2025 (6) TMI 19 - HC - Money Laundering

Money Laundering - generation of proceeds of crime - illegal gratification - violation of provisions of Section 3 of PMLA by knowingly assisting the other accused persons in generation of proceeds of crime - HELD THAT - It is settled law that a precedent is to be read keeping in view the background in which the case was decided. In Y. Balaji 2023 (6) TMI 594 - SUPREME COURT the accusation against the accused persons was of having taken the bribe and thus generated proceeds of crime by this. The Hon ble Supreme Court held that taking bribe amounts to acquisition of proceeds of crime. In the present case there is no allegation against the applicant that he had generated or acquired any proceeds of crime. The only allegation against the applicant is that he has assisted in generation of crime and thereby violated the provision of Section 3 of Prevention of Money Laundering Act. The allegation against the applicant in the case relating to the scheduled offence is that in the monthly returns he did not report accesses made by A. K. Dutta in granting undue facilities to Vijay Kumar Jaiswal and thus he did not follow the guidelines of the bank. As per the law laid down in Vijay Madan Lal Chaudhary 2022 (7) TMI 1316 - SUPREME COURT (LB) the process or activity of money laundering can be indulged in only after the property is derived or obtained as a result of a scheduled offence. The fundamental stages of money laundering are (1) Placement which is to move the funds from direct association of the crime (2) Layering which is disguising the trail to foil pursuit and (3) Integration which is making the money available to the criminal from what seems to be legitimate sources. There is no allegation in the complained filed by ED that the applicant was involved in any of the aforesaid activities. It is only when money is generated as a result of such acts that PMLA steps in as soon as proceeds of crime are involved in any process or activity but in the present case the applicant is not alleged to have been involved in any process or activity after generation of the proceeds of crime. The applicant is already facing trial for the scheduled offence since the year 2010 and the learned counsel for the parties have informed that in that case also merely charges have been framed till date and no prosecution witness has been examined. The case lodged by the Directorate of Enforcement was initiated by lodging the ECIR in the year 2010 the complaint was filed in the year 2017 charges have been framed in the year 2025 and further proceedings are yet to take place. It appears that neither the case relating to the scheduled offence instituted by the CBI nor the case relating to PMLA instituted by the ED could make any substantial progress during the past 1 decade. Conclusion - The facts of the present case where the only allegation against the applicant is of providing assistance in generation of the proceeds of crime and he is not alleged to have been involved in any process or activity after generation of the proceeds of crime or to have at any point of time been in possession of any proceeds of crime do not even prima facie make out the offence of money laundering defined under Section 3 of the Prevention of Money Laundering Act. In these circumstances continuance of the proceedings under PMLA against the application would only amount to his persecution. The complaint dated 16.09.2017 filed by the Directorate of Enforcement against the applicant the cognizance and summoning order dated 02.04.2018 and the entire proceedings of Sessions Case No. 123 of 2023 under Section 3 4 of the Prevention of Money Laundering Act 2002 in the Court of Special Judge (C.B.I.) Court No. III Lucknow against the applicant only are quashed - the application filed under Section 482 Cr.P.C. is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the offence of money laundering under Section 3 of the Prevention of Money Laundering Act (PMLA), 2002 is made out against the applicant, who is alleged only to have assisted in the generation of proceeds of crime, without being involved in any process or activity connected with proceeds of crime after its generation or acquisition;

(b) Whether mere assistance in generation of proceeds of crime amounts to an offence under Section 3 of PMLA or whether involvement in any process or activity connected with proceeds of crime, as defined under Section 3, is necessary;

(c) Whether the allegations against the applicant, who is also facing trial for the scheduled offence, justify continuation of proceedings under PMLA, or whether such proceedings amount to persecution;

(d) The interpretation and scope of Section 3 of PMLA, including the meaning of "process or activity connected with proceeds of crime" and whether the offence under Section 3 is a stand-alone offence;

(e) The applicability and relevance of the Supreme Court judgments in Vijay Madan Lal Chaudhari and Y. Balaji in the context of the present case;

(f) Whether the Directorate of Enforcement (ED) had sufficient foundational or jurisdictional facts to initiate and continue proceedings against the applicant under PMLA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Whether mere assistance in generation of proceeds of crime constitutes offence under Section 3 PMLA

The legal framework is Section 3 of PMLA, which defines the offence of money laundering as involving any person who 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 proceeds of crime including concealment, possession, acquisition, use, projecting or claiming it as untainted property. The Explanation clarifies that involvement in any one or more of these activities suffices for offence.

The Court extensively analyzed the Supreme Court judgment in Vijay Madan Lal Chaudhari, which interpreted Section 3 in detail. The Court emphasized that the offence of money laundering is committed when a person is involved in any process or activity connected with proceeds of crime that have been derived or obtained as a result of a scheduled offence. The judgment clarified that the offence is independent and stand-alone, focusing on the process or activity connected with proceeds of crime, which can include concealment, possession, acquisition, use, projecting or claiming as untainted property. The Court noted that the word "and" in the statute should be read as "or" to avoid frustrating the legislative intent.

The Court further noted that the stages of money laundering-placement, layering, and integration-imply that involvement occurs after the proceeds of crime have been generated or acquired. Mere assistance in generation of proceeds of crime, without involvement in any subsequent process or activity connected with such proceeds, does not constitute money laundering under Section 3.

In contrast, the judgment in Y. Balaji, relied upon by the ED, held that acquisition or use of proceeds of crime (e.g., bribe money) amounts to money laundering. However, the Court distinguished Y. Balaji on facts, as that case involved direct acquisition of proceeds of crime by the accused, whereas in the present case, the applicant is only alleged to have assisted in generation of proceeds but not to have acquired or dealt with proceeds of crime.

The Court also highlighted that the judgment in Y. Balaji did not deal with the comprehensive interpretation of Section 3 as in Vijay Madan Lal Chaudhari, and that precedents must be read in their factual context.

Thus, the Court concluded that the applicant's alleged conduct-assisting in generation of proceeds of crime without involvement in any process or activity connected with proceeds of crime-does not prima facie make out the offence under Section 3 PMLA.

Issue (c): Whether continuation of PMLA proceedings against the applicant amounts to persecution

The Court noted that the applicant has been facing trial for the scheduled offence since 2010, with charges framed but no prosecution witnesses examined, indicating lack of substantial progress. The ED's complaint under PMLA was filed in 2017, with charges framed only in 2025, and the trial is still pending.

Given the absence of allegations that the applicant was involved in possession or use of proceeds of crime, and the prolonged pendency without progress, the Court held that continuation of PMLA proceedings against the applicant would amount to persecution rather than legitimate prosecution.

Issue (d): Interpretation and scope of Section 3 PMLA and whether offence is stand-alone

The Court relied on the detailed interpretation in Vijay Madan Lal Chaudhari, which held that Section 3 defines an independent offence of money laundering relating to any process or activity connected with proceeds of crime derived from scheduled offences. The offence is not dependent on the date of commission of the scheduled offence but on the date of involvement in the process or activity connected with proceeds of crime.

The Court emphasized that the offence under Section 3 is a stand-alone offence concerning the process or activity connected with proceeds of crime, which must be tangible and supported by credible evidence. Mere generation of proceeds of crime does not suffice; involvement in a defined process or activity (concealment, possession, acquisition, use, projecting or claiming as untainted property) is essential.

Issue (e): Applicability of Supreme Court precedents Vijay Madan Lal Chaudhari and Y. Balaji

The Court distinguished the two judgments based on facts and scope. Vijay Madan Lal Chaudhari provides a comprehensive interpretation of Section 3 PMLA, laying down core principles about the offence's nature, stages, and required involvement. Y. Balaji, decided by a two-judge bench, dealt with facts involving direct acquisition of proceeds of crime (bribe money) and held that acquisition or use amounts to money laundering.

The Court found that Y. Balaji did not address the full scope of Section 3 as elaborated in Vijay Madan Lal Chaudhari and that the present case facts do not fall within the ambit of Y. Balaji since the applicant is not alleged to have acquired or used proceeds of crime.

Issue (f): Whether ED had sufficient foundational facts to initiate and continue proceedings against applicant under PMLA

The Court noted that prosecution under PMLA requires the ED to have reason to believe, supported by tangible and credible evidence, that the accused is in possession of proceeds of crime and involved in any process or activity connected therewith. In the present case, the applicant is not alleged to have been in possession of proceeds of crime or involved in any post-generation process or activity.

Accordingly, the Court found that the foundational facts or jurisdictional facts necessary to sustain the PMLA proceedings against the applicant are absent.

3. SIGNIFICANT HOLDINGS

The Court held:

"The facts of the present case where the only allegation against the applicant is of providing assistance in generation of the proceeds of crime and he is not alleged to have been involved in any process or activity after generation of the proceeds of crime or to have at any point of time been in possession of any proceeds of crime, do not even prima facie make out the offence of money laundering defined under Section 3 of the Prevention of Money Laundering Act."

"The offence of money laundering is an independent offence regarding the process or activity connected with the proceeds of crime which had been derived or obtained as a result of criminal activity relating to or in relation to a scheduled offence. The process or activity can be in any form - be it one of concealment, possession, acquisition, use of proceeds of crime as much as projecting it as untainted property or claiming it to be so. Thus, involvement in any one of such process or activity connected with the proceeds of crime would constitute offence of money laundering."

"A person can be prosecuted under PMLA only if the ED has reason to believe that the person is in possession of proceeds of crime, which belief is supported by tangible and credible evidence indicative of involvement of the person concerned in any process or activity connected with the proceeds of crime."

"The offence under Section 3 is a stand-alone offence and is not dependent on or linked to the date on which the scheduled offence or 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."

"The argument that the mere generation of proceeds of crime is not sufficient to constitute the offence of money-laundering, is actually preposterous. As we could see from Section 3, there are six processes or activities identified therein. They are, (i) concealment; (ii) possession; (iii) acquisition; (iv) use; (v) projecting as untainted property; and (vi) claiming as untainted property."

"In the present case, the applicant is not alleged to have been involved in any of the aforesaid activities after generation of proceeds of crime. The only allegation is that he assisted in generation of proceeds of crime, which does not fall within the ambit of Section 3."

"Continuation of the proceedings under PMLA against the applicant would only amount to his persecution."

Accordingly, the Court quashed the complaint dated 16.09.2017 filed by the Directorate of Enforcement against the applicant, the cognizance and summoning order dated 02.04.2018, and the entire proceedings of Sessions Case No. 123 of 2023 under Sections 3 and 4 of PMLA in the Court of Special Judge (C.B.I.), Lucknow, qua the applicant.