In PMLA Cases, Courts Cannot Proceed On The Basis Of Preponderance Of Probabilities: Supreme Court

It was also observed that it is incumbent upon the Court to look into the allegation and the material collected in support thereto and to find out whether the prima facie offence is made out.

The Top Court had rendered this observation while considering a criminal appeal assailing Madras High Court's order dated February 4, 2021 wherein the High Court while dismissing the petition u/s 482 of CrPC held that the appellant's argument that the FIR with respect to schedule offense was closed for want of evidence and in absence of connected evidence with a crime of schedule offense, the prosecution for offenses under Sections 3 & 4 of "PMLA could not be sustained.

The bench of Justices Vineet Saran and JK Maheshwari while allowing the appeal in J.Sekar @Sekar Reddy Versus Directorate of Enforcement said,

"Even in cases of PMLA, the Court cannot proceed on the basis of preponderance of probabilities. On perusal of the statement of Objects and Reasons specified in PMLA, it is the stringent law brought by Parliament to check money laundering. Thus, the allegation must be proved beyond reasonable doubt in the Court. Even otherwise, it is incumbent upon the Court to look into the allegation and the material collected in support thereto and to find out whether the prima facie offence is made out. Unless the allegations are substantiated by the authorities and proved against a person in the court of law, the person is innocent."

In the present matter the appellant who was the Managing Partner of M/s SRS Mining had deposited Rs 312.64 Crores in three bank accounts of the firm. On 08.12.2016 and 09.12.2016, the Income Tax Department, Chennai ("I.T. Department") conducted a search in the official/commercial premises of the appellant and others and seized currency amounting to Rs.106,98,89,800/­ and 128.495 kg of gold (valued at Rs.36,72,07,311). On December 19, 2016 the CBI registered RC u/s 120­B r/w 409, 420 of Indian Penal Code 'IPC') and Section 13(2), r/w 13(1)(c) and 13(1)(d) of the Prevention of Corruption Act,1988 ('PC Act') against the appellant and two others. After perusing the FIR, CBI felt that in addition to the scheduled offenses, the provisions of under Sections 2(1)(x) and 2(1)(y) of the PMLA attracted and thus registered the offense against the appellant and others.

CBI after investigation submitted the closure report before the Additional Sessions Judge, CBI Court, Chennai with an observation that for lack of sufficient evidence, nothing incriminating was found which may surface on the part of accused persons. The appellant thus approached the High Court seeking quashing of the proceedings related to the PMLA case.

To adjudicate on the issue, the High Court relied on the seizure made by the I.T. Department including that of the currency notes of denomination of Rs. 2000 in the context that the currency notes of denomination of Rs. 500 and Rs. 1000 ceased to be legal tender by order of the Government at the time of demonetization and the people were in queue to exchange those old currency notes for new ones. It thus said that as the seizure of currency notes of Rs. 33 crores in the denomination of Rs. 2000 was made, CBI's closure report made in schedule offense could not be relied upon.

The High Court held that the commission of schedule offense may be a fundamental precondition for initiating the proceedings but the offense of money laundering is independent of the schedule offense because the PMLA deals with the process or activity with respect to the proceeds of crime including concealment, possession, acquisition or use, however in the light of the explanation of Section 44(1) of PMLA. It was further observed by the Court that if any observation had come in the bail application, having no material to connect with the commission of any offense, would not be enough to quash the proceedings.

Aggrieved, the appellant approached the Top Court.

Submission Of Counsels

Appearing for the appellant, Senior Advocate Vikram Chaudhari submitted that for invocation of PMLA, pre existing occurrence of the scheduled offense was required because the proceeds of crime are essential property derived from criminal activity of the said offense. It was also his contention that the Adjudicating Authority dealt with the order of the Deputy Director (ED) and for lack of evidence refused to pass an order for attachment. He further averred that the adjudication proceedings and criminal proceedings were independent to each other but the material for commission of offense recorded by the authorities in those proceedings might be a relevant factor, in particular when for lack of evidence, the Authority itself was satisfied that the attachment of the proceedings in PMLA case could not be continued.

For the ED, ASG SV Raju contended that the order passed by the Adjudicating Authority under Section 5(5) PMLA was subject to the appeal which is pending before the Appellate Authority, thus the order of the Adjudicating Authority and the finding recorded therein were not sufficient to quash the proceedings in the present case.

Supreme Court's Analysis

To adjudicate on the issue, the bench in the judgment referred to the ratio laid down by the Top Court in Radheshyam Kejriwal Vs. State of West Bengal (2011)3SCC 581 and Ashoo Surendranath Tewari vs. Deputy Superintendent of Police, EOW, CBI and Another (2020) 9 SCC 636 wherein the ratio that was culled out was:

"(i) Adjudication proceedings and criminal prosecution can be launched simultaneously;

(ii) Decision in adjudication proceedings is not necessary before initiating criminal prosecution;

(iii) Adjudication proceedings and criminal proceedings are independent in nature to each other;

(iv) The finding against the person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution;

(v) Adjudication proceedings by the Enforcement Directorate is not prosecution by a competent court of law to attract the provisions of Article 20(2) of the Constitution or Section 300 of the Code of Criminal Procedure;

(vi) The finding in the adjudication proceedings in favour of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceedings is on technical ground and not on merit, prosecution may continue; and

(vii) In case of exoneration, however, on merits where the allegation is found to be not sustainable at all and the person held innocent, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue, the underlying principle being the higher standard of proof in criminal cases."

Considering the legal position laid in the judgements referred, the bench said,

"In view of the aforesaid legal position and on analysing the report of I.T. Department and the reasoning given by CBI while submitting the final closure report in RC MA1 2016 A0040 and the order passed by the Adjudicating Authority, it is clear that for proceeds of crime, as defined under Section 2(1)(u) of PMLA, the property seized would be relevant and its possession with recovery and claim thereto must be innocent. In the present case, the schedule offence has not been made out because of lack of evidence. The Adjudicating Authority, at the time of refusing to continue the order of attachment under PMLA, was of the opinion that the record regarding banks and its officials who may be involved, is not on record. Therefore, for lack of identity of the source of collected money, it could not be reasonably believed by the Deputy Director (ED) that the unaccounted money is connected with the commission of offence under PMLA."

While allowing the appeal and setting aside the impugned judgement, the bench said, "The Department itself is unable to collect any incriminating material and also not produced before this Court even after a lapse of 5 1⁄2 years to prove its case beyond reasonable doubt. From the material collected by the Agency, they themselves are prima facie not satisfied that the offence under PMLA can be proved beyond reasonable doubt. The argument advanced by learned ASG regarding pendency of the appeal against the order of Adjudicating Authority is also of no help because against the order of the Appellate Authority also, remedies are available. Thus, looking to the facts as discussed hereinabove and the ratio of the judgments of this Court in Radheshyam Kejriwal (supra) and Ashoo Surendranath Tewari (supra), the chance to prove the allegations even for the purpose of provisions of PMLA in the Court are bleak. Therefore, we are of the firm opinion that the chances to prove those allegations in the Court are very bleak. It is trite to say, till the allegations are proved, the appellant would be innocent."

Case Title: J.Sekar @Sekar Reddy Versus Directorate of Enforcement| Criminal Appeal No. 738 of 2022

Citation : 2022 LiveLaw (SC) 456

Coram: Justices Vineet Saran and JK Maheshwari