Madhya Pradesh High Court
Shri Ishtiaq Hussain Siddiqui vs Union Of India on 10 March, 2025
Author: Maninder S. Bhatti
Bench: Maninder S. Bhatti
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IN THE HIGH COURT OF MADHYA PRADESH
AT JABALPUR
BEFORE
HON'BLE SHRI JUSTICE MANINDER S. BHATTI
ON THE 10th OF MARCH, 2025
MISC. CRIMINAL CASE No. 6957 of 2024
SHRI ISHTIAQ HUSSAIN SIDDIQUI
Versus
UNION OF INDIA
Appearance:
Shri Syed Ahmed Saud - Advocate for the applicant.
Shri Vikram Singh - Advocate for the respondent.
ORDER
This petition has been filed by the applicant invoking the extraordinary
jurisdiction of this Court under Section 482 of Cr.P.C./Section 528 of the
BNSS, 2023 seeking quashment of SC No. 307 of 2023 in
ECIR/8/INSZO/2022 arising out of Complaint No. SC/3/2020, Complaint
No. SC/10/2020 and Complaint No. SC/12/2020 dated 30.12.2020 instituted
on the strength of a complaint filed in terms of Sections 3 & 4 of the
Prevention of Money Laundering Act (hereinafter referred to as the PMLA,
2002) registered vide Complaint Case No. 307 of 2023 pending before the
Special Judge, PMLA, Bhopal.
2. The facts giving rise to this petition, in brief, are that the Registrar
of Companies filed three complaints under Section 447 of the Companies
Act, 2013. First case was registered vide Complaint No. 3/2021, in which
following three entities/individuals have been arrayed as accused:
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(i) Peoples International & Services Pvt. Ltd. (PISPL)
(ii) S.N. Vijaywargiya (Director from 22.7.2008)
(iii) Ram Vilas Vijaywargiya (Ex-Director) from 22.7.2008 to
11.8.2015)
Second complaint was registered vide Complaint No. 10/2021 in
which following three entities/individuals were arrayed as accused:
(i) PGH International Pvt. Ltd
(ii) S.N. Vijaywargiya (Director from 19.5.2003)
(iii) Ram Vilas Vijaywargiya (Ex-Director) (from 19.5.2003 to
11.8.2015)
and third complaint was registered vide Complaint No. 12/2021 in
which following entities/individual were arrayed as accused.
(i) M/s Peoples General Hospital Pvt. Ltd. (PGHPL)
(ii) S.N. Vijaywargiya (Managing Director)
(iii) Ishtiyaq Hussain Siddiqui (whole time Director)
(iv) Ram Vilas Vijaywargiya (whole time Director liable upto
11.8.2015)
3 . The aforesaid complaint cases have been registered against the
applicant, four companies, one Public Trust and two other individuals. The
role of the present applicant as detailed in Paragraph 24.7 of the
ECIR/8/INSZO/2022 reveals that the present applicant is a civil engineer.
He was hired by co-accused S.N.Vijaywargiya in the year 1999. The
applicant used to look after civil works like survey, construction,
maintenance and services etc. The applicant was also appointed as Director
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at Peoples General Hospital Pvt. Ltd. The applicant was also appointed
Director in Peoples International & Services Pvt. Ltd. (PISPL) and PGHIPL.
As per the complaint, the present applicant attended all the meetings where
the proposals in respect of lending money to Sarvjanik Jal Kalyan Prathmik
Nyas were proposed. All the loan given by M/s PGH Pvt. Ltd. during 2001-
22, amounting to Rs. 173.78 Crore has been under the watch (Directorship)
of the applicant. It is further alleged in the complaint that the applicant
signed an agreement dated 27.10.2008 on behalf of M/s PISPL wherein M/s
PISPL has agreed to transfer Rs.80 Crore to co-accused S.N.Vijaywargiya as
security deposit. Subsequently, the security deposit of Rs.75.17 Crore was
paid by M/s PISPL to co-accused S.N.Vijaywargiya. The agreement was
signed by the applicant on behalf of M/s PISPL. Further allegation was
levelled against the applicant that he was also the Director at M/s PGH
International Pvt. Ltd and during his tenure (2013-2022) Rs.40.1 Crore of
money were transferred from PGH International Pvt. Ltd. to co-accused S.N.
Vijaywargia.
4 . The applicant was arrayed as an accused only in Complaint No.
12/2021 and not in respect of other two complaint cases. Seeking quashment
of the complaint No. 12/2021 filed under Section 447 of the Companies Act,
the applicant had filed a petition before this Court under Section 482 of
Cr.P.C. vide M.Cr.C. No. 6919 of 2024. The said petition was allowed by the
coordinate Bench of this Court vide order dated 20.12.2024 while quashing
the complaint filed under Section 447 of the Companies Act registered vide
Complaint Case No. SC/12/2021, which was pending in the Court of XVIII
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District & Additional Sessions Judge, Bhopal. After quashing of the said
complaint under Section 447 of the Companies Act, 2013, this petition has
been filed by the applicant seeking quashment of the complaint lodged under
the PMLA, 2002 on the ground that as the predicate offence registered
against the applicant has already been quashed, the applicant cannot be
prosecuted under the provisions of the PMLA, 2002.
5. Learned counsel for the applicant contends that the present case now
stands in a narrow compass, inasmuch as, the present applicant along with
other co-accused was being prosecuted on the strength of the complaint filed
under Section 447 of the Companies Act, 2013. The said proceedings so
initiated by the Registrar of the Companies were culminated in filing of a
complaint against the applicant under Section 3 & 4 of the PMLA and as the
complaint for the predicate offence i.e. Section 447 of the Companies Act,
2013 has already been quashed by this Court, the prosecution of the
applicant under Section 3 & 4 of the PMLA, 2002 is an exercise in futility
and, therefore, the impugned complaint deserves to be quashed. It is further
contended that the order dated 20.12.2024 passed by the coordinate Bench in
M.Cr.C. No. 6919 of 2024 has not been assailed by the Registrar of the
Companies before the Apex Court as on date, therefore, the said order has
attained finality. The order dated 20.12.2024 deals with the entire aspect of
the matter. It is further contended that one of the co-accused had approached
the Gwalior Bench of this Court by filing a petition under Section 482 of
Cr.P.C. vide M.Cr.C. No. 41956 of 2023 [ M/s Peoples General Hospital
Private Ltd. Vs. Union of India through the Director General (Corporate
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Affairs)] and the Gwalior Bench vide order dated 3.11.2023 has dismissed
the said petition. Against the said order, the co-accused approached the Apex
Court also by filing an SLP, which has also been dismissed. It is contended
that the ground which were taken by the applicant in his petition i.e. M.Cr.C.
No. 6919 of 2024 before the coordinate Bench of this Court, were not taken
before the Gwalior Bench and this aspect was dealt with by the coordinate
Bench of this Court in Paragraphs 10, 11 and 12 of the order dated
20.12.2024 passed in M.Cr.C. No. 6919 of 2024 . The Court specifically
dealt with the issue that the applicant was not a party in the petition i.e.
M.Cr.C. No. 41956 of 2023 decided by the Gwalior Bench of this Court. The
coordinate Bench of this Court further considered the aspect that the
quashment before the Gwalior Bench was sought only on the ground that ex
post facto application of penal provision was not proper whereas other
aspects were not even raised before the Gwalior Bench and accordingly in
Paragraph 12, it has been concluded that the point raised before this Court by
the applicant, were not the subject matter of the petition of the co-accused
which was dealt with by the Gwalior Bench of this Court. It is further
contended that this Court while quashing the proceedings pertaining to the
predicate offence observed that the prosecution of the applicant under
Section 447 of the Companies Act, 2023 was malicious as there could not
have been any retrospective applicability of the provision of Section 447 of
the Companies Act, 2013. It was also observed that if the prosecution has
come under the shadow of malice, same can be quashed in exercise of
powers which are conferred by virtue of Section 482 of Cr.P.C. The counsel
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contends that the said well-reasoned finding of the co-ordinate Bench of this
Court makes it abundantly clear that the prosecution was not legally
sustainable and the proceedings have been quashed on the legal issue and not
on any technical ground. It is contended that as a consequence of the order of
quashment of the complaint, the applicant has already been discharged so far
as complaint filed under Section 447 of the Companies Act, 2013 is
concerned and therefore, the applicant's prosecution under Sections 3 & 4 of
the PMLA,2002 is not sustainable as the proceedings under Sections 3 & 4 of
the PMLA, 2002 are consequential to the proceedings pertaining to
commission of a predicate offence. It is also contended that in order to lodge
the prosecution, the foundational ingredients of statutory provisions should
be directly applicable and when no such provision is applicable, the
proceedings can be quashed. The reliance has been placed by the counsel for
the applicant on a decision of a Division Bench of this Court in M.Cr.C. No.
492 of 2022 (D.K. Khare Vs. State of M.P. ) dated 7.5.2022 . Thus, it is
submitted that in view of the aforesaid , the impugned complaint is liable to
be quashed.
6 . Conversely, learned counsel for the respondent submits that the
present petition filed by the applicant is grossly misconceived and is liable to
be dismissed. It is submitted that the applicant is guilty of "Suppressio veri
and suggestio falsi". The applicant, while filing the petition M.Cr.C. No.
6919 of 2024 challenging the complaint under Section 447 of the Companies
Act did not bring all the aspect to the notice of the co-ordinate Bench of this
Court and the co-ordinate Bench of this Court proceeded to quash the
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complaint filed under Section 447 of the Companies Act, 2013. It is further
contended that the arguments so advanced by the applicant, which were dealt
with in Para 2 by the co-ordinate Bench in the order dated 20.12.2024 in
M.Cr.C. No. 6919 of 2024, reflects that the applicant had not approached this
Court with clean hands and there was an attempt to mislead this Court and
ultimately such gesture on the part of the applicant ensued in passing of the
order dated 20.12.2024 in M.Cr.C. No. 6919 of 2024. It is further contended
that even if a complaint pertaining to a scheduled offence is set aside, the
proceedings under Sections 3 & 4 of the PMLA, 2002 being independent,
cannot be quashed. The present applicant was instrumental in all the affairs
of the company namely M/s Peoples General Hospital Pvt. Ltd. (PGHPL)
and the role of the present applicant has also been detailed in the complaint
filed under Sections 3 & 4 of the PMLA, 2002. Paragraph 24.7 of the
complaint clearly reflects that the applicant was connected with all three
companies and there were extension of loans to other Directors of the
company in gross violation of the statutory provision. As a result of the said
act of the applicant as well as other co-accused persons, the share-holders
had to sustain huge losses and therefore, the offence was committed within
the ambit of Section 447 of the Companies Act, 2013. It is further contended
that the involvement of the present applicant is not confined to M/s Peoples
General Hospital Pvt. Ltd. (PGHPL). He was also involved in the affairs of
the other companies in the capacity of the Director namely M/s PGH
International Pvt. Ltd and M/s Peoples International & Services Pvt. Ltd.
(PISPL). Inspite of non-impleadment of the present applicant in other two
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complaint cases pertaining to M/s PGH International Pvt. Ltd and M/s
Peoples International & Services Pvt. Ltd. (PISPL), the applicant cannot
claim any immunity on the strength of quashment of the complaint, which
was in respect of Peoples General Hospital Pvt. Ltd. (PGHPL), inasmuch as
the involvement of the applicant is there in all other companies and there
exists statutory presumption in terms of Section 23 of the PMLA, which
stipulates that where money-laundering involves two or more inter-
connected transactions and one or more such transactions is or are proved to
be involved in money-laundering, then for the purposes of adjudication or
confiscation under section 8 or for the trial of the money-laundering offence,
unless otherwise proved to the satisfaction of the Adjudicating Authority or
the Special Court, it shall be presumed that the remaining transactions form
part of such inter-connected transactions.
7. It is contended by the counsel for the respondent that it is the burden
of the accused person to prove that the proceeds of crime are not involved in
money-laundering and such statutory onus is required to be discharged by
the accused person. In the present case that stage is yet to come and,
therefore, at this pre-mature stage, no interference is warranted. There was
continued cause of action and as per the definition of money-laundering as
detailed in Section 3 of the PMLA, 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. It is, thus,
contended that similar petition filed by Peoples General Hospital Pvt. Ltd.
(PGHPL) of which the present applicant is also a Director, has already been
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dismissed by the Gwalior Bench of this Court vide order dated 3.11.2023
passed in M.Cr.C. No. 41956 of 2023, therefore, the petition filed by the
applicant vide M.Cr.C. No. 6919 of 2024 was not even maintainable as the
issue was elaborately dealt with by the Gwalior Bench of this Court and the
order passed by the Gwalior Bench was not interfered with by the Apex
Court and in such circumstances any other petition by the Company or its
any of the Director was not at all maintainable and, therefore, the order dated
20.12.2024 passed by the coordinate Bench in M.Cr.C. No. 6919 of 2024 on
account of suppression of the facts, does not preclude the respondent from
proceeding against the applicant under the PMLA, 2002. Even the
quashment of the complaint pertaining to a scheduled offence would not
absolve the accused from being prosecuted in terms of the provisions of
Sections 3 & 4 of the PMLA, 2002. It is contended by the counsel for the
respondent that this fact has been taken note of elaborately by the Apex
Court in Vijay Madanlal Choudhary and others Vs. Union of India and others
- (2023) 12 SCC 1. The judgment of Vijay Madanlal Choudhary (supra) was
referred by the High Court of Delhi in Crl. Rev.P. 99/2021 ( Ranveer Singh
Vs. Serious Fraud Investigation Office) and connected matter and Division
Bench of Madras High Court in W.P. No. 14782 of 2024 (Vijayraj Surana
Vs. Assistant director) and connected petition. Even the High Court of
Delhi in Rajinder Singh Chada Vs. Union of India (W.P. (Crl) No. 562/2023
and Crl. M.A. No. 5126 of 2023 has taken into consideration identical aspect
and it has been held that even if there is quashment of predicate offence on a
technical ground, that ip so facto does not obliterate the prosecution to be
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launched in terms of the provision the PMLA, 2002.
8. It is contended by the counsel for the respondent that the applicant
cannot seek quashment of the complaint under the PMLA, 2002 only on the
ground that the complaint in regard to the predicate offence i.e. Section 447
of the Companies Act has been quashed. It is also contended that the
applicant's role was discussed in detail in the inspection report of Peoples
General Hospital Pvt. Ltd. (PGHPL), which is at Page No. 531 of the reply
filed by the respondent and as per the said report, the applicability of Section
186(11) of the Companies Act, 2013 was taken note of. It is contended that
all the aforesaid important facts could not be brought to the notice of the co-
ordinate Bench of this Court at the time of hearing of M.Cr.C. No. 6919 of
2024, inasmuch as, the Directorate of Enforcement was not a party to the
said litigation. Even the bail application so filed by the applicant was
dismissed by this Court and this Court while dealing with the bail application
of the applicant had elaborately dealt with the aspect that involvement of the
applicant was apparent and accordingly as there was prima facie case, this
Court had declined to accede to the prayer for grant of bail to the applicant
and accordingly, the bail application was dismissed. Thus, the applicant is not
entitled for any relief merely on the ground of quashment of the complaint
under Section 447 of the Companies Act, therefore, this petition be
dismissed.
9. No other point is argued or pressed by the counsel for the parties.
10. Heard submissions advanced on behalf of the parties and perused
the record.
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11. The main question which has cropped up in the present petition is
that if the complaint in regard to a scheduled offence has been quashed, the
complaint under Section 3 & 4 of the PMLA , 2002 pertaining to some
scheduled offence is maintainable or not?
12. Before dealing with the provisions of the PMLA, 2002, it is first
germane to take into consideration the provision of Section 447 of the
Companies Act, 2013, which is reproduced as under:-
447. - Punishment for fraud.- Without prejudice to any
liability including repayment of any debt under this Act
or any other law for the time being in force, any person
who is found to be guilty of fraud involving an amount
of at least ten lakh rupees or one per cent of the turnover
of the company, whichever is lower, shall be punishable
with imprisonment for a term which shall not be less
than six months but which may extend to ten years and
shall also be liable to fine which shall not be less than
the amount involved in the fraud, but which may extend
to three times the amount involved in the fraud:
Provided that where the fraud in question involves
public interest, the term of imprisonment shall not be
less than three years.
Provided further that where the fraud involves an
amount less than ten lakh rupees or one per cent. of the
turnover of the company, whichever is lower, and does
not involve public interest, any person guilty of such
fraud shall be punishable with imprisonment for a term
which may extend to five years or with fine which may
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extend to fifty lakh rupees or with both.
Explanation.- For the purposes of this section-
(i) "fraud" in relation to affairs of a company or any
body corporate, includes any act, omission,
concealment of any fact or abuse of position committed
by any person or any other person with the connivance
in any manner, with intent to deceive, to gain undue
advantage from, or to injure the interests of, the
company or its shareholders or its creditors or any
other person, whether or not there is any wrongful gain
or wrongful loss;
(ii) "wrongful gain" means the gain by unlawful means
of property to which the person gaining is not legally
entitled;
(iii) "wrongful loss" means the loss by unlawful means
of property to which the person losing is legally entitled.
13. The aforesaid Section 447 of the Companies Act, 2013 stipulates
punishment in the case of fraud involving an amount of at least Rs.10 Lakh.
An offence under Section 447 of the Companies Act, is a scheduled offence
for the purposes of the PMLA, 2002 and as per Paragraph 29 of the schedule
appended to PMLA, 2002, an offence under Section 447, which stipulates
punishment for fraud, is a scheduled offence.
14. The expression "scheduled offence" has been defined in Section
2(1)(y ). This provision assumes significance as it has direct link with the
definition of "proceeds of crime". In that, the property derived or obtained as
a result of criminal activity relating to notified offences, termed as scheduled
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offence, is regarded as tainted property and dealing with such property in any
manner is an offence of money-laundering. The Schedule is in three parts,
namely, Part A, B and C. Part A of the Schedule consists of 29 paragraphs.
These paragraphs deal with respective enactments and the offences specified
thereunder which are regarded as scheduled offences. Similarly, Part B deals
with offence under the Customs Act specifically and Part C is in relation to
offence of cross-border implications.
1 5 . To deal with the aforesaid question, which requires pensive
consideration by this Court, it would be necessary to pave way in the scheme
of PMLA, 2002. As per the object of the PMLA, 2002 the same has been
enacted to prevent money-laundering and to provide for confiscation of
property derived from, or involved in, money-laundering and for matters
connected therewith. Section 2(1)(u) provides the definition of proceeds of
crime. Same is reproduced as under:-
2(1)(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
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activity relatable to the scheduled offence.
16. A perusal of the aforesaid definition reflects that the "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.
The explanation appended to Section 2(1)(u) of the PMLA, 2002 further
provides that "proceeds of crime" further includes 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. Therefore, a penetrative reading
of aforesaid definition of "proceeds of crime" reflects that the proceeds
should have direct or indirect nexus with a scheduled offence. The proceeds
can be derived even indirectly but such proceeds should be relatable to a
scheduled offence.
17. Sections 3 & 4 of the PMLA, 2002 stipulates as under:-
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 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
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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 of projecting it as untainted property
or claiming it as untainted property in any manner
whatsoever.
4. Punishment for money-laundering.- Whoever
commits the offence of money-laundering shall be
punishable with rigorous imprisonment for a term
which shall not be less than three years but which may
extend to seven years and shall also be liable to fine.
Provided that where the proceeds of crime involved in
money-laundering relates to any offence specified under
paragraph 2 of Part A of the Schedule, the provisions
of this section shall have effect as if for the words
"which may extend to seven years", the words "which
may extend to ten years" had been substituted.
18. A perusal of aforesaid Section 3 reveals that whosoever 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
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activities connected with proceeds of crime including its concealment
or possession or acquisition or use or projecting as untainted property
or claiming as untainted property shall be guilty of the offence of money-
laundering. Therefore, to bring an act within the ambit of money-laundering,
there has to be "proceeds of crime". The definition of "proceeds of crime"
has its root to scheduled offence, therefore, a composite reading of aforesaid
Sections 2(1)(u), 3 and 4 of PMLA, 2002 reveal that firstly there has to be a
scheduled offence, secondly "proceeds of crime" should have direct or
indirect nexus with the scheduled offence and thirdly if there are proceeds of
crime, then only, an offence of money-laundering would be there in terms of
the PMLA, 2002.
19. Even though the 2002 Act is a complete code in itself, it is only in
respect of matters connected with offence of money-laundering, and for that,
existence of proceeds of crime within the meaning of Section 2(1)(u) PMLA,
2002 is quintessential. Absent existence of proceeds of crime, as aforesaid,
the authorities under the 2002 Act cannot step in or initiate any prosecution.
20. The aforesaid provision has already been elaborately dealt with by
the Apex Court in Vijay Madanlal Choudhary (supra) wherein the Apex
Court after elaborate discussion of the statutory provisions of the PMLA,
2002 gave its finding. The Apex Court while dealing with the definition of
the proceeds of crime held in Paragraphs 105 and 106 as under:-
105. The other relevant definition is "proceeds of
crime" in Section 2(1)(u) of the 2002 Act. This
definition is common to all actions under the Act,
namely, attachment, adjudication and confiscation
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being civil in nature as well as prosecution or criminal
action. The original provision prior to amendment vide
the Finance Act, 2015 and Finance (No. 2) Act, 2019,
took within its sweep any property [mentioned in
Section 2(1)(v) PMLA] derived or obtained, directly or
indirectly, by any person "as a result of" criminal
activity "relating to" a scheduled offence [mentioned in
Section 2(1)(y) read with Schedule to the Act] or the
value of any such property. Vide the Finance Act, 2015,
it further included such property (being proceeds of
crime) which is taken or held outside the country, then
the property equivalent in value held within the country
and by further amendment vide Act 13 of 2018, it also
added property which is abroad. By further amendment
vide Finance (No. 2) Act, 2019, Explanation has been
added which is obviously a clarificatory amendment.
That is evident from the plain language of the inserted
Explanation itself. The fact that it also includes any
property which may, directly or indirectly, be derived as
a result of any criminal activity relatable to scheduled
offence does not transcend beyond the original
provision. In that, the word "relating to" (associated
with/has to do with) used in the main provision is a
present participle of word "relate" and the word
"relatable" is only an adjective. The thrust of the
original provision itself is to indicate that any property
is derived or obtained, directly or indirectly, as a result
of criminal activity concerning the scheduled offence,
the same be regarded as proceeds of crime. In other
words, property in whatever form mentioned in Section
2(1)(v), is or can be linked to criminal activity relating
to or relatable to scheduled offence, must be regarded
as proceeds of crime for the purpose of the 2002 Act. It
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must follow that the Explanation inserted in 2019 is
merely clarificatory and restatement of the position
emerging from the principal provision [i.e. Section 2(1)
(u)].
106. The "proceeds of crime" being the core of the
ingredients constituting the offence of money
laundering, that expression needs to be construed
strictly. In that, all properties recovered or attached by
the investigating agency in connection with the criminal
activity relating to a scheduled offence under the
general law cannot be regarded as proceeds of crime.
There may be cases where the property involved in the
commission of scheduled offence attached by the
investigating agency dealing with that offence, cannot
be wholly or partly regarded as proceeds of crime
within the meaning of Section 2(1)(u) of the 2002 Act
-- so long as the whole or some portion of the property
has been derived or obtained by any person "as a result
of" criminal activity relating to the stated scheduled
offence. To be proceeds of crime, therefore, the
property must be derived or obtained, directly or
indirectly, "as a result of" criminal activity relating to a
scheduled offence. To put it differently, the vehicle
used in commission of scheduled offence may be
attached as property in the case (crime) concerned, it
may still not be proceeds of crime within the meaning
of Section 2(1)(u) of the 2002 Act. Similarly,
possession of unaccounted property acquired by legal
means may be actionable for tax violation and yet, will
not be regarded as proceeds of crime unless the tax
legislation concerned prescribes such violation as an
offence and such offence is included in the Schedule to
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the 2002 Act. For being regarded as proceeds of crime,
the property associated with the scheduled offence must
have been derived or obtained by a person "as a result
of" criminal activity relating to the scheduled offence
concerned. This distinction must be borne in mind
while reckoning any property referred to in the
scheduled offence as proceeds of crime for the purpose
of the 2002 Act. Dealing with proceeds of crime by way
of any process or activity constitutes offence of money
laundering under Section 3 PMLA.
2 1 . Further, the Apex Court in Vijay Madanlal Choudhary (supra)
in Para-107 observed that a property derived directly or indirectly as a result
of criminal activity relating to a scheduled offence would be liable for
prosecution under the provisions of the PMLA, 2002. The Apex Court
further held that the explanation, which is added to Section 2(1)(u) and which
provides for definition of proceeds of crime, does not travel beyond the
intent of tracking and reaching up to the property derived or obtained
directly or indirectly as a result of criminal activity relating to a schedule
offence. The Apex Court in Para- 109 observed as under:-
109. Tersely put, it is only such property which is
derived or obtained, directly or indirectly, as a result of
criminal activity relating to a scheduled offence that can
be regarded as proceeds of crime. The authorities under
the 2002 Act 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,
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20 MCRC-6957-2024
unless the same is registered with the jurisdictional
police or pending inquiry by way of complaint before
the competent forum. For, the expression "derived or
obtained" is indicative of criminal activity relating to a
scheduled offence already accomplished. Similarly, 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. This
interpretation alone can be countenanced on the basis of
the provisions of the 2002 Act, in particular Section
2(1)(u) read with Section 3. Taking any other view
would be rewriting of these provisions and disregarding
the express language of the definition clause "proceeds
of crime", as it obtains as of now.
22. The aforesaid conclusion which has been arrived at by the Apex
Court makes it abundantly clear that the property which is derived or
obtained directly or indirectly as a result of criminal activity relating to a
scheduled offence, can be regarded as proceeds of crime and other property,
which has no nexus with any scheduled offence, cannot be brought within
the ambit of the proceeds of crime. The Apex Court in Para 148 has observed
as under:-
148. The next question is : Whether the offence under
Section 3 is a stand-alone offence? Indeed, it is
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21 MCRC-6957-2024
dependent on the wrongful and illegal gain of property
as a result of criminal activity relating to a scheduled
offence. Nevertheless, it is concerning the process or
activity connected with such property, which constitutes
offence of money laundering. The property must
qualify the definition of "proceeds of crime" under
Section 2(1)(u) of the 2002 Act.
23. The Apex Court in Para 149 has observed as under:-
149. As observed earlier, all or whole of the crime
property linked to scheduled offence need not be
regarded as proceeds of crime, but all properties
qualifying the definition of "proceeds of crime" under
Section 2(1)(u) will necessarily be crime properties.
Indeed, in the event of acquittal of the person concerned
o r being absolved from allegation of criminal activity
relating to scheduled offence, and if it is established in
the court of law that the crime property in the case
concerned has been rightfully owned and possessed by
him, such a property by no stretch of imagination can be
termed as crime property and ex consequenti proceeds
of crime within the meaning of Section 2(1)(u) as it
stands today. On the other hand, in the trial in
connection with the scheduled offence, the court would
be obliged to direct return of such property as
belonging to him. It would be then paradoxical to still
regard such property as proceeds of crime despite such
adjudication by a court of competent jurisdiction. It is
well within the jurisdiction of the court concerned
trying the scheduled offence to pronounce on that
matter.
24. The Apex Court in Para 382.8 has also observed as under:-
382.8. The offence under Section 3 of the 2002 Act is
dependent on illegal gain of property as a result of
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criminal activity relating to a scheduled offence. It is
concerning the process or activity connected with such
property, which constitutes the offence of money
laundering. The authorities under the 2002 Act 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 any one claiming such
property being the property linked to stated scheduled
offence through him.
25. From the aforesaid analysis by the Apex Court, it is discernible
that the property must qualify the definition of proceeds of crime under
Section 2(1)(u) of the PMLA, 2002 and such property must be linked to a
scheduled offence. It is also clear from the aforesaid observations of the
Apex Court that when it is established in the Court of law that crime property
has been rightly owned and possessed by a person, same cannot be stretched
to a term i.e. "crime property".
26. The aforesaid decision by the Apex Court in the case of Vijay
Madanlal Choudhary (supra) in the considered view of this Court leaves no
further scope to deal with the issue from any angle. The Apex Court in Vijay
Madanlal Choudhary (supra) has clearly held that if it is established in the
court of law that the crime property in the case concerned has been rightfully
owned and possessed by him, such a property by no stretch of imagination
can be termed as crime property and ex consequenti proceeds of crime within
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23 MCRC-6957-2024
the meaning of Section 2(1)(u).
27. It is perceptible from perusal of the order dated 20.12.2024 passed
by the coordinate Bench in M.Cr.C. No. 6919 of 2024 that the complaint
filed under Section 447 of the Companies Act, was not quashed by the co-
ordinate Bench on any technical ground. On the contrary, the coordinate
Bench in Para-23 held as under:-
".........In view of the aforesaid, it is clear that trying
offence by the respondent under Section 447 applying
the same retrospectively, is
apparently illegal and it can be considered to be a
malicious prosecution. Essentially, when the
prosecution has come under the shadow of malice, the
Supreme Court has already engrafted yardsticks in the
case of Bhajan Lal (supra). In view of the thoughtful
yardsticks formulated by the Supreme Court, which
make me undoubtedly unhesitant to hold that
the prosecution in the case at hand is not sustainable in
the eyes of law and such proceedings can be quashed by
this court exercising the power provided under Section
482 of CrPC.
(iii) So far as the third submission made on behalf of
the respondent about exercising power by this court at
this stage is also not sustainable inasmuch as it is a
settled principle of law that if on the basis of allegations
contained in FIR, the court finds considering the same
to be true at its face value, the offence registered is not
formulated and prosecution can be considered to be
malicious prosecution, same can be quashed."
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28. From the aforesaid, it is clear that the co-ordinate Bench of this
Court concluded that the prosecution launched under Section 447 of the
Companies Act as was an attempt to apply statutory provision with
retrospective effect, which was not permissible and therefore, concluded that
the prosecution was illegal. Even the co-ordinate Bench proceeded ahead to
label the prosecution to be malicious. The Court also concluded that upon
due consideration of the allegations as set out in the FIR, if the offence
registered is not formulated and the prosecution is considered to be
malicious, the proceedings can be quashed. While making the aforesaid
observations, the co-ordinate Bench proceeded to quash the complaint filed
under Section 447 of the Companies Act vide complaint case No. SC/12/24.
The said order so passed by the co-ordinate Bench of this Court has not been
assailed before the Apex Court as of now, therefore, the same is holding the
field. As the very prosecution of the present applicant for a predicate offence
i.e. a scheduled offence under Section 447 of the Companies Act, 2013 has
already been quashed (not on any technical ground), therefore, the applicant
cannot be proceeded-with under the provisions of the PMLA, 2002 as the
proceeds of crime should be directly or indirectly should have nexus with a
criminal activity pertaining to a scheduled offence or relatable to the
scheduled offence. The proceedings pertaining to scheduled offence in the
present case since has been quashed, the offshoot of the same i.e. complaint
under Sections 3 & 4 of the PMLA, 2002, in the considered view of this
Court, is not maintainable and is liable to be quashed.
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25 MCRC-6957-2024
29. The decision of the Gwalior Bench of this Court in M.Cr.C. No.
41956 of 2023 has no applicability at this stage as after decision of the
Gwalior Bench, complaint regarding scheduled offence has been quashed
and such eventuality was not the subject matter of the litigation before the
Gwalior Bench of this Court.
30.. Resultantly, in view of the aforesaid analysis, the petition is
allowed. The proceedings of SC - NO. 307/2023 IN
ECIR/8/INSZO/2022 arising out of complaint No. SC/12/2020
DATED30.12.2020 qua the petitioner are hereby quashed.
(MANINDER S. BHATTI)
JUDGE
PB
