TMI Blog2023 (12) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... y Madanlal Choudhary s case [ 2022 (7) TMI 1316 - SUPREME COURT ], after elaborately discussing the statutory provisions as well as the object and reasons behind the enactment of the PMLA, came to a specific conclusion that in the absence of a predicate offence, the proceedings initiated under the PMLA cannot be continued. Thus, the position of law in this regard is well settled. The existence of a predicate offence is a pre-requisite for initiating or continuing the proceedings under the PMLA. Therefore, the question to be considered in this case is whether the predicate offences exist. While considering the said question, the crucial document to be considered is Exhibit P18 refer report submitted by the Crime Branch in which, it is reported that the offences were not found out and the case was referred as a mistake of fact. On going through Exhibit P18 refer report, it can be seen that, the allegations raised by the respondents 3 and 4 were investigated into and found to be not correct. Whether the acceptance of the final report/refer report by the jurisdictional court will have any impact on proceedings under the PMLA? - HELD THAT:- The learned Magistrate cannot refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate offences alleged against the petitioners, based on which the said proceedings initiated are under sections 409,420,467,468,471 and 120B of the Indian Penal Code, registered as per Crime No 411 of 2019 of Crime Branch, Kottayam. The prayers sought in the writ petition are as follows: 1. call for the records leading to the proceedings of ECIR/KCZO/28/2020 initiated by the 2nd respondent against the petitioners and Exhibits P20 and P21 notices issued by the 1st respondent and quash the same by issue of writ of certiorari or by other writ or direction as may be necessary in the interest of justice; 2. Declare that the proceedings initiated as ECIR/KCZO/28/2020 by the 2nd respondent as against the petitioners and the Exhibits P20 and P21 show cause notices are without jurisdiction and authority and no proceeding can be initiated under the Prevention of Money Laundering Act against the petitioners on the basis of Exhibit P12 FIR alone. 2. The facts in brief which led to the filing of this writ petition are as follows: Earlier, Exhibit P12 FIR was registered against petitioners 3 and 4 and six others by the Crime Branch, Kottayam, as Crime No. 411/2019, based on Exhib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid respondents. Further allegation is that the accused persons have purchased certain second-hand medical equipment for installation in the hospital by creating forged invoices and showing high prices, thereby misappropriating the amounts as well. The Crime was registered based on the said complaint. 3. The Investigation was conducted by the Crime Branch and Exhibit P18 final report was submitted by them after recording the statements of 70 witnesses and examining 54 documents, with the conclusion that, no offences were made out and the Crime was referred as a mistake of fact. 4. In the meanwhile, based on the crime registered by the Crime Branch, the 2 nd respondent conducted an inspection on 26.10.2021 and 27.10.2021 in the premises of the 1st petitioner at Thiruvananthapuram, invoking the powers under the Prevention of Money-Laundering Act, 2002 and seized certain documents as evidenced by Exhibit P13 seizure memo. Thereafter, a summons was issued by the 2nd respondent to the petitioners 3 and 4, and their statements were recorded. Pursuant to the said proceedings, a notice under Section 8 of the PMLA Act was issued to the 3rd and 4th petitioners to show cause as to why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer and caused the said affidavit to be filed before the Judicial First Class Magistrate Court-III, Kottayam, where Crime No.426/2019 was pending. 7. Evidently, the amounts were transferred as agreed, and the transfer of shares as per the terms and conditions in Exhibit P35 was also given effect. Exhibit P36 is the affidavit executed by respondents 3 and 4 before a Notary Public wherein the filing of the refer report in Crime No. 411/2019 by the Crime Branch was specifically referred to, and they have conveyed their no objection whatsoever in accepting the said report filed by the Investigating Officer in the above case. The affidavit was executed on 7.8.2023, and it is reported that it has already been placed on record before the jurisdictional court. 8. However, subsequently, respondents 3 and 4 filed a protest complaint dated 7.9.2023 before the Judicial First Class Magistrate Court-III, Kottayam, against the final report, the copy of which is produced in this Writ Petition as Exhibit P39. 9. After considering the refer report of the police and the protest complaint submitted by respondents 3 and 4, the learned Magistrate, as per the proceedings dated 7.9.2023, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so contended that the nature of the allegations raised is misappropriation of huge amounts based on forged documents, and some of the offences are non-compoundable. Therefore, even if a settlement was assumed to have taken place between the parties, that cannot result in quashing of the proceedings, contents the learned Additional Solicitor General of India. 14. However, as regards the contention of the Learned ASG, with respect to the non-compoundable nature of the offences, I find that the same is not sustainable. It is to be noted that the question of quashing the proceedings in respect of non-compoundable offences does not arise in this case. For compounding an offence, there must be a final report submitted by the police implicating the accused persons for the offences. Here, in this case, after investigation, the Police found that no offences were made out and submitted a refer report under Section 173(2) of Cr.PC. The settlement, as evidenced by Exhibit P35 and P36 between the parties, was to the effect that the defacto complainant will convey their no objection in accepting the said final report submitted by the police before jurisdictional court, and they have conveyed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any manner whatsoever (ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever] The Hon ble Supreme Court in Vijay Madanlal Choudhary s case (supra), after elaborately discussing the statutory provisions as well as the object and reasons behind the enactment of the PMLA, came to a specific conclusion that in the absence of a predicate offence, the proceedings initiated under the PMLA cannot be continued. The relevant observations made by the Hon ble Supreme Court in this regard in paragraphs 52 to 54 are as follows: 52. The next question is: whether the offence under Section 3 is a standalone offence? Indeed, it is dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence. Nevertheless, it is concerning the process or activity connected with such property, which constitutes offence of money-laundering. The property must qualify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uality, the property recovered by the authorised officer would partake the colour of proceeds of crime under Section 2(1) (u) of the 2002 Act, enabling him to take further action under the Act in that regard. 54. Even though, the 2002 Act is a complete Code in itself, it is only in respect of matters connected with offence of money laundering, and for that, existence of proceeds of crime within the meaning of Section 2(1)(u) of the Act is quintessential. Absent existence of proceeds of crime, as aforesaid, the authorities under the 2002 Act cannot step in or initiate any prosecution. 16. Thus, the position of law in this regard is well settled. The existence of a predicate offence is a pre-requisite for initiating or continuing the proceedings under the PMLA. Therefore, the question to be considered in this case is whether the predicate offences exist. While considering the said question, the crucial document to be considered is Exhibit P18 refer report submitted by the Crime Branch in which, it is reported that the offences were not found out and the case was referred as a mistake of fact. On going through Exhibit P18 refer report, it can be seen that, the allegations ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt into the file, unless any defects or incompleteness in the said report are noted. In this case, no such defects or incompleteness are noted, and instead, the report as such was accepted. The term refer accepted , therefore, can only indicate that the conclusion arrived at by the Crime Branch in the refer report as such was accepted by the learned Magistrate, and the defacto complainant was granted an opportunity to pursue the protest complaint. 20. There is yet another reason that fortifies the said view. As mentioned above, on the basis of the settlement arrived between the parties, as evidenced by Exhibit P35, respondents 3 and 4 have executed an affidavit conveying their no objection in accepting the closure report submitted by the Crime Branch before the jurisdictional court. The said affidavit and other documents evidencing the settlement were reported to have been submitted before the learned Magistrate as well. The order dated 7.9.2023 was passed by the learned Magistrate in such circumstances. Therefore, I do not find any valid reasons to entertain the objection raised by the learned DSG in this regard. The only conclusion possible is that, by virtue of the order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 202 and based on the inquiry decide whether process is to be issued under S. 204 or complaint is to be dismissed under S. 203. 16. If Magistrate finds that in spite of all the objections raised, the final report is to be accepted he can accept it and drop the proceeding. At that stage Magistrate can entertain a second complaint. But such a complaint will lie only if there was manifest error or manifest miscarriage of justice or new facts which the complainant had no knowledge of or with reasonable diligence could not have brought forward in the previous proceedings. The Magistrate cannot therefore ignore the final report altogether and consider only the protest complaint and the sworn statement of the witnesses recorded in that enquiry. 17. The well settled legal propositions can be summed up as follows: (1) When a final report is made by an officer of the Police Station under sub-s.(2) of S. 173 of Code of Criminal Procedure, if the Magistrate is not inclined to take cognizance of the offence and issue process, notice must be issued to the complainant/first informant and opportunity is to be granted to him to make his submissions to persuade the Magistrate to take cogni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents 3 and 4, which is produced on record as Exhibit P39, the 3rd respondent had raised a new and different allegation which was not there in the original complaint or was the subject matter of the investigation conducted by the Crime Branch. Of course, it is true that, the 3rd respondent in Exhibit P39 reiterated the allegations initially raised in the first complaint also, but absolutely nothing is mentioned with respect to the conclusion arrived by the Crime Branch, on the allegations which were raised in the original complaint submitted. Of course, in Ext. P39 complaint, a general statement to the effect that the Investigating Officer had not investigated the matter fairly and the finding was not correct as it is contrary to the established provisions of law, is seen made. However, he did not pinpoint any deficiencies or loopholes in the investigation conducted by the Crime Branch. 24. Another important aspect to be noticed is that he submitted Exhibit P39 protest complaint after he entered into the settlement agreement, as evidenced by Exhibit P35 and the execution of the affidavit evidenced by Exhibit P16, wherein he expressed his no objection in accepting the closu ..... 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