TaxTMI 
TaxTMI 
2025 (6) TMI 1183
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....cate offence invalidates PMLA proceedings? b) Whether 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 a....
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....sis that the purported articles do not constitute "manufactured drugs," and hence, no offence 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 acc....
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....d order does not exist. Therefore, to bring the parties to the proceedings from taking further action in relation to the 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 s....
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....tent Court or the person is discharged or acquitted, the offence continues to be alive and the respondent has the authority to proceed under the Act. 25. Let us see what 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. ....
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.... scheduled offence. Till the First Information Report is quashed, the scheduled offence continues to be alive." 9) Consequently, the Learned Sr. Counsel contends that once an accused is discharged in the predicate offence, 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....
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....he Authorised Officer under the 2002 Act to prosecute any person for offence of money-laundering gets triggered only if there exists proceeds of crime within the meaning of Section 2 (1) (u) of the 2002 Act and further it is involved in any process or activity. Not 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 au....
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....es. The basis of any proceedings under the PMLA is the presence of a predicate (scheduled) offence. Therefore, if the scheduled offence is nullified or extinguished, the accused cannot be prosecuted for money laundering under the PMLA. The Hon'ble Supreme Court, in Vijay Madanlal Choudhary 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 ....
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.... Act, though couched as investigation in real sense, is to undertake inquiry to ascertain relevant facts to facilitate initiation of or pursuing with an action regarding proceeds of crime, if the situation so warrants and for being presented before the Adjudicating Authority. It is a different matter that the information 680 Supra at Footnote 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, t....
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....amined or make statements, and produce such documents as may be required. (4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code . (5) Subject to any rules made in this behalf by the Central Government, any officer referred to in sub-section (2) may impound and retain in his custody for 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 inv....
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....o. 02/2024 dated 14.01.2024 by NCB Jammu. A charge-sheet dated July 11, 2024, under Sections 8, 21, 22, 26, 27-A, 29, and 38 of the NDPS Act, was filed by the NCB to the Special NDPS Court in Jammu. Sections 21, 22, 27-A, and 29 of the NDPS Act, invoked in the FIR/Charge-sheet, are 'scheduled crimes' under Section 2 (1)(y) of the PMLA. The case pertains to the unlawful diversion of a codeine-based cough syrup (CBCS), "Cocrex," from the manufacturer, Vidit Healthcare (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 seiz....
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.... etc, recovered is ongoing. 21) Upon the submission of the reply, the income tax returns of NiketKansal, MamtaKansal (mother), and Rajeev Kansal (father) were obtained, revealing the acquisition of immovable and movable properties inconsistent with their declared financial profiles. During the investigation, it was determined that NiketKansal engaged in criminal activities pertaining to scheduled offences under the NDPS Act to acquire, possess, and utilise the proceeds of crime linked to the illicit diversion 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]; [Explana....
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....directly derived or obtained as a result of criminal activity relating to a scheduled offence. In the context of Explanation added in 2019 to the definition of expression "proceeds of crime", it would inevitably include other property which may not have been derived or obtained as a result of any criminal activity relatable to the scheduled offence. As noticed from the definition, it essentially refers to "any property" including abroad derived or obtained directly or indirectly. The Explanation added in 2019 in no way travels beyond that intent of tracking and reaching upto the property derived or obtained 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 proce....
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....ibit the authorities from pursuing additional legal actions or enforcement measures, including the issuance of a summons. The issuance of a summons constitutes a separate procedural action that is not inherently invalidated by a discharge in a different yet related case (predicate crime). Furthermore, the legal provisions governing the issuance and enforcement of summons are intended to uphold the integrity of the legal process, and it is not the Court's function to intervene in the lawful execution of this process unless unequivocal and compelling grounds for such intervention are demonstrated. Consequently, 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 q....
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....pective of the date and time of commission of the scheduled offence. In other words, the criminal activity may have been committed before the same had been notified as scheduled offence for the purpose of the 2002 Act, but if a person has indulged in or continues to indulge directly or indirectly in dealing with proceeds of crime, derived or obtained from such criminal activity even after it has been notified as scheduled offence, may be liable to be prosecuted for offence of Money-laundering under the 2002 Act - for continuing to possess or conceal the proceeds of crime (fully or in part) or retaining possession thereof or uses it in trenches until 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.....
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....elevant para is reproduced as under: 16. In a given case, if the prosecution for the scheduled offence ends in the acquittal of all the accused or discharge of all the accused or the proceedings of the scheduled offence are quashed in its entirety, the scheduled offence will not exist, and therefore, no one can be prosecuted for the offence punishable under Section 3 of the PMLA as there will not be any proceeds of crime. Thus, in such a case, the accused against whom the complaint under Section 3 of the PMLA is filed will benefit from the scheduled offence ending by acquittal or discharge of all the accused. Similarly, he will get the benefit of quashing 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....
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.... come before authorities, so ensuring the accurate collecting of evidence, assisting in the revelation of truth, and ultimately preserving the effectiveness and integrity of the judicial process. Consequently, the issuance of summons under the PMLA should be regarded as an essential element of due process, intended to advance the rule of law and bolster public trust in the legal system. The discharge in the predicate offence, albeit substantial, does not, as a legal principle, impact the ongoing validity of the summons. 36) The petitioner's discharge in the predicate offence indicates a determination concerning the merits of that particular accusation; nonetheless, it does not nullify 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 upo....