- In a recent case before the Hon’ble Delhi High Court, the Division Bench has, vide an order dated 26 September 2022 in the case of Harish Fabiani & Ors. v. Enforcement Directorate & Ors. (W.P.(CRL) 408/2022), has tested the law laid down by the Hon’ble Supreme Court in the case of Vijay Madanlal Choudhary & Ors v. Union of India & Ors., 2022 SCC OnLine SC 929 (“VMC Case”).
- The facts in issue before the Hon’ble Delhi High Court were that an FIR No. 129/2021 dated 13 April, 2021 (“FIR”) was registered in Police Station – Wada, District Palghar, Maharashtra. The Learned Judicial Magistrate First Class, Wada took cognizance of the FIR vide order dated 7 April, 2021 (“JM Order”). As the FIR mentioned a predicate offence, the Directorate of Enforcement (“ED”) registered an ECIR No. ECIR/07/HIU/2021 (“ECIR”) and initiated investigation under Prevention of Money Laundering Act, 2002 (“PMLA”). The FIR was challenged before the Hon’ble Bombay High Court which quashed the FIR vide order dated 4 May, 2022 (“BHC Order”). Pursuant to quashing of the FIR, the Petitioners in the present case filed a writ petition before the Hon’ble Delhi High Court for quashing of the proceedings in the ECIR registered by the ED, as the predicate offence, e., the FIR had been quashed by the Hon’ble Bombay High Court.
Arguments by the Petitioners
- The Petitioners had sought a declaration in the prayers that Section 2(1)(u), Section 50 and Explanation to Section 44 of the PMLA to be unconstitutional as being in violation of Articles 14, 19(1)(g), 19(6), 20(3) and 21 of the Constitution of India. Further, the Petitioners had sought quashing of the ECIR and the consequent Look Out Circular issued by the ED in this regard.
- The Petitioners argued that the ECIR was issued by the ED despite the predicate offence registered under the FIR having been quashed by the BHC Order. The Petitioners argued that this is against the principle recognised in the VMC Case. In the VMC Case, it was expressly reiterated that the ED, under the PMLA, cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or anyone claiming such property being the property linked to the stated scheduled offence through him.
- It was submitted that the Petitioners, in the present case were either accused in the FIR, which was quashed vide the BHC Order; or were otherwise not accused in the FIR. Therefore, applying the ratio and finding in the VMC Case, when the FIR was quashed and other Petitioners were not named in the FIR, there could not have been any predicate offence registered against them and the ECIR against the Petitioners and consequential proceedings did not survive.
Arguments by ED
6. The counsels for the ED argued that the BHC Order only quashed the FIR qua the Petitioners and not in toto and therefore, the ECIR survives the BHC Order.
- Reliance was also placed on the VMC Case whereby the Court had indicated that the registration of a scheduled offence is not a precondition for provisional attachment. The ED relied upon the following paragraph of the VMC Case wherein it was stated that “authorised officer can still invoke power of issuing order of provisional attachment and contemporaneously send information to the jurisdictional police about the commission of scheduled offence and generation of property as a result of criminal activity relating to a scheduled offence, which is being made subject matter of provisional attachment.”
- The ED submitted that the prayer in the writ petitions seeking declaration regarding unconstitutionality of various provisions of the PMLA does not survive due to the VMC Case.
- The ED also submitted that since a Special Leave Petition (“SLP”) has been preferred by the ED, and the Delhi High Court ought to hold their hand and not proceed with the case.
- Relying on the VMC Case, the ED contested that para 467 (v)(d) of the VMC Case is caveated by the fact that an accused should be “finally absolved by a Court of competent jurisdiction” and the BHC Order does not finally absolve the Petitioners as an SLP is pending before the Hon’ble Supreme Court. Reliance was also placed by the ED on Section 66 (2) of the PMLA whereby the ED can share the information with the appropriate authorities for necessary action and therefore, just because the FIR was quashed would not mean that no further investigation or case could be made out against the Petitioners. The ED could still forward the relevant information to the requisite authorities to start an investigation. The ED also relied on a catena of judgments that mala fides of the informant/complainant which led to the registration of the said FIR should not impact investigation and if subsequently the ED found evidence, it can reopen the case against people against whom the FIR was quashed.
- The Petitioners submitted that while the ED has power to share information under Section 66 of the PMLA, the same would only enable an authority to file a fresh FIR, which has not yet been registered.
- The Petitioners also reiterated that the ECIR was solely based on the FIR. The Petitioners further clarified that the BHC Order quashed the FIR in toto (as was the prayer granted in some of the writs). Further the ECIR was premised on allegations of “connivance”, “criminal conspiracy” and “common intention” and therefore, once the Petitioners have been exonerated, the allegations of conspiracy would not survive.
- The Petitioners also contended that even as per the VMC Case, the ED can proceed with provisional attachment but has to inform the jurisdictional police station and have the predicate offence registered. Therefore, even where the provisional attachment order is issued, it has to be pursuant to a scheduled offence that would have to be registered subsequently.
- The Petitioners also relied on State of Punjab v. Davinder Pal Singh Bhullar & Ors., (2011) 14 SCC 770 to contend that once the preceding proceeding stands quashed, all consequential steps emanating out of the same stand quashed as well.
- The Hon’ble Delhi High Court noted various prayers in the writs preferred before the Bombay High Court and held that in light of the BHC Order, the FIR was quashed in toto. Once the JM Order and the FIR stood quashed, there would be no residue left in the matter against the accused as regards the allegations under the PMLA.
- The Hon’ble Delhi High Court also accepted the law laid down in State of Punjab v. Davinder Pal Singh Bhullar & Ors., (2011) 14 SCC 770 wherein the legal maxim “sublato fundamento cadit opus” meaning that foundation being removed, structure/work falls, was approved.
- The Hon’ble Delhi High Court agreed that the ECIR ought to be quashed completely for both, employees against whom no complaint was ever filed for the scheduled offences and those against whom it was filed and has been quashed.
- The Hon’ble Delhi High Court also recognised that the BHC Order was complete in all respects and it was exactly this kind of situation that the Hon’ble Supreme Court contemplated in the VMC Case, as a final discharge/acquittal of the scheduled offence or the criminal case being quashed by a Court of competent jurisdiction. Therefore, finality had indeed been obtained as regards the extinguishment of the FIR.
- The Hon’ble Delhi High Court further upheld the law laid down in the VMC Case and reiterated that the PMLA cannot be resorted to, unless there is a substratum of a scheduled offence for the same, which substratum should legally exist in the form of a subsisting (not quashed) criminal complaint/inquiry or if it did exist, the accused has since been discharged or acquitted by a court of competent jurisdiction.
- The Hon’ble High Court also distinguished the cases relied by the ED by stating that at this stage, the Court ought not to dwell on the merits of the FIR and the ECIR, as the BHC Order is final at this stage and any other allegation against the accused in the FIR or any other persons not accused in the FIR is a matter which would be for the appropriate Court of competent jurisdiction to decide in an appropriate proceeding before that Court.
- While the VMC Case has widened the scope and powers of the ED, the Hon’ble Delhi High Court has recognised and now enforced the fig leaf provided in the VMC Case, to hold that the ED, under the PMLA, cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or anyone claiming such property being the property linked to stated scheduled offence through him. The Hon’ble Delhi High Court has also cut down the aspirations of the ED that even though the ED can subsequently approach an authority to register a predicate offence, after a provisional attachment or a search has been conducted, it does not mean that the ED can proceed without the presence of a predicate offence. This judgment becomes more important as the Hon’ble Supreme Court has recently dismissed a Special Leave Petition being SLP (Crl.) No(s). 5524/2021 in the case of Directorate of Enforcement v. State of Maharashtra & Ors., whereby the ED had challenged an order passed by the Bombay High Court which had held that the ED cannot intervene or challenge a closure report for a predicate offence. The VMC case is still creating a ripple effect in the scheme under the PMLA but the present case shows some green shoots appearing in this landscape.