2023 (4) TMI 263 - HC - Money Laundering

Money Laundering - proceeds of crime - criminal activity or property arising from criminal activity or not - Whether an outstanding arising out of any agreement or condition in MOU between the parties with respect to forex fluctuation amounts to proceeds of crime - not an FIR registered under Section 154 of Cr.P.C. - HELD THAT - To prosecute under Section 3 of the Act a person has to be actually involved in any process or activity connected with Proceeds of Crime. Proceeds of Crime is defined under Section 2(1)(u) of the said Act defining that proceeds of crime means any property derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence or the value of any such property; or where such property is taken or held outside the country then the property equivalent in value held within the country or abroad. - It is specifically stated that any property derived or obtained by any person as a result of criminal activity relating to a scheduled offence would amount to Proceeds of Crime. Every commercial activity where an outstanding arises would not fall within the ambit of Section 3 of the Act. It is not merely criminal activity relating to commission of a predicate offence but property has to be derived directly or indirectly as a result of such criminal activity to be tried and prosecuted under Section 3 of the Act - In the present case no such property is derived or obtained either directly or indirectly by the petitioner herein either involving in criminal activity or handling any such property derived as a result of criminal activity. The question of concealing or being in possession or acquiring such property does not arise. The amount accrued as discussed earlier is on account of dollar- rupee fluctuation and it cannot in any manner be held that the petitioner had derived or obtained any property. Though it was agreed that differential amount of rupee dollar fluctuation would be paid at most it can be termed as an outstanding which can be recovered in a civil suit and by no stretch of imagination can it be called as Proceeds of Crime or the outstanding amount can be called as property as defined under Section 2(1)(v) of the Act. When there is no criminal activity nor any property which is derived as a consequence of criminal activity it is opined that the proceedings cannot be permitted to continue. Criminal petition allowed.

Summary

Issues Involved:
1. Ongoing investigation by the Enforcement Directorate.
2. Maintainability of the quash petition.
3. Definition and applicability of 'Proceeds of Crime' under the Prevention of Money-Laundering Act, 2002.

Summary:

1. Ongoing Investigation by the Enforcement Directorate:
The petitioner questioned the ongoing investigation by the Enforcement Directorate (ED) in ECIR/05/HYZO/2014, which was registered on 25.02.2014 under Section 3 of the Prevention of Money-Laundering Act, 2002, based on an FIR by the CBI. The core allegation was that the petitioner, as Director of MBS group of companies, received gold from MMTC on a buyers' credit loan basis, resulting in a liability of Rs. 181.39 Crores due to forex fluctuation. The court found that the liability arose from the rupee's devaluation and was accepted by the petitioner and MMTC per the MOU.

2. Maintainability of the Quash Petition:
The ED raised an objection regarding the maintainability of the quash petition, arguing that an ECIR is not an FIR and cannot be quashed under Section 482 of Cr.P.C. They cited various judgments to support their claim. However, the court referred to the Supreme Court's judgment in Anil Khadkiwala v. State (Government of NCT of Delhi), which allowed a second application for quashing the complaint under changed circumstances. The court found that the attachment of properties under Section 5 of the Act after the dismissal of the earlier petition constituted a sufficient ground to entertain the present application.

3. Definition and Applicability of 'Proceeds of Crime':
The court examined whether the outstanding liability due to forex fluctuation fell within the definition of 'Proceeds of Crime' under Section 2(1)(u) of the Act. It concluded that the outstanding arose from a commercial agreement and not from any criminal activity. The court emphasized that 'Proceeds of Crime' must result from criminal activity relating to a scheduled offense. The court found that the petitioner's liability was due to business transactions and not criminal conduct. The court also highlighted that not every commercial dispute or outstanding amount could be classified as 'Proceeds of Crime'.

Conclusion:
The court quashed the proceedings in ECIR/05/HYZO/2014, stating that there was no criminal activity or property derived from such activity. The petition was allowed, and all miscellaneous applications were disposed of.