioner and its directors/shareholders and the accused have been discharged in the scheduled offence and even in the PMLA offence, following the decision in Vijay Madanlal Choudhary (supra) and the recent decisions of the Supreme Court, the PAO can no longer be continued. The said recent decisions of the Supr....
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....e, the Special Judge (Lokayukta) acquitted the accused No. 1 of the offences aforesaid under the Act of 1988 while observing that the evidence produced by the prosecution was insufficient to hold him guilty. Then, the accused No. 1 as also the present Appellants moved an application Under Section 277 of the Code of Criminal Procedure, 1973 seeking discharge in the case pertaining to the Act of 2002. Before the said application was considered and decided, the accused No. 1 expired on 08.05.2018. 5. Thereafter, the Trial Court, by its judgment and order dated 04.01.2019, allowed the application and discharged the Appellants from the offences pertaining to the Act of 2002 while observing that occurrence of a scheduled offences was the basic condition for giving rise to "proceeds of crime"; and commission of scheduled offence was a pre-condition for proceeding under the Act of 2002. 6. Aggrieved by the said discharge order, the Directorate preferred a revision petition before the High Court. The High Court proceeded to set aside the discharge order while observing that the allegations made in the complaint and the material produced, prima facie, made out sufficient gr....
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....e Hon'ble Supreme Court has been clear and categorical in its reasoning as evident from the para extracted above. The undeniable sequitur of the above reasoning is that firstly, authorities under the PMLA cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed; secondly, the scheduled offence must be registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum; thirdly, in the event there is already a registered scheduled offence but the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or quashing of the criminal case of the scheduled offence, there can be no action for money laundering against not only such a person but also any person claiming through him in relation to the property linked to the stated scheduled offence. In other words no action under PMLA can be resorted to unless there is a substratum of a scheduled offence for the same, which substratum should legally exist i....