Summons Under PMLA Can't Be Quashed Merely Because Accused Was Discharged In Predicate Offence : Supreme Court
The Supreme Court yesterday (December 19) set aside an order of the Gauhati High Court which quashed summons under the Prevention of Money Laundering Act, 2002, (PMLA) to investigate proceeds of crime involved money laundering on grounds that the Respondent was discharged in scheduled offence (offences related to property in this case).
A bench of Justices MM Sundresh and Aravind Kumar was hearing a challenge to the judgment of the Gauhati High Court dated January 3, whereby the summons issued under Sections 50(2) & (3) of the PMLA for money laundering were quashed against the present Respondent after it was found that a Special Court discharged the Respondent in connection with the scheduled offence.
At the outset, the Counsel for the ED, Additional Solicitor General Rajkumar Bhaskar Thakare, submitted that by allowing the summons to be quashed, the Gauhati High Court deviated from a well-settled law. It was argued that the High Court should have considered that the offence of money laundering is a stand-alone offence and does not depend on the outcome of the investigation of a scheduled offence.
Thakare briefly informed that the allegations against the Respondent were that a new complex of the Nagaland High Court at Kohima was constructed by him using sub-standard materials.
Advocate S. Borgohain (for accused) relied upon the judgment of Vijay Madanlal Choudhary & Ors. l/s. Union of India and Ors (2022) and stated that the judgment has held that the offence of money laundering is dependent on the illegal gain of property as a result of criminal activity relating to a scheduled offence.
To Borgohain (for the accused), Justice Sundresh asked: "This is a question of law they are raising. Can a summon be quashed? You are only a proposed accused. They may drop you. But at this stage, if this is accepted as a position of law,..in every case just because there is no predicted offence, they cannot even issue a summons...We will leave the question open. If you are arraigned as an accused, then you challenge."
Borgohain responded that the ED has said in its affidavit that the respondent will be prosecuted based on the FIR.
However, Justice Sundresh remarked that this was a summon and that the High Court at this stage should not have gone into this. He said: "In the event you being arraigned as accused, the questions are left open...About the question of law, we agree with you..."
Borgohain added that it was duly informed to the ED that the Special Court had discharged the Respondent in the scheduled offence. A clarification was also sought where the Respondent should appear as accused or witnesses. The same has not been clarified.
On this, Justice Sundresh said: "We will give you clean chit as of now. As of now, you will be called only as a witness."
The Court ordered: "What has been issued to the respondent is summons. Merely because he or she is discharged in the predicate offence, the Court cannot quash the summons. The question of whether the respondent will be arraigned as accused or not is a matter which is to be decided at a later point in time. In that eventually, it is open to the respondent to raise all contentions including the submission that predicate offence quashed in the subsequent action of the appellant arraigning him as accused in the PMLA proceedings does not sustain in the eye of law...the impugned proceedings have been quashed and the appellant is able to proceed in pursuant to the summons issued."
The Court clarified that no coercive steps against the respondent.
Facts of the case
As per the facts pleaded by the Enforcement Directorate (ED), a first information report for the alleged commission of offences under Sections 120(B) and 420 of the Indian Penal Code, 1860 and Sections 13(1)(s) and 13(2) of the PMLA came to be registered by the Central Bureau of Investigation (CBI) against Vilelie Khamo.
It is alleged in the FIR that a preliminary enquiry was registered by the CBI against Khamo, officials of PWD, Nagaland, and unknown public servants based on an order passed by the High Court dated May 2, 2018 relating to the alleged misappropriation of public money and snail pace of construction work of the New High Court Complex at Kohima, Nagaland.
The SLP states: "The enquiry of the PE [preliminary inquiry] revealed that the project for the construction of the new Nagaland High Court Complex at Kohima, Nagaland was taken up by the Nagaland PWD as the Executive Agency under 'Deposit Work' through various contractors and the Department of Justice and Law, Government of Nagaland is the user Department.
The enquiry of the PE disclosed that the accused engineers of Nagaland PWD in criminal conspiracy with each other and also with the accused contractors had defrauded the funds amounting to Rs. 3,61,72,552/- and had carried out sub-standard construction in the construction of the new High Court complex at Kohima."
The preliminary enquiry was converted into an FIR. During the course of the investigation by the CBI, the concreted strength test (Rebound Hammer Test) carried out by the Executive Engineer Research Laboratory Cell Dimapur, on 10 constructed pillars with reference to the IS specification indicated 22% sub-standard work and similar test conducted on 9 slabs/ceiling indicated 10% sub-standard.
The respondent, the contractor and others were found to be responsible for the sub-standard construction, as per ED's plea.
It is stated that the ED, Guwahati Zonal Office, then examined the FIR from the angle of money laundering. It was found that Sections 420 and 120 (B) of IPG, 1860 and 13(2) & 13(l)(d) of the PC Act, 1988 are Scheduled Offences in terms of Section 2(1 )(x) and (y) of Part A, Paragraph 1 and Paragraph 8 of the PMLA.
During the preliminary enquiry, a prima facie case for money laundering as defined under Section 3 of the PMLA and punishable under Section 4 of the PMLA was made out. An Enforcement Case Information Report was recorded and an investigation under PMLA was initiated.
To ascertain the proceeds of crime involved in money laundering, the ED issued a summons under Section 50(2) of PMLA on November 18, 2021. However, the Respondent did not appear and filed a writ petition before the Gauhati High Court seeking the quashing of the summons. By an order dated December 8, 2021, the High Court issued notice and directed that no coercive steps be taken against the Respondent.
Meanwhile, the CBI filed two chargesheets before the Special Court, CBI, Dimapur. The Special Court noted that the Respondent's name was reflected in FIR but CBI had not submitted a chargesheet against him. Thereby, on February 8, 2022, the Respondent was discharged.
This order was referred to a writ petition pending via an IA before the High Court whereby the Respondent pleaded that the summons must be quashed against him. This was allowed. Against which the ED has come before the Supreme Court.
Case Details: DIRECTOR, ENFORCEMENT DIRECTORATE AND ANR. v. VILELIE KHAMO., SLP(Crl) No.15189/2024
Appearances: Additional Solicitor General Rajkumar Bhaskar Thakare and AOR Chandra Pradesh (for ED) & Advocate S. Borgohain and AOR Farhat Jahan (for accused)