FACTS
In this case, the individuals appealing the case were the wife and son of the defendant who was charged by the Lokayukta Police under section 13(1)(e) and section 13(2) of the Prevention of Corruption Act. As the trial was ongoing, the Enforcement Directorate (ED) also filed a case against the defendant and the appellants under the Prevention of Money Laundering Act (PMLA) and submitted a complaint to the Special Court for trial under section 3 of the PMLA.
Afterwards, the Lokayukta, upon examination of the evidence, found that there was not enough proof to convict the accused of the charges. Following this, both the accused and the appellants currently involved in the case filed an application under section 277 of the Code of Criminal Procedure, 1973, requesting to be discharged from the charges related to the Prevention of Money Laundering Act (PMLA). However, before this application could be reviewed and a decision made, the accused died.
Following this, the Trial Court approved the application and acquitted the defendants of the charges related to the Prevention of Money Laundering Act (PMLA). The court noted that the occurrence of a scheduled offense was necessary for the proceeds of crime to be established, and that the commission of a scheduled offense was a prerequisite for initiating proceedings under the PMLA.
To review the discharge order, the Enforcement Directorate (ED) decided to file a revision petition with the High Court. Upon review, the High Court overturned the discharge order, stating that the allegations in the complaint and the evidence presented were enough to warrant further investigation into the appellants for potential offenses under the Prevention of Money Laundering Act (PMLA). Following this decision, an appeal was made to the Supreme Court challenging the High Court’s ruling.
ISSUES RAISED
Definition of “Proceeds of Crime” and PMLA Initiation: The Court determined the legal meaning of “proceeds of crime” under the PMLA and the prerequisites for initiating legal proceedings under this Act.
Enforcement Agency Authority: it examined the jurisdictional boundaries of enforcement agencies under PMLA 2002, particularly regarding their authority to prosecute individuals for money laundering offenses.
Impact of Discharge/Acquittal on Future Charges: legal consequences of discharge or acquittal on scheduled offenses under PMLA 2002 was examined. It will determine if such outcomes preclude future money laundering charges against the accused.
Evidentiary Standards in PMLA Proceedings: the court discussed the evidentiary requirements for initiating legal proceedings under PMLA 2002. This includes the level of proof needed to establish a prima facie case against the defendant at the outset of the proceedings.
Judicial Review of Discharge Orders: it examined the involvement of the judicial review of trial court decisions, specifically focusing on the criteria and scope of appellate review in instances where the trial court has issued a discharge order in a criminal case.
CONTENTIONS
APPELLANT:
The learned counsel representing the appellants argued that the current issue has already been addressed by a 3-Judge Bench of this Court in the case of Vijay Madanlal Choudhary &Ors. vs. Union Of India[Special Leave Petition (Criminal) No. 4634 Of 2014]&Ors. decided on 27.07.2022. In this case, it was clearly stated that if an individual is ultimately acquitted of the scheduled offense or if the criminal case against them has been dismissed by a Court of competent jurisdiction, they will not face any charges of money laundering. Furthermore, this also applies to anyone who claims ownership of property associated with the said scheduled offense through that individual.
RESPONDENT:
The Enforcement Directorate (ED), acting on behalf of the respondent, argued that the accusations and evidence submitted in the complaint constituted a strong enough case to proceed against the defendants (appellants) for violations of the Prevention of Money Laundering Act (PMLA) of 2002. The ED appealed the Trial Court’s order dismissing the case (discharge order), asserting that the initial evidence (prima facie evidence) established a probable cause to continue legal proceedings against the defendants.
RATIONALE AND JUDGEMENT:
The Supreme Court of India addressed the critical link between “scheduled offences” and money laundering charges in the case of Parvathi Kollur vs. State by Directorate of Enforcement (2022). The court reaffirmed the principle established in earlier judgements: “proceeds of crime,” a core element of money laundering under the Prevention of Money Laundering Act, 2002 (PMLA), can only arise from a proven “scheduled offence.”
The case involved the appellants challenging a High Court order reviving money laundering charges against them. The accused (No. 1) faced accusations of amassing disproportionate assets while in office. While the Lokayukta police registered a case under the Prevention of Corruption Act (scheduled offence), the court ultimately acquitted the accused due to insufficient evidence. Subsequently, the Enforcement Directorate initiated PMLA proceedings against both the accused and the appellants.
The crux of the dispute revolved around the validity of the PMLA charges after the acquittal in the scheduled offence case. The Trial Court discharged the appellants, reasoning that without a proven scheduled offence, there could be no “proceeds of crime” to justify money laundering charges under PMLA. The High Court, however, overturned this decision, believing the initial evidence warranted further proceedings against the appellants under PMLA.
The Supreme Court, siding with the Trial Court, upheld the discharge order. The court emphasized that PMLA cannot be used to pursue mere suspicions of scheduled offences. It must be based on a registered offence with ongoing investigation or trial proceedings. Furthermore, the court clarified that acquittal or discharge in the scheduled offence case extinguishes the possibility of money laundering charges against anyone connected to the alleged proceeds of crime.
DEFECTS OF LAW
The Supreme Court emphasized that in order to pursue a case under the PMLA, it is important to establish a scheduled offence, which is a serious crime listed in the Act such as corruption. The judgement highlights that the money being targeted for money laundering can only come from a proven scheduled offence. If the main accused is acquitted or discharged of corruption charges, then charges under the Prevention of Money Laundering Act cannot be filed against them or any other individuals claiming ownership of the allegedly laundered money. This is because the basis for money laundering, the presence of proceeds from a criminal offense, is undermined if the original offense is not proven.
The Enforcement Directorate believed that the accusations and initial evidence against the defendants were enough to proceed with the case under PMLA, but the Supreme Court disagreed. The court stated that mere suspicion or accusations are not sufficient for PMLA charges, as there must be a clear connection to a scheduled offence, which was lacking in this situation. The judgment points out a mistake made by the Karnataka High Court, which overturned the Trial Court’s decision to dismiss the case based on preliminary evidence. The High Court failed to consider the established rule that a confirmed scheduled offense is necessary for filing PMLA charges.
The Parvathi Kollur case highlights that the PMLA cannot be used independently and must be connected to a scheduled offense to prove the existence of “proceeds of crime.” This ruling prevents the misuse of the Act and guarantees a fair trial.
INFERENCE
The Parvathi Kollur case focused on the relationship between the Prevention of Money Laundering Act and scheduled offences, leading to a reconsideration of how the Act is applied. The court clarified the definition of “proceeds of crime” and outlined the conditions for starting proceedings under the PMLA. It stressed that the PMLA revolves around proving a serious crime like corruption, and only money obtained through such crimes can be considered “proceeds of crime” under the law. The court also analyzed the power of enforcement agencies in prosecuting money laundering cases under PMLA. It emphasized that PMLA cannot be utilized to pursue mere suspicions of scheduled offenses. Instead, there needs to be a registered and ongoing investigation or trial concerning the scheduled offense for PMLA to be applicable.
In addition, the court clarified that if the main defendant is found not guilty of the specified crime, they cannot be charged under the Prevention of Money Laundering Act (PMLA) for possessing alleged laundered money. This is because the basis for PMLA charges, which is proving the existence of proceeds from a crime, is undermined if the crime itself is not proven. The court debated the level of evidence necessary to begin PMLA proceedings, with the Enforcement Directorate believing initial evidence was enough but the court ruling that a clearly connected scheduled offence must be proven, not just suspicion.
The court examined the process of judicial review for discharge orders and noted a mistake made by the High Court in not considering the requirement of a proven scheduled offence for PMLA charges. To summarize, the Parvathi Kollur case acts as a protection against the wrongful use of PMLA. It highlights the importance of establishing a clear connection between a scheduled offense and “proceeds of crime,” and it guarantees a fair trial process.
BUSTHANUDEEN K
UNIVERSITY OF DELHI