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Landmark Judgments in 2023 Shaping India's Money Laundering Legal Landscape

Introduction

The Prevention of Money Laundering Act, 2002 (PMLA) is a crucial legislative instrument that plays a significant role in the concerted effort to combat and curtail illicit financial activities. The PMLA provides a comprehensive legal framework to investigate, prosecute, and prevent money laundering, making it a potent weapon against individuals and entities engaged in the unlawful process of money laundering. In the year 2023, the Indian legal system witnessed a series of pivotal judicial decisions that brought clarity and precision to the nuanced facets of money laundering and its interface with the PMLA. In this article, we undertake an exploratory journey through ten landmark judgments from 2023, offering insights into the evolving legal landscape and its impact on financial and economic matters in India.


1. Rana Ayyub v. ED; Writ Petition (Criminal) No. 12 of 2023. (Supreme Court)

Facts:


In this case, the petitioner Rana Ayyub initiated a crowdfunding campaign through an online platform named “Ketto.” Pursuant to this, the Mumbai Zonal Office of the Enforcement Directorate initiated an enquiry against the petitioner under the Foreign Exchange Management Act, 1999 (“FEMA”). Subsequently, an FIR was lodged against the petitioner at the Indirapuram Police Station, Ghaziabad, under sections 403, 406, 418, and 420 of the Indian Penal Code (“IPC”) read with section 66D of the Information Technology (Amendment) Act, 2008, and section 4 of the Black Money Act. In reference to the FIR, the Delhi Zone-II Office of the Directorate of Enforcement registered a complaint in ECIR against the petitioner. The petitioner challenged the jurisdiction of any proceedings in the special court of PMLA outside Maharashtra. The petitioner contended that the trial of the scheduled offense and PMLA should be conducted independently in the area where the offense of money laundering was committed. Therefore, no proceedings related to the scheduled offense as well as the PMLA should be allowed outside Maharashtra.


Court Ruling:


Section 44(1)(a) of the PMLA lays down the fundamental rule regarding territorial jurisdiction, stating that an offense punishable under section 4 of the PMLA and any scheduled offense connected to it shall be triable by the Special Court constituted for the area where the offense was committed.


As per the scheme of section 44(1)(c), if the Court that has taken cognizance of the scheduled offense differs from the Special Court that has taken cognizance of the money laundering offense, the former should commit the case related to the scheduled offense to the latter, upon an application filed by the authorized authority.


The court further held that the special court’s territorial jurisdiction should be determined based on the acquired proceeds of crime in one place, their possession in another place, concealment in a third place, and utilization in a fourth place. The area where each of these places is located will be considered the area where the offense of money laundering was committed. Thus, the petitioner's argument that her bank account was in Navi Mumbai cannot be entertained, as the court is not factually aware of whether any money laundering occurred outside Maharashtra. This requires an inquiry, and the evidence that unfolds before the Trial Court will determine this. Consequently, the court rejected the petition and granted Rana Ayyub the liberty to raise the issue of territorial jurisdiction before the Trial Court.


A similar reasoning was reiterated by the Supreme Court in KA Rauf v. ED[i], where it observed that:

  • In accordance with section 44(1)(a) and section 44(1)(c) of the PMLA, the Special Court established under the PMLA has jurisdiction to try scheduled offenses, even if another court takes cognizance of the scheduled offense. In such cases, the other court must commit the case to the Special Court upon application by the concerned authority.

  • Section 44(1)(a) of the PMLA specifies that the offense of money laundering is only triable by the Special Court constituted for the area where the offense was committed. Therefore, for areas where the proceeds of the crime were concealed, possessed, acquiesced, used, projected as untainted property, or claimed as untainted property, the Special Court in each of those areas has jurisdiction.

2. Kewal Krishna Kumar v. ED; Bail Application 3575/2022, 24 February 2023. (Delhi High Court)

Facts:

This case pertains to a bail application where the accused, a 70-year-old individual, sought bail on medical grounds under the proviso of section 45 of the PMLA. The accused was alleged to have concealed the true financial status of group companies from lending banks, misleading them into approving credit facilities and loans. Subsequently, the funds released by the banks were purportedly diverted to group companies for uses other than those intended, resulting in the alleged offense of cheating the banks. The accused was also accused of routing borrowed funds through group companies and shell entities to acquire various assets. As a result, he was charged under sections 3 and 4 of the PMLA.


Court Ruling:


The court ruled that when seeking bail on medical grounds, it is unnecessary to argue on the merits of the case. The court's role is to assess the medical condition of the accused, including the report from the medical board.


Furthermore, the court emphasized that being admitted to a hospital for medical treatment does not automatically grant an accused person bail. The court must evaluate the severity of the illness and whether it can be treated within custody or at government hospitals. The “sickness” referred to in the proviso involves a potential risk or danger to the life of the accused. The term “infirm” in section 45(1) proviso does not solely pertain to old age but encompasses a disability that prevents the individual from performing everyday activities.


After reviewing the medical board’s report, the court concluded that the accused does not fall under the category of being “sick” due to the absence of a life-threatening ailment. However, considering the applicant's medical history of seizure disorders, mild behavioural issues, and advanced age, the court acknowledged the need for an attendant to assist with daily activities. This combination of factors indicated the seriousness of the applicant's infirmities, thereby categorizing him as “infirm.” Consequently, the court granted bail to the accused.


3. ED v. Ashutosh Verma; Ct. C.No. 53/2019, Special Judge-05 (PC Act) CBI, Rouse Avenue District Court Complex, New Delhi.


Facts:


The respondent, Ashutosh Verma, was tasked with investigating allegations of tax evasion against the accused, Suresh Nanda, and his group of companies. His responsibility included preparing an Appraisal Report. During this period, he engaged in activities to acquire land in Morgim, Goa, which was ultimately registered in the name of M/s Nitya Resorts Pvt Ltd (Accused no.2).


The allegation is that the respondent, in an effort to favour Suresh Nanda in the Appraisal Report he was preparing, agreed to and accepted substantial illegal gratification. Detailed charges were framed against him under section 7 of the Prevention of Corruption Act, 1988 (“PC Act”) by the CBI. Additionally, it is alleged that the respondent used a portion of the illicit gratification to purchase land in Morgim Village, Goa.


Since the offenses punishable under section 120B IPC and section 7 of the PC Act are classified as Scheduled Offenses under the PMLA, an ECIR was filed against the suspects/accused individuals of the commission of offenses under sections 3 & 4 of the PMLA. However, a critical aspect here is that the court in the CBI case acquitted the respondent of all charges under the PC Act, convicting him only under section 120B of the IPC.


Court Ruling:



The court noted that in the CBI case, it was established that there was no evidence indicating that the respondent had received illegal gratification from the Nandas. Consequently, the prosecution in the present case was obligated to present evidence to establish the offense independently from the CBI case, which they failed to do.


The court also declined to solely rely on witness statements recorded under section 50, citing that the witness wasn’t examined during the trial, and the accused had no opportunity to cross-examine him. As a result, these statements were deemed inadmissible.


Considering the accused was charged only under section 120B of the IPC, the court observed that, for proceeds of crime to be relevant, the property must be derived or obtained, directly or indirectly, “as a result of” criminal activity related to a scheduled offense. However, under offenses such as criminal conspiracy, as in the present case, no property can be obtained in the absence of any other offense committed in connection with the criminal conspiracy. Therefore, money laundering cannot be established against the accused in this case.


The court also added that while it might be possible that the criminal activity occurred before being designated as a scheduled offense under the 2002 Act if a person continues to deal with proceeds of crime derived from such criminal activity, even after it has been classified as a scheduled offense, they could be prosecuted for money laundering under the 2002 Act.


4. Rana Kapoor v. ED; 2022/DHC/005170. (Delhi High Court)

Facts:


A Mauritius company named Ocean Deity Investment Holding Ltd. (“ODIL”) and Housing Development and Infrastructure Ltd. (“HDIL”) established a joint venture named Mack Star Marketing Pvt. Ltd. The day-to-day management of Mack Star was under the control of the Wadhawans brothers. According to the Articles of Association of Mack Star, it couldn't take loans exceeding 20 lakhs without ODIL’s permission.

However, during HDIL’s financial crisis, Mack Star, without ODIL’s consent, obtained a loan of 200 crores from Yes Bank and provided the amount to HDIL. ODIL was unaware of this as auditors colluded with the Wadhawans and concealed the information.


When ODIL’s investors discovered this, they informed Yes Bank. Despite this, Yes Bank continued disbursing loans to Mack Star’s account. Allegations were made that Yes Bank issued these loans without satisfying a condition in its sanction letter, which required obtaining Non-Disposal Undertakings (NDUs) from investors. While NDUs were obtained from the Wadhawans, the majority of investors (ODIL) were not approached, indicating an attempt to hide the transaction from them.


Subsequently, the CBI registered an FIR under sections 120B, 409, and 420 of the IPC, and sections 13(2) and 13(1)(d) of the PC Act against the Wadhawans, two HDIL directors, a chartered accountant firm, two private individuals, and unknown public servants and private individuals. Based on the FIR, the ED registered an ECIR under sections 3 and 4 of the PMLA and arrested Rana Kapoor, the managing director of Yes Bank. Kapoor subsequently filed a bail application.


Court Ruling:



The court granted the bail application on the grounds that ED had failed to initiate the trial even after two years. Meanwhile, the Applicant, Mr. Kapoor, had already served 73% of the minimum punishment prescribed under the relevant statute. The court noted:


“ED simply opposes bail applications heavily but never takes any active step in proceeding with trials, particularly as per the mandate of section 44(1)( c) of the PMLA and the accused is an undertrial prisoner. Like this, in many other cases, the Court is repeatedly directing ED to follow the true spirit and mandate of section 44(1)(c) of the PMLA.”


The court also observed that other accused individuals were never arrested, and those who were arrested had already been released on bail. The Judge listed 11 PMLA cases with 17 undertrial prisoners dating back to 2019, in which ED had not taken any steps to transfer the cases relating to predicate offenses to the PMLA court. Consequently, the court heavily criticized the ED while granting bail to the Applicant in this case.


5. Y Bala ji v. Karthik Desari; SLP (Cri.) Nos. 12779-12781 of 2023. (Supreme Court)

Facts:


In November 2014, the Metropolitan Transport Corporation issued a call for applications for various posts, including Drivers, Conductors, Junior Tradesmen (Trainee), Junior Engineers (Trainee), and Assistant Engineers (Trainee). Interviews were conducted, and a list of selected candidates was published.

Subsequently, it was revealed that the jobs had been granted in exchange for monetary considerations, leading to numerous legal issues, including matters related to the PMLA.


Allegations were made that the current case contradicts the principle established in the Vijay Madan Lal Chaudhry v. Union of India[ii] case. It was argued that the Enforcement Directorate (ED) initiated investigations and summoned the accused without first identifying the proceeds of the crime or the property representing those proceeds, as mandated by section 3 of the PMLA. This identification constitutes a foundational/jurisdictional requirement.


Additionally, the contention was raised that, considering a notice has been issued in a review petition against the Vijay Madan Lal Choudhary case, it is imperative for the apex court to postpone the hearing of these matters until a decision is reached in the review petition and other related petitions.


Court Ruling:


The court determined that the mere generation of proceeds of crime is sufficient to establish the offense of money laundering. It elaborated that if an individual accepts a bribe, they acquire proceeds of crime, thus constituting an “acquisition” activity. Consequently, a valid case of money laundering has been established against the accused for accepting money in exchange for the job.


The court further held that the fact that a notice has been issued in a review petition in the case of Karti P. Chidambaram v. The Directorate of Enforcement[iii] against the Vijay Madan Lal Case does not nullify or diminish its precedential value. To do so would undermine the principles of judicial discipline and the doctrine of stare decisis.


6. Govind Prakash Pandey v. Directorate of Enforcement, Govt of India; Bail Application 1943 of 2023, 20 February 2023. (Allahabad High Court)

Facts:


In the current case, the Applicant, Govind Prakash Pandey, was implicated in a significant case involving bungling, fraud, and forgery related to the National Rural Health Mission (NRHM). The matter was referred to the CBI, which initiated a preliminary inquiry following an order by the Allahabad High Court. Subsequently, the CBI filed an FIR against the Applicant under section 420 IPC and sections 13(2) r/w section 13(1)(d) of the PC Act. The Enforcement Directorate (ED) also registered an ECIR against the Applicant.


The Applicant was duly cooperating with the investigative agency and provided his statement under section 50 of the PMLA. Moreover, when summoned, he appeared before the trial court, where he was taken into custody. His ad interim and regular bail applications were subsequently rejected. As a result, the Applicant filed a bail application before the Hon’ble High Court.


Court Ruling:


Drawing upon the precedents set by Aman Preet Singh v. CBI[iv] and Satender Kumar Antil v. CBI,[v] where it was observed “that arrest of any person is not mandatory in each case, but before curtailing the liberty of an accused person, the relevant facts and circumstances should be visualised,” the court stated that there was no necessity to take the accused into custody when he voluntarily appeared before the trial court in response to the issued summons. The court highlighted that the accused had consistently followed due process of law, and cooperated fully during the investigation, and the Investigating Agency had never deemed it necessary to arrest him under section 19 of the PMLA, despite his appearing before the ED twice to record his statement under section 50 of the PMLA.


Furthermore, there was no request from the ED before the trial court to warrant the accused’s arrest. Consequently, the court concluded that the Trial Court had taken custody of the accused without adhering to the well-established legal principles set by the Supreme Court. As a result, the bail application was granted.


7. M/S Prakash Industries Limited v. Union of India and Anr; 2023/DHC/000481. (Delhi High Court)

Facts:


An FIR was lodged by the CBI concerning the allocation of the Fatehpur Coal Block in Chhattisgarh. The petitioner was accused of misrepresenting his net worth to secure the Coal Block allocation. In light of this, the CBI registered the case under sections 13(2) and 13(1)(d) of the PC Act. Subsequently, the ED filed an ECIR referring to the aforementioned FIR. Following this, the petitioner's properties were provisionally attached under section 5 of the PMLA. The petitioner challenged the provisional attachment order.


Court Ruling:


The court reiterated a key observation from the Vijay Madan Lal Choudhry v. Union of India[vi] case, emphasizing that an allegation of money laundering is rooted in the commission of a criminal offense. In the absence of such an offense, proceedings initiated under the PMLA would “undoubtedly fall and self-destruct.”


The Court further observed that the original FIR, supplementary chargesheet, and Enforcement Case Information Report (ECIR) solely pertain to the alleged acts of misrepresentation and submission of incorrect information by the petitioner to obtain allocation of the Fatehpur Coal Block. The allegation regarding manipulation of share prices and potential proceeds from preferential share allotment is not included in the FIR, supplementary chargesheet, or ECIR.


The court added that the ED cannot independently assume that specific facts demonstrate the commission of a scheduled offense and then proceed to take action under the PMLA based on that assumption.


Furthermore, the court, while granting the petition, noted that action under Section 5 of the Act hinges on the competent authority having reasonable grounds to believe that a person possesses proceeds of crime. Evidence of criminal activity should typically be in the form of a First Information Report, complaint, or charge sheet as outlined in various statutes. In its absence, the ED has no authority to unilaterally determine whether a scheduled offense has occurred. The court declared the Provisional order passed by the ED to be illegal and arbitrary.


8. ED v. Aditya Tripathi; Criminal Appeal No. 1401 of 2023. (Supreme Court)

Facts:


It was discovered that e-tenders of the Madhya Pradesh Water Corporation were tampered with to alter the price bids of M/s GVPR Engineers Limited, M/s The Indian Hume Pipe Company Limited, and M/s IMC (sic) Project India Limited, making them the lowest bidders. As a result, the accused, including the respondent (Aditya Tripathi), was charged under sections 120-B, 420, 468, and 471 of the IPC, Section 66 of the Information Technology Act, 2000, and section 7(c) read with section 13(2) of the PC Act in the FIR lodged against them by the economic offense wing of Bhopal, Madhya Pradesh. Subsequently, the economic offense wing conducted an investigation and filed a charge sheet before the competent court. Based on the study of the charge sheet, the Enforcement Directorate, Hyderabad, initiated a money laundering investigation. During the course of this investigation, the respondent was arrested; however, the High Court released him on bail on the grounds that the charge sheet had already been filed in relation to the predicate offense. The said bail order was challenged in the present appeal.


Court Ruling:


Investigations for predicate offenses and investigations for scheduled offenses under the PMLA are distinct and separate. The mere fact that a charge sheet may have been filed for the predicate offenses cannot serve as a basis for releasing the accused on bail in connection with scheduled offenses under the PMLA. Therefore, the High Court’s consideration of this factor is irrelevant.


The High Court neither accounted for the severity of section 45 of the PMLA nor weighed the gravity of the alleged offenses for the scheduled offenses under the PMLA. Additionally, the High Court failed to recognize that the ED’s investigation for the scheduled offenses under the PMLA is ongoing. As a result, the impugned orders issued by the High Court granting bail to the respective respondent are unsustainable. The matters need to be remitted back to the High Court for a fresh decision on the bail applications, taking into account the observations made. Consequently, the appeal was allowed.


9. Preeti Chandra v. ED; 2023/DHC/4177. (Delhi High Court)

Facts:


In the present case, the economic offense wing of Delhi filed an FIR against the accused, including the Applicant (Preeti Chandra), under various sections of the IPC and sections 7, 7(A), 8, 9, 10, 12 & 13 of the PC Act. The charges alleged that they deceived investors and homebuyers who had invested significantly in their scheme, promising dream homes to the buyers and lucrative returns to the investors. However, these promises were not fulfilled. Subsequently, a money laundering case was also initiated against the accused, including the Applicant, who filed the present bail application under section 45 of the PMLA.


Court Ruling:


The Hon’ble Court ruled that women cannot be classified based on their education, occupation, or social status under the proviso to section 45(1) of the PMLA.


The court made the following observation: -


“PMLA does not define a woman. Neither the Constitution of India nor the PMLA intends to categorize women based on education, occupation, social standing, exposure to society, etc. Therefore, attempting to create an ad-hoc sub-classification of educated women, businesswomen, or those from high social strata within the broader classification of ‘woman,’ as suggested by the respondent, is misconceived.”


As a result, once the term “woman” is used in the Proviso to section 45(1) of the PMLA, there should be no further sub-classification of women and no application of the twin conditions of Section 45 to specific categories of women while excluding others.


The court made this observation in response to the argument raised by the ED that accused Preeti Chandra is not a homemaker but an educated woman managing multiple companies. The proviso to section 45(1) PMLA should be considered in her context, given her business background even before marriage, and therefore, no leniency should be extended to her.


The court explicitly rejected this argument, asserting that sub-classifying women to determine their eligibility for bail would violate Article 14 of the Constitution of India. Consequently, the court granted bail to the Applicant, considering that she has been investigated by 13 agencies and has been in jail for the past 20 months.


10. Emta Coal Limited & Ors. v. The Deputy Director of Enforcement; 2023/DHC/000277. (Delhi High Court)

Facts:


An FIR was lodged against the petitioner (Emta Coal Limited & Ors.), along with the West Bengal State Electricity Board (‘WBSEB’) and West Bengal Power Development Corporation Ltd. (‘WBPDCL’), based on discrepancies in the allocation of captive coal blocks. The FIR was filed under sections 120-B IPC read with Section 420 of the IPC and section 13(2) read with section 13(1)(d) of the PC Act. Subsequently, an ECIR was also lodged against the petitioner and other accused. Later, a provisional attachment order was passed under section 5 of the PMLA. Meanwhile, the CBI had filed a closure report regarding the FIR against the petitioner. This closure report essentially formed the basis of the ongoing money laundering proceedings, including the attachment order. The petitioner argued that since the CBI had filed a closure report, the money laundering proceeding couldn’t continue, as no scheduled offense case was established. The petitioner heavily relied on the Vijay Madan Lal Chaudhary v. Union of India[vii] case.


Court Ruling:


The court ruled that the trial court, in the pending complaint case, had concluded that the closure report should be accepted since no criminality could be ascertained due to the unavailability of documents. Based on the settled legal position established in the Vijay Madan Lal Choudhary case and subsequent decisions and orders, the court held that the impugned attachment orders and ECIRs should be quashed.


Conclusion:

In 2023, a series of pivotal judicial decisions in India had a profound impact on the landscape of money laundering and the PMLA. These cases shed light on various legal aspects, including territorial jurisdiction, bail eligibility, the relationship between predicate offenses and money laundering, and the procedural obligations of enforcement agencies. These decisions uphold the principles of justice and fairness in the face of financial complexities and underline the importance of the PMLA in the fight against money laundering. As the financial landscape evolves, these precedents will continue to inform our understanding of money laundering in India, emphasizing that the PMLA is a powerful tool in combating financial crimes. This legal journey remains dynamic, calling for vigilance from legal practitioners, financial experts, and policymakers as it shapes India's financial and economic future.


End Notes:

[i] Transfer Petition (Criminal) No.89 OF 2023.

[ii] 2022 SCC OnLine SC 929

[iii] Transferred case cri. no. 4 of 2018.

[iv] (2021) SCC OnLine SC 941.

[v] (2022) 10 SCC 51.

[vi] Supra (n 2).

[vii] Supra (n 2).


Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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