2025 (5) TMI 1692 - HC - Money Laundering

Challenged validity of cognizance and summoning order - commission of the scheduled offences and generation of proceeds of crime - acquisition of various movable / immovable assets to project the same as untainted property - credibility of the ponzi schemes - HELD THAT - Having considered the facts and circumstances of the case in the light of the aforesaid cases I am of the considered view that although the applicant s name has not been included in the charge-sheet submitted by the Investigating Officer regarding commission of the scheduled offence the complaint filed by the Directorate of Enforcement categorically states that besides aiding and abetting her husband in commission of the scheduled offence and generation of proceeds of crime the applicant is also involved in assisting her husband Ajit Kumar Gupta in layering and concealment of the proceeds of crime. She has been a recipient of the proceeds of crime. Some part of the proceeds of crime have been transferred to the applicant s bank account some part of the proceeds of crime have been used for purchasing immovable properties in the name of the applicant and some part has been used for conversion of land use of the property purchased in the name of the applicant. Therefore even if the applicant s involvement in commission of scheduled offences through which the proceeds of crime were generated has not been established the allegation that the applicant is involved in concealment and laying the proceeds of crime and that she has utilized the proceeds of crime still needs to be investigated. Therefore I am of the view that although the applicant has been absolved of all the charges regarding commission of the scheduled offence she still has to face prosecution for the offence of money laundering which is a standalone offence and which is independent and distinct from the scheduled offence. The application under Section 528 BNSS lacks merit and the same is hereby dismissed. It is clarified that this Court has not examined the merits of the allegation and any observation made in this order will not affect the trial.

Summary

The core legal questions considered in this judgment revolve around the relationship between scheduled offences and the offence of money laundering under the Prevention of Money Laundering Act, 2002 (PMLA). Specifically, the issues are:

1. Whether a person can be prosecuted under Section 3 of the PMLA for money laundering if they have not been named as an accused or charged in the predicate scheduled offence(s) from which the proceeds of crime allegedly originate.

2. Whether the absence of the applicant's name in the charge-sheet for the scheduled offences absolves her from prosecution under the PMLA.

3. The scope and independence of the offence of money laundering vis-`a-vis the scheduled offence(s) under the PMLA.

4. The legal effect of acquittal, discharge, or quashing of proceedings in the scheduled offence on the viability of prosecution under the PMLA.

5. The evidentiary and procedural requirements for initiating and sustaining prosecution under the PMLA.

Issue-wise Detailed Analysis

1. Can a person be prosecuted under PMLA without being an accused in the scheduled offence?

The legal framework central to this issue is Section 3 of the PMLA, which defines the offence of money laundering as any process or activity connected with the proceeds of crime derived from scheduled offences. The definition of "proceeds of crime" under Section 2(1)(u) is crucial, linking the offence to criminal activity relating to scheduled offences.

The applicant contended that since her name was not included in the charge-sheet for the scheduled offences, she could not be prosecuted under the PMLA. This argument was supported by reliance on the Supreme Court's decision in Vijay Madanlal Choudhary v. Union of India, where it was held that action under the PMLA cannot be taken unless the scheduled offence is registered and pending, and if a person is absolved of the scheduled offence, no money laundering action can be sustained against them.

However, the Court examined the Supreme Court's later decision in Pavana Dibbur v. Directorate of Enforcement, which clarified that the offence of money laundering under Section 3 is independent and distinct from the scheduled offence. It can be committed by a person who assists in the concealment or use of proceeds of crime even if they were not an accused in the scheduled offence. The Court emphasized that the condition precedent for money laundering is the existence of a scheduled offence and proceeds of crime, but the accused in the PMLA case need not be the same as those accused in the scheduled offence.

The Court also noted that the offence under Section 3 may be a continuing offence, occurring after the scheduled offence, and can involve persons who come into the picture only at the stage of dealing with proceeds of crime.

Thus, the Court rejected the applicant's contention that non-inclusion in the charge-sheet absolves her from prosecution under the PMLA.

2. Effect of acquittal or discharge in scheduled offence on PMLA prosecution

The applicant relied on precedents where courts quashed PMLA proceedings against persons acquitted or discharged in the scheduled offence, including decisions from the Delhi High Court and Madras High Court. These decisions emphasized that if the scheduled offence is not established, there can be no proceeds of crime, and consequently, no offence of money laundering.

The Court acknowledged this principle but distinguished it from the present case. It held that if the scheduled offence is quashed or all accused are acquitted, then no PMLA prosecution can survive. However, if the scheduled offence proceedings continue against some accused, or if the applicant is alleged to have aided in concealment or use of proceeds of crime independently, prosecution under the PMLA can proceed.

The Court noted that the applicant's name was not included in the charge-sheet for the scheduled offence but the complaint alleges her involvement in layering, concealment, and utilization of proceeds of crime, which requires investigation. Therefore, the applicant's prosecution under the PMLA is maintainable despite non-inclusion in the scheduled offence charge-sheet.

3. Relationship between scheduled offences and money laundering offence under PMLA

The Court extensively analyzed the statutory provisions and judicial pronouncements to elucidate the relationship between scheduled offences and money laundering. Section 3 PMLA criminalizes any process or activity connected with proceeds of crime derived from scheduled offences, including concealment, possession, acquisition, use, or projecting property as untainted.

The Court cited the Supreme Court's clarification that the offence under Section 3 is not limited to the final act of integration of tainted property but includes every process or activity, direct or indirect, connected with proceeds of crime. The Explanation inserted in 2019 merely clarifies the language and does not narrow the scope.

It was emphasized that the offence of money laundering is independent and distinct from the scheduled offence, although it is dependent on the existence of proceeds of crime from a scheduled offence. The prosecution under PMLA can target persons who assist in dealing with proceeds of crime even if they were not involved in the predicate offence.

4. Evidentiary and procedural requirements for initiating PMLA proceedings

The Court referred to the requirement that the scheduled offence must be registered or pending inquiry before competent authorities for the PMLA authorities to take action. The property must be "derived or obtained" as a result of criminal activity relating to the scheduled offence.

The Court observed that in the present case, the Directorate of Enforcement registered an ECIR and filed a complaint alleging the applicant's involvement in money laundering activities connected with proceeds of crime generated from the scheduled offences, which are registered and under investigation.

The applicant's involvement in acquisition of immovable property using proceeds of crime and receipt of tainted money in her bank account were key findings supporting the complaint.

5. Treatment of competing arguments and conclusions

The applicant's counsel argued that the absence of her name in the scheduled offence charge-sheet and non-inclusion in predicate offences absolves her of PMLA liability. The Court rejected this, relying on authoritative decisions clarifying the independence of the PMLA offence and the possibility of prosecuting persons who assist in concealment or use of proceeds of crime after the scheduled offence.

The Court also criticized the applicant's counsel for citing interim or irrelevant orders that had been subsequently vacated or rendered infructuous, emphasizing the importance of precise and relevant legal submissions.

Ultimately, the Court held that the applicant's prosecution under the PMLA is maintainable because the complaint alleges active involvement in layering, concealment, and utilization of proceeds of crime, which requires investigation and trial.

Significant Holdings

"The offence of money laundering under Section 3 of PMLA is independent of the scheduled offence through which the proceeds of crime were generated. In case all the persons accused of commission of the scheduled offence are exonerated or discharged or acquitted, it would imply that no scheduled offence was committed. Without the scheduled offence having been committed, there would be no proceeds of crime generated from the scheduled offence. In these circumstances, there can be no 'money laundering' of the 'proceeds of crime'. However, if numerous persons are accused of commission of the scheduled offence and one or some of them, but not all of them, are exonerated / discharged or acquitted, it cannot be said that the scheduled offence has not been committed or that the proceeds of crime have not been generated. In such a situation, if the prosecution against some other accused person(s) is going on in respect of a scheduled offence, even if a person is not named as an accused in the scheduled offence or if he / she has been exonerated / discharged in respect of the scheduled offence, it will not create a bar against his / her prosecution under the PMLA, if there is material to proceed against him / her for prosecution under the PMLA."

"The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected 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."

"The offence of money laundering is not to be appreciated in isolation but is to be read with the complementary provisions, that is, the offences enlisted in the Schedule of the Act. The language of Section 3 clearly implies that the money involved in the offence of money laundering is necessarily the proceeds of crime, arising out of a criminal activity in relation to the scheduled offences enlisted in the Schedule of the Act."

"An accused in 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."

The Court concluded that the applicant's Section 482 Cr.P.C. application challenging cognizance and summoning orders under the PMLA lacks merit and dismissed it, clarifying that no observations made would affect the trial's merits.