2025 (1) TMI 1042 - HC - Money Laundering

Money Laundering - seeking to set aside the order principally on the ground that prima facie no offence whatsoever is made out under Sections 406 418 420 read with 120B Indian Penal Code 1860 - HELD THAT - In the present case it is seen that case of the Enforcement Directorate (ED) is that Applicant No. 1 on behalf of M/s. Kamala Developers received an amount of Rs. 4, 27, 16, 900/- as proceeds of crime from M/s. Sadguru Enterprises. The second charge of ED to attribute this amount to proceeds of crime is that M/s. Sadguru Enterprises has not delivered any of its services / obligations to the Complainant (Respondent No. 2) under the Renovation Agreement and therefore the amount received from him and routed to M/s. Kamala Developers is alleged as proceeds of crime . Apart from the above two charges there is no other case made out by ED. To understand levy of this charge one needs to understand what proceeds of crime means under the PMLA. As delineated herein above Section 2 (1)(u) of PMLA refers to proceeds of crime as any property derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence . The explanation to this definition provides that such property would include any property relatable to the scheduled offence mentioned in the PMLA. The fallacy in ED s charge / claim is that after receiving the above amount M/s. Sadguru Enterprises has not provided any services to Respondent No. 2. This charge of ED clearly falls flat because Respondent No. 2 has himself clearly acknowledged that M/s. Sadguru Enterprises having delivered its obligations under the said Agreement dated 16.04.2007 for which Respondent No. 2 agreed to pay the amount of Rs. 4, 57, 84, 400/- in three installments on fulfillment of the additional amenities to be specifically provided under its various conditions as agreed between them. Evidence on record acknowledged by Respondent No. 2 clearly shows that save and except an amount of Rs. 30, 67, 500/- Respondent No. 2 has paid the entire above amount to M/s. Sadguru Enterprises intermittently in three installments for having delivered under the very Agreement as per the schedule of installments when the works under the Renovation Agreement were accomplished and completed by M/s. Sadguru Enterprises. Works to the extent of Rs. 30, 67, 500/- having remained incomplete Respondent No. 2 has specifically acknowledged it in his own correspondence and he has withheld this amount under the original Agreement to be given to M/s. Sadguru Enterprises after which a No-claim Certificate is issued to him. In the present case it is clearly seen that there is no case made out by Respondent No. 2 against M/s. Sadguru Enterprises for non-compliance and breach of the Renovation Agreement except for some works for which he did not pay the balance amount which was accepted by M/s. Sadguru Enterprises and a No-claim Certificate was issued. It is not his case that there was never any intention since inception not to carry out the Renovation / additional amenities works agreed under the various conditions of the Agreement. Once that is the case ingredients of cheating are completely non-existent - Rather this is a case of the Complainant himself acknowledging the works done by M/s. Sadguru Enterprises under the said Agreement and only on being satisfied he paid the second and the third truncated installments to complete the payment schedule. According to Complainant s own letter dated 09.07.2007 appended at page No. 407 he has himself admitted that the subject premises were almost ready. This is a fit case for imposition of exemplary costs on the Complainant and ED for invoking criminal action in the present facts and harassing the Developer with criminal action. Conclusion - The civil disputes should not be converted into criminal cases and emphasized the need for clear evidence of criminal intent for IPC and PMLA charges. The criminal proceedings are quashed. Application dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the dispute between the parties is of a civil nature or constitutes a criminal offense under the Indian Penal Code (IPC) and the Prevention of Money Laundering Act, 2002 (PMLA).
• Whether the amounts received under the Renovation Agreement constitute "proceeds of crime" under the PMLA.
• Whether the criminal proceedings initiated by the Respondent No. 2 are maintainable.
• Whether the Enforcement Directorate (ED) has appropriately invoked the provisions of the PMLA in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Nature of the Dispute

• Relevant Legal Framework and Precedents: The court examined the nature of the dispute to determine whether it was civil or criminal. The legal framework under the IPC and precedents regarding civil disputes being inappropriately converted into criminal cases were considered.
• Court's Interpretation and Reasoning: The court found that the dispute was predominantly civil, arising from contractual obligations under the Renovation Agreement and the Sale Agreement.
• Key Evidence and Findings: The court noted that the complainant had acknowledged the agreements and payments made under them, which indicated a civil dispute over contractual performance rather than a criminal act.
• Application of Law to Facts: The court applied the principles of contract law, emphasizing that breaches of contract should be addressed in civil courts unless there is clear evidence of criminal intent.
• Treatment of Competing Arguments: The court considered the arguments of the complainant and the ED but found them lacking in evidence of criminal intent or activity.
• Conclusions: The court concluded that the dispute was civil, not criminal, and that the complainant should seek remedies in civil court.

Issue 2: Proceeds of Crime under PMLA

• Relevant Legal Framework and Precedents: The court referred to the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA and the requirements for proving money laundering under Sections 3 and 4.
• Court's Interpretation and Reasoning: The court found that the amounts received under the Renovation Agreement were not "proceeds of crime" as they were part of a legitimate contractual transaction.
• Key Evidence and Findings: The court noted the absence of any evidence indicating that the amounts were derived from criminal activity.
• Application of Law to Facts: The court applied the PMLA provisions and found no basis for labeling the transaction as money laundering.
• Treatment of Competing Arguments: The court rejected the ED's arguments, noting that they were based on a misunderstanding of the contractual relationship and the payments made.
• Conclusions: The court concluded that the amounts were not "proceeds of crime" and that the PMLA was inapplicable.

Issue 3: Maintainability of Criminal Proceedings

• Relevant Legal Framework and Precedents: The court examined the procedural aspects of the criminal proceedings initiated by the complainant.
• Court's Interpretation and Reasoning: The court found that the proceedings were not maintainable as they were based on a civil dispute.
• Key Evidence and Findings: The court highlighted the lack of evidence for criminal charges and the civil nature of the underlying dispute.
• Application of Law to Facts: The court applied legal principles regarding the conversion of civil disputes into criminal cases and found the proceedings to be an abuse of process.
• Treatment of Competing Arguments: The court dismissed the complainant's arguments for criminal proceedings, emphasizing the civil nature of the dispute.
• Conclusions: The court concluded that the criminal proceedings were not maintainable and should be quashed.

Issue 4: Invocation of PMLA by ED

• Relevant Legal Framework and Precedents: The court reviewed the ED's application of PMLA provisions and relevant legal standards for money laundering cases.
• Court's Interpretation and Reasoning: The court found that the ED had misapplied the PMLA, as there was no evidence of money laundering.
• Key Evidence and Findings: The court noted the lack of evidence supporting the ED's claims of money laundering.
• Application of Law to Facts: The court applied the PMLA standards and found no basis for the ED's actions.
• Treatment of Competing Arguments: The court rejected the ED's arguments, noting the absence of any criminal activity or proceeds of crime.
• Conclusions: The court concluded that the ED's invocation of the PMLA was unfounded and dismissed the proceedings.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "There is no element of cheating, criminal breach of trust, conspiracy, harassment or for that matter Money Laundering involved in the present case."
• Core principles established: The court reaffirmed the principle that civil disputes should not be converted into criminal cases and emphasized the need for clear evidence of criminal intent for IPC and PMLA charges.
• Final determinations on each issue: The court quashed the criminal proceedings, dismissed the ED's case under the PMLA, and imposed costs on the complainant and the ED for misuse of the legal process.