2024 (1) TMI 1411 - HC - Money Laundering

Money Laundering - proceeds of crime - challenge to summons issued under Sub-Section (2) and (3) of Section 50 of the Prevention of Money Laundering Act 2002 - challenge to constitutional vires of Section 50 - seeking declaration of the same as being violative of Article 20(3) of the Constitution read with Articles 14 and 21 thereof - HELD THAT - The applicannt has already been discharged by the learned Special Judge, therefore, the summon dated 18.12.2021 issued by the respondent No. 3 to the petitioner in respect of the entry made in file Directorate of Enforcement Case numbered as File. No. F.No. GWZO/09/2020 (sd/-illegible)/1861 is hereby set aside and quashed. Matter closed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

• Whether the summons issued under Sub-Section (2) and (3) of Section 50 of the Prevention of Money Laundering Act, 2002 (PMLA) are valid and enforceable.
• The constitutional validity of Section 50 of the PMLA, particularly in light of Article 20(3) of the Constitution, read with Articles 14 and 21.
• Whether the offence of money laundering under Section 3 of the PMLA is dependent on the prosecution of a scheduled offence.
• The implications of a discharge in a scheduled offence on the proceedings under the PMLA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Summons under Section 50 of PMLA

• Relevant Legal Framework and Precedents: Section 50 of the PMLA empowers authorities to summon individuals for evidence and documents. The applicant challenged the summons issued under this section.
• Court's Interpretation and Reasoning: The court considered the fact that the applicant had been discharged by the Special Judge in the related scheduled offence, which impacted the validity of the summons.
• Key Evidence and Findings: The discharge order from the Special Judge and the lack of charges against the applicant in the scheduled offence were pivotal.
• Application of Law to Facts: The court applied the legal principles from the Supreme Court judgment in Vijay Madanlal Choudhary, emphasizing that without a pending scheduled offence, the PMLA proceedings could not stand.
• Treatment of Competing Arguments: The respondent did not object to granting relief, acknowledging the discharge in the scheduled offence.
• Conclusions: The summons were quashed as they were based on a non-existent charge in the scheduled offence.

Issue 2: Constitutional Validity of Section 50 of PMLA

• Relevant Legal Framework and Precedents: The applicant argued that Section 50 violated constitutional protections against self-incrimination (Article 20(3)) and the rights to equality and life (Articles 14 and 21).
• Court's Interpretation and Reasoning: The court did not delve deeply into this issue, as the primary relief sought was linked to the discharge in the scheduled offence.
• Key Evidence and Findings: The focus remained on the discharge in the scheduled offence, which rendered the constitutional challenge moot for the applicant.
• Application of Law to Facts: The court did not need to apply constitutional principles extensively, given the resolution of the primary issue.
• Treatment of Competing Arguments: The court did not engage with arguments on constitutional grounds due to the resolution of the summons issue.
• Conclusions: The court did not make a determination on the constitutional validity of Section 50.

Issue 3: Dependency of Money Laundering Offence on Scheduled Offence

• Relevant Legal Framework and Precedents: The PMLA defines money laundering as an offence connected to criminal activity related to a scheduled offence.
• Court's Interpretation and Reasoning: The court referenced the Supreme Court's interpretation in Vijay Madanlal Choudhary, which clarified that a money laundering charge requires an active scheduled offence.
• Key Evidence and Findings: The discharge in the scheduled offence was central to the court's decision to quash the summons.
• Application of Law to Facts: The court applied the Supreme Court's reasoning to conclude that without a scheduled offence, the PMLA proceedings could not continue.
• Treatment of Competing Arguments: The applicant's argument was supported by the Supreme Court precedent, and the respondents did not contest this point.
• Conclusions: The court concluded that the PMLA proceedings could not proceed without a pending scheduled offence.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "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... If the person is finally discharged/acquitted of the scheduled offence... there can be no offence of Money-Laundering against him."
• Core Principles Established: The dependency of money laundering charges on the existence of a scheduled offence; the impact of discharge in a scheduled offence on PMLA proceedings.
• Final Determinations on Each Issue: The summons were quashed due to the discharge in the scheduled offence, and the court did not need to address the constitutional challenge to Section 50.