2022 (4) TMI 993 - HC - Money Laundering

Money Laundering - conspiracy to obtain loan - fake documents - siphoning off the funds for personal use - scheduled offence - proceeds of crime - maintainability of criminal prosecution that has been launched by the Enforcement Directorate under Section 3 r/w 4 of PMLA - HELD THAT - In this case, there is no shred of material to show that A8 to A15 had committed any criminal activity at all. A8 had purchased lands for his business from A4, A6 and A7 through their power agent Ayyappan and thereafter, he sold those lands to A9 to A15 for a valuable consideration. In this case, 166 acres of land is not the subject matter of crime. The subject matter of the criminal activity is obtaining the loan of ₹ 15 crores from GTFL by submitting forged documents. Therefore, the proceeds of the crime is ₹ 15 crores. A fraction of the sum of ₹ 15 crores viz., ₹ 1.07 crores was invested by Srinivasan in real estate by purchasing lands in the name of A4, A6 and A7. Thereafter, A4, A6 and A7 sold the lands through their power agent Ayyappan to Gunaseelan (A8) who in turn sold the lands to A9 to A15. It is most pertinent to state here that the FIR for the 'scheduled offence' was registered by the CBI only on 06.10.2010 and these sale transactions had taken place much before that. Therefore, by no stretch of imagination, the purchasers of the land could be expected to anticipate that the land that they are intending to purchase must have been purchased by their vendors with monies generated by a criminal activity. The prosecution of A8 to A15 for the offence under Section 3 r/w 4 of PMLA in C.C. No.62 of 2016 is an abuse of process of law - Petition allowed.

Summary

Issues Involved:
1. Criminal conspiracy and cheating under IPC and PMLA.
2. Provisional attachment of properties under PMLA.
3. Innocent purchasers and their rights under PMLA.
4. Validity of criminal prosecution under Section 3 r/w 4 of PMLA.

Detailed Analysis:

1. Criminal Conspiracy and Cheating under IPC and PMLA:
The core issue revolves around a criminal conspiracy by two individuals (A1 and A2) to cheat Global Trade Finance Limited (GTFL) by obtaining a loan of ?15 crores using fake documents. This loan was sanctioned by the manager of GTFL (A5) and subsequently siphoned off by A1. A portion of this amount, ?1.07 crores, was used to purchase 166 acres of land in the names of A4, A6, and A7. The Central Bureau of Investigation (CBI) registered a case under various sections of the IPC and the Prevention of Corruption Act, leading to a charge sheet in C.C.No.6 of 2011.

2. Provisional Attachment of Properties under PMLA:
The Enforcement Directorate (ED) issued provisional attachment orders under Section 5 of PMLA on 10.05.2012, attaching the lands purchased by A8 to A15. This attachment was confirmed by the Adjudicating Authority under Section 8(3) of PMLA and upheld by the Appellate Tribunal. However, the Madurai Bench of the High Court, in CMA (MD) Nos.104 to 110 of 2015, set aside the provisional attachment, declaring A9 to A15 as innocent purchasers.

3. Innocent Purchasers and Their Rights under PMLA:
The Court examined whether A8 to A15 could be prosecuted under Section 3 r/w 4 of PMLA. It was established that A8 purchased the lands from A4, A6, and A7 through their power agent and later sold them to A9 to A15. The Court noted that these transactions occurred before the CBI registered the FIR for the scheduled offence on 06.10.2010. Thus, A8 to A15 could not have anticipated that the lands were purchased with proceeds from a criminal activity.

4. Validity of Criminal Prosecution under Section 3 r/w 4 of PMLA:
For a prosecution under Section 3 r/w 4 of PMLA, three elements are essential:
- A criminal activity should have been committed.
- Money should have been generated via the criminal activity.
- The proceeds of crime should have been projected as untainted.

The Court found no evidence that A8 to A15 were involved in the initial criminal activity of obtaining the loan fraudulently. The Supreme Court's judgment in Nikesh Tarachand Shah vs. Union of India emphasized that for an offence under Section 3 of PMLA, it must be shown that the accused knowingly engaged in activities connected with the proceeds of crime and projected them as untainted property. In this case, the land transactions by A8 to A15 did not meet these criteria.

Conclusion:
The Court concluded that the prosecution of A8 to A15 under Section 3 r/w 4 of PMLA in C.C. No.62 of 2016 was an abuse of the process of law. Consequently, the Criminal Original Petitions were allowed, and the connected miscellaneous petitions were closed. The Enforcement Directorate was given the option to consider A8 to A15 as prosecution witnesses if deemed appropriate.