2023 (11) TMI 1251 - HC - Money Laundering

Money Laundering - predicate offence - proceeds of crime - prayer for interim stay of operation of the impugned summons issued to the concerned District Collector of the five Districts, who are shown as the third petitioner in each of the writ petitions - HELD THAT - The authorities under the PMLA, 2002 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 such complaint is pending enquiry or trial. As observed by the Hon'ble Supreme Court in paragraph 282 of the judgment in Vijay Madanlal Choudhary 2022 (7) TMI 1316 - SUPREME COURT , the authorised officer under the PMLA, 2002 can prosecute any person for offence of money laundering only if there exists proceeds of crime within the meaning of Section 2(1)(u) of the PMLA, 2002. The Hon'ble Supreme Court has held that merely because existence of undisclosed income and irrespective of its volume is noticed, the proceeds of crime under Section 2(1)(u) cannot be presumed, unless the property has been derived or obtained as a result of criminal activity relating to a scheduled offence - the existence of proceeds of crime within the meaning of Section 2(1)(u) of the PMLA, 2002 is quintessential, as held by the Hon'ble Supreme Court and in the absence of existence of proceeds of crime as aforesaid, the authorities under the PMLA, 2002 cannot step in or initiate any prosecution. Even the Hon'ble Supreme Court in Vijay Madanlal Choudhary has observed that the respondent even if it had unearthed any particular offence and found proceeds of crime relating to the said offence, then under Section 66(2), the respondent is bound to inform the investigating agency about such offence. Only if the offence is scheduled offence, the respondent will get a right to further investigate the proceeds of crime, as held by the Hon'ble Supreme Court. Having regard to the interpretation of various provisions by the Hon'ble Supreme Court, this Court is prima facie convinced that the nature of enquiry contemplated by issuing the impugned summons is not within the jurisdiction of the respondent. It is just an attempt to investigate the possibility of identifying any proceeds of crime as a result of any criminal activity, which is not so far registered by the State agencies. This Court sincerely appreciates the way in which the respondent had responded to these writ petitions within a short time. A detailed affidavit of objection is filed by the respondent raising several issues. The learned Senior Counsel appearing for the petitioners requested time to file reply in response to the objection in the form of affidavit. The learned Additional Solicitor General also submitted that they may be permitted to file a detailed counter affidavit. Post the matters on 21.12.2023 for hearing of the main writ petitions.

Summary

Issues Involved:
1. Jurisdiction and Authority of Enforcement Directorate under PMLA, 2002.
2. Maintainability of Writ Petitions by State Government.
3. Interim Stay of Impugned Summons.
4. Interpretation and Application of PMLA, 2002 Provisions.

Summary:

Jurisdiction and Authority of Enforcement Directorate under PMLA, 2002:
The appellants challenged the summons issued to District Collectors under the PMLA, 2002, arguing that the Enforcement Directorate (ED) exceeded its jurisdiction. They contended that the ED cannot initiate action under PMLA, 2002 for matters outside its scope, terming the proceedings as "malice in law" and a "colourable exercise of power." The ED's actions were alleged to usurp state powers, violating constitutional federalism principles. The court noted that the ED's summons aimed to investigate sand mining activities, which did not directly relate to proceeds of crime under PMLA, 2002. The court found the ED's investigation to be a "fishing expedition" rather than a legitimate inquiry into money laundering.

Maintainability of Writ Petitions by State Government:
The respondent argued that the writ petitions were not maintainable as the State Government was not an "aggrieved person." However, the court held that the State Government could maintain the petitions, as they raised serious issues about the jurisdictional invasion by the ED. The court recognized the State's right to challenge actions that allegedly usurped its powers and affected its administration.

Interim Stay of Impugned Summons:
The court granted an interim stay on the operation of the impugned summons, finding a prima facie case in favor of the petitioners. The court acknowledged the balance of convenience and the potential legal injury to the State Government, justifying the stay. The court emphasized that its observations were preliminary and would not influence the final decision on the main writ petitions.

Interpretation and Application of PMLA, 2002 Provisions:
The court referred to the Supreme Court's interpretation of PMLA, 2002 in the case of Vijay Madanlal Choudhary v. Union of India, emphasizing that the ED could only prosecute if there existed "proceeds of crime" related to a scheduled offense. The court noted that the ED's investigation lacked a direct link to proceeds of crime, as required under PMLA, 2002. The court highlighted that the ED's inquiry appeared to be an attempt to identify potential offenses rather than investigating established proceeds of crime.

Conclusion:
The court found that the ED's summons and investigation exceeded its jurisdiction under PMLA, 2002, and granted an interim stay on the summons. The writ petitions were deemed maintainable, and the court scheduled further hearings for a detailed examination of the issues. The court's interim observations were made to decide the stay and would not affect the final judgment on the main petitions.