1. ISSUES PRESENTED and CONSIDERED
a) Whether discharge in the predicate offence under the Narcotic Drugs and Psychotropic Substances Act (NDPS) invalidates or precludes proceedings under the Prevention of Money Laundering Act, 2002 (PMLA)Rs.
b) Whether PMLA proceedings are independent and can proceed notwithstanding discharge or acquittal in the predicate offenceRs.
c) The validity and scope of summons issued under Section 50 of the PMLA when the accused has been discharged in the predicate offence.
d) The legal nexus between a scheduled offence (predicate offence) and the offence of money laundering under the PMLA, including the requirement of "proceeds of crime."
e) Whether the Enforcement Directorate (ED) can initiate or continue investigation under PMLA in absence of an active predicate offence or when the predicate offence proceedings are stayed or quashed.
f) The procedural and substantive safeguards in issuance of summons and enforcement actions under PMLA, and the extent of judicial intervention in such procedural steps.
2. ISSUE-WISE DETAILED ANALYSIS
a) Effect of Discharge in Predicate Offence on PMLA Proceedings
The petitioner was discharged by the Special NDPS Court in predicate offences involving alleged illicit manufacturing, marketing, and transportation of a codeine-based cough syrup. The discharge was based on absence of cogent evidence linking the petitioner to the scheduled offences under the NDPS Act. The petitioner contended that without an extant scheduled offence, there can be no "proceeds of crime" under Section 2(1)(u) of PMLA, thus invalidating the PMLA proceedings including summons and search/seizure actions.
The petitioner's counsel relied heavily on the principle that PMLA is predicated on the existence of a scheduled offence, as defined in Section 2(1)(y) of PMLA, and that money laundering offences under Section 3 of PMLA arise only in connection with proceeds of crime derived from such scheduled offences. He argued that discharge in the scheduled offence removes the foundational jurisdictional fact, rendering PMLA proceedings unsustainable and arbitrary.
The Court examined the legal framework and authoritative precedents, notably the Supreme Court's ruling in Vijay Madanlal Choudhary v. Union of India, which clarified that while offences under PMLA are standalone, they originate from scheduled offences. The Court emphasized that if the scheduled offence ceases to exist by acquittal, discharge, or quashing, the offence of money laundering cannot subsist. However, the Court also noted that the offence of money laundering concerns the process or activity connected with proceeds of crime and can continue independently once the laundering activity commences.
The Court further observed that the discharge in the predicate offence is a determination on the merits of that offence but does not ipso facto nullify the legal framework governing PMLA proceedings. The Court recognized that the Enforcement Directorate may still investigate and take enforcement actions if there is credible evidence of involvement in laundering proceeds of crime, even if the accused was discharged in the predicate offence.
Thus, the discharge in the predicate offence does not automatically invalidate or preclude PMLA proceedings. The relationship between the predicate offence and PMLA is foundational but not absolute; the offence of money laundering is distinct and may be pursued independently once the laundering activity is established.
b) Independence of PMLA Proceedings from Predicate Offence
The Court analyzed the statutory provisions and judicial interpretations to determine whether PMLA proceedings can be initiated or continued independently of the predicate offence. Section 3 of PMLA criminalizes the process or activity connected with proceeds of crime derived from scheduled offences. The definition of "proceeds of crime" under Section 2(1)(u) includes property obtained directly or indirectly from criminal activity relating to scheduled offences.
The Court relied on the Supreme Court's interpretation that money laundering is a continuing offence distinct from the scheduled offence. It can be committed even after the predicate offence has been completed or even if the predicate offence is not pending, provided the laundering activities continue. The Court noted that the offence under Section 3 PMLA is concerned with the process of dealing with proceeds of crime, such as concealment, possession, acquisition, use, or projection as untainted property.
The Court also referred to the Pavana Dibbur judgment, which clarified that a person need not be an accused in the scheduled offence to be prosecuted under PMLA if they knowingly assist in laundering proceeds of crime. This underscores the independent nature of PMLA offences.
Therefore, the Court concluded that PMLA proceedings are legally independent and may proceed notwithstanding discharge or acquittal in the predicate offence, subject to the existence of proceeds of crime and involvement in laundering activities.
c) Validity of Summons under Section 50 PMLA after Discharge in Predicate Offence
The petitioner challenged the summons issued under Section 50 of PMLA, contending that summons cannot be issued once the predicate offence is discharged. The Court examined the scope of Section 50, which empowers the Director or authorized officers to summon persons for inquiry, collection of evidence, or production of documents during investigation or proceedings under the Act.
The Court cited the Supreme Court's ruling in Vijay Madanlal Choudhary, which held that summons under Section 50 are issued in connection with inquiry regarding proceeds of crime and are not necessarily for initiating prosecution. Summons can be issued even to witnesses and persons not formally accused, and the issuance does not amount to formal accusation.
The Court also referred to the recent Supreme Court decision in Director, Enforcement Directorate v. Vilelie Khamo, which set aside a High Court order quashing summons on the ground of discharge in the predicate offence. The Supreme Court held that discharge in the predicate offence does not entitle the accused to quash summons issued under PMLA, as the question of formal accusation arises only at a later stage.
The Court emphasized that the summons mechanism is a procedural safeguard essential for fair investigation and due process. It ensures collection of relevant evidence and affords the summoned person an opportunity to be heard. The discharge in the predicate offence does not negate the continuing validity of summons issued under PMLA.
d) Legal Nexus between Scheduled Offence and Proceeds of Crime under PMLA
The Court analyzed the definition of "proceeds of crime" under Section 2(1)(u) of PMLA, which includes any property derived directly or indirectly from criminal activity relating to scheduled offences. The 2019 Explanation clarifies that proceeds of crime include property obtained indirectly, including property acquired from sale proceeds or in exchange of tainted property.
The Court noted that not all crime property is proceeds of crime, but all proceeds of crime are crime property. The definition is purposively interpreted to effectively combat money laundering by tracking assets derived from illicit activities.
The Court underscored that for prosecution under PMLA, tangible evidence must exist linking the property to a scheduled offence. The authorities must have reason to believe, supported by credible evidence, that the person is involved in processes connected with proceeds of crime.
Thus, the nexus between scheduled offence and proceeds of crime is essential, but the offence of money laundering is concerned with the separate and ongoing activity of dealing with such proceeds.
e) Authority of Enforcement Directorate to Investigate and Proceed under PMLA
The Court considered whether the Enforcement Directorate can initiate or continue investigation under PMLA when the predicate offence is stayed, quashed, or the accused is discharged. The petitioner argued that without an active scheduled offence, the ED lacks jurisdiction to proceed.
The Court referred to the Madras High Court decision in B. Shanmugam v. Karthik Dasari, which held that stay or quashing of predicate offence proceedings suspends PMLA proceedings as the jurisdictional fact of a scheduled offence ceases to exist during such period.
However, the Court also noted the Supreme Court's position that the offence of money laundering is independent and can be pursued even if the scheduled offence is not pending, provided the laundering activity is ongoing and proceeds of crime exist. The Court observed that the stay or quashing of predicate offence does not automatically extinguish PMLA proceedings unless the scheduled offence is finally quashed or the accused discharged/acquitted.
In the instant case, the discharge order is under challenge in a pending revision petition, indicating that the predicate offence's status is not finally settled. Hence, the ED's investigation and summons remain valid pending final adjudication.
f) Judicial Intervention in Issuance and Enforcement of Summons
The Court emphasized that issuance of summons under Section 50 PMLA is a procedural step aimed at collecting evidence and facilitating inquiry. Judicial intervention to quash summons is not warranted unless there are compelling and unequivocal grounds.
The Court held that discharge in the predicate offence does not constitute such ground and that the summons mechanism is crucial to uphold the rule of law, fairness, and transparency in investigations. The Court declined to interfere with the summons issued to the petitioner.
3. SIGNIFICANT HOLDINGS
"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."
"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."
"The issuance of summons under Section 50 of the PMLA is a procedural action for inquiry and collection of evidence and is not necessarily for initiating prosecution. Such summons can be issued even to witnesses and persons not formally accused."
"Discharge in the predicate offence does not entitle the accused to quash summons issued under the PMLA. The question of formal accusation arises at a later stage."
"The mere discharge or quashing of a FIR by a competent court does not automatically result in the quashing of an Enforcement Case Information Report (ECIR) filed under the PMLA. The two proceedings, while factually linked, are legally independent and governed separately."
"The Enforcement Directorate's authority to proceed under PMLA remains intact pending final adjudication of the predicate offence, and the discharge order being contested does not invalidate ongoing PMLA proceedings."
"Judicial intervention in the lawful issuance and enforcement of summons under PMLA is not warranted unless clear and compelling grounds exist."
Final determinations:
1. Discharge in the predicate offence does not automatically invalidate or preclude PMLA proceedings.
2. PMLA offences are independent and can be pursued even if the accused is not charged or is discharged in the scheduled offence, provided proceeds of crime and laundering activities exist.
3. Summons issued under Section 50 PMLA remain valid despite discharge in predicate offence and cannot be quashed on that ground alone.
4. The Enforcement Directorate is authorized to continue investigations and enforcement actions under PMLA pending final adjudication of predicate offences.
5. The petition challenging the quashing of summons and related PMLA proceedings on the basis of discharge in predicate offence was dismissed for lack of merit.