PMLA | 'Reason To Believe' Can't Be Mere Suspicion, Require Sufficient Evidence: Telangana High Court

The Telangana High Court has held that to constitute the offence of money laundering, the Enforcement Directorate (ED) must prove a reasonable basis to believe that the offence has been committed and generation of direct or indirect crime proceeds as a result of criminal activity which can be related to the offence.

Justice M. Laxman added that the phrase 'reason to believe' enshrined in the Prevention of Money Laundering Act, 2002 cannot be mere suspicion, gossip or rumour.

"In order to arrive at conclusion to believe, there must be some material to suggest formation of conclusion. The reasons to believe must be founded on sufficient material and it is not on the basis of suspicion, but on the basis of some evidence."

“However, the fact remains that accused Nos.1 to 3 were acquitted and in fact, entire tender process was cancelled and no crime proceeds were generated in favour of the joint venture company, including the petitioner herein. When crime proceeds were not generated or such crime proceeds did not come into possession of the petitioner, the authorities have no jurisdiction to continue the proceedings under the PML Act.”

Factual Background:

The case of the ED was that an FIR registered by the Economic Offences Wing of Bhopal, in 2019, for the offences under Sections 420, 468, 471 and 120-B of the Indian Penal Code, 1908, Section 66 of the Information Technology Act, 2000 and Section 7 of the Prevention of Corruption (Amendment) Act, 2018 read with Section 13 (2) of the Prevention of Corruption Act, 2018 for un-authorised access to the e-tender procurement portal, issued by Madhya Pradesh against the petitioner and others alleged to be involved.

When the preliminary enquiry was done, it was found that 3 tenders were tampered with. ‘Similarly, various other tenders of different Government Departments were also tampered and the price bids of specific applicant companies were changed. As a result, those companies became lowest bidders and their tenders were accepted, thereby such companies have got undue benefit.’

Further, it was claimed that the beneficiary companies, used the digital certificate of tender opening to make unauthorised access by obtaining their used ID No. It was also stated in the ECIR that e-signatures of concerned registering authorities were also tampered with, and all this was done in pursuance of criminal conspiracy by all the persons who have a stake in the alleged offence. By way of IP address tracking, the address was linked to Vinay Chaudhary, Marketing Director of M/s Osmo I.T. Solutions Private Limited.

This led the ED to initiate a thorough probe into the e-tenders issued by Madhya Pradesh in 2016. After the completion of the probe, the ED suspected that crime proceeds of up to 80 thousand crores were generated. Based on the probe, the ECIR in question was registered under section 3 r/w section 4 of the Prevention of Money Laundering Act, 2002.

One of the tenders that were tampered with was changed to the price bid of a joint venture, the petitioner company and M’s Sorathia Velji Ratna & Co due to which the petitioner’s name was added to the ECIR. The case of the Directorate is that, the petitioner transferred funds to M/s Osmo I.T Solutions, to the tune of 10 lakhs, which was used for acquiring the tender illegally.

The petitioner has pleaded before the Court, that the FIRs registered by the Economics wing, Bhopal, on the basis of which the probe by the ED was initiated and ECIR was registered, was tried and all accused therein were acquitted. The petitioner pleaded that since the original cases resulted in acquittals, there is no ‘reason to believe’ that crimes were committed. Further, the petitioner claimed that the crime proceeds that the ED had suspected to be to a tune of 80 thousand crores had never materialised.

The petitioner further claimed that even though the alleged crime was committed, it was done so by the authorised representative appointed to get the tender and could not be linked to the Director of the petitioner firm or the petitioner firm itself. Further, it was stated that no new FIR was registered, and no crime proceeds were recovered to date.

On the other hand, the Counsel on behalf of the Enforcement Directorate stated that the allegations show that prima facie commission of the offence was made out in the ECIR.

The court referring to the definition of ‘proceeds of crime’ as stipulated in the PMLA and civil and criminal remedies provided thereof held:

“Some persons were authorised by the joint venture company to participate in the tender process. Therefore, if anything mischievous act has been done in the tender process, it must have done by the concerned authorised persons, but not the petitioner in his individual capacity, unless it is shown that the petitioner has a role in the commission of scheduled offence with specific mens rea. In the two charge sheets, there is no mention of the petitioner.”

The Court also observed that the only incident linking the petitioner to the alleged crime is the deposit of 10lakhs into the account of M/s Osmo I.T Solutions, which was allegedly used as bribes for garnering tender. The Court further noticed, that the Trial Court after considering all the facts, did not buy into the idea that the deposit amount was used for execution of tampering.

The Court further noted that apart from the acquittal, it had been 3 years since the registration of the ECIR case, and till date, no crime proceeds could be established by the ED, and in the said circumstances, authorities cannot justify the continuation of proceedings.

“There is no evidence with regard to existence of such tampering so as to have some foundation to claim existence of reasons to believe with regard to crime proceeds. In the said background of facts and circumstances, continuation of ECIR proceedings against the petitioner amounts to abuse of process of law which cannot be allowed.”

With that finding, the Court quashed the ECIR.

Case Title: Manthena Srinivasa Raju vs. Directorate of Enforcement (46)

Counsel for Petitioner: Duvva Pavan Kumar

Counsel for Respondent: Anil Prasad Tiwari SC for ED

Click Here To Read/Download The Order