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PMLA – Even If Predicate Offence Is Compromised, Compounded, Quashed, ED’s Investigation Is Not Affected Or Wiped Away: Bombay HC

 

It has to be said before saying anything else that the Bombay High Court has in a 25-page brief, brilliant and balanced judgment titled Babulal Verma v. ED in Criminal Application (APL) No. 201 of 2021 with Criminal Bail Application No. 974 of 2021 delivered just recently on 16 March 2021 has rightly, remarkably and reasonably held that the Enforcement Directorate could continue investigation into cases of money-laundering even after investigation into the base/scheduled offences were closed. A Single Judge Bench of Justice AS Gadkari of Bombay High Court ruled to the effect stating elegantly, eloquently and effectively that, “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.” It must be also stated that Justice Gadkari delivered this notable judgment while hearing the plea of reality firm M/s Omkar Realtors, Babulal Verma and Kamal Kishore Gupta against whom the ED had instituted proceedings under PMLA.

To start with, the ball is set rolling in para 1 of this learned, latest, laudable and landmark judgment authored by Justice AS Gadkari wherein it is put forth that, “By the present Application No.201 of 2021, under Section 482 read with Section 483 of the Code of Criminal Procedure, 1973 (for short, “the Cr.P.C.”), the Applicants have impugned Order dated 15th February, 2021 passed below Exhs-7 and 8 in PMLA RA No.117 of 2021 and Order dated 28th January, 2021 passed in Remand Application No.117 of 2021 by learned Special Judge, Mumbai and for direction to release the Applicants from confinement from Jail in ECIR No. ECIR/MBZO-III/20/2020. Application No.974 of 2021 is for seeking bail by Applicants.”

As we see, it is then stated by the Bench in para 2 that, “By the impugned Order dated 15th February, 2021, learned Special Judge has allowed the Application of Respondent No.1 filed below Exh-7 for extension of judicial custody of the Applicants and has rejected Application preferred by the Applicants below Exh-8 for grant of bail on any type of bond.”

While laying the background of the case and the facts also, the Bench then puts forth in para 4 in simple and straight language that, “The facts giving rise for filing the present Applications, can be briefly stated as under:-

(i)  Mr. Mahendra S. Surana, lodged a Crime bearing No.109 of 2020 on 7th March, 2020 with City Chowk Police Station, Aurangabad under Sections 406, 420 read with Section 34 of the Indian Penal Code (for short, “the IPC”) against the Applicants and other accused persons. It is stated therein that, the informant is one of the Directors of M/s. Aurangabad Gymkhana Club Private Limited, (for short, “Aurangabad Gymkhana”). It is alleged therein that, all the accused persons in the said crime jointly connived with each other and committed the act of criminal breach of trust and cheated the Aurangabad Gymkhana and it’s Directors for an amount of Rs.12,17,84,451/-by issuing cheques from blocked/ freezed account. The detailed narration of facts mentioned in the said FIR are not necessary for decision of the present Applications and therefore, its reproduction is hereby avoided.

(ii) On 10th July, 2020, the Respondent No.1 (for short “ED”) received a Complaint from Aurangabad Gymkhana against M/s. Omkar Realtors and Developers Private Limited (for short, “Omkar Realtors”) and its promoters/Directors. The said Complaint referred to FIR No.109 of 2020 filed at City Chowk Police Station, Aurangabad. After perusing the said Complaint, it appeared to the Respondent No.1-ED that, a Scheduled Offence as mentioned in Paragraph No.1 of the Schedule of the Prevention of Money-Laundering Act, 2002 (for short, “PMLA”) has taken place. It was also revealed to the Respondent No.1 that, Omkar Realtors has more than Rs.2000 Crores of loan of Yes Bank as outstanding. That, the loan was not used for intended purposes and diverted for other purposes. On the basis of the said information, it appeared to the ED that, the proceeds of crime generated out of criminal activities related to the Scheduled Offences appeared to be routed, utilized and parked by the accused and has projected it as, untainted.

(iii) An ECIR bearing No.ECIR/MBZO-II/20/2020 dated 16th December, 2020 has been accordingly recorded and taken up for investigation under the provisions of PMLA and the Rules framed thereunder.

(iv)       During the course of investigation of the present crime, it was further revealed to the Respondent No.1 that, rehab buildings of Anand Nagar SRA CHS, have not been constructed, however, the FSI which would have been available after construction of rehab buildings, was mortgaged with Yes Bank and loan of Rs.410 Crores was taken. This kind of notional FSI was used for availing credit facility from banks. It was also revealed that, Rs.410 Crores of loan was given for the purpose of construction of SRA/Rehab Buildings and part of sale buildings, however, the said loan was diverted towards construction of sale buildings and no rehab buildings were constructed.

(v)          During the course of investigation of the present crime, the Applicants were produced before the Special Court from time to time for their remand, which was granted by the impugned Orders. It is to be noted here that, after the impugned Order dated 28th January 2021 was passed, thereby remanding Applicants to ED custody till 30th January 2021, by a subsequent Order dated 30th January, 2021, the Special Court, extended custody of the Applicants for further period of 3 days i.e. upto 2nd February, 2021. That, on 2nd February 2021, the Applicants were again produced before the Special Court for seeking their further custody with a Remand Application. The Special Court, by its Order dated 2nd February 2021, rejected the request of the Respondent No.1 for further custodial interrogation and directed that, the Applicants be remanded to judicial custody till 15th February 2021. The said Order dated 2nd February 2021, was impugned before this Court by the Respondent No.1 by way of Criminal Revision Application No.22 of 2021. This Court, by its Order dated 8th February 2021, upheld the Order of Special Court dated 2nd February 2021 and dismissed the said Revision Application.

(vi)       The record further indicates that, on 6th February 2021, the Complainant in CR No.109 of 2020, Mr. Mahendra S. Surana, submitted a letter of even date, to the Investigating Officer of the said crime, stating therein that, he filed the said Complaint out of misunderstanding. That, the accused persons therein personally went to his office on 9th February, 2021 and paid an amount of Rs.14,73,84,361/- after deducting TDS of Rs.15,10,991/- from the amount due to the Complainant in consideration of Rs.12,17,84,451/- by way of Demand Draft and it was transferred in the account of the Complainant’s firm in the Axis Bank, Aadalat Road Branch, Aurangabad.

(vii)    The Investigating Officer of CR No.109 of 2020 accordingly submitted, “C” Summary Report in the Court of Judicial Magistrate, First Class, Aurangabad on 10th February, 2021. The learned IIIrd Civil Judge, Junior Division and Judicial Magistrate, First Class, Aurangabad accepted the said C-Final Report by its Order dated 12th February, 2021. The learned Magistrate, while accepting the said “C” Summary Report, has observed that, considering the aspects of the said case and the report of the Investigating Officer and the say of the informant in the form of Affidavit, as the alleged offences punishable under Sections 406, 420 read with Section 34 of the IPC are compoundable and the same are compounded between the informant and all the accused persons, no reason remains to keep the said C-Final Report pending. It accordingly accepted the said report.

(viii)  As the period of judicial custody of the Applicants was to come to an end on 15th February 2021, the Respondent No.1 produced the Applicants before the Special Court by filing an elaborate Remand Application below Exh-7, under Section 65 of PMLA read with Section 167 of the Cr.P.C. seeking further judicial custody of the Applicants for 14 days. The Applicants also filed an Application below Exh-8 dated 15th February, 2021 for opposing any further remand and for forthwith release of the Applicants on any type of bond or otherwise, as may be directed by the concerned Court in the crime registered by ED. The Special Court, by its common Order dated 15th February 2021, passed below Exhs-7 and 8 was pleased to allow the Application of Respondent No.1 below Exh-7 and remanded the Applicants to judicial custody till 1st March 2021 and rejected Application filed by the Applicants below Exh-8.”

Be it noted, the Bench then stipulates in para 8 that, “Section 2(1) of the PMLA defines various terms. Sub-section (n) defines ‘intermediary’; (na) defines ‘investigation’; (p) defines ‘moneylaundering’; (u) defines ‘proceeds of crime’ and (y) defines ‘Scheduled Offence’. Section 3 of the Act defines Offence of money-laundering. Section 4 prescribes punishment for money-laundering and Section 5 of the Act prescribes attachment of property involved in money-laundering. A conjoint reading of Sections 2(1)(n)(na)(p)(u)(y), 3, 4 and 5 with the Statement of Object in enacting the PMLA would clearly indicate that, it has been enacted with an avowed object to investigate into the offence of money-laundering and to punish the accused for commission of the said offence. It also provides for attachment of property involved in money-laundering.”

Needless to say, it is then very rightly underscored in para 9 that, “It is the settled position of law by a catena of judgments that, a statute is an edict of the Legislature and the conventional way of interpreting or construing a statute is to seek the ‘intention’ of its maker. A statute is to be construed according to the intent of them, that make it and the duty of judicature is to act upon the true intention of the Legislature. If a statutory provision is open to more than one interpretation the Court has to choose that interpretation which represents the true intention of the Legislature, in other words the ‘legal meaning’ or ‘true meaning’ of the statutory provision. The statute must be read as a whole in its context. It is now firmly established that the intention of the Legislature must be found by reading the statute as a whole. The statute to be construed to make it effective and workable and the Courts strongly lean against a construction which reduces a statute to futility. A statute or any enacting provision therein must be so construed as to make it effective and operative. The Courts should therefore reject that construction which will defeat the plain intention of the Legislature even though there may be some inaccuracy or inexactness in the language used in a provision. Every provision and word must be looked at generally and in the context in which it is used. Elementary principle of interpreting any word while considering a statute is to gather the intention of the legislature. The Court can make a purposeful interpretation so as to effectuate the intention of the legislature and not a purposeless one in order to defeat the intention of the legislature wholly or in part.”

It is worth noting that it is then enunciated in para 10 that, “At the time of debate in Rajya Sabha, while introducing Amendment to the Finance Act on 17th December, 2012, the then Finance Minister has categorically made the aforestated statements as reproduced in para No.5 page No.8 above. From the statement of the Finance Minister, it can be clearly discerned that, for lodgement for an offence under the PMLA, there must be a Predicate Offence and it is dealing with the proceeds of a crime. The information published by Respondent No.1-ED pertaining to FAQs, for an answer to question No.13 therein, it has been specifically stated that, every Scheduled Offence is a Predicate Offence. The Scheduled Offence is called Predicate Offence and the occurrence of the same is prerequisite for initiating investigation into the offence of money-laundering. The Hon’ble Supreme Court, in the case of P. Chidambaram (Supra) while considering various provisions of PMLA and in particular Section 2(1)(y), which defines “Scheduled Offence” has held that, “Scheduled Offence” is a sine qua non for the offence of money-laundering which would generate the money that is being laundered. It is held that, PMLA contains schedules, which originally contained three parts namely, Part-A, Part-B and Part-C. The Division Bench of this Court in the case of Radha Mohan Lakhotia (Supra) in para No.13 has held that, Sections 3 and 4 of the Act deal with the offence of money-laundering and punishment for moneylaundering respectively. That, both these provisions, even on strict construction, plainly indicate that, the person to be proceeded for this offence need not necessarily be charged of having committed a Scheduled Offence. For the Expression used is “whosoever”. The offence of moneylaundering under Section 3 of the Act is an independent offence. It is committed if “any person” directly or indirectly attends to indulge or knowingly assists or knowingly is a party or is actually involving any process or activity connected with the proceeds of crime and projecting it as untainted property. The Division Bench thus in unequivocal terms has held that, the offence of money-laundering under Section 3 of the PMLA is an independent offence. The Division Bench of Madras High Court in the case of VGN Developers P. Ltd & Ors. (Supra) has relied upon the decision in the case of Radha Mohan Lakhotia (Supra). The Madras High Court accepted the contention of the learned Additional Solicitor General appearing therein, that, the PMLA is self-contained and stand alone and thus, independent of predicating offence. It has been held that, it cannot be stated that, a mere closure by the CBI would provide a death knell to the proceedings of the Respondent (i.e.ED therein). That, in a given case, the complaint may emanate from a registration of a case involving scheduled offence. But the fate of the investigation in the said scheduled offence cannot have bearing to the proceedings under the PMLA. From the reading of the said decision it is clear that, mere filing of closure report by the Investigating Agency will not create any impediment or hurdle in the process of investigation by the ED of an offence registered under PMLA and being investigated by it.”

To state the ostensible, the Bench then observes in para 11 that, “It is thus absolutely clear that, for initiation/registration of a crime under the PMLA, the only necessity is registration of a Predicate/Scheduled Offence as prescribed in various Paragraphs of the Schedule appended to the Act and nothing more than it. In other words, for initiating or setting the criminal law in motion under the PMLA, it is only that requirement of having a predicate/Scheduled crime registered prior to it. 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. It may continue till the ED concludes investigation and either files complaint or closure report before the Court of competent jurisdiction.”

Furthermore, the Bench then specifies in para 12 that, “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. PMLA is a special statute enacted with a specific object i.e. to track and investigate cases of money-laundering. Therefore, after lodgment of Predicate/Scheduled Offence, its ultimate result will not have any bearing on the lodgment/investigation of a crime under the PMLA and the offence under the PMLA will survive and stand alone on its own. A Predicate/Scheduled Offence is necessary only for registration of crime/ launching prosecution under PMLA 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.”

Most significantly, for the sake of clarity, the Bench then clarifies in para 13 stating that, “The PMLA itself, does not provide for any contingency like the case in hand and argued by the learned counsel for the Applicants. Section 44(b) only provides for filing of a complaint or submission of a closure report by the Investigating Agency under PMLA and none else. If the contention of the learned counsel for the Applicants that, once the foundation is removed, the structure/ work thereon falls is accepted, then it will have frustrating effect on the intention of Legislature in enacting the PMLA. The observations of the Hon’ble Supreme Court in the case of State of Punjab Vs. Davinder Pal Singh Bhullar, (supra) in paragraph No.107 and Sanjaysingh Ramrao Chavan (Supra) in para No.17 are in context of the facts of the said case and pertaining to the offences under the provisions of IPC and P.C. Act and therefore, the same cannot be applied to the case in hand which arises out of a special statute namely PMLA enacted by the Legislature with an avowed object. 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 afore-stated 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.”

As a corollary, the Bench then elegantly, eloquently and effectively holds in para 14 that, “In view of the aforesaid discussion, it is clear that, even if the Investigating Agency investigating a Scheduled Offence has filed closure report in it and the Court of competent jurisdiction has accepted it, it will not wipe out or cease to continue the investigation of Respondent No.1 (ED) in the offence of money-laundering being investigated by it. The investigation of Respondent No.1 will continue on its own till it reaches the stage as contemplated under Section 44 of the PMLA. The contention for the learned counsel for the Applicants in that behalf is accordingly answered.”

Simply put, the Bench then holds in no uncertain terms in para 16 that, “It is the settled position of law that, in a case of moneylaundering where it involves many stages of “placement”, “layering i.e. funds moved to other institutions to conceal origin” and “interrogation i.e. funds used to acquire various assets”, it requires systematic and analysed investigation which would be of great advantage. The further remand of Applicants to judicial custody is therefore proper on all counts. This Court finds that, the Special Court has not committed any error while passing impugned Order thereby remanding the Applicants to further judicial custody. In view of the above discussion, it is not necessary to interfere with the impugned Order dated 15th February, 2021 passed below Exhs-7 and 8 in PMLA RA No.117 of 2021 by learned Special Judge, Mumbai.”

What’s more, it is then held in para 17 that, “Coming to prayer clause (b) of the Application, whereby the Applicants have impugned Order dated 28th January, 2021 in Remand Application No.117 of 2021, thereby remanded them further to the custody of ED till 30th January, 2021. It is to be noted here that, after the impugned Order dated 28th January 2021 was passed, remanding Applicants to ED custody till 30th January 2021, by an Order dated 30th January, 2021, the Special Court, extended custody of the Applicants for a further period of 3 days i.e. upto 2nd February, 2021. That, on 2nd February 2021, the Applicants were again produced before the Special Court for seeking their further custody with a Remand Application. The Special Court, by its Order dated 2nd February 2021, rejected the request of the Respondent No.1 for further custodial interrogation and directed that, the Applicants be remanded to judicial custody till 15th February 2021. The said Order dated 2 nd February 2021, was impugned before this Court by the Respondent No.1 by way of Criminal Revision Application No.22 of 2021. This Court, by its Order dated 8th February 2021, upheld the Order of Special Court dated 2nd February 2021 and dismissed the said Revision Application. It is thus clear that, the subsequent remands of Applicants by Orders dated 30th January, 2021 and 2nd February, 2021 have been approved by this Court. As noted earlier, the Order dated 2nd February, 2021 passed by the Special Court remanding the Applicants to the judicial custody has been upheld by this Court by its Order dated 8th February, 2021. The said prayer clause (b) of the present Application therefore does not survive. In view of the above discussions the Applicants cannot be released from confinement or on bail.”

Now coming to concluding paras. It is held in para 18 that, “A corollary to the afore-stated deliberation is that, there are no merits in the present Application and is accordingly dismissed.” Finally, it is then held in para 19 that, “In view of dismissal of Application No.201 of 2021, the Bail Application No. 974 of 2021 does not survive and is accordingly disposed off.”

In conclusion, we thus see that para 13 clarifies why the contention of the applicants cannot be accepted. It also clarifies that PMLA has been enacted for a purpose and ED which leads the independent investigation into such offences has to ensure that the accused if involved is held accountable. This is possible only when even if the predicate offence is compromised, compounded, quashed, ED’s investigation is not affected or wiped away and this is the real position on ground also!

Sanjeev Sirohi

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