2022 (12) TMI 1380 - HC - Money Laundering

Provisional attachment order - predicate offences - right of Enforcement Directorate to attach the properties of the petitioners - reasons to believe - continuation of proceedings under PMLAin the teeth of the interim order of stay of further proceedings granted in the offences relating to IPC. Whether the Enforcement Directorate had the right to attach the properties of the petitioners? - HELD THAT - The 3rd respondent/Competent Authority passes an order on 01.08.2022 issuing a provisional attachment order in Provisional Order No.5 of 2022 under sub-Section (1) of Section 5 of the PMLA. To arrive at passing of the order statements of all the petitioners have been recorded under Section 50 of the PMLA and several documents are scrutinized. A detailed order is passed in terms of Section 5 of the PMLA and arriving at a conclusion albeit prima facie that he has reason to believe that proceeds of crime are the result of properties standing in the names of the petitioners either movable or immovable. It is this attachment order that drives the petitioners to this Court. Therefore the power under Section 5 being executed and the considered finding that he has reason to believe to pass the said order cannot be found fault with. It is in tune with Section 5 of the PMLA. Therefore the first point that has arisen for consideration is answered against the petitioners holding that the3 rd respondent has the power to attach the properties. What is required is there should be reasons to believe . The order passed does reflect application of mind and records reasons to believe that they were proceeds of crime. Whether the impugned proceedings under PMLA in ECIR No.ECIR/BGZO/04/2019/AD-AKV/1541 should be permitted to be continued in the teeth of the interim order of stay of further proceedings granted in the offences relating to IPC i.e. the predicate offences? - HELD THAT - If the allegations in the predicate offences are considered to be the flesh the offences under the PMLA is the blood they are impregnable. Therefore if the predicate offences are not permitted to move forward the impugned proceedings cannot. It would have been altogether different circumstance if the petitioners were all acquitted of the offences under the IPC or any other predicate offence to which the offence under the PMLA is linked. The situation in the case at hand is not with regard to acquittal but the stay of the proceedings. Therefore they are eclipsed and not extinguished. In the light of the judgments rendered by the Apex Court in the case of VIJAY MADANLAL CHOUDARY 2022 (7) TMI 1316 - SUPREME COURT it is deemed appropriate to stall all further action in the impugned proceedings till conclusion of Writ Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020. If the proceedings in the predicate offence are stayed the impugned proceedings of attachment under the ECIR cannot be permitted to continue. If the proceedings move on in the predicate offence the offence under the ECIR should also be permitted to continue failing which it would defeat the proceedings under the PMLA or the IPC and would fall foul of the judgment of the Apex Court. The Writ Petition is allowed in part.

Summary

Issues Involved:
1. Whether the Enforcement Directorate had the right to attach the properties of the petitioners?
2. Whether the proceedings under the Prevention of Money Laundering Act (PMLA) in ECIR No.ECIR/BGZO/04/2019/AD-AKV/1541 should be permitted to continue despite the interim order of stay of further proceedings granted in the predicate offences under the Indian Penal Code (IPC)?

Issue-wise Detailed Analysis:

1. Whether the Enforcement Directorate had the right to attach the properties of the petitioners?

The petitioners challenged the provisional attachment order issued by the Enforcement Directorate (ED) under Section 5(1) of the PMLA, arguing that the registration of the Enforcement Case Information Report (ECIR) was solely based on a case registered by the Central Bureau of Investigation (CBI). The petitioners contended that since the proceedings in the predicate offence (C.C.No.11606 of 2020) were stayed by the High Court, the basis for the attachment under PMLA was also stayed, and hence, the attachment should be stayed as well.

The court noted that Section 5 of the PMLA empowers the ED to provisionally attach properties if there is a reason to believe that the properties are proceeds of crime and are likely to be concealed, transferred, or dealt with in a manner that may frustrate proceedings related to confiscation. The court observed that the ED had recorded reasons for the attachment in writing and had followed the due process under Section 5 of the PMLA. Thus, the court concluded that the ED had the right to attach the properties of the petitioners, and the attachment order was in compliance with the PMLA.

2. Whether the proceedings under PMLA in ECIR No.ECIR/BGZO/04/2019/AD-AKV/1541 should be permitted to continue despite the interim order of stay of further proceedings granted in the predicate offences under IPC?

The court examined whether the proceedings under PMLA should continue in light of the stay order in the predicate offence. The petitioners relied on the Supreme Court judgment in *Vijay Madanlal Choudary v. Union of India* and a judgment by the High Court of Madras in *B. Shanmugam and Others v. Karthik Dasari*, which held that if the accused are acquitted in the predicate offence, the offence under PMLA cannot be sustained.

The court noted that the Supreme Court in *Vijay Madanlal Choudary* established that if the accused in the predicate offence are acquitted, discharged, or if the proceedings are quashed, the proceedings under PMLA cannot continue. The court further observed that the interim stay of the predicate offence proceedings means that the proceedings are eclipsed but not extinguished. Therefore, the attachment order under PMLA should not continue while the stay is in effect.

The court also referred to the judgment of the High Court of Madras, which held that when the proceedings in the predicate offence are stayed, the ED should refrain from proceeding further under PMLA until the stay is lifted or the predicate offence is resolved.

Based on these precedents, the court concluded that the proceedings under PMLA should be stalled until the resolution of the predicate offence proceedings. The court restrained the ED from proceeding further with the provisional attachment and kept the attachment order in abeyance until the disposal of the related writ and criminal petitions.

Order:
1. The writ petition is allowed in part.
2. The ED is restrained from proceeding further in ECIR No.ECIR/BGZO/04/2019/AD-AKV/1541 regarding the provisional attachment order dated 01-08-2022 until the disposal of Writ Petition No.14431 of 2020 and Criminal Petition No.7949 of 2020.
3. The provisional attachment order dated 01-08-2022 shall be kept in abeyance until the disposal of the aforementioned petitions.
4. No specific order from the court hearing the writ and criminal petitions is required to continue these proceedings. Once those proceedings are permitted to continue, the continuation of the impugned proceedings becomes axiomatic.