• The aforesaid question has resulted in various conflicting decisions being passed by the High Courts of Bombay, Madras, Telangana, Delhi, Sikkim, Karnataka and Allahabad and the same fell for consideration before the Supreme Court in Vijay Madanlal Choudhary & Ors. Union of India & Ors. While considering this issue, the Supreme Court has held that “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 offences through him^[3].”

• This article traces the conflict giving rise to the present issue, leading to the aforementioned decision of the Supreme Court.

3. Relevant developments in relation to ‘money laundering’ being a stand-alone offense

• The PMLA, as enacted in 2002, inextricably linked the offence of money laundering with the predicate offence. The same is evident from a bare reading of Sections 5 and 8 of the PMLA (as it stood prior to the 2009 and 2013 amendments).

• In terms of Section 5 of the PMLA (as it existed in the PMLA originally enacted), one of the preconditions to be satisfied for an order of provisional attachment of property to be passed was that the accused “has been charged of having committed a scheduled offence”. Subsequently, by way of the 2009 amendment, the said requirement was diluted to the effect that notwithstanding the above requirement, an order of provisional attachment could be passed under Section 5 of PMLA when the concerned officer expressed his view in writing that he had reason to believe that the failure to immediately attach property would frustrate the money laundering proceedings.

• Pertinently, under Section 8 of the PMLA (as it stood prior to the 2013 amendment), any attachment or retention of property under the PMLA would cease to have effect once the person charged with a scheduled offence had been acquitted for same, pursuant to a trial of the scheduled offence. However, the 2013 Amendment did away with the said protection offered under the unamended Section 8 of the PMLA.

• Thus, from a perusal of the aforesaid provisions it is manifest that while the continuance of proceeding under the PMLA were inextricably linked to the continuance of scheduled offence proceedings, the legislature attempted to do away with this distinction by introducing various amendments.

• These amendments resulted in two distinct interpretations being expressed by High Courts in India. On one hand, the Karnataka High Court in Sachin Narayan Income Tax Department^[4] held that proceedings concerning money laundering are stand-alone offences and if for various reasons the predicate offence proceedings were to be closed or dropped, then proceedings under the PMLA would not automatically disappear and are not required to be dropped. A similar view has also been expressed by the High Courts of Madras^[5] and Sikkim.^[6]

• On the other hand, the Delhi High Court in Mahanivesh Oils & Foods Pvt. Ltd. v. Directorate of Enforcement^[7] has observed that in cases where the scheduled offence is itself negated, the fundamental premise of continuing proceedings under the PMLA also vanishes. A similar view has also been expressed by the Delhi High Court^[8] as well as the Allahabad High Court^[9].

4. 2018 Amendment to the PMLA

• In the face of the conflicting judgements emanating from various High Courts, the Parliament amended the PMLA in 2018. Among various changes brought about, an explanation was introduced to Section 44 of the PMLA, which provided that:

• the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry, or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence

• However, the introduction of this explanation failed to resolve the contradictory jurisprudence on the issue.

• Subsequent to the introduction of the explanation, the Bombay High Court in Babulal Verma Enforcement Directorate^[10] held that “Even if the Investigating Agency investigating a scheduled offence has filed closure report in it and the court of competent jurisdiction has accepted it, it will not wipe out or cease to continue the investigation of Respondent 1 [Enforcement Directorate] in the offence of money laundering being investigated by it. The investigation of Respondent No. 1 [Enforcement Directorate] will continue on its own till it reaches the stage as contemplated under Section 44 of the PMLA”. Similarly, the Telangana High Court in Jagati Publications v. Enforcement Directorate^[11] has relied upon Section 44 of the PMLA and the Explanation introduced to affirm that the trial concerning money laundering is independent and need not get impacted due to the trial of a scheduled offence. The Telangana High Court further held that even in case of a person who is initially not booked for a scheduled offence, but booked later, and subsequently acquitted of that scheduled offence, he can still be proceeded against under PMLA.

• However, even after the introduction of the explanation to Section 44, the Delhi High Court in Prakash Industries v. Directorate of Enforcement^[12], continued to take the position that once a competent authority finds that a predicate offence is either not evidenced, or on facts, the authority concludes that no offence was committed, proceedings under the PMLA would necessarily have to fall and be brought to a close. The Court held that Section 44 and its Explanation cannot be interpreted to mean that proceedings under the PMLA would remain unaffected by an acquittal or quashing of proceedings relating to a scheduled offence. Similarly, the Delhi High Court in Directorate of Enforcement v. Gagandeep Singh^[13], interpreting the PMLA after the 2018 Amendment had come into effect, held that involvement in a scheduled offence is a prerequisite to the offence of money laundering. In the said case, the High Court further held that a bare perusal of the provisions of the PMLA establishes the pre-requisite relation between the commission of scheduled offences under the PMLA and the subsequent offence of money-laundering.

5. Findings of the Supreme Court in the Vijay Madanlal decision

• The aforesaid conflicting decisions of High Courts across India on the issue has been put to rest by the Supreme Court in the Vijay Madanlal decision. By way of the same, the Supreme Court has held that:

• “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 the definition of “proceeds of crime” under Section 2(1)(u) of the 2002 Act. As observed earlier, all or whole of the crime property linked to scheduled offence need not be regarded as proceeds of crime, but all properties qualifying the definition of “proceeds of crime” under Section 2(1)(u) will necessarily be crime properties. Indeed, in the event of acquittal of the person concerned or being absolved from allegation of criminal activity relating to scheduled offence, and if it is established in the court of law that the crime property in the concerned case has been rightfully owned and possessed by him, such a property by no stretch of imagination can be termed as crime property and ex-consequenti proceeds of crime within the meaning of Section 2(1)(u) as it stands today. On the other hand, in the trial in connection with the scheduled offence, the Court would be obliged to direct return of such property as belonging to him. It would be then paradoxical to still regard such property as proceeds of crime despite such adjudication by a Court of competent jurisdiction. It is well within the jurisdiction of the concerned Court trying the scheduled offence to pronounce on that matter.”

• “187(v)(d) 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.”

6. Conclusion

• The decision of the Supreme Court in the Vijay Madanlal case is a welcome one, at least to the extent that it holds that proceedings of money laundering are liable to terminate with the underlying scheduled offence ending in an acquittal / dismissal or being quashed. The decision would in times to come ensure that not only are named accused in money laundering offences not put to unnecessary inconvenience but would also be of assistance in ensuring that precious judicial time is not wasted.

Footnote

[1] SLP (Crl.) No. 4634 of 2014

[2] Preamble, The Prevention of Money Laundering Act, 2002.

[3] Supra note 1, Paragraph 187(v)(d),

[4] W.P.(C) No. 5299 of 2019

[5] VGN Developers P. Ltd. v. Deputy Director, Directorate of Enforcement, 2019 SCC OnLine Mad 13270

[6] Usha Agarwal v Union of India, 2017 SCC OnLine Sikk 146

[7] 2016 SCCOnLine Del 475

[8] Rajiv Chanana v. Dy. Director, Directorate of Enforcement, 2014 SCC OnLine Del 4889

[9] Sushil Kumar Katiyar v UOI, 2016 SCC OnLine All 2632

[10] Babulal Verma v. Enforcement Directorate, 2021 SCC OnLine Bom 392

[11] Criminal Petition No. 1073 of 2021, Order dated 10-8-2021

[12] Prakash Industries Ltd. v Directorate of Enforcement, 2022 SCC OnLine Del 2087

[13] Directorate of Enforcement v. Gagandeep Singh, 2022 SCC OnLine Del 514

This article was originally published in Mondaq on 2 August 2022 Co-written by: Aashish Gupta, Partner; Aditya Mukherjee, Principal Associate and Rajarshi Roy, Associate. Click here for original article

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