'ED Cannot Ignore CBI's Exoneration In Predicate Offence': Calcutta High Court Quashes PMLA Proceedings

The Calcutta High Court has quashed money laundering proceedings against Louis Dreyfus Company India Private Limited, holding that the Enforcement Directorate cannot prosecute an entity for laundering “proceeds of crime” when the CBI, after a full-fledged investigation into the predicate offence, found no material showing its involvement in the alleged criminal activity.Justice Suvra Ghosh observed that the ED had primarily relied upon the statement of a co-accused recorded under Section 50 of the Prevention of Money Laundering Act, 2002, without any independent material establishing the company's involvement in money laundering.“The material available insofar as the petitioner is concerned does not make out a case for the petitioner to stand trial,” the Court held.BackgroundThe case arose out of an FIR registered by the CBI in March 2014 against Manoj Kumar Jain, Director of M/s Prakash Vanijya Private Limited (PVPL), and others on allegations of causing wrongful loss of Rs. 234.57 crores to the Central Bank of India through fraudulent transactions.The CBI subsequently filed charge sheets under provisions of the IPC and Prevention of Corruption Act, which constituted scheduled offences under the PMLA. Based on the same, the Enforcement Directorate registered an ECIR in 2016 and later filed a prosecution complaint against Louis Dreyfus Company India Pvt. Ltd. and others.The ED alleged that the petitioner company participated in circular trading involving three Letters of Credit (LCs) amounting to Rs. 25 crores, and knowingly assisted in routing funds back to PVPL and its sister concerns through another company, M/s Quality Vintrade Private Limited (QVPL).According to the ED, the transactions were merely “paper transactions” intended to launder proceeds of crime.Appearing for the petitioner, senior advocate Mr. Sandipan Ganguly argued that the transactions were legitimate warehouse sale transactions undertaken through warehouse receipts in accordance with commercial practice and the Sale of Goods Act, where physical movement of goods was not necessary.It was further argued that the petitioner was never arraigned as an accused in the predicate offence investigated by the CBI. Rather, one of its authorised representatives was cited as a prosecution witness.The petitioner contended that the ED had impermissibly re-investigated issues already examined by the CBI, despite the latter having specifically concluded that no diversion of funds or criminality could be established against the company.The company also argued that mere reliance on the statement of co-accused Manoj Kumar Jain could not sustain prosecution under the PMLA.The ED opposed the plea by arguing that the petitioner knowingly participated in circular transactions between QVPL and PVPL and received Rs. 22,40,809/- as part of the proceeds of crime generated through discounted LCs issued by the Central Bank of India.The agency relied on the Section 50 statement of co-accused Manoj Kumar Jain, who allegedly stated that the transactions were only “on pen and paper” and that QVPL was under his control.The ED further argued that prosecution under the PMLA is independent of the predicate offence and that a person need not be named as an accused in the scheduled offence to be prosecuted for money laundering.Court's FindingsThe High Court reiterated that although a person need not necessarily be an accused in the scheduled offence to face prosecution under Section 3 of the PMLA, the prosecution must nevertheless establish involvement in activities connected with “proceeds of crime”.Referring to decisions including Prem Prakash v. Union of India and Kashmira Singh v. State of Madhya Pradesh, the Court observed that the prosecution cannot begin solely on the basis of a co-accused's statement and such statements can only lend support to other independent evidence.Justice Ghosh noted that the petitioner had purchased consignments from QVPL and sold them to PVPL through warehouse receipt transactions recognised under law, and such transactions could not automatically be termed “paper transactions”.Importantly, the Court observed that QVPL itself had not been arraigned as an accused either in the predicate offence or the money laundering case.“In view of the fact that QVPL who is the alleged recipient of the money from the petitioner is not an accused in either of the cases, the transaction between them cannot be prima facie termed as illegal,” the Court held.ED Cannot Proceed On Same Premise After CBI ExonerationThe Court emphasised that the CBI had specifically investigated the three disputed LCs and the petitioner's role in the transactions before concluding that the company was not a beneficiary and that no diversion of funds involving it could be established.Justice Ghosh held that while it is one thing for a person to not be named in the scheduled offence and later emerge in the laundering process, it is entirely different where the investigating agency in...

'ED Cannot Ignore CBI's Exoneration In Predicate Offence': Calcutta High Court Quashes PMLA Proceedings

Srinjoy Das

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'ED Cannot Ignore CBI's Exoneration In Predicate Offence': Calcutta High Court Quashes PMLA Proceedings

Srinjoy Das

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