Money laundering is standalone offence; ED can challenge closure of predicate offence: Madras High Court

The Madras High Court Monday revived the criminal proceedings against lottery baron Santiago Martin and his co-accused booked for illegally possessing ₹7.20 crore in cash.

The Court quashed and set aside a local court’s order that had accepted the closure report filed by the Tamil Nadu Central Crime Branch police in the criminal case registered against Martin in 2022.

Pertinently, the Bench of Justices SM Subramanium and V Sivagnanam held that money laundering is a standalone offence and the Enforcement Directorate (ED) is well within its rights to file petition challenging closure of the predicate offence.

A predicate offence is a crime which is a component of larger crime and an offence like money laundering begins with an offence under the Indian Penal Code, which is considered the predicate offence.

The Supreme Court had held in its 2022 judgment in Vijay Madanlal Choudhary v. Union of India that acquittal or discharge in the predicate offence or quashing of such offence will automatically lead to acquittal or discharge in the offence of money laundering as well.

However, the High Court today held that while a predicate offence is required for initiating a money laundering probe, the offence of money laundering under the Prevention of Money Laundering Act (PMLA) becomes a standalone offence once a complaint under PMLA has been filed before the competent court by ED.

Thus, when a predicate offence is later closed and it has resulted in miscarriage of justice, the ED is entitled to highlight the same before the High Court by filing a revision petition under Section 482 of the Code of Criminal Procedure.

"Once the “proceeds of crime” is traced out by the Enforcement Directorate and a complaint under PMLA has been filed before the Competent Court, the offence under PMLA has become stand alone offence and stand alone process, which is to be proceeded by following the procedures as contemplated under PMLA. For initiation of PMLA proceedings, predicate offence is required. For initiation of PMLA proceedings, predicate offence is required. During the pendency of complaint under PMLA, if the predicate offence is closed, in the present case, it resulted in miscarriage of justice, the Enforcement Directorate is well within its rights to place the facts before the High Court by instituting petition under Section 482 of Criminal Procedure Code to meet the ends of justice," the Court said.

Hence, it allowed a criminal revision petition filed by ED against the acceptance of the closure report by the Alandur Judicial Magistrate’s court.

The High Court permitted the ED as well as the Crime Branch to continue the prosecution under the PMLA and the provisions of the Indian Penal Code (IPC) respectively.

On November 17, 2022, the Alandur court had accepted the Crime Branch’s closure report in the criminal case registered against Martin, his wife M Leema Rose and three others pursuant to the seizure of ₹7.20 crore from the residence of one of them.

Additional Solicitor General ARL Sundaresan, who appeared for ED, argued that the investigating agencies were duty bound to ensure that no accused is permitted to escape prosecution in cases of serious economic offences. Sundaresan argued that ED was unable to investigate the matter under PMLA “just because an investigating officer attached to the CCB had decided to close the case booked for the predicate offence.”

The ASG further told the Court that ED had enough material to show the suspects had created an ante-dated false sale agreement related to an immovable property for explaining the possession of ₹7.20 crore in cash.

However, the counsel for the accused however claimed that seized money was the advance amount given by Leema to one of the accused for purchasing a residential property in Chennai.

The Court accepted the stance of ED that it is entitled to challenge acceptance of closure report in predicate offence.

The Court examined the closure report and held that the State investigating agency callously came to the conclusion that there was no evidence to prove the fabrication of the false document.

Further, the Court noted that the closure report of the State Police was filed on the findings from a judgment in 2013 quashing the predicate offence, but the said judgment had been set aside by the Supreme Court in 2018.

"This renders the reliance on it improper and irrelevant," the Court held.

Further, paying income tax on proceeds of crime will not wipe off or erase the facts of illegal sales of lottery tickets, creation of a fabricated document and relying on a false document, as if it was genuine, the Bench ruled.

It also castigated the State agency for its attempt to bury the case.

"In our opinion, the State Agency has made an attempt to bury the predicate offence against the accused persons in a suspicious manner and on extraneous considerations, which are visible through their actions including the closure report filed by the State police," the order said.

Hence, it set aside the trial court order and directed the ED and State agency to proceed with the money laundering and criminal cases in tandem.

Additional Solicitor General of India ARL Sundaresan and Special Public Prosecutor S Sasikumar appeared for ED.

Advocate General PS Raman and Additional Public Prosecutor R Muniyappa appeared for the respondent State.

Senior Counsel NR Elango and advocates T Vijay, AS Aswin Prasanna, Aruna Elango and Agilesh Kumar appeared for Nagarajan, Martin, Moorthy and Leema, the accused persons in the case.

Interestingly, this same Bench had in another case revoked its decision to quash a money laundering case against retired police officer MS Jaffar Sait.

On August 21, the Bench had quashed the ED's complaint in the matter against Sait after noting that the predicate case (DVAC case) had already been quashed.

Two days later, on August 23, the same Bench recalled its August 21 order and decided to re-hear the matter on merits.

Sait then moved the Supreme Court against the same and the top court stayed the August 23 order.

[Read Order]