"No Wall, No Plaster": Punjab & Haryana HC Says No Prosecution Under PMLA When Accused Acquitted In Predicate Offence/ Closure Report Filed

The Punjab and Haryana High Court has said that when a closure report is filed in the predicate offence, the complaint filed by Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 (PMLA) based on that predicate offence would also be closed.

Justice Anoop Chitkara elucidated that, "The proceedings under PMLA are always subservient and secondary to the primary proceedings under some principal criminal offense, which is termed the predicate offense. If the violations of the main criminal penal provisions are mentioned in the PMLA schedules, only then the Enforcement Directorate can inquire into such scheduled penal offenses against the persons who have laundered the money, including or excluding the persons named as accused in the primary offense."

Explaining the link between predicate offence and schedule offence under PMLA, the judge illustrated, "a wall is required, and only then can it be plastered and in the absence of the wall, the plaster cannot be applied, and if the wall is broken, the plaster would automatically break off because it cannot stand on its own. The predicate offense is that wall only on which the plaster of the scheduled offense of PMLA can be applied. No wall no plaster."

Similarly, "for any prosecution under scheduled offense, the requirement of a predicate offense is the sine qua non. The Enforcement Directorate has no jurisdiction to enter the foray without any primary penal offense," the Court added.

It further elaborated that if the predicate offence results in the filing of a closure report or the accused is discharged by the concerned Court or results in acquittal, then it would imply that the wall has broken, "and with it will also go the plaster if it has been put on it."

The Court was hearing plea of Chetan Gupta and Ashwajit Singh, for quashing of Enforcement Case Information Report (ECIR) and all consequential proceeding under Section 482 CrPC on the ground that closure report has already been filed in the predicate offence.

Senior advocate for the petitioner argued the ED did not close the proceedings and continued summoning him. However, the offence under Section 3 of PMLA is interlinked, intertwined, and interwoven with the scheduled offense and therefore, the offencee or investigations under PMLA have no independent existence, he added.

After hearing the submissions, the Court opined, "There is no legal bar that restricts the powers of this Court under section 482 CrPC by ignoring the prayers to quash ECIR but to consider the remaining prayers to quash the complaint as well as all subsequent proceedings."

Reliance was placed on Apex Court's decision in Pavana Dibbur v. The Directorate of Enforcement, wherein it was held that if the prosecution for the scheduled offence ends in the acquittal of all the accused or discharge of all the accused or the proceedings of the scheduled offence are quashed in its entirety, the scheduled offence will not exist, and therefore, no one can be prosecuted for the offence punishable under Section 3 of the PMLA as there will not be any proceeds of crime.

The Court also referred to Delhi High Court's recent decision in Rajiv Channa v. Union of India, in which the Court reiterated that if the elementary foundation i.e., the scheduled offence is itself removed, consequential proceedings under the PMLA shall also fall.

Difference In ECIR & FIR

The Court explained that the full form of ECIR is the “Enforcement Case Information Report,” and the full form of the FIR is the “First Information Report.” The difference between the two is that ECIR is a term given to itself by the ED through some administrative order, whereas, to the contrary, FIR is a creation of a statute under Sec+on 154 CrPC, 1973.

Given this statutory origin, it is mandatory to register FIR when an offense discloses the commission of the cognizable offense. On the contrary, when the ED starts an inquiry based on some predicate offense, they decide to assign an ECIR to an inquiry/investigation at some point in the given stage. For this reason, the courts have usually quashed the FIR, which would automatically cancel all subsequent proceedings, it added.

View Of Not Setting Aside Complaint Because Quashing ECIR Serves No Purpose Would Give Arbitrary Power To ED

Justice Chikara said since ECIR is not a condition precedent for starting an investigation or inquiry/inquiry by the ED and is only an internal record of the department, its quashing would serve no purpose whatsoever.

However, it would not imply that if one of the prayers made by the accused also includes quashing of ECIR, then the Courts will not look at other prayers like quashing of complaint and quashing of further proceedings or any other proceedings pending before the Enforcement Directorate, the judge highlighted.

The Court clarified, "If such a view is taken, then it would give untrammeled arbitrary powers to the Enforcement Directorate to continue and keep pending the inquiry/investigation against the accused under the pretext or disguise that even if an accused has been acquitted in the predicate offense, a decision is yet to be taken regarding the filing of a complaint against acquittal or such appeal is pending, or even when they do not find any evidence against the accused, at that stage, instead of absolving them, they continue to sit over the inquiry/investigation which would have unparalleled bearing on the accused mental health."

In the present case, the Court noted that "the petitioners have been acquitted in the primary predicate offense in the present case. Consequently, secondary evidence, i.e., the offense being prosecuted by the Enforcement Directorate, would also go automatically."

In the light of the above, the Court opined that the complaint filed by the Enforcement Directorate has to be closed along with consequential proceedings.

While disposing of the plea, the Court said, "Once the complaint is closed, the Enforcement Directorate can keep such records in their ECIR record because if, later on, such closure, charge, or acquittal is reversed, the objection can be reopened."

Appearance: Vikram Chaudhri, Sr. Advocate (through V.C.) with Hargun Sandhu, Advocate and  S.S. Saron, Advocate for the petitioners.

S.V. Raju, Sr. Adv., Addl. Solicitor General of India (through V.C.) with Arvind Moudgil, Sr. Counsel- Government of India

 Shahil Rangra, Advocate, Zoheb Hossain, Special Counsel- ED (through V.C.)

Naveen Kumar, Advocate and  Bhawna Gandhi, Legal Consultant (through V.C.) for respondent No.1- ED.

Sukhdev Singh, A.A.G., Punjab.

 Title: Chetan Gupta v. Directorate of Enforcement and others

Citation: 2024 LiveLaw (PH) 134

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