2023 (4) TMI 1199 - HC - Money Laundering

Seeking release of attached property - Money laundering - proceeds of crime - acquittal in predicate offence - compounding of offences - closure of the criminal case involving the predicate offence - HELD THAT - The appellant No. 1 was an accused in the criminal case for offences which are considered as predicate offences under PMLA. In view thereof, a case was registered under PMLA following which the properties mentioned above were provisionally attached. Subsequently, the provisional attachment was confirmed by the adjudicating authority whereafter complaint was lodged before the designated court based on which S.C.No. 342 of 2018 has been registered. From the scheme of Rule 3-A of the Prevention of Money Laundering (Restoration of Property) Rules, 2016, what is discernible is that this provision is primarily meant for a claimant to seek restoration of property which he had lost as a result of the predicate offence leading to proceeds of crime and consequently the offence of money laundering. This provision may not be applicable in a case where the predicate offence itself has been closed on being compounded under Section 320 Cr.P.C. The Supreme Court in Vijay Madanlal Choudhary 2022 (7) TMI 1316 - SUPREME COURT dealt with the expression proceeds of crime and observed that it is only such property which is derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence that can be regarded as proceeds of crime. Authorities under PMLA cannot resort to action against any person for money laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or pending inquiry before the competent forum. This decision was examined in detail by a Single Bench of this Court in M/S. JAGATI PUBLICATION LTD VERSUS ENFORCEMENT DIRECTORATE 2022 (9) TMI 1448 - TELANGANA HIGH COURT . After analysing the above decision of the Supreme Court, this Court held that the expression proceeds of crime which is the very essence of the offence of money laundering needs to be construed strictly. Only such property which is derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence can be regarded as proceeds of crime - Single Bench of this Court held that existence of scheduled offence and proceeds of crime being the property derived or obtained as a result of criminal activity relating to the scheduled offence are sine qua non for not only initiating prosecution under PMLA, but also for continuation thereof. In the absence of these two conditions, the Special Court dealing with the offence under PMLA would not be competent to pronounce on the guilt or otherwise of the person concerned accused of money laundering. Adverting to the facts of the present case, it is evident that upon closure of the criminal case and acquittal of appellant No. 1 on discharge, there is no scheduled offence against the appellants. In the absence of any crime, question of any proceeds of crime would not arise - learned Single Judge had erred in refusing to grant relief to the appellants by taking the view that acquittal of the appellants was on compromise and not on merit and relegating the appellants to the forum of the designated court. When there is no crime because of closure of the criminal case involving the predicate offence, continuation of attachment of the properties of appellants would not be justified. The petition is allowed by directing the respondents to release the properties of the appellants from attachment - appeal allowed.

Summary

Issues Involved:
1. Legality of the attachment of properties under the Prevention of Money Laundering Act (PMLA) following the closure of the predicate offence.
2. Applicability of Section 320 of the Code of Criminal Procedure (Cr.P.C) regarding compounding of offences and its effect on acquittal.
3. Jurisdiction of the Special Court under Rule 3-A of the Prevention of Money Laundering (Restoration of Property) Rules, 2016.

Summary:

1. Legality of the attachment of properties under PMLA following the closure of the predicate offence:

The appellants filed a writ petition seeking the release of their property from attachment, which was dismissed by the learned Single Judge. The properties were attached following the registration of a case under PMLA after appellant No. 1 was implicated in a criminal case for predicate offences. The criminal case was later closed through a compromise in Lok Adalat, leading to the acquittal of appellant No. 1. The learned Single Judge held that the acquittal was on compromise and not on merit, and thus did not grant relief to the appellants, directing them instead to approach the designated court under Rule 3-A of the Prevention of Money Laundering (Restoration of Property) Rules, 2016.

2. Applicability of Section 320 Cr.P.C regarding compounding of offences and its effect on acquittal:

The appellants argued that compounding of an offence under Section 320 Cr.P.C has the effect of acquittal of the accused, and thus, continuing with the attachment of property under PMLA was not justified. The court noted that Section 320 Cr.P.C allows for the compounding of offences, which results in the acquittal of the accused. Therefore, the closure of the criminal case through Lok Adalat had the effect of acquittal of appellant No. 1.

3. Jurisdiction of the Special Court under Rule 3-A of the Prevention of Money Laundering (Restoration of Property) Rules, 2016:

The respondents contended that the appellants should have approached the designated court under Rule 3-A for the release of the attached property. However, the court observed that Rule 3-A is primarily meant for claimants seeking restoration of property lost due to the predicate offence, which may not apply when the predicate offence itself has been compounded under Section 320 Cr.P.C.

Court's Analysis and Conclusion:

The court referred to the Supreme Court's decision in Vijay Madanlal Choudhary v. Union of India, which emphasized that the offence under Section 3 of PMLA is dependent on the illegal gain of property as a result of criminal activity related to a scheduled offence. If the person is acquitted or the criminal case is quashed, there can be no offence of money laundering against them. The court found that the learned Single Judge erred in refusing relief to the appellants based on the nature of their acquittal. Since the criminal case involving the predicate offence was closed, the continuation of the attachment of the properties was not justified.

Final Judgment:

The court allowed the appeal, setting aside the order of the learned Single Judge, and directed the respondents to release the properties of the appellants from attachment.