2025 (3) TMI 905 - HC - Money Laundering

Money Laundering - allotment of sites - proceeds of crime - challenge to registration of Enforcement Case Information Report (ECIR) against the petitioner arising out of predicate offence and consequent act of issuance of summons under Section 50 of PMLA - Whether the petitioner should be permitted to be investigated into on the impugned ECIR? - HELD THAT - Section 3 has certain ingredients to be present. It should be concealment possession acquisition and usage of property which is allegedly proceeds of crime. What is proceeds of crime in the case at hand is sites granted in lieu of compensation. The compensation is granted under respective enactments. Whether the petitioner or other accused are guilty of those offences is being investigated into by the Lokayukta Police pursuant to registration of a crime in Crime No. 11 of 2024. The facts as on the date of registration of ECIR is that the petitioner is not in possession enjoyment and usage of sites that were allotted to her as they have been surrendered and cancellation of allotment has happened. Therefore there is no laundering in the case at hand. In the case at hand the alleged proceeds of crime are referable to allotment of sites. The coordinate bench in the case of NATESHA 2025 (2) TMI 216 - KARNATAKA HIGH COURT holds in two of its paragraphs that allotment of sites cannot become proceeds of crime. In the light of the findings rendered by the coordinate Bench as also different High Courts interpreting what would be proceeds of crime and whom would be guilty of proceeds of crime the case at hand neither projects the petitioner being in possession enjoyment and usage of proceeds of crime. The Enforcement Directorate has filed detailed objections appending to it proceedings of search seizure and attachment of property. While so doing it has relied on those very judgments which have all been considered by the coordinate Bench as quoted. A communication from the Enforcement Directorate to the Additional Director General of Police Lokayukta dated 30-11-2024 is produced as Annexure-R1. The allegations against the petitioner and all other accused are verbatim similar to what is alleged in the complaint registered before the concerned Court which has become a crime in Crime No. 11 of 2024. As submitted by the learned Additional Solicitor General the Enforcement Directorate has found a larger picture of corruption and laundering in MUDA to which the present petitioner is no way responsible. The information gathered qua others could be taken forward by the Enforcement Directorate in a manner known to law. But those cannot be attached to Crime No. 11 of 2024. Even according to the investigation search seizure and recording of statements nothing has emerged against the petitioner except the repetition of what was an allegation at the outset which formed the fulcrum of Crime No. 11 of 2024. Therefore in the peculiar facts of this case in view of the preceding analysis as also the judgment rendered by the coordinate Bench this Court is of the considered view that the petitioner cannot be permitted to be prosecuted for offences under the provisions of Money Laundering Act through the impugned ECIR. However the findings rendered herein are for the purpose of consideration of the case qua the impugned ECIR. This would not become applicable to proceedings in Crime No. 11 of 2024. Conclusion - i) For an offence under the PMLA there must be possession concealment or usage of proceeds of crime and mere possession without projection as untainted property does not suffice. ii) The ECIR and all consequential actions including the summons issued against the petitioner quashed due to the lack of evidence supporting the possession or laundering of proceeds of crime. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is whether the petitioner should be investigated under the Enforcement Case Information Report (ECIR) registered by the Enforcement Directorate (ED) in relation to alleged money laundering activities, specifically concerning the possession and subsequent surrender of sites allotted as compensation by the Mysore Urban Development Authority (MUDA). The Court also considers whether the summons issued under Section 50 of the Prevention of Money Laundering Act, 2002 (PMLA) can be challenged and whether the proceedings under the ECIR are valid.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents: The legal framework primarily involves the Prevention of Money Laundering Act, 2002, particularly Sections 2(1)(u), 3, 5, and 50. Section 2(1)(u) defines "proceeds of crime," Section 3 outlines the offence of money laundering, Section 5 deals with the attachment of property involved in money laundering, and Section 50 provides the powers of authorities regarding summons, production of documents, and giving evidence.

Court's interpretation and reasoning: The Court examines the definition of "proceeds of crime" and the requirements for an offence under Section 3 of the PMLA. It highlights that for an offence of money laundering to be established, there must be possession, concealment, acquisition, or use of property derived from criminal activity. The Court emphasizes that mere possession of such property does not constitute an offence unless it is projected or claimed as untainted property.

Key evidence and findings: The petitioner had surrendered the sites allotted as compensation before the registration of the ECIR. The Court notes that the petitioner was not in possession, enjoyment, or usage of the sites at the time of ECIR registration, as they had been surrendered and the allotment was canceled. The Court also points out that the ED's investigation did not reveal any laundering activities concerning the sites in question.

Application of law to facts: The Court applies the legal definitions and requirements under the PMLA to the facts of the case. It concludes that the petitioner cannot be said to have engaged in money laundering as defined under Section 3 because the petitioner was not in possession of the alleged proceeds of crime at the time of ECIR registration.

Treatment of competing arguments: The petitioner argued that the ECIR and summons were issued with mala fides and that there was no basis for a money laundering charge as the sites were surrendered. The respondent contended that the possession of the sites constituted proceeds of crime and that the summons under Section 50 could not be challenged. The Court found merit in the petitioner's arguments, emphasizing the lack of possession and usage of the sites as proceeds of crime.

Conclusions: The Court concludes that the petitioner cannot be prosecuted under the PMLA for the alleged offences in the ECIR, as the essential ingredients of money laundering are not met. The Court also finds that the summons issued under Section 50 lacks legal authority due to the absence of a prima facie case.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Court states, "The judicial interpretation of Section 2(1)(u) and 3 of the Act is that the person should be in possession, enjoyment, and usage of the property, which is alleged to be proceeds of crime projecting it to be untainted money."

Core principles established: The judgment reinforces the principle that for an offence under the PMLA, there must be possession, concealment, or usage of proceeds of crime, and mere possession without projection as untainted property does not suffice. It also underscores that summons under Section 50 can be challenged if issued without a prima facie case.

Final determinations on each issue: The Court quashes the ECIR and all consequential actions, including the summons issued against the petitioner, due to the lack of evidence supporting the possession or laundering of proceeds of crime.