Telangana High Court
Manturi Shashi Kumar And Another vs The Director, Directorate Of ... on 19 April, 2023
Bench: Ujjal Bhuyan, N.Tukaramji
THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE SRI JUSTICE N. TUKARAMJI
+ WRIT APPEAL No.107 of 2023
% Date: 19.04.2023
# Manturi Shashi Kumar and another.
... Appellants
v.
$ The Director, Directorate of Enforcement,
Government of India, Ministry of Finance
Department of Revenue, 3rd Floor, Shankar Bhavan,
Basheerbagh, Hyderabad - 500 004,
And others.
... Respondents
! Counsel for the appellants : Mr. Vedula Srinivas,
Learned Senior Counsel,
Representing Ms. K.Jayasree.
^ Counsel for the respondents : Mr. V.Ramakrishna Reddy
< GIST:
HEAD NOTE:
? CASES REFERRED:
1. MANU/TL/1492/2022
2. 2022 SCC OnLine SC 929
2
THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE SRI JUSTICE N. TUKARAMJI
WRIT APPEAL No.107 of 2023
JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)
Heard Mr. Vedula Srinivas, learned Senior Counsel
representing Ms. K.Jayasree, learned counsel for the
appellants and Mr. V.Ramakrishna Reddy, learned counsel
for the Enforcement Directorate i.e., the respondents.
2. This appeal is directed against the order dated
17.10.2022 passed by the learned Single Judge dismissing
W.P.No.45712 of 2018 filed by the appellants as the writ
petitioners.
3. Appellants had filed the related writ petition seeking
a direction to the respondents, more particularly to
respondent No.2, to release the property from attachment.
4. As per the case of the appellants as projected in the
writ affidavit, appellant No.1 was arrayed as accused No.1
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in F.I.R.No.369 of 2009 registered before the Patancheru
Police Station under Sections 120B, 420, 423, 468 and 471
of the Indian Penal Code, 1860 (IPC). Following
investigation carried out by the police, charge sheet was
filed in the Court of Additional First Class Judicial
Magistrate, Sangareddy, which upon cognizance was
registered as C.C.No.319 of 2010. Following registration of
the criminal case, ECIR/02/HZO/2010/1915 was
registered under the Prevention of Money Laundering Act,
2002 (briefly, 'the PMLA' hereinafter) by the Enforcement
Directorate. Thereafter, provisional attachment order
No.06/2016 dated 30.12.2016 was passed by respondent
No.2 provisionally attaching the following properties of the
appellants:
(i) 80 guntas of land Sy.No.151/A, registered vide
document No.5196/2009, dated 30.06.2009 with SRO,
Sangareddy (R.O) in the name of Shri Manturi Shashi
Kumar.
(ii) 19 guntas of land at Sy.No.122/A, registered vide
document No.1019/2015, dated 26.02.2015 with SRO,
4
Sadasivpet in the name of Smt. Manturi Swapna, W/o.
Shri Manturi Shashi Kumar.
(iii) 18 guntas of land at Sy.No.122/A5, registered
vide document No.2749/2015, dated 27.02.2015 with
SRO, Sadasivpet in the name of Smt. Manturi Swapna,
W/o. Shri Manturi Shashi Kumar.
(iv) 90 square yards of land of Plot No.8B and 9B Part
at Sy. No.727, Opp. PSML, residential area Sadasivpet
Municipal Limits, Medak District registered vide
document No.436/2009, dated 13.02.2009 with SRO,
Sadasivpet in the name of Smt. Manturi Swapna, W/o.
Shri Manturi Shashi Kumar.
5. Thereafter respondent No.2 filed original complaint
under Section 5(5) of PMLA against appellants and others.
After the provisional attachment order, adjudicating
authority passed order dated 25.02.2017 confirming the
provisional attachment order made by respondent No.2.
6. According to the appellants, while C.C.No.319 of
2010 was pending on the file of learned Additional Judicial
First Class Magistrate, Sangareddy, the case was referred
to Lok Adalat and on compromise reached between
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appellants and the de facto complainant - P.Sudheer
Reddy, order dated 20.03.2018 was passed discharging
appellant No.1 from the criminal case besides closure of
C.C.No.319 of 2010.
7. Appellants informed respondent No.2 about closure
of C.C.No.319 of 2010 on 01.05.2018 and requested the
said authority to release the properties from attachment.
However, no decision was taken by respondent No.2 and
the attached properties continued to remain under
attachment. In the circumstances, appellants filed the
related writ petition seeking the relief as indicated above.
8. The writ petition was contested by the respondents
by filing counter affidavit. Stand taken in the counter
affidavit was that acquittal in predicate offence would have
no bearing or effect in the investigation or trial under
PMLA, as PMLA deals only with the offence of money
laundering. It was stated that complaint as contemplated
under PMLA has already been filed before the Court of
6
Metropolitan Sessions Judge, Hyderabad, and upon
cognizance being taken, the same has been registered as
S.C.No.342 of 2018. Reference was made to the provisions
of the Prevention of Money Laundering (Restoration of
Property) Rules, 2016, more particularly to Rule 3-A
thereof, whereafter it was contented that Special Court is
empowered to order restoration of properties attached
under sub-section (1) of Section 5 of PMLA.
9. Learned Single Judge after considering the rival
pleadings and submissions made at the Bar observed that
in the present case, C.C.No.319 of 2010 has ended in
acquittal by way of compromise and not on merit. If
exoneration in adjudication proceedings is on technical
grounds and not on merit, prosecution may continue.
Declining to grant any relief to the appellants, learned
Single Judge however granted liberty to the appellants to
approach the designated court for release of property by
way of an application under Rule 3-A of the Prevention of
Money Laundering (Restoration of Property) Rules, 2016,
7
with the further observation that it was for the designated
court to take a decision in the matter. Consequently, the
writ petition came to be dismissed vide the order dated
17.10.2022.
10. Aggrieved, the present appeal has been filed.
11. On 16.02.2023 this Court while issuing notice,
passed the following order:
Heard Mr. Vedula Srinivas, learned Senior
Counsel for the appellants.
Appellants had filed the related writ petition for
setting aside of the attachment of properties following
closure of C.C.No.319 of 2010.
Learned Single Judge held that acquittal of the
appellants in C.C.No.319 of 2010 was on compromise; it
was not on merit.
Learned Senior Counsel submits that when the
predicate offence is no longer there, in view of closure of
the criminal case on acquittal, continuing with the
attachment of property under the Prevention of Money
Laundering Act, 2002 by taking the view that the
8
attached properties are proceeds of crime cannot be
sustained.
Issue notice.
Mr. V.Ramakrishna Reddy, learned counsel
waives notice for all the respondents.
Considering that only pure question of law is
involved and that respondents had already filed counter-
affidavit before the learned Single Judge, filing of fresh
counter-affidavit is not required. An endeavour may be
made to hear the matter on the returnable date.
12. Learned Senior Counsel for the appellants has
referred to Section 320 of the Code of Criminal Procedure,
1973 (Cr.P.C), more particularly to sub-section (8) thereof
and submits that compounding of an offence under Section
320 Cr.P.C would have the effect of acquittal of the
accused. When the criminal case has ended in closure
with the acquittal of the appellants, there is no predicate
offence against the appellants. That being the position,
continuing with attachment of the property would not be
justified. Learned Senior Counsel has placed reliance on a
9
Single Bench decision of this Court in Jagati Publications
Ltd. v. Enforcement Directorate1 and submits therefrom
that existence of scheduled offence and proceeds of crime
being the property derived or obtained as a result of
criminal activity relating to the scheduled offence are
conditions precedent not only for initiating prosecution
under PMLA but also for continuation thereof. He,
therefore, submits that learned Single Judge fell in error in
rejecting the prayer of the appellants by holding that
acquittal of appellants was on compromise and not on
merit.
13. On the other hand, Mr. V.Ramakrishna Reddy,
learned counsel for the respondents submits that
appellants, instead of approaching the designated court
constituted under PMLA by filing necessary application
under Rule 3-A of the Prevention of Money Laundering
(Restoration of Property) Rules, 2016, had approached this
Court by filing a writ petition for release of the property
1
MANU/TL/1492/2022
10
from attachment. He submits that even under Section 8(6)
and (7) of PMLA, it is the Special Court which has the
mandate to consider an application for release of attached
property. He further submits that appellants have filed a
criminal petition before this Court under Section 482
Cr.P.C, being Crl.P.No.13439 of 2018, for quashing of
proceedings in S.C.No.342 of 2018. Instead of pursuing
the criminal petition, appellants have filed the related writ
petition which was rightly not entertained by the learned
Single Judge.
14. Submissions made by learned counsel for the parties
have received the due consideration of the Court.
15. Facts
in the present appeal lie within a narrow
compass. As already noted above, appellant No.1 was an
accused in the criminal case for offences which are
considered as predicate offences under PMLA. In view
thereof, a case was registered under PMLA following which
the properties mentioned above were provisionally
attached. Subsequently, the provisional attachment was
confirmed by the adjudicating authority whereafter
complaint was lodged before the designated court based on
which S.C.No.342 of 2018 has been registered.
16. In the meanwhile, in view of the settlement arrived at
between the de facto complainant and appellant No.1, the
criminal court referred the matter to Lok Adalat and when
the matter was settled in Lok Adalat, the criminal court
discharged appellant No.1 vide order dated 20.03.2018
leading to closure of the criminal case as well. It was
thereafter that appellants had moved the respondents for
release of the attached properties. Finding no response,
the related writ petition came to be filed. Learned Single
Judge took the view that the criminal case i.e., C.C.No.319
of 2010 has ended in acquittal of appellant No.1 by way of
compromise and not on merit. Therefore, he declined to
invoke the writ jurisdiction and relegated the appellants to
the forum of the designated court for release of the
attached property by filing application under Rule 3-A of
the Prevention of Money Laundering (Restoration of
Property) Rules, 2016.
17. Section 320 Cr.P.C deals with compounding of
offence. As per sub-section (1), the offences punishable
under various sections of IPC specified in the table under
the said sub-section may be compounded by the persons
mentioned therein. As per sub-section (2), the offences
punishable under various sections of IPC specified in the
table mentioned therein may, with the permission of the
court before which any prosecution for such offence is
pending, be compounded by the persons mentioned in the
table.
18. There is no dispute that the sections under which
appellant No.1 was prosecuted are compoundable under
Section 320 Cr.P.C. Sub-section (8) thereof clearly says
that composition of an offence under Section 320 Cr.P.C
shall have the effect of an acquittal of the accused with
whom the offence has been compounded. Therefore, when
the criminal case i.e., C.C.No.319 of 2010 was closed by
the criminal court upon being compounded through the
medium of Lok Adalat, it had the effect of acquittal of
appellant No.1.
19. Section 3 of PMLA deals with the offence of money
laundering. It says that whoever 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 the
offence of money laundering.
20. The expression "proceeds of crime" is defined under
Section 2(1)(u) of PMLA to mean, 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 with the country or abroad. As per the
Explanation, it has been clarified that proceeds of crime
include 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 related to the scheduled offence.
21. Thus the expression "proceeds of crime" is
intrinsically related to a scheduled offence. It must be
derived as a result of criminal activity relatable to a
scheduled offence.
22. Before we deal with the decision of the Supreme
Court in Vijay Madanlal Choudhary v. Union of India2,
we may briefly advert to the Prevention of Money
Laundering (Restoration of Property) Rules, 2016, on which
much reliance has been placed by Mr. V.Ramakrishna
Reddy, learned counsel for the Enforcement Directorate.
From the title of the said rules itself it is evident that the
2022 SCC OnLine SC 929
said rules have been framed for the purpose of restoration
of property attached and confiscated in the course of
proceedings under PMLA. While Rule 3 deals with the
manner of restoration of confiscated property, Rule 3-A
deals with manner of restoration of property during trial.
As per sub-rule (1), the Special Court, after framing of the
charge may decide an application that may be moved for
restoration of property attached under sub-section (1) of
Section 5 or seized or frozen under Section 17 or Section
18 of PMLA prior to confiscation by public notice in
newspapers etc., so as to enable claimants having a
legitimate interest in such property to establish their
claims. As per sub-rule (2) of Rule 3-A, if the property
referred to in sub-rule (1) is insufficient to meet the loss
suffered by the claimant as a result of the offence of money
laundering, the Special Court may pass an order of
restoration of property directing the Central Government to
auction such property and disburse on a pro-rata basis in
accordance with the share of loss suffered by each
claimant. While sub-rule (3) deals with the limitation
period for lodging such a claim, sub-rule (4) mandates the
Special Court to give an opportunity of hearing to the
owner of the property before deciding on restoration.
23. From the scheme of Rule 3-A of the Prevention of
Money Laundering (Restoration of Property) Rules, 2016,
what is discernible is that this provision is primarily meant
for a claimant to seek restoration of property which he had
lost as a result of the predicate offence leading to proceeds
of crime and consequently the offence of money laundering.
This provision may not be applicable in a case where the
predicate offence itself has been closed on being
compounded under Section 320 Cr.P.C.
24. We may now deal with the decision of the Supreme
Court in Vijay Madanlal Choudhary (supra). Supreme
Court dealt with the expression "proceeds of crime" in the
following manner:
251. 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 concerned
case (crime), 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
concerned tax legislation prescribes such violation as an
offence and such offence is included in the Schedule of
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 concerned scheduled
offence. 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 of the Act.
25. Thereafter, Supreme Court observed that 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. Authorities under 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, unless the same is registered with the
jurisdictional police or pending inquiry before the
competent forum. Supreme Court held as follows:
253. 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 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, 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 definition clause
"proceeds of crime", as it obtains as of now.
26. In the said decision, Supreme Court also posed the
question as to whether the offence under Section 3 is a
standalone offence? Answering this question, Supreme
Court held that offence under Section 3 is dependent on
the wrongful and illegal gain of property as a result of
criminal activity relating to a scheduled offence.
Authorised officer under PMLA gets the authority to
prosecute any person for the offence of money laundering
only if there exists proceeds of crime within the meaning of
Section 2(1)(u) of PMLA. Even though the PMLA is a
complete code in itself, it is only in respect of matters
connected with the offence of money laundering and for
that, existence of proceeds of crime within the meaning of
Section 2(1)(u) of PMLA is quintessential. Absent existence
of proceeds of crime, the authorities under PMLA cannot
step in or initiate any prosecution. Supreme Court held as
follows:
281. The next question is : whether the offence
under Section 3 is a standalone offence? Indeed, it is
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. 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 or 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 concerned case
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
concerned Court trying the scheduled offence to
pronounce on that matter.
282. Be it noted that the authority of the
Authorised Officer under the 2002 Act to prosecute
any person for offence of money-laundering gets
triggered only if there exists proceeds of crime within
the meaning of Section 2(1)(u) of the 2002 Act and
further it is involved in any process or activity. Not
even in a case of existence of undisclosed income and
irrespective of its volume, the definition of "proceeds of
crime" under Section 2(1)(u) will get attracted, unless
the property has been derived or obtained as a result
of criminal activity relating to a scheduled offence. It
is possible that in a given case after the discovery of
huge volume of undisclosed property, the authorised
officer may be advised to send information to the
jurisdictional police (under Section 66(2) of the 2002
Act) for registration of a scheduled offence
contemporaneously, including for further investigation
in a pending case, if any. On receipt of such
information, the jurisdictional police would be obliged
to register the case by way of FIR if it is a cognizable
offence or as a non-cognizable offence (NC case), as
the case may be. If the offence so reported is a
scheduled offence, only in that eventuality, the
property recovered by the authorised officer would
partake the colour of proceeds of crime under Section
2(1)(u) of the 2002 Act, enabling him to take further
action under the Act in that regard.
283. 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) of the Act is quintessential.
Absent existence of proceeds of crime, as aforesaid,
the authorities under the 2002 Act cannot step in or
initiate any prosecution.
284. In other words, the Authority under the 2002
Act, is to prosecute a person for offence of money-
laundering only if it has reason to believe, which is
required to be recorded in writing that the person is in
possession of "proceeds of crime". Only if that belief is
further supported by tangible and credible evidence
indicative of involvement of the person concerned in
any process or activity connected with the proceeds of
crime, action under the Act can be taken forward for
attachment and confiscation of proceeds of crime and
until vesting thereof in the Central Government, such
process initiated would be a standalone process.
27. Finally, in paragraph 467, Supreme Court
summarised its conclusion on various points. In paragraph
467(d), Supreme Court concluded as under:
467. In the light of the above analysis, we now
proceed to summarise our conclusion on seminal
points in issue in the following terms:-
*** *** *** ***
(v) (d) The offence under Section 3 of the 2002
Act is dependent on illegal gain of property as a result
of 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 claiming him.
28. Thus, according to Supreme Court, the offence under
Section 3 of PMLA is dependent on illegal gain of property
as a result of criminal activity relating to a scheduled
offence. If the person is finally discharged or acquitted of
the scheduled offence or the criminal case against him is
quashed by the court, there can be no offence of money
laundering against him or anyone claiming such property
being the property linked to the scheduled offence. It is
immaterial for the purpose of PMLA whether acquittal is on
merit or on composition.
29. This decision was examined in detail by a Single
Bench of this Court in Jagati Publications Ltd. (supra).
After analysing the above decision of the Supreme Court,
this Court held that the expression "proceeds of crime"
which is the very essence of the offence of money
laundering needs to be construed strictly. Only such
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. Thereafter,
this Court held that if a person is finally
discharged/acquitted of the scheduled offence or the
criminal case against him is quashed by a 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. Summing up the position, Single Bench of
this Court held that existence of scheduled offence and
proceeds of crime being the property derived or obtained as
a result of criminal activity relating to the scheduled
offence are sine qua non for not only initiating prosecution
under PMLA, but also for continuation thereof. In the
absence of these two conditions, the Special Court dealing
with the offence under PMLA would not be competent to
pronounce on the guilt or otherwise of the person
concerned accused of money laundering.
30. Adverting to the facts of the present case, it is evident
that upon closure of the criminal case and acquittal of
appellant No.1 on discharge, there is no scheduled offence
against the appellants. In the absence of any crime,
question of any proceeds of crime would not arise.
31. We are, therefore, of the view that learned Single
Judge had erred in refusing to grant relief to the appellants
by taking the view that acquittal of the appellants was on
compromise and not on merit and relegating the appellants
to the forum of the designated court. When there is no
crime because of closure of the criminal case involving the
predicate offence, continuation of attachment of the
properties of appellants would not be justified.
32. In the circumstances, we allow this writ appeal by
setting aside the order of the learned Single Judge dated
17.10.2022. Resultantly, W.P.No.45712 of 2018 is also
allowed by directing the respondents to release the
properties of the appellants from attachment.
Miscellaneous applications pending, if any, shall
stand closed. However, there shall be no order as to costs.
______________________________________
UJJAL BHUYAN, CJ
______________________________________
N. TUKARAMJI, J
19.04.2023
Note: LR copy to be marked.
B/o.
vs
