In CRIMINAL APPEAL NO.738 OF 2022-SC- Allegation must be proved beyond reasonable doubt in PMLA cases; Court cannot proceed on basis of preponderance of probabilities: Supreme Court Justices Vineet Saran and J.K. Maheshwari [05-05-2022]

Read Judgment: J.SEKAR @SEKAR REDDY Vs. DIRECTORATE OF ENFORCEMENT

Mansimran Kaur

New Delhi, May 06, 2022: Quashing charges of money laundering against the appellant-accused, the Supreme Court has held that till the allegations are proved, the appellant would be innocent.

The Division Bench of Justice Vineet Saran and Justice J.K. Maheshwari allowed the present appeal which was filed against the judgment of the Madras High Court, whereby the Court dismissed the petition instituted by the appellant for quashing of proceedings against him under Section 482 of Criminal Procedure Code. The Bench observed that the allegation must be proved beyond reasonable doubt in the Court. Unless the allegations are substantiated by the authorities and proved against a person in the court of law, the person is innocent.

The present appeal was preferred against the judgment dated February 4, 2021 passed by the Division Bench of the High Court of Madras whereby the Court dismissed the petition instituted by the petitioner wherein he prayed for quashing of proceedings under Section 482 of Cr.P.C. 

Factual matrix of the case was that the appellant, J. Sekar Reddy, was the Managing Partner of M/s SRS Mining which was a partnership firm engaged in sand mining since 2013 and he had deposited Rs. 312.64  crores in three bank accounts of the firm. Thereafter on December 8, 2016 and December 9, 2016, the Income Tax Department conducted a search in the official/ commercial premises of the appellant and others and seized currency amounting to Rs.106, 98,89,800/ and 128.495 kg of gold.

Subsequently, on December 19, 2016 , the CBI registered a case against the appellant and two others and arraigned them  for offences under Sections 120B r/w 409, 420 of Indian Penal Code (in short ‘IPC’) and Section 13(2), r/w 13(1)(c) and 13(1)(d) of the Prevention of Corruption Act,1988. 

The Enforcement Directorate also registered the case against the appellants and others on December19, 2016.However on further investigation, new currency notes of denomination of Rs. 2000/- of a total value of Rs. 33, 74, 92,000 were found on the official premises of the appellant.  

Thereafter, the appellant filed the bail application before the Special Judge. The Special Court by order dated March 17, 2017 allowed the bail application of the appellant by imposing certain conditions. 

Subsequently, the Deputy Director passed an order for provisional attachment in the exercise of power under Section 5 (1) of PMLA for a specified period of one month. On submitting the complaint before the Adjudicating Authority in order to confirm the order of attachment of provisional attachment, the Authority refused to entertain the same on the ground that the said allegation was based on speculations, which were not legally maintainable

Thereafter the CBI after conducting investigation in the main case submitted the closure report to the Additional Sessions Judge and the same was accepted through an order dated September 25, 2020, whereby it was observed that for lack of sufficient evidence, nothing incriminating was found to surface on the part of the accused persons. It is pertinent to note that the CBI registered three cases out which in the main case closure report was submitted by the CBI and in the other two cases, the High Court of Madras quashed the FIRs with respect to schedule offence.

In view of the same, the appellant by contending all the above facts approached the High Court of Madras invoking the jurisdiction under Section 482 Cr.P.C., seeking quashing of the proceedings related to the PMLA case.  However, the Court dismissed the said writ petition through its impugned order dated February 4, 2021. It is this impugned order that was assailed by the appellant by way of appeal before the Apex Court. 

The Counsel for the appellant submitted that for invocation of PMLA, pre existing occurrence of the scheduled offence is required because the proceeds of crime are essential property derived from criminal activity of the said offence. It was further submitted that the Adjudicating Authority dealt with the order of the Deputy Director (ED) and for lack of evidence refused to pass an order for attachment. As per the material available on record, the offence of money laundering specified in Section 2(1)(p) and also in Section 3 of PMLA was  not made out, the Counsel submitted. 

It is further urged that as per Section 8(1) of PMLA, a show cause notice may be issued regarding the attached property if the said Authority has reason to believe that any person has committed an offence under Section 3 or is in possession of proceeds of crime. The adjudication proceedings and criminal proceedings are independent to each other but the material for commission of offence recorded by the authorities in those proceedings may be a relevant factor, in particular when for lack of evidence, the Authority itself is satisfied that the attachment of the proceedings in PMLA case cannot be continued, the Counsel further submitted. 

The Counsel for the respondent, per contra submitted that the order passed  by the Adjudicating Authority under Section 5 (5) PMLA was subject to appeal and the same was lying sub- judice before the Appellate Authority.  Thus, in view of the same it was submitted that the order of the Adjudicating Authority and the finding recorded therein was not sufficient to quash the proceedings in the present case. 

The Court after hearing the submissions from both the sides and after taking into consideration all the material available on record observed that the proceedings started on the basis of intriguing recovery of cash and other items indeed, do not exist and the I.T. Department itself was satisfied with the recovery after the investigation in the year 2019. Therefore, the finding recorded in the impugned order by the High Court with respect to recovery of new currency notes of denomination of Rs. 2000 cannot be countenanced, the Court remarked. 

Reliance on the case of  Radheshyam Kejriwal Vs. State Of West Bengal wherein it was observed that the yardstick would be to judge as to whether the allegation in the adjudication proceedings as well as the proceeding for prosecution is identical and the exoneration of the person concerned in the adjudication proceedings is on merits. In case it is found on merit that there is no contravention of the provisions of the Act in the adjudication proceedings, the trial of the person concerned shall be an abuse of the process of the court.

It was further opined that in the case of Ashoo Surendranath Tewari V. The Deputy Superintendent Of Police, Eow, Cbi & Anr, this Court relied upon the judgment of the Radhesyam(Supra) and set aside the judgment of the High Court while exonerating the appellants because the chance of conviction in the criminal case in the same facts appeared to be bleak. 

Thus in the light of the finding made in the precedent and after analyzing the report of the I.T. Department and taking into account the reasoning of the CBI given , while the closure report was submitted and the order passed by the Adjudicating Authority, this Court was of the view that it was clear that for proceeds of crime, as defined under Section 2 (1) (u) of PMLA, the property seized would be relevant and its possession with recovery and  claim thereto must be innocent. 

In the instant case, the Court further observed that the scheduled offence was not made out because of lack of evidence.  Additionally it was observed that the Adjudicating Authority, while refusing to continue the order of  attachment under the PMLA, was of the opinion that the record with respect to the banks and its officials who may be involved, was not on record. Therefore, for lack of identity of the source of collected money, it could not be reasonably believed by the Deputy Director (ED) that the unaccounted money is connected with the commission of offence under PMLA, the Court submitted. 

Also, the letter issued by the I.T. Department dated May 16, 2019  and the details as mentioned therein, made  the fact  clear that  tax was already paid for the currency  that was seized and was in question in the instant case , therefore, it was  not the quantum earned and used for money laundering. 

The Bench said, “In our opinion, even in cases of PMLA, the Court cannot proceed on the basis of preponderance of probabilities”.

Further the Bench, on perusal of the statement of Objects and Reasons specified in PMLA, deduced that it is a stringent law brought by Parliament to check money laundering and asserted, “Thus, the allegation must be proved beyond reasonable doubt in the Court. Even otherwise, it is incumbent upon the Court to look into the allegation and the material collected in support thereto and to find out whether the prima facie offence is made out. Unless the allegations are substantiated by the authorities and proved against a person in the court of law, the person is innocent. In the said backdrop, the ratio of the judgment of Radheshyam Kejriwal (supra) in paragraph 38 (vi) and (vii) aptly applicable in the facts of the present case.”

Thus, it was observed that the High Court passed the order in a mechanical manner and failed to take into account the letter of the I.T. Department and other relevant material available on record while articulating its observations.  It was further observed by the Top Court that the chance to prove the allegations even for the purpose of provisions for PMLA in this Court were bleak. Thus, by opining that the findings of the High Court couldnot be sustained, the Court set aside the impugned order passed by the High Court and accordingly the present appeal was allowed.