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TMI Blog2022 (9) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(1)(y) to mean offences specified under Part A of the Schedule; or offences under Part B of the Schedule if the total value involved in such offences is one crore rupees or more; or offences specified under Part C of the Schedule. Schedule means the Schedule to the PMLA (Section 2(1)(x)). In Vijay Madanlal Choudhary [ 2022 (7) TMI 1316 - SUPREME COURT] , Supreme Court was called upon to deal with the pleas concerning validity and interpretation of certain provisions of PMLA and the procedure followed by the Enforcement Directorate while inquiring into/investigating offences under PMLA. Following the decision of the Supreme Court in NIKESH TARACHAND SHAH VERSUS UNION OF INDIA AND ANR [ 2017 (11) TMI 1336 - SUPREME COURT ], Parliament amended Section 45 of PMLA vide Act 13 of 2018 so as to remove the defect noted in the said decision and to revive the effect of the twin conditions specified in Section 45 to offences under PMLA. Thus, Supreme Court has expressed the view that expression proceeds of crime which is the very essence of the offence of money laundering needs to be construed strictly. Only such property which is derived or obtained, directly or indirectly, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of Cr.P.C. says that after hearing arguments and point of law, the judge shall give a judgment in the case, which may either be of acquittal or of conviction. It is on this basis, Supreme Court has observed that conviction under Section 4 of PMLA for committing offence under Section 3 is dependent upon conviction for a scheduled offence; if there is no crime there cannot be any proceeds of crime. And if there are no proceeds of crime, the offence of money laundering cannot be sustained. It is on this logic, Supreme Court has held as above in Vijay Madanlal Choudhary. Thus, the position which emerges is that existence of scheduled offence and proceeds of crime being the property derived or obtained as a result of criminal activity relating to the scheduled offence are sine qua non for not only initiating prosecution under PMLA, but also for continuation thereof. In the absence of these two conditions, the Special Court dealing with the offence under PMLA would not be competent to pronounce on the guilt or otherwise of the person concerned accused of money laundering. Petition allowed. - THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN For the Appellant : N NAVEEN KUMAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aundering, trial in money laundering case may be vitiated and may violate the right of the petitioner to a fair trial. However, respondent contended that money laundering being a standalone offence, the enquiry or trial in S.C.No.2 of 2018 along with C.C.No.27 of 2013 need not be done simultaneously; rather enquiry and trial in S.C.No.2 of 2018 may precede the enquiry and trial in C.C.No.27 of 2013. 7. Special Court passed order dated 11.01.2021 in S.C.No.2 of 2018 holding that the enquiry and trial in S.C.No.2 of 2018 is not in any manner dependant on C.C.No. 27 of 2013. Therefore, it shall precede the trial in C.C.No.27 of 2013. 8. Aggrieved thereby, the present petition has been filed. 9. Learned Senior Counsel Mr. S.Niranjan Reddy appearing for the petitioner has referred to the order of the Special Court dated 11.01.2021 and submits that Special Court was not justified in holding that the offence of money laundering is a standalone offence and shall precede the trial of predicate/scheduled offence. He has referred to a Single Bench decision of this Court in Madhu Koneru v. Directorate of Enforcement 2021 SCC OnLine TS 646, more particularly to paragraph 22 thereof, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 283 Supreme Court has held that PMLA is only in respect of matters connected with the offence of money laundering. For that, existence of proceeds of crime within the meaning of Section 2(1)(u) is quintessential. In the absence of existence of proceeds of crime, authorities under PMLA would have no jurisdiction to initiate any prosecution. Supreme Court has held that only if action is taken for confiscation of proceeds of crime and until vesting thereof in the Central Government, process initiated under PMLA would be a standalone process. Referring to paras 306 and 307 of the aforesaid judgment, learned Senior Counsel for the petitioner submits that the extreme and drastic action of dispossession of a person from the property in each and every case until a formal order of confiscation is passed is not warranted as the provision in Section 8(4) of PMLA can be resorted to only by way of exception and not as a rule. 13. Responding to the above submissions, learned Additional Solicitor General of India contends that application of the decision of the Supreme Court in Vijay Madanlal Choudhary (supra) would not be necessary in the present batch of cases as there is already a decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trial of the scheduled offence. (b) The offence of money laundering and trial of scheduled offence are not joint trial, the fate of the former does not depend on the latter. (c) The offence of money laundering is a stand-alone offence; a person, who has not committed a scheduled offence, could be prosecuted for an offence of money laundering. In such a situation, the prosecution need not wait for the scheduled offence to be established. (d) The offence of money laundering under Section 3 of PMLA is an independent offence which is fortified by a catena of judgments. (e) The trial proceedings in money laundering is completely different from those of scheduled offence which is comprehended by Section 24 of PMLA. The burden of proving proceeds of crime or untainted property shall be on the accused. (f) As money laundering offence is a stand-alone offence, hearing on charges may be taken up without any delay by considering the gravity of offence as PMLA is a special legislation. 18.1. However, this was objected to by learned counsel for the petitioner. On behalf of the petitioner, the following contentions were raised: (a) The scheduled offence must result in a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the above said section transgresses or pollutes the penal legislation which has a large bearing on Section 2(1)(u) of PMLA. (c) Contention of ED that scheduled offence result has nothing to do with the result of money laundering is prohibited by law. Money laundering offence should not be construed as standalone offence. Money laundering offence cannot be looked at in isolation. (d) There is no binding judgment to say that money laundering offence has nothing to do with the scheduled offence. 18.3. On the basis of the above rival contentions, learned Special Court framed the following questions for consideration: 1) Whether money laundering offence (S.C.No.1/2018) is a stand-alone offence or not? 2) If the answer is in the affirmative, whether S.C.No.1/2018 should precede the trial under scheduled offence i.e. C.C.No.26/2013? 3) If the answer is in the negative, whether scheduled offence (C.C.No.26/2013) must precede the trial in S.C.No.1/2018 or both the offences i.e. scheduled offence and money laundering offence shall be tried simultaneously? 4) To what relief? 18.4. After referring to several decisions of the Supreme Court and High Courts, learned Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning assigned to it in Section 3. Section 3 defines the offence of money laundering. Section 3 along with the Explanation which was introduced by way of amendment with effect from 01.08.2019 reads as follows: Section 3. Offence of money-laundering. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering. Explanation. For the removal of doubts, it is hereby clarified that,- (i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:- (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; (ii) the process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The Explanation clarifies that proceeds of crime would include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. 21. Scheduled offence is defined in Section 2(1)(y) to mean offences specified under Part A of the Schedule; or offences under Part B of the Schedule if the total value involved in such offences is one crore rupees or more; or offences specified under Part C of the Schedule. Schedule means the Schedule to the PMLA (Section 2(1)(x)). 22. Section 8 deals with adjudication into complaint that any person has committed an offence under Section 3 or is in possession of proceeds of crime. After following the procedure laid down in Section 8, the adjudicating authority may record a finding that all or any of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court which has taken cognizance of the scheduled offence is other than the Special Court which has taken cognizance of the complaint of the offence of moneylaundering under sub-clause (b), it shall, on an application by the authority authorised to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it is committed. (d) a Special Court while trying the scheduled offence or the offence of money-laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) as it applies to a trial before a Court of Session. Explanation.--For the removal of doubts, it is clarified that,-- (i) the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial; (ii) the complaint shall be deemed to include any subsequent complaint in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the Court which has taken cognizance of the scheduled offence is other than the Special Court which has taken cognizance of the complaint of the offence of money laundering and an application is filed by the authority authorized to file a complaint under PMLA, than the Court taking cognizance of the scheduled offence shall commit the case relating to the scheduled offence to the Special Court. On such committal, the Special Court shall proceed to deal with the trial of the case relating to scheduled offence from the stage at which it is committed. The use of the work shall is indicative of the legislative intent that both the scheduled offence and the offence of money laundering should be tried by the same Special Court trying the offence of money laundering. This has a purpose which we will dilate at a later stage. 25. Before we analyse the basic thrust of the contention of learned Senior Counsel for the petitioner vis- -vis Section 44 of PMLA, more particularly the Explanation thereto, it would be apposite to briefly dilate on the earlier decision of this Court rendered in Crl.P.No.1073 of 2021 and batch, decided on 10.08.2021. Learned Single Judge framed amongst others ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court. 27.1. Supreme Court examined in detail the definitions of money laundering and proceeds of crime in the context of PMLA and held as follows: 251. The proceeds of crime being the core of the ingredients constituting the offence of money-laundering, that expression needs to be construed strictly. In that, all properties recovered or attached by the investigating agency in connection with the criminal activity relating to a scheduled offence under the general law cannot be regarded as proceeds of crime. There may be cases where the property involved in the commission of scheduled offence attached by the investigating agency dealing with that offence, cannot be wholly or partly regarded as proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act so long as the whole or some portion of the property has been derived or obtained by any person as a result of criminal activity relating to the stated scheduled offence. To be proceeds of crime, therefore, the property must be derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence. To put it differently, the vehicle used in commission of schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it obtains as of now. 27.2. Thus, Supreme Court has expressed the view that expression proceeds of crime which is the very essence of the offence of money laundering needs to be construed strictly. Only such 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. On the above basis, Supreme Court has held that in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction either on account of discharge or acquittal or quashing of the criminal case (scheduled offence), there can be no action for money laundering against such a person or a person claiming through him in relation to the property linked to the stated scheduled offence. No other view is possible. 27.3. Thereafter, analyzing various provisions of PMLA, in paragraph 281 of the report, the Supreme Court posed the question as to whether the offence under Section 3 is a standalone offence? Supreme Court answered the question in the following manner: 281. The next question is : whether the offence under Section 3 is a standal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation in a pending case, if any. On receipt of such information, the jurisdictional police would be obliged to register the case by way of FIR if it is a cognizable offence or as a non-cognizable offence (NC case), as the case may be. If the offence so reported is a scheduled offence, only in that eventuality, the property recovered by the authorised officer would partake the colour of proceeds of crime under Section 2(1)(u) of the 2002 Act, enabling him to take further action under the Act in that regard. 283. Even though, the 2002 Act is a complete Code in itself, it is only in respect of matters connected with offence of money-laundering, and for that, existence of proceeds of crime within the meaning of Section 2(1)(u) of the Act is quintessential. Absent existence of proceeds of crime, as aforesaid, the authorities under the 2002 Act cannot step in or initiate any prosecution. 284. In other words, the Authority under the 2002 Act, is to prosecute a person for offence of money-laundering only if it has reason to believe, which is required to be recorded in writing that the person is in possession of proceeds of crime . Only if that belief is further supported by tangi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that context, Supreme Court referred to various provisions of Section 8 of PMLA and held that physical dispossession of the person from the property concerned is unwarranted in every case. It is an extreme and drastic action and should not be resorted to until a formal order of confiscation is passed. It is possible that the Special Court in the trial concerning money laundering offence may decide the issue in favour of the person in possession of the property as not being proceeds of crime or for any other valid ground. Before such order is passed by the Special Court, it would be a case of serious miscarriage of justice, if not abuse of process to take physical possession of the property held by such person. Paragraphs 306 and 307 of the report are extracted as under: 306. The learned counsel appearing for the Union of India, had invited our attention to the recommendations made by FATF in 2003 and 2012 to justify the provision under consideration. The fact that non-conviction based confiscation model is permissible, it does not warrant an extreme and drastic action of physical dispossession of the person from the property in every case which can be industrial/ commercial/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul and illegal gain of property as a result of criminal activity relating to a scheduled offence. In the event of acquittal of the person concerned or being absolved from the allegation of criminal activity relating to scheduled offence and if it is established that crime property in the concerned case is rightly owned and possessed by the concerned person, such a property by no stretch of imagination can be termed as crime property. In fact, Supreme Court has explained that if in the trial in connection with the scheduled offence, the person concerned is acquitted then the Court would be obliged to direct return of such property as belonging to him. It would then be paradoxical to still regard such property as proceeds of crime despite acquittal by a Court of competent jurisdiction. 31. Finally Supreme Court summarized its conclusions on the various points. Relevant for our deliberation is the conclusion reached by the Supreme Court in paragraph 467(v)(d) which is extracted as follows: 467. In the light of the above analysis, we now proceed to summarise our conclusion on seminal points in issue in the following terms:- *** *** *** *** (v) (d) The offence under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich has taken cognizance of the complaint of the offence of money laundering, the authority authorized under the PMLA to file complaint shall file an application before the Special Court trying the scheduled offence and on such application being filed, the Special Court shall commit the case relating to the scheduled offence to the Special Court, which shall thereafter proceed with the case from the stage at which it is committed. The purpose behind this provision is to ensure that the scheduled offence and the offence of money laundering under PMLA are not tried by two different Courts which may lead to contrary/conflicting verdicts. It is mandatory on the part of the Court which had taken cognizance of the scheduled offence to commit the same to the Special Court which had taken cognizance of the complaint of money laundering once an application is filed. There is no discretion on the Court which had taken cognizance of the scheduled offence. It must mandatorily commit the trial of scheduled offence to the Special Court trying the offence of money laundering. This is to ensure that it is the same Court which tries both the offences so as to rule out any contrary or conflicting de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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