TaxTMI 
TaxTMI 
2025 (6) TMI 1183
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....her PMLA proceedings are independent of the predicate offence? c) Validity of summons under Section 50 PMLA when the predicate offence is discharged. FACTUAL MATRIX 2) It is the case of the petitioner that he serves as the operational head of M/s N. K. Pharmaceuticals Pvt. Ltd and is engaged in the marketing and transportation of the Codeine-Based Cough Syrup "Cocrex." The petitioner's Chartered Accountant received summons dated January 10, 2025, in which the respondent requested information and property details pertaining to the petitioner. In August 2024, the Narcotics Control Bureau filed Complaint No. 7/2024 titled "Union of India Th. NCB vs Rayees Ahmed Bhat & Ors" and Complaint No. 11/2024 titled "Union of India Th. NCB vs Manzoor Ahmed Mir &Ors" before the Learned Special Judge, NDPS, Jammu (hereinafter referred to as 'the Trial Court'), alleging the petitioner's involvement in the illicit manufacturing, marketing, and transportation of the Codeine-Based Cough Syrup "Cocrex". 3) The Learned Trial Court, by order dated 13.12.2024, discharged the Petitioner while laying charges against the other accused individuals in both complaints. The essential portion is reproduc....
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....fence under the NDPS was applicable. Consequently, the petitioner has not obtained any property, directly or indirectly, from any criminal activity associated with a scheduled offence; hence, his prosecution, including unlawful search and seizure, is inadmissible and should be annulled as arbitrary and devoid of merit. SUBMISSIONS OF PETITIONER 5) The petitioner's counsel, Mr. Sunil Sethi, Sr. Advocate, argues that the money laundering procedures should end if a person is freed from the scheduled offence. He further claims that PMLA proceedings are based on the scheduled crime. Under PMLA section 2 (y) (1), a scheduled offence is one mentioned in the Schedule, which includes crime under other laws. Section 3 of PMLA defines money laundering as involving proceeds of crime from a scheduled offence. Discharge in the scheduled offence breaks the foundational link needed to sustain proceedings under PMLA. 6) He further argues that proceeds of crime, as defined by PMLA Section 2 (1) (u), must come from a scheduled offence. If the trial court establishes no prima facie case against the accused in the scheduled offence and gives a discharge, there can be no legally recognised procee....
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....e subject matter pending the final adjudication, stay order is granted in the interest of both parties. During the currency of stay order, if any proceedings are permitted to go on and in the meanwhile, if any damage has been caused to the reputation or the goodwill of the parties, the same cannot be compensated. Whereas if the Department waits for the final outcome of the proceedings, no prejudice would be caused to them. In all these cases, the admitted case of the respondent Department is that the ECIR has been initiated based on the three First Information Reports in Crime Nos.441 of 2015, 298 of 2017, 344 of 2018, which culminated in the proceedings in C.C. No. 24 of 2021, C.C .No. 19 of 2020 and C.C. No. 25 of 2021 respectively and the proceedings in C.C. No. 25 of 2021 culminating from Crime No. 344 of 2018 have been quashed. The calendar cases arising out of the other two First Information Reports have been stayed. As stated supra, since the ECIR itself was only on the basis of the said three First Information Reports, when the proceedings pursuant to the said First Information Reports have been stayed by the High Court, whether the ECIR, which is also pursuant to the First....
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....hat is the jurisdictional fact to be taken into account by a Court before assuming jurisdiction over a particular matter. The Hon'ble Supreme Court explaining the above facts in Arun Kumar and others v. Union of India and others, (2007) 1 SCC 732, has held as follows:- "74. A "jurisdictional fact" is a fact which must exist before a court, tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or nonexistence of which depends jurisdiction of a court, a tribunal or an authority. It is the fact upon which an administrative agency's power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess. 75. In Halsbury's Laws of England, it has been stated: "Where the jurisdiction of a tribunal is dependent on the existence of a particular state of affairs, that state of affair....
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....fence, the Enforcement Directorate (ED) cannot initiate an investigation under the Prevention of Money Laundering Act (PMLA). Without an active predicate offence, the jurisdictional basis for PMLA is rendered null and void. Furthermore, it elucidates that, according to the aforementioned legal precedent, three jurisdictional facts must be established to invoke PMLA, viz. a) Existence of a scheduled offence b) Criminal activity arising from the scheduled offence c) Proceeds of crime linked to the above mentioned two elements. 10) Additionally, the learned counsel has cited paragraph 17 of the Vijay Madanlal Choudhary case (supra), which is reproduced as follows: 17. From the aforesaid analysis of law on the subject, it is clear that though offences under PMLA are standalone offences, yet their origin is the Scheduled offences. Once the Scheduled offence ceases to exist or is extinguished, an accused cannot be proceeded against in respect of offences under PMLA. It is for this reason that the Supreme Court has, in Vijay Mandanlal Choudhary's case (supra) clearly laid down that if a person is finally discharged/acquitted of the scheduled offences or a criminal case agains....
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....ot even in a case of existence of undisclosed income and irrespective of its volume, the definition of "proceeds of crime" under Section 2 (1) (u) will get attracted, unless the property has been derived or obtained as a result of criminal activity relating to a scheduled offence. It is possible that in a given case after the discovery of huge volume of undisclosed property, the authorised officer may be advised to send information to the jurisdictional police (under Section 66 (2) of the 2002 Act) for registration of a scheduled offence contemporaneously, including for further investigation in a pending case, if any. On receipt of such information, the jurisdictional police would be obliged to register the case by way of FIR if it is a cognizable offence or as a non-cognizable offence (NC case), as the case may be. If the offence so reported is a scheduled offence, only in that eventuality, the property recovered by the authorised officer would partake the colour of proceeds of crime under Section 2 (1) (u) of the 2002 Act, enabling him to take further action under the Act in that regard. 54. Even though, the 2002 Act is a complete Code in itself, it is only in respect of matter....
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....hary v. Union of India (above), has unequivocally determined that if an individual is ultimately discharged or acquitted of the scheduled offence, or if the criminal case against them is quashed, the offence of money laundering under the PMLA cannot persist. The proceedings under the PMLA are thus dependent on the existence of the scheduled offence. It is asserted that a logical extension of this principle indicates that when an investigation in a FIR related to a scheduled offence is stayed, the continuation of such proceedings is effectively halted. The stay of investigation operates as a legal impediment, prohibiting any more actions related to the scheduled offence. The alleged offence of money laundering originates from the predicate offence, so effect of stay also extends to the proceedings under the PMLA. The enforcement action under PMLA is consequently suspended for as long as the stay on the predicate offence remains in force. Consequently, any proceedings commenced under the PMLA in relation to an FIR whose investigation is stayed would be deemed premature and lacking jurisdiction. The Enforcement Directorate must await the final adjudication of the predicate offence be....
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....ote Nos.120 (also at Footnote No. 41) 681 Supra at Footnote No. 43 and evidence so collated during the inquiry made, may disclose commission of offence of money-laundering and the involvement of the person, who has been summoned for making disclosures pursuant to the summons issued by the Authority. At this stage, there would be no formal document indicative of likelihood of involvement of such person as an accused of offence of money-laundering. If the statement made by him reveals the offence of Money-laundering or the existence of proceeds of crime, that becomes actionable under the Act itself. To put it differently, at the stage of recording of statement for the purpose of inquiring into the relevant facts in connection with the property being proceeds of crime is, in that sense, not an investigation for prosecution as such; and in any case, there would be no formal accusation against the notice. Such summons can be issued even to witnesses in the inquiry so conducted by the authorised officials. However, after further inquiry on the basis of other material and evidence, the involvement of such person (noticee) is revealed, the authorised officials can certainly proceed against....
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....r such period, as he thinks fit, any records produced before him in any proceedings under this Act: Provided that an Assistant Director or a Deputy Director shall not (a) impound any records without recording his reasons for so doing; or (b) retain in his custody any such records for a period exceeding three months, without obtaining the previous approval of the Joint Director. No Prosecution on a Notional Basis 15) The learned counsel has argued that for a person to be prosecuted under PMLA, it is essential that: 1. A scheduled offence (predicate offence) must have been committed and properly registered. 2. There must be proceeds of crime, i.e., property derived from the scheduled offence. 3. There must be involvement in the process or activity connected with proceeds of crime, as defined under Section3 of PMLA. 16) Thus, it has been submitted, a prosecution cannot rely solely on assumption or speculation regarding the commission of a scheduled offence and the existence of proceeds of crime. This principle has been reiterated by the Supreme Court of India in various judgements, notably Vijay Madanlal Choudhary v. Union of India. The Enforcement Directorate (ED) can....
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....(Neeraj Bhatia, resident of Delhi), to fictitious entities, namely S S Industries (Owner Sumesh Sareen, resident of Faridabad) and N. K. Pharmaceuticals (NiketKansal, resident of Delhi), after which the CBCS was illicitly sold to individuals Maqbool and Shabir. 18) During the course of investigation under PMLA, various information and documents relating to the case have been collected as under:- i) NCB chargesheet dated 11.07.2024 against Raees Ahmed Bhat R/o Srinagar J&K, Mohd Sabir R/o Jamia Nagar, Delhi, PardeepSinghSodi R/o Badgam J&K, Mohd Maqbool R/o Batla House, Jamia Nagar, Delhi, NiketKansal, M/s N K Pharmaceuticals R/o Sant Nagar Delhi, Sumesh Sareen, M/s SS Industry, R/o Faridabad, details of seizure by NCB inthe case, details of purchase orders of CBCS placed by M/s SS Industry with M/s Vidit Healthcare and other relevant documents. ii) Statements of NiketKansal, Raees Ahmed Bhat, Pradeep Singh Sodhi, Sumesh Sareen, Mohd Maqbool and Mohd Sabir recorded u/s 50(2) and (3) of PMLA during 08.11.2024 to 14.11.2024 wherein leads in the investigation were found. iii) Details of evidences collected during search proceedings including the quantum of CBCS procured by entit....
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....ion and sale of CBCS. LEGAL ANALYSIS: 22) Before delving into the substantive elements of the case, it is essential to first clarify the definition outlined in Section 2 of the Act, specifically with the phrase "proceeds of crime," as well as Section 3 concerning the "Offence of money-laundering." Section: 2 (1) (u): "proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property [or where such property is taken or held outside the country, then the property equivalent in value held within the country] [or abroad]; [Explanation. --For the removal of doubts, it is hereby clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence;] Section: 3. Offence of money-laundering. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the 1[proceeds of....
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....ned directly or indirectly as a result of criminal activity relating to a scheduled offence. Therefore, the Explanation is in the nature of clarification and not to increase the width of the main definition "proceeds of crime". The definition of "property" also contains Explanation which is for the removal of doubts and to clarify that the term property includes property of any kind used in the commission of an offence under the 2002 Act or any of the scheduled offences. In the earlier part of this judgment, we have already noted that every crime property need not be termed as proceeds of crime but the converse may be true. Additionally, some other property is purchased or derived from the proceeds of crime even such subsequently acquired property must be regarded as tainted property and actionable under the Act. For, it would become property for the purpose of taking action under the 2002 Act which is being used in the commission of offence of Money-laundering. Such purposive interpretation would be necessary to uphold the purposes and objects for enactment of 2002 Act." 24) The Hon'ble Supreme Court elucidated that "proceeds of crime" under the PMLA encompasses not only property....
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...., the authorities retain the right to execute the issued summons, as these acts are regulated by separate legal principles that are unaffected by the result of the underlying offence. 28) Additionally, the Hon'ble Supreme Court in the case Director, Enforcement Directorate & Anr v. VilelieKhamo in SLP [CRL.] NO. 15189/2024, decided on 19-12-2024, has annulled the High Court's order that quashed the summons on the grounds that the respondent had been discharged in the predicate offence, with the pertinent details as follows: "We are limiting ourselves to the question of law. What has been issued to the respondent is merely a summons. Simply because he has been discharged in the predicate offence, a Court cannot quash the summons. The questions as to whether the respondent would be arrayed as an accused or not, is a matter which has to be decided at a later stage. In that eventuality, it is well open to the respondent to raise all relevant contentions for the aforesaid purpose including the submissions that since the predicate offence has been quashed, the subsequent action of the appellant arraying him as an accused in the PMLA proceedings would not be sustained in the eyes o....
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....fully exhausted. The offence of Money-laundering is not dependent on or linked to the date on which the scheduled offence or if we may say so the predicate offence has been committed. The relevant date is the date on which the person indulges in the process or activity connected with such proceeds of crime. These ingredients are intrinsic in the original provision (Section 3, as amended until 2013 and were in force till 31.7.2019); and the same has been merely explained and clarified by way of Explanation vide Finance (No. 2) Act, 2019. Thus understood, inclusion of Clause (ii) in Explanation inserted in 2019 is of no consequence as it does not alter or enlarge the scope of Section 3 at all." 30) The above observation of the Hon'ble Supreme Court implies that money laundering itself is a separate crime, distinct from the original (or scheduled) offence like corruption, drug trafficking, fraud, etc. Even if the scheduled offence is tried under Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, 1985 Act, etc., money laundering is prosecuted separately under PMLA. The offence under Section 3 is dependent on the scheduled offence, but it is a separate and independent o....
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....g the proceedings of the scheduled offence. However, an accused in the PMLA case who comes into the picture after the scheduled offence is committed by assisting in the concealment or use of proceeds of crime need not be an accused in the scheduled offence. Such an accused can still be prosecuted under PMLA so long as the scheduled offence exists. Thus, the second contention raised by the learned senior counsel appearing for the appellant on the ground that the appellant was not shown as an accused in the chargesheets filed in the scheduled offences deserves to be rejected. 33) Again in the case of Vijay Madanlal Choudhary & Others (supra) the Hon'ble Supreme Court has expounded the purpose of the Act of 2002 and the following has been held: 81. Concededly, the 2002 Act provides for an inquiry to be conducted by the Authorities and with power to collect evidence for being submitted to the Adjudicating Authority for consideration of confirmation of provisional attachment order passed by the Authorities in respect of properties being proceeds of crime involved in the offence of money-laundering. In that sense, the provisions in 2002 Act are not only to investigate into the offence....
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....llify the overarching legal structure governing the issuance of the summons. The discharge should not be regarded as a legal obstacle to the authorities' capacity to forward with the summons. 37) Furthermore, in the present case, the order of discharge has been formally contested by the respondents, and a criminal revision, numbered as Crl R No. 21/2025, is currently pending before this Court, wherein Notice has been issued. The proceedings in relation to the discharge order will be depend upon the outcome of the revision petition, which will effectively settle the issues relating to the legitimacy of the discharge. 38) Thus, the issuance of a summons is a procedural action executed within the Court's jurisdiction, and its legitimacy remains intact despite the respondent's discharge in the predicate offence. CONCLUSION 39) Consequently, the sequitur to the aforementioned discussion is to acknowledge that the summons issued to the petitioner constitutes a procedural measure within the legal framework, and its validity persists despite the petitioner's discharge in the predicate offence. The mere discharge of the petitioner concerning the predicate offence does no....