2022 (1) TMI 1335 - HC - Money Laundering

Money Laundering - untainted property - proceeds of crime - sin of having recklessly granted housing loans and personal loans to Vijayakumar and others - to be prosecuted under Section 3 read with Section 4 of the PML Act or not? - HELD THAT - The explanation to Section 3 of the PML Act cannot have the effect of expanding the horizons of the mother penal provision. The explanation by itself cannot create a new offence. As held by the Supreme Court in Bihar Cooperative Development Cane Marketing Union Ltd. and Another Vs Bank of Bihar and Others 1966 (10) TMI 145 - SUPREME COURT the explanation must be read as to harmonise with and clear up any ambiguity in the main section and that it should not be so construed as to widen the ambit of the section. The interpretation proffered by the learned Special Public Prosecutors that mere generation and possession of the proceeds of a crime by the commission of a criminal activity would attract the penal provisions of PML Act would lead to disastrous results which we propose to demonstrate with the following illustration. Section 392 IPC-Robbery is a scheduled offence under the PML Act. A person commits robbery of Rs.1 crore at knife point from the cashier at a bank and decamps with the booty. The Enforcement Directorate had not registered 2023 ECIRs under the PML Act because they are aware that mere generation of proceeds of crime via a criminal activity without anything more cannot attract PML Act. In the above illustration the robber should have projected the sum of Rs.1 crore being the proceeds of crime as untainted property. The Enforcement Directorate cannot be heard to say that every robber would be liable under the PML Act but that they would pick and choose only the best amongst them to prosecute under the PML Act. Thus when a robber cannot be prosecuted under the PML Act for the offence of robbery simpliciter his accessories like conspirators and abettors cannot also be prosecuted under the PML Act in the absence of any material to show that they had projected the fruits of the crime as untainted property. Chandrasekaran is being prosecuted for the offence under Section 3 read with Section 4 of the PML Act for having sanctioned the housing loans and personal loans to the co-accused in violation of banking rules. He is now facing seven prosecutions that have been launched against him by the CBI in the Special Court for CBI Cases for having sanctioned the loans. In the absence of any material to show that Chandrasekaran had directly or indirectly assisted the borrowers in projecting the total loan amount of Rs.19.69 crores (Rs.5.21 crores Rs.14.48 crores) as untainted property the impugned complaints against Chandrasekaran under the PML Act are in our opinion an abuse of process of law. Petition allowed.

Summary

Issues Involved:
1. Whether the petitioner can be prosecuted under Section 3 read with Section 4 of the Prevention of Money Laundering Act (PML Act) for the same act for which he is already facing prosecution under the Indian Penal Code (IPC) and the Prevention of Corruption Act.
2. Interpretation of "proceeds of crime" under Section 2(1)(u) and Section 3 of the PML Act.
3. Applicability of the amendments made to the PML Act by Act 23 of 2019.

Detailed Analysis:

Issue 1: Prosecution under PML Act
The petitioner, a Senior Branch Manager, is facing prosecution for sanctioning housing and personal loans based on forged documents, which became Non-Performing Assets (NPAs). The Central Bureau of Investigation (CBI) filed charge sheets against him for offenses under Section 120-B IPC read with Sections 420, 468, and 471 IPC and Sections 13(1)(d) and 13(2) of the Prevention of Corruption Act. Subsequently, the Enforcement Directorate (ED) filed complaints under Section 3 read with Section 4 of the PML Act. The petitioner argued that he cannot be prosecuted under the PML Act for the same act he is already being prosecuted for under the IPC and Prevention of Corruption Act.

Issue 2: Interpretation of "Proceeds of Crime"
The learned Special Public Prosecutors argued that mere participation in a criminal activity that led to the generation of "proceeds of crime" would attract the provisions of Section 3 read with Section 4 of the PML Act. They cited the Hon'ble Finance Minister's speech and the amendments to Section 2(1)(u) and Section 3 of the PML Act via Act 23 of 2019. However, the court held that for the offense of money laundering to be established, it is necessary that the proceeds of crime should be projected as untainted property. This interpretation aligns with the Supreme Court's ruling in Nikesh Tarachand Shah Vs. Union of India and Another, which stated that mere involvement in a process or activity connected with proceeds of crime without projecting it as untainted property does not constitute money laundering.

Issue 3: Applicability of Amendments by Act 23 of 2019
The court noted that the explanations added to Section 2(1)(u) and Section 3 of the PML Act by Act 23 of 2019 do not alter the legal position established by the Supreme Court. The explanations cannot expand the scope of the penal provisions to create a new offense. The court emphasized that the amendments should harmonize with the main section and not widen its ambit. The interpretation that mere generation and possession of proceeds of crime would attract the PML Act was rejected as it could lead to absurd results, such as prosecuting every robber under the PML Act.

Conclusion:
The court concluded that the allegations against the petitioner in the complaints under the PML Act pertain to his sanctioning of loans based on forged documents, a matter for which he is already facing prosecution under the IPC and Prevention of Corruption Act. There was no material to show that the petitioner had projected the loan amounts as untainted property. Therefore, the prosecutions under the PML Act were deemed an abuse of process of law. The criminal original petitions were allowed, and the prosecutions against the petitioner in C.C.No.49 of 2016 and C.C.No.20 of 2015 were quashed.