The Supreme Court will examine whether acquittal in a predicate criminal case automatically ends money-laundering proceedings by the Enforcement Directorate. The court questioned earlier rulings and warned that such a view could defeat the very purpose of the PMLA.
New Delhi: The Supreme Court on Tuesday agreed to examine an important legal issue that affects hundreds of money-laundering cases being investigated by the Enforcement Directorate (ED) across India.
The main question before the court is whether a person can still be tried for money laundering if they have already been acquitted in the related criminal case, known as the predicate or scheduled offence.
The ED informed the court that in many states, the police often take a relaxed approach while investigating predicate offences, especially when the accused are influential or powerful people.
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According to the agency, when such accused persons are acquitted in the main criminal cases, it becomes very difficult for the ED to continue prosecution under the Prevention of Money Laundering Act (PMLA). Taking note of this concern, the Supreme Court observed that it appears the ED has been “completely shut out”.
Under the PMLA, a predicate offence is the original crime that generates the “proceeds of crime”, which is necessary for the ED to begin a money-laundering investigation. If there is no such offence, the entire PMLA case may collapse.
A bench comprising Justices M M Sundresh and N Kotiswar Singh said that several complex legal issues need to be resolved.
“A lot of knots need to be untied,”
the bench remarked, while expressing doubts about certain findings in the 2022 judgment in Vijay Madanlal Choudhary, which had upheld wide powers of the ED, including arrest, search and seizure.
The bench said it was difficult to accept the reasoning that if a predicate offence is quashed, the money-laundering case must automatically fail. Questioning this legal position, the court asked, “Why does the ED case depend on the predicate offence? Every case has its own facts and they cannot be dependent on each other.
“ED is not before the court to defend the predicate offence. We cannot fathom this. These are serious economic offences,”
the bench observed.
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Additional Solicitor General S V Raju, appearing for the ED, told the court that the 2022 verdict has been interpreted in different ways by different courts and accused persons, which has caused serious difficulties in prosecuting money-laundering cases. He highlighted the practical problems faced by the agency due to these interpretations.
Justice Sundresh also referred to the Supreme Court’s 2023 judgment in Pavana Dibbur versus the Directorate of Enforcement. He said the observation in that verdict — that for a money-laundering offence it is not necessary for the accused to also be an accused in the scheduled offence — is also questionable and will be examined by the court.
Giving multiple examples, the bench clarified that an acquittal or discharge in the predicate offence does not necessarily mean that the crime itself never occurred. The court warned that restricting the ED’s powers in this manner could seriously undermine the purpose of the PMLA.
“If the hands of ED are tied up as has been held up in the 2022 verdict, then how will they prosecute in the money laundering case? It will defeat the very object of the enactment. We are dealing with these kinds of cases day in and day out. It has opened the floodgates,” the Supreme Court said.
The bench is currently hearing several petitions where accused persons are seeking release in money-laundering cases on the ground that they were acquitted in the predicate or scheduled offences and therefore there were no “proceeds of crime”.
Warning about the wider consequences of such arguments, the court said, “If this happens, the entire proceedings of the ED will go into the dustbin once there is acquittal in a predicate offence.”
The Supreme Court made it clear that it will examine the larger legal question and closely review the correctness of the findings in both the 2022 Vijay Madanlal Choudhary judgment and the 2023 Pavana Dibbur decision.
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The court said that detailed hearings on this issue will take place in April. It also indicated that the matter could be referred to a larger bench if required. “If required, we will refer it to a larger three-judge bench as the 2022 decision was of a three-judge bench,” the court said.
During the hearing, the bench also questioned the ED on why it had not filed a review petition against the 2022 Vijay Madanlal Choudhary verdict. In response, ASG Raju said that the judgment was largely in favour of the ED, which is why several review petitions were filed by other parties and are still pending before the Supreme Court.
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