Case Title: Indiabulls Housing and Finance Limited v. Enforcement Directorate
The Delhi High Court while setting aside the proceedings under the Prevention of Money Laundering Act, 2002 against Indiabulls Housing and Finance Limited (IHFL) and its employees observed that once the FIR has been quashed no PMLA proceedings can take place qua the contents of the quashed FIR.
The Court heavily relied upon the order of the Supreme Court in Vijay Madanlal Choudhary & Ors V. Union of India & Ors on the issue of constitutionality and vires of various provisions of the Prevention of Money Laundering Act, 2002 inter alia Section 2(1)(u), Section 50 and Explanation to Section 44. It was held in the order that the authorities under the PMLA cannot resort to action against any person for money laundering on the assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed. The scheduled offence must be registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum. In the event that there is already a registered scheduled offence but the person named in the criminal activity relating to a scheduled offence is finally absolved by a court of competent jurisdiction owing to an order of discharge, acquittal or quashing of the criminal case of the scheduled offence, there can be no action for money laundering against not only such a person but also any person claiming through him in relation to the property linked to the stated scheduled offence.
It was also observed in Vijay Madanlal Choudhary (supra) that “…in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the criminal case (scheduled offence) against him/her, there can be no action for money-laundering against such a person or person claiming through him in relation to the property linked to the stated scheduled offence.”
After analysing the factual matrix of the case, the Court came to the conclusion that “It is therefore incontrovertibly clear from a bare perusal of the judgement/order of the High Court of Bombay read in conjunction with prayer clause ‘a’ extracted above from both the Writ Petitions before the Court, that both the order dated 7th April 2021 passed by Judicial Magistrate in O.M.A. No. 105 of 2021 and FIR No. 129/2021 dated 13th April, 2021 in P.S. Wada stood quashed in toto. This Court finds no merit in the argument by the Respondents that the quashing was qua the petitioners before the High Court of Bombay and not the other accused in the said FIR. The quashing of the FIR and order of the Judicial Magistrate preceding its registration was complete and not conditional, partial or truncated in any manner. Nothing in the said judgement/order of the High Court of Bombay suggests otherwise. Once the predicate order under section 156(3) Cr.P.C. and the FIR stood quashed there would be no residue left in the matter against the accused as regards the allegations made in the said complaint and crystallized in the FIR.”
The Court also relied upon State of Punjab v. Davinder Pal Singh Bhullar & Ors. in which it has been held that:
“The FIR unquestionably is an inseparable corollary to the impugned orders which are a nullity. Therefore, the very birth of the FIR, which is a direct consequence of the impugned orders cannot have any lawful existence. The FIR itself is based on a preliminary enquiry which in turn is based on the affidavits submitted by the applicants who had filed the petitions under Section 482 CrPC.”
“It is a settled legal proposition that if initial action is not in consonance with law, all subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. In such a fact situation, the legal maxim sublato fundamento cadit opus meaning thereby that foundation being removed, structure/work falls, comes into play and applies on all scores in the present case.”
The Court therefore concluded by observing that The Hon'ble Supreme Court has been clear and categorical in its reasoning as evident from the para extracted above. The undeniable sequitur of the above reasoning is that firstly, authorities under the PMLA cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed; secondly, the scheduled offence must be registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum; thirdly, in the event there is already a registered scheduled offence but the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or quashing of the criminal case of the scheduled offence, there can be no action for money laundering against not only such a person but also any person claiming through him in relation to the property linked to the stated scheduled offence. In other words, no action under PMLA can 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.”