2025 (3) TMI 1250 - HC - Money Laundering

Invocation of extraordinary jurisdiction of this Court under Section 482 of Cr.P.C./Section 528 of the BNSS 2023 - If the complaint in regard to a scheduled offence has been quashed the complaint under Section 3 4 of the PMLA 2002 pertaining to some scheduled offence is maintainable or not? - HELD THAT - Section 447 of the Companies Act 2013 stipulates punishment in the case of fraud involving an amount of at least Rs. 10 Lakh. An offence under Section 447 of the Companies Act is a scheduled offence for the purposes of the PMLA 2002 and as per Paragraph 29 of the schedule appended to PMLA 2002 an offence under Section 447 which stipulates punishment for fraud is a scheduled offence - The expression scheduled offence has been defined in Section 2(1)(y). This provision assumes significance as it has direct link with the definition of proceeds of crime . In that the property derived or obtained as a result of criminal activity relating to notified offences termed as scheduled offence is regarded as tainted property and dealing with such property in any manner is an offence of money-laundering. The Schedule is in three parts namely Part A B and C. Part A of the Schedule consists of 29 paragraphs. These paragraphs deal with respective enactments and the offences specified thereunder which are regarded as scheduled offences. Similarly Part B deals with offence under the Customs Act specifically and Part C is in relation to offence of cross-border implications. The Apex Court in Vijay Madanlal Choudhary 2022 (7) TMI 1316 - SUPREME COURT (LB) in Para-107 observed that a property derived directly or indirectly as a result of criminal activity relating to a scheduled offence would be liable for prosecution under the provisions of the PMLA 2002. The Apex Court further held that the explanation which is added to Section 2(1)(u) and which provides for definition of proceeds of crime does not travel beyond the intent of tracking and reaching up to the property derived or obtained directly or indirectly as a result of criminal activity relating to a schedule offence. The conclusion which has been arrived at by the Apex Court makes it abundantly clear that the property which is derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence can be regarded as proceeds of crime and other property which has no nexus with any scheduled offence cannot be brought within the ambit of the proceeds of crime. It is clear that the co-ordinate Bench of this Court concluded that the prosecution launched under Section 447 of the Companies Act as was an attempt to apply statutory provision with retrospective effect which was not permissible and therefore concluded that the prosecution was illegal. Even the co-ordinate Bench proceeded ahead to label the prosecution to be malicious. The Court also concluded that upon due consideration of the allegations as set out in the FIR if the offence registered is not formulated and the prosecution is considered to be malicious the proceedings can be quashed. Conclusion - The proceedings under the PMLA 2002 could not be maintained against the applicant due to the quashment of the predicate offence under Section 447 of the Companies Act 2013. Petition allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered was whether the quashment of the complaint regarding a scheduled offence under Section 447 of the Companies Act, 2013, affects the maintainability of the proceedings under Sections 3 & 4 of the Prevention of Money Laundering Act (PMLA), 2002. Specifically, the Court examined whether the prosecution under the PMLA could proceed independently despite the quashing of the predicate offence.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents

Section 447 of the Companies Act, 2013, deals with fraud involving an amount of at least Rs. 10 lakh. An offence under this section is a scheduled offence under the PMLA, 2002. The PMLA defines "proceeds of crime" as any property derived or obtained as a result of criminal activity relating to a scheduled offence. Sections 3 and 4 of the PMLA address the offence of money-laundering and its punishment, respectively.

The Court referenced the Supreme Court's decision in Vijay Madanlal Choudhary, which clarified that the offence under Section 3 of the PMLA is dependent on the existence of proceeds of crime linked to a scheduled offence. If the predicate offence is quashed, the prosecution under the PMLA cannot be sustained.

Court's interpretation and reasoning

The Court emphasized that the PMLA's applicability hinges on the existence of proceeds of crime, which must be linked to a scheduled offence. The quashment of the predicate offence under Section 447 of the Companies Act meant that there were no proceeds of crime as defined under the PMLA. Thus, the proceedings under the PMLA could not be maintained.

Key evidence and findings

The Court noted that the coordinate Bench had quashed the complaint under Section 447 of the Companies Act, not on technical grounds but due to the retrospective application of statutory provisions, which was deemed illegal and malicious. This quashment was pivotal as it nullified the basis for the PMLA proceedings.

Application of law to facts

The Court applied the legal principles from the PMLA and the Supreme Court's interpretation to the facts, concluding that without a valid predicate offence, the PMLA proceedings could not stand. The absence of proceeds of crime linked to a scheduled offence meant that the PMLA's provisions were inapplicable.

Treatment of competing arguments

The respondent argued that the PMLA proceedings were independent and could proceed despite the quashment of the predicate offence. However, the Court rejected this, citing the Supreme Court's clarification that the PMLA's applicability is contingent on the existence of proceeds of crime linked to a scheduled offence.

Conclusions

The Court concluded that the quashment of the predicate offence under Section 447 of the Companies Act rendered the PMLA proceedings unsustainable. The absence of a scheduled offence negated the existence of proceeds of crime, thereby invalidating the PMLA charges.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning

The Court noted: "The property which is derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, can be regarded as proceeds of crime and other property, which has no nexus with any scheduled offence, cannot be brought within the ambit of the proceeds of crime."

Core principles established

The Court reaffirmed that the PMLA proceedings are contingent on the existence of proceeds of crime linked to a scheduled offence. Without a valid predicate offence, the PMLA charges cannot be sustained.

Final determinations on each issue

The Court determined that the proceedings under the PMLA, 2002, could not be maintained against the applicant due to the quashment of the predicate offence under Section 447 of the Companies Act, 2013. Consequently, the PMLA proceedings were quashed.