Should Trial In PMLA Cases Be Halted Till Trial In Scheduled Offence Is Over ? Supreme Court Mulls Clarifying 'Vijay Madanlal Choudhary'

Should the trial in a money laundering case be halted till the trial in the predicate offence is complete? The Supreme Court is set to examine this issue in an appeal arising out of a Telangana High Court judgment which directed to pause the money laundering case till the completion of the trial in the scheduled offence.

The Court on Wednesday considered whether the three judge bench decision in Vijay Madanlal Choudhary, which held that there cannot be a conviction under the Prevention of Money Laundering Act, 2002 if there is an acquittal or quashing of the criminal case (scheduled offence) pertaining to the same matter, needed clarification on the modality of trial to be followed.

A division bench of Justice Abhay S Oka and Justice Sanjay Karol was considering an appeal by the Enforcement Directorate against the order of the Telangana High Court that directed the trial relating to the offence of money laundering to be paused until the decision of the Special Court trying the scheduled offence against Bharathi Cement Corporation Ltd in the quid pro quo case. The High Court had also quashed the order of the Special Court that held that offence of money laundering is a standalone offence and it can precede the trial of predicate/scheduled offence.

When the matter came up before the Apex Court, Justice Oka expressed whether a reference against the three judge bench decision in Madanlal was warranted. “Suppose there is acquittal in the scheduled offence, what will happen if the main trial goes on under PMLA? That is a question to be addressed", Justice Oka said. The judge added that though Vijay Madanlal Choudhary holds that the acquittal in a scheduled offence will lead to termination of money laundering case, the judgment does not state whether the trial in the PMLA case should be halted.

The Court informed the parties that a finality needs to be given to the matter and that it requires a detailed hearing. The Court considered whether a reference against the three judge decision in Vijay Madanlal Choudhary was required:

“The question is whether we are required to only clarify the judgment or whether it has to go a bench of three judges." Justice Oka said. Additional Solicitor General SV Raju, appearing for the ED, said that a finality has to be given to the issue, as it arises in several cases. The bench said it will consider referring to 3-judge bench.

The counsel for the Respondent stated that the findings of the Supreme Court in Vijay Madanlal are clear, that there cannot be a conviction under PMLA, if there is an acquittal in the scheduled offences.

However, the Court remarked that the order of the High Court does not clarify whether evidence can be recorded in the trial for money laundering. The Court said that what needs to be clarified is the modality of the procedure. “We are hearing on modalities, how the whole thing is to be done. We are not saying that this approach is entirely wrong. We want to hear the parties. It should not happen that this applies to all contingencies. Every case will differ.” Justice Oka observed.

The Telangana High Court, relying on Vijay Madanlal Choudhary, had held that if the petitioner is later acquitted of the scheduled offence while convicted of the offence of money laundering under PMLA at an earlier point it would be paradoxical and contrary to well established tenets of law. The High Court accordingly directed the PMLA Court to wait for the decision of the Special Court in the scheduled offence before pronouncing the decision in the money laundering case, though the money laundering trial was allowed to proceed simultaneously:

“it is directed that though the trial relating to the offence of money laundering can proceed independent of the trial of scheduled offence, nonetheless as the outcome of the trial for scheduled offence would have a definite bearing on the outcome of the trial for the offence of money laundering, it would be in the interest of justice if the Special Court trying the offence of money laundering while independently proceeding with the trial may however take a pause and await the ultimate pronouncement/decision of the Special Court trying the scheduled offence. Otherwise, as has been pointed out by the Supreme Court in Vijay Madanlal Choudhary (supra), it may lead to a paradoxical result if the concerned person is later on acquitted of the scheduled offence while convicted of the offence of money laundering under PMLA an at earlier point of time. This would not only be paradoxical but also contrary to well established tenets of law as well.” the Telangana High Court stated in the impugned order. 

The Enforcement Directorate had approached the Supreme Court challenging this order of the Telangana High Court that directed the trial relating to the offence of money laundering to be paused until the decision of the Special Court trying the scheduled offence against Bharathi Cement Corporation Ltd. The case pertains to the allotment of mining leases to Bharathi Cement Corporation Ltd and for allegations of bribery in the guise of investments as quid pro quo for undue favours granted to the Andhra Pradesh government. The ED had registered a money laundering case against Bharathi Cement and several others including Bharathi Reddy, wife of JAndhra Pradesh Chief Minister, Jagan Mohan Reddy under the PMLA.

The Apex Court on Wednesday issued notice to Bharathi Cement Corporation Ltd and Jagathi Publications Limited, founded by Jagan Mohan Reddy. The matter has been posted to 5th September for further consideration.

Bharathi Cement had relied on the Apex Court decision in Vijay Madanlal Choudhary before the High Court to contend that the offence under Section 3 of the PMLA is dependent on the wrongful and illegal gain of property as a result of criminal activity related to a scheduled offence. In the absence of any proceeds of crime, authorities under PMLA would have no jurisdiction to initiate any prosecution, it was argued.

Bharathi Cement is facing prosecution for commission of “scheduled offence” under the Prevention of Money Laundering Act, 2002 and is also an accused in the complaint filed by the ED alleging commission of the offence of money laundering under Section 3 of PMLA. Placing reliance on the Vijay Madanlal Choudhary decision the Telangana High Court had observed: 

“.. 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.” 

Case Title: Directorate of Enforcement Vs. M/S Bharati Cement Corporation Private Limited, SPECIAL LEAVE PETITION (CRIMINAL) Diary No(s). 22328/2023

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