2024 (4) TMI 1179 - HC - Money Laundering

Money Laundering - scheduled offense resulting in the generation of proceeds of crime - Quashing of ECIR and all consequential proceedings under PMLA - HELD THAT - The full form of ECIR is the Enforcement Case Information Report and the full form of the FIR is the First Information Report. The difference between the two is that ECIR is a term given to itself by the Enforcement Directorate through some administrative order whereas to the contrary FIR is a creation of a statute under Section 154 CrPC 1973. Given this statutory origin it is mandatory to register FIR when an offense discloses the commission of the cognizable offense. On the contrary when the Enforcement Directorate starts an inquiry based on some predicate offense they decide to assign an ECIR to an inquiry/investigation at some point in the given stage. For this reason the courts have usually quashed the FIR which would automatically cancel all subsequent proceedings. Since ECIR is not a condition precedent for starting an investigation or inquiry/inquiry by the Enforcement Directorate and is only an internal record of the department its quashing would serve no purpose whatsoever. The proceedings under PMLA are always subservient and secondary to the primary proceedings under some principal criminal offense which is termed the predicate offense. If the violations of the main criminal penal provisions are mentioned in the PMLA schedules only then the Enforcement Directorate can inquire into such scheduled penal offenses against the persons who have laundered the money including or excluding the persons named as accused in the primary offense - for any prosecution under scheduled offense the requirement of a predicate offense is the sine qua non. The Enforcement Directorate has no jurisdiction to enter the foray without any primary penal offense. Further if the predicate offense results in the filing of a closure report or the accused is discharged by the concerned Court or results in acquittal then it would imply that the wall has broken and with it will also go the plaster if it has been put on it. The petitioners have been acquitted in the primary predicate offense in the present case. Consequently secondary evidence i.e. the offense being prosecuted by the Enforcement Directorate would also go automatically. Thus the complaint filed by the Enforcement Directorate has to be closed along with consequential proceedings. Once the complaint is closed the Enforcement Directorate can keep such records in their ECIR record because if later on such closure charge or acquittal is reversed the objection can be reopened. The proceedings initiated by the ED against the petitioners of the petitions mentioned above arising out of the ECIR detailed in para No. 2 are closed with the liberty to revive - This flexibility allows for the potential reversal of an acquittal of the predicate offense enabling the Enforcement Directorate to file a fresh complaint. The delay in filing such a complaint is deemed to be excluded considering the time consumed in a reversal of such a decision - Petition allowed.

Summary

Issues Involved:
1. Quashing of ECIR and all consequential proceedings under PMLA.
2. Validity of proceedings under PMLA after the predicate offense is closed.
3. Applicability of judicial precedents regarding ECIR and PMLA proceedings.

Detailed Analysis:

Issue 1: Quashing of ECIR and all consequential proceedings under PMLA
The petitioner sought to quash ECIR No. JLZO/01/2013 and all consequential proceedings, including show cause notices and summons issued by the Enforcement Directorate (ED). The petitioner argued that since the predicate offense, based on which the ECIR was registered, was closed, the proceedings under PMLA should also be quashed. The petitioner cited the closure of the predicate offense and the subsequent discharge order as grounds for quashing the ECIR and related proceedings.

The court noted that the ECIR is an internal document of the ED and not akin to an FIR under CrPC. Judicial precedents, including Vijay Madanlal Chaudhary v. Union of India and N. Dhanraj Kochar v. Director Directorate of Enforcement, established that ECIR is not a statutory document and cannot be quashed like an FIR. However, the court recognized that the quashing of an ECIR does not preclude the consideration of other prayers, such as quashing of the complaint and subsequent proceedings.

Issue 2: Validity of proceedings under PMLA after the predicate offense is closed
The petitioner argued that the offense under Section 3 of PMLA is interlinked with the predicate offense, and without the predicate offense, there can be no proceeds of crime. The petitioner cited that the absence of the predicate offense renders the proceedings under PMLA non-est. The court referred to several judicial precedents, including Pavana Dibbur v. The Directorate of Enforcement and Yash Tuteja v. Union of India, which held that the existence of a scheduled offense is a condition precedent for the applicability of Section 3 of PMLA.

The court concluded that since the petitioners have been acquitted in the primary predicate offense, the secondary proceedings under PMLA would also automatically go. The complaint filed by the ED has to be closed along with consequential proceedings. The court also provided flexibility for the potential reversal of an acquittal of the predicate offense, allowing the ED to file a fresh complaint if necessary.

Issue 3: Applicability of judicial precedents regarding ECIR and PMLA proceedings
The court referred to multiple judicial precedents to support its decision. In Vijay Madanlal Chaudhary v. Union of India, the Supreme Court held that ECIR is an internal document and not required to be quashed like an FIR. Similarly, in N. Dhanraj Kochar v. Director Directorate of Enforcement, the Madras High Court observed that ECIR cannot be a subject matter of judicial review under Section 482 CrPC.

The court also cited Pavana Dibbur v. The Directorate of Enforcement, where the Supreme Court held that if the prosecution for the scheduled offense ends in acquittal or discharge, the proceedings under PMLA cannot continue. This principle was reiterated in Yash Tuteja v. Union of India, where the Supreme Court emphasized that the existence of proceeds of crime is contingent upon the existence of a scheduled offense.

Conclusion:
The court concluded that the proceedings initiated by the ED against the petitioners arising out of the ECIR detailed in para No. 2 are closed, with the liberty to revive if the acquittal of the predicate offense is reversed. The court allowed the petitions and disposed of all pending applications. The decision aligns with judicial precedents that emphasize the dependency of PMLA proceedings on the existence of a scheduled offense.