PMLA- Even If Predicate Offence Is Compromised, Compounded, Quashed, ED's Investigation Is Not Affected Or Wiped Away: Bombay High Court

A Single Judge Bench of Justice AS Gadkari ruled to the effect stating,

"Once an offence under the PMLA is registered on the basis of a Scheduled Offence, then it stands on its own and it thereafter does not require support of Predicate/Scheduled Offence. It further does not depend upon the ultimate result of the Predicate/Scheduled Offence. Even if the Predicate/Scheduled Offence is compromised, compounded, quashed or the accused therein is/are acquitted, the investigation of ED under PMLA does not get affected, wiped away or ceased to continue."

Justice Gadkari was hearing a plea promoters of realty firm M/s Omkar Realtors, Babulal Verma and Kamal Kishore Gupta, against whom the ED had instituted proceedings under PMLA. The ED's probe against the firm commenced upon a complaint filed by the Aurangabad Gymkhana against the firm. Even prior to Aurangabad Gymkhana's complaint, a director of the Club, Mahendra Surana had filed a police complaint against them for cheating and criminal breach of trust.

After the promoters compromised the case with the Surana and the Aurangabad Gymkhanas, they approached a Special PMLA Court seeking a closure of proceedings. When the Special PMLA Court refused to quashed proceedings against them, they moved the High Court.

The ED in the meanwhile discovered that the firm had taken a loan of more than Rs 2000 Crores from Yes Bank, on the grounds that the same was meant for a slum rehabilitation project. Despite the firm's assurances, the money never found its way to the slum rehabilitation project.

In Court, their Counsel referred a speech by Former Finance Minister P Chidambaran, responses to Frequently Asked Questions on the ED website and the Supreme Court's dictum in Chidambaram v. ED to contend that the offence of money-laundering under Section 3 of the legislation was a pre-requisite to launching investigation.

If there was predicate offence, the crux, the superstructure would crumble, the Counsel had submitted.

Former Minister P. Chidambaram's Speech: "we must remember that money-laundering is a very technically-defined offence. It is not the way we understand 'moneylaundering' in a colloquial sense. It is a technically-defined offence. It postulates that there must be a predicate offence and it is dealing with the proceeds of a crime. That is the offence of money-laundering. It is more than simply converting black-money into white or white money into black. That is an offence under the Income Tax Act.……..……..So, it is a very technical offence. The predicate offences are all listed in the Schedule. Unless there is a predicate offence, there cannot be an offence of money-laundering."

Citing the Finance Minister's speech, their counsel urged the Court that the same was to be taken as an expression of legislative intent.

The ED's counsel asserted that the PMLA investigation was an independent investigation, and that once an complaint was registered by ED, the scheduled offence was no longer required.

The Court agreed that a predicate offence was necessary to set the law in motion, but disagreed with the proposition that investigation would depend on the fate of the scheduled offence.

"The language of Sections 3 and 4 of PMLA, makes it absolutely clear that, the investigation of an offence under Section 3, which is punishable under Section 4, is not dependent upon the ultimate result of the Predicate/Scheduled Offence. In other words, it is a totally independent investigation as defined and contemplated under Section 2(na), of an offence committed under Section 3 of the said Act...and once a crime is registered under the PMLA, then the ED has to take it to its logical end, as contemplated under Section 44 of the Act," it was stated.

Any other interpretation would frustrate the object of the legislation, the Court held.

Elaborating on this theme, Justice Gadkari notes,

"Hypothetically, 'an accused' in a Predicate/Scheduled Offence is highly influential either monetarily or by muscle power and by use of his influence gets the base offence, compromised or compounded to avoid further investigation by ED i.e. money laundering or the trail of proceeds of crime by him, either in the Predicate/Scheduled Offence or any of the activities revealed therefrom. And, if the aforestated contention of the learned counsel for the Applicants is accepted, it will put to an end to the independent investigation of ED i.e. certainly not the intention of Legislature in enacting the PMLA. Therefore, if the contention of the learned counsel for the Applicants is accepted, in that event, it would be easiest mode for the accused in a case under PMLA to scuttle and/or put an end to the investigation under the PMLA. Therefore, the said contention needs to be rejected."

The appeal was therefore dismissed.

CASE NAME: Babulal Verma v. ED

COUNSEL FOR APPLICANTS: Advocate Vijay Aggarwal, Mudit Jain, Rahul Agarwal, Aftab

Diamondwala, Ashraf Diamondwala, Pradeep Jain and Vijay Dali, Advocate D.S. Mhaispurkar for the Applicants

COUNSEL FOR RESPONDENTS: ASG Anil Singh, Advocates H.S. Venegavkar and

Mr. Adtiya Thakkar for ED. APP Amit Palkar, for the State.

Click here to download the judgment