Any money/property recovered constitutes 'proceeds of crime’: Orissa HC upholds proceedings under PMLA for offence of Money Laundering [Read Order]

The High Court of Orissa observed that any money/property recovered constitutes 'proceeds of crime’ unless same is disproved at trial and upheld the proceedings under the Prevention of Money-Laundering Act, 2002(PMLA) for offrncr of money laundering relying on the evidence.

The case arises out of allegations of illegal mining operations by M/s. Serajuddin & Co., Petitioner No.2, a partnership firm comprising seven partners, including Md. Mofazzalur Rehman (since deceased) and Md. Intekhab Alam ,Petitioner No.1. Based on the said Charge Sheets being the predicating/ scheduled offence, a complaint under Sections 3 and 45 of the PMLA, 2002 was filed before the Special Judge (PMLA), Bhubaneswar in Crl. Misc. (PMLA) Case No.16 of 2020, inter alia, on the allegation that the petitioners had received proceeds of crime to the tune of ₹625,13,87,640.00/- and the same is still retained by the Petitioner No.2 and, has been laundered by the Petitioner firm, which is an offence under Section 3 and punishable under Section 4 of the PMLA.

The court quashed the order of taking cognizance passed by the trial court and the entire proceedings emanating thereof against Md. Mofazzalur Rahman (deceased) and Md. Intekhab Alam , Petitioner No.1. Pursuant to the order dated 23.09.2022 passed by the Court, the Special Judge (Vigilance) Keonjhar vide order dated 01.11.2022 closed the case against the aforesaid accused in so far as the scheduled offence is concerned.

The petitioners, relying upon the order dated 23.09.2022 passed by the Court in CRLMC No.2845 of 2021 and CRLMC No.2272 of 2024 and subsequent orders closing the case against the petitioners by the court below, are now seeking quashing of the proceedings under the PMLA, 2002, pending before the Special Judge, PMLA.

The primary grounds taken by the petitioners in support of their prayer for quashing is that with the scheduled offences having been quashed, there remains no basis for treating the alleged amount as 'proceeds of crime' under Section 2(1)(u) of the PMLA, 2002 and once there is no ‘proceeds of crime’, the proceeding under PMLA does not survive.

Become PF & ESIC Pro: Basic to Advance Course - Enroll Today

Mr. Mishra, the Senior Counsel for the petitioners, has strongly contended that the foundation of an offence under Section 3 of PMLA, 2002, is the existence of ‘proceeds of crime’, which must originate from a scheduled offence. Since the scheduled offences have been quashed by the Court, there exists no legal basis to treat any amount in the hands of the Petitioners as proceeds of crime.

It has been further argued on behalf of the Petitioner No.2 that under partnership law, a firm is merely a collective name for its partners and partnership firm is not a juristic person. Since only two partners were being prosecuted for the scheduled offence, namely, Md. Mofazzalur Rehman (deceased) and Md. Intekhab Alam (Petitioner No.1) and against the proceedings under the scheduled offence have already been quashed, the firm itself cannot be prosecuted independently.

The petitioners also relied on the judgment of the Supreme Court in the case of "Indrani Patnaik vs Enforcement Directorate", whereby the Apex Court has quashed the proceedings under PMLA against another accused company on similar grounds after the scheduled offence was quashed.

It has been strenuously argued on behalf of the petitioner that under the scheme of PMLA, the offence of money laundering is linked to the commission of a scheduled offence as defined under Section 2(1)(y) of the Act. If there is no predicate offence, then there can be no proceeds of crime, and consequently, no offence of money laundering can arise.

Per contra, Mr. Agrawal, the Senior Counsel for the Opposite Party-Enforcement Directorate argues that Charge Sheet Nos.3 and 4 dated 30.03.2012 filed in the court of the Special Judge (Vigilance), Balasore under section.120B/420/379 of IPC r/w Section 13(1)(d) of the P.C. Act, 1988, Section 21(1) of MMDR Act, 1957 and Section 24 of the PMLA, 2002, raises a statutory presumption that any money recovered from the petitioners constitutes 'proceeds of crime’ unless they prove otherwise at trial. Thus, the petitioners must discharge their burden at the trial stage, and the proceedings should not be quashed at the threshold by scuttling the proceeding abruptly.

The Opposite Party further contended that mere quashing of the scheduled offence qua one accused does not automatically establish that the seized amount is legitimate income, and an independent inquiry under PMLA is still permissible. It is also submitted that the charge of theft under Section 379 IPC still exists against M/s. Serajuddin & Co., which itself forms a basis for the PMLA proceedings. The Court viewed that during the pendency of the proceeding before the Special Court, PMLA, Bhubaneswar, Md. Mofazzalur Rahman expired and his name has been deleted by the Special Court (PMLA), so only against Md. Intekhab Alam, present petitioner no.1, the proceeding under schedule offence has been quashed.

The Special Court took cognizance against the newly added accused persons and issued summons. Therefore, the cognizance order passed by the Special Court (PMLA) against other accused persons cannot be quashed on the ground that the proceeding under the scheduled offence has been quashed as against one of the accused.

The primary issue before the Court is whether proceedings under the PMLA, 2002, can continue against the petitioners when the scheduled offences forming the basis of the proceedings have been quashed and whether a firm which has not been made an accused in the predicate offence or against which no proceedings under the scheduled offence are pending can be made to face the proceedings under PMLA, 2002.

FEMA Violation Not a Scheduled Offence Under PMLA, ED Cannot Freeze Assets Without Predicate Crime: Madras HC [Read Order]

It’s equally relevant to note that the Prevention of Money Laundering Act, 2002, defines the offence of money laundering under Section 3, which criminalizes activities involving the proceeds of crime, when derived from a predicate offence. The PMLA recognizes corporate liability under Section 70, and the law permits a company or a firm to be prosecuted separately from its officers. The firm has been prosecuted separately and the predicating offence vis-a-vis the firm still going on. Independent evidence has been provided by the Enforcement Directorate to establish the complicity of the firm through money laundering transactions carried through the firm.

A single bench of Justice Sibo Sankar Mishra observed that quashing of PMLA proceedings at this stage would create an anomalous situation because, in the event, it is proved in the course of trial that the proceeds of crime has been generated through the schedule offence for which the trial is pending qua other co-accused person, for the reasons that illegal mining activities have been conducted in the name of the Petitioner No.2, which is the precise reasons for quashing of the proceedings against the Petitioner No.1 by this Court vide order dated 23.09.2022 passed in CRLMC No.2272 of 2021.

In that view of the matter, the Court is unable to accept the submission of the Senior Counsel, Mr. Mishra in so far as Petitioner No.2, i.e., the firm is concerned. Therefore, the proceedings against M/s. Serajuddin & Co. (Petitioner No.2) for the offence of money laundering stand on a different footing altogether

The court found merit in the argument of the Senior Counsel for the Opposite Party that the proceedings under the predicate offence are not quashed in its entirety and same are still pending against other accused person before the Vigilance Court and the issue with regard to whether the money recovered and seized is proceeds of crime will finally be determined in the course of trial.

Moreover, in view of a statutory presumption that any money/property recovered from the petitioners constitutes 'proceeds of crime’ unless same is disproved at trial, the petitioner No.2 must discharge its burden at the trial alone, for which the proceedings ought not be quashed at the stage of cognizance.

However, the proceedings against the company/firm shall continue, and the Enforcement Directorate is free to proceed in accordance with law regarding any further investigation or prosecution of the company/firm under PMLA by strictly complying the procedural safeguard provided under the Prevention of Money Laundering Act, 2002, and any other applicable laws.

The CRLMC is partly allowed.