Jurisdictional Thresholds in Money Laundering Prosecutions: The Requirement of a Prior FIR

 I. Introduction

The Prevention of Money Laundering Act, 2002 (PMLA) serves as a specialized legislation aimed at combating the laundering of proceeds derived from criminal activity. A foundational principle of the PMLA is that the offence of money laundering (Section 3) is derivative—it relies on the existence of a "scheduled offence" (or predicate offence).

A critical legal question often arises in cases where the scheduled offence is not recorded via a First Information Report (FIR) by the police but is instead pursued through a private complaint filed by an individual before a Magistrate. This analysis examines whether the Directorate of Enforcement (ED) has the jurisdiction to register an Enforcement Case Information Report (ECIR) and file a prosecution complaint under the PMLA based solely on a private complaint regarding a scheduled offence, absent any police FIR or complaint by an authorized investigating agency.

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II. The Legal Issue

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Supreme Court :The court should not release Accused on bail in Money Laundering Case if the police have filed Chargesheet In Predicate Offence

6.3 From the impugned judgment(s) and order(s)

passed by the High Court, it appears that

what is weighed with the High Court is that

chargesheet has been filed against respective

respondent No. 1 – accused and therefore, the

investigation is completed. However, the High

Court has failed to notice and appreciate that

the investigation with respect to the

scheduled offences under the PML Act, 2002

by the Enforcement Directorate is still going

on. Merely because, for the predicated

offences the chargesheet might have been

filed it cannot be a ground to release the

accused on bail in connection with the

scheduled offences under the PML Act, 2002.

Investigation for the predicated offences and

the investigation by the Enforcement

Directorate for the scheduled offences under

the PML Act are different and distinct.

Therefore, the High Court has taken into

consideration the irrelevant consideration.

The investigation by the Enforcement

Directorate for the scheduled offences under

the PML Act, 2002 is till going on.

7. As observed hereinabove, the High Court has

neither considered the rigour of Section 45 of

the PML Act, 2002 nor has considered the

seriousness of the offences alleged against

accused for the scheduled offences under the

PML Act, 2002 and the High Court has not at

all considered the fact that the investigation

by the Enforcement Directorate for the

scheduled offences under the PML Act, 2002

is still going on and therefore, the impugned

orders passed by the High Court enlarging

respective respondent No. 1 on bail are

unsustainable and the matters are required

to be remitted back to the High Court for

afresh decision on the bail applications after

taking into consideration the observations

made hereinabove.

 REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1401 OF 2023

Directorate of Enforcement  Vs  Aditya Tripathi 

CRIMINAL APPEAL NO. 1402 OF 2023

Author: M.R. SHAH, J.

MAY 12, 2023

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Whether receipt Of a Bribe Is An Act Of Money Laundering and whether ED can initiate prosecution based on FIR in a Corruption case?

 Question 1: Whether without identifying the proceeds of crime or a property representing the proceeds of crime and without identifying any process or activity connected to proceeds of crime as required by Section 3, which constitute the foundational/jurisdictional fact, ED can initiate an investigation and issue summons?

93. The common theme of the song of the learned counsel for the accused is that the mere registration of a FIR for a predicate offence, even if it is a scheduled offence, is not sufficient for the ED to register an Information Report and summon anyone. According to the learned counsel, the commission of the scheduled offence should have generated proceeds of crime and those proceeds of crime should have been laundered by someone, for the ED to step in. Going a step further, it was contended by the learned senior counsel that the ED should first identify some property as representing the proceeds of crime, before an Information Report is registered and a summon issued under Section 50(2).

94. These contentions, in our opinion, if accepted, would amount to putting the cart before the horse. Unfortunately for the accused, this is not the scheme of the Act.

95. Section 3 of the Act which defines the offence of money-laundering reads as follows:

“3. Offence of money-laundering.—Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be

guilty of offence of money-laundering.

Explanation.—For the removal of doubts, it is hereby clarified that,—

(i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:—

(a) concealment; or

(b) possession; or

(c) acquisition; or

(d) use; or

(e) projecting as untainted property; or

(f) claiming as untainted property,

in any manner whatsoever;

(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.”

96. If the main part of Section 3 is dissected with forensic precision, it will be clear that Section 3 addresses itself to three things (we may call them 3 ‘P’s) namely, (i) person; (ii) process or activity; and (iii) product. Insofar as persons covered by Section 3 are concerned, they are, (i) those who directly or indirectly attempt to indulge; or (ii) those who knowingly assists; or (iii) those who are knowingly a party; or (iv) those who are actually involved. Insofar as process is concerned, the Section identifies six different activities, namely (i) concealment; (ii) possession; (iii) acquisition; (iv) use; (v) projecting; or (vi) claiming as untainted property, any one of which is sufficient to constitute the offence. Insofar as product is concerned, Section 3 identifies “proceeds of crime” or the property representing the proceeds of crime as the product of the process or activity.

97. Out of the three things that Section 3 addresses, namely (i) person; (ii) process; and (iii) product, the first two do not require any interpretation or definition. The third aspect namely “product”, which Section 3 refers to as “proceeds of crime” requires a definition and hence it is defined in Section 2(1)(u) as follows:-

“2. Definitions. — (1) In this Act, unless the context otherwise requires, —

xxx xxx xxx

(u) “proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad;

Explanation.—For the removal of doubts, it is hereby clarified that "proceeds of crime" including property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence;”

98. Keeping in mind these essential elements that make up the molecular structure of Section 3, if we go back to the case on hand, we will find (i) that the offences under Sections 120B, 419, 420, 467 and 471 IPC are scheduled offences included in paragraph 1 of the Schedule; and (ii) that the offences under Sections 7 and 13 of the PC Act are included in paragraph 8 of the Schedule.

99. All the three FIRs allege that the accused herein had committed offences included in the Schedule by taking illegal gratification for providing appointment to several persons in the Public Transport Corporation. In one case it is alleged that a sum of more than Rs.2 crores had been collected and in another case a sum of Rs.95 lakhs had been collected. It is this bribe money that constitutes the ‘proceeds of crime’ within the meaning of Section 2(1)(u). It is no rocket science to know that a public servant receiving illegal gratification is in possession of proceeds of crime. The argument that the mere generation of proceeds of crime is not sufficient to constitute the offence of money-laundering, is actually preposterous. As we could see from Section 3, there are six processes or activities identified therein. They are, (i) concealment; (ii) possession; (iii) acquisition; (iv) use; (v) projecting as untainted property; and (vi) claiming as untainted property. If a person takes a bribe, he acquires proceeds of crime. So, the activity of “acquisition” takes place. Even if he does not retain it but “uses” it, he will be guilty of the offence of money-laundering, since “use” is one of the six activities mentioned in Section 3.

100. The FIRs for the predicate offences identify all the three components of Section 3, namely, (i) persons; (ii) process; and

(iii) product. Persons accused in the FIRs are those who have indulged in the process or activity. The illegal gratification that they have taken, represents the proceeds of crime. The (i) acquisition of such illegal gratification in the first instance; (ii) the possession of the tainted money before putting it to use; and (iii) today projecting it as untainted money, is the process or activity in which the accused have indulged. The corruption money represents the proceeds of crime.

101. Therefore, all the arguments as though there are no foundational facts or jurisdictional facts, are simply aimed at hoodwinking the Court.

102. It is true that there are some offences, which, though scheduled offences, may or may not generate proceeds of crime. For instance, the offence of murder punishable under Section 302 is a scheduled offence. Unless it is a murder for gain or murder by a hired assassin, the same may or may not generate proceeds of crime. It is in respect of such types of offences that one may possibly argue that mere commission of the crime is not sufficient but the generation of proceeds of crime is necessary. In the case of an offence of corruption, the criminal activity and the generation of the proceeds of crime are like Siamese twins.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. OF 2023

Y. BALAJI VsKARTHIK DESARI & ANR. 

Author: V. Ramasubramanian, J.

Dated: MAY 16, 2023

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HC: Magistrate can’t permit questioning of an accused being tried by Special Court ( PMLA)

  Our conclusion, therefore, is that the Special Court

established under the Act is a court of exclusive jurisdiction.

Sections 6 and 7 confer on that court wide powers. It is a

court of original criminal jurisdiction and has all the powers of

such a court under the Code including those of Sections 306 to

308.”

A Three Judge Bench of the Apex Court in the case of HARSHAD S.MEHTA followed the judgment in the case of A.R.ANTULAY (supra) to hold, if a Special Court is created under the provisions of a special enactment, the proceedings falling under that enactment shall be held only before the Special Court. For this purpose the Apex Court holds that the Special Court enjoys all the powers of the court of original jurisdiction and it holds a dual capacity and powers of both the Magistrate and the Court of Session depending upon the stage of the case.

13. In the light of the statutory frame work of the PMLA and

the application filed under Section 50 of the Act, this Court is of the considered view that the application was not maintainable before the learned Magistrate, since the Court did not have the power to direct recording of statements for it to become a record under the PMLA, the order which is passed by the Court which did not have a jurisdiction to even consider any application under the PMLA, is rendered unsustainable. There can be no qualm about the principles laid down in the judgment rendered in the case of NIRANJAN SINGH (supra) relied on by the learned counsel representing the ED to mean what is custody, but the judgment is inapplicable to the facts of the case at hand as it does not deal with issues concerning jurisdiction. Therefore, in view of the preceding analysis, the order passed on the application by the learned Magistrate requires appropriate interference and is to be consequently obliterated. {Para 62}

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

WRIT PETITION No.19042 OF 2022 (GM-RES)

HARSHA D., S/O LATE DODDANANJAIHA Vs STATE BY HIGH GROUND POLICE STATION

Coram:  MR. JUSTICE M. NAGAPRASANNA

DATED: 17TH DAY OF OCTOBER, 2022

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