In a recent judgment, the Hon’ble Supreme Court clarified that an offence of criminal conspiracy punishable under Section 120B of the Indian Penal Code, 1860 will be deemed as a scheduled offence under the Prevention of Money Laundering Act, (“PMLA”) only if the alleged conspiracy is directed towards committing an offence specifically included in the schedule of the PMLA.

The Bench comprising of Justice Abhay S. Oka and Justice Pankaj Mithal pronounced the judgement in an appeal against a judgement of the Karnataka High Court which refused to quash the proceedings in a case pending before Special Judge, Bangalore for the offence of money laundering against her under PMLA.

Facts of the case¹:

• The Respondent - the Directorate of Enforcement (ED) filed a complaint under the second proviso to Section 45 (1) of the Prevention of Money Laundering Act, 2002 (PMLA) before the Special Court at Bangalore. The Appellant in the present matter was shown as Accused No.6 in the said complaint. By an order dated 17th March, 2022, the Special Court took cognizance of the said complaint.
   
• The Appellant thereafter filed a petition before the Hon’ble High Court of Karnataka under Section 482 of the Code of Criminal Procedure, 1973 seeking the relief of quashing of the said complaint. By the impugned judgment and order dated 27th September 2022, the petition for quashing the said complaint was dismissed.
   
• In the year 2011, Alliance Business School (hereinafter referred to as “ABS”) purchased a property bearing khata no. 37/22 at Gollahalli Village, Bangalore for the consideration of Rs. 13.05 crores. (For the sake of convenience, the said property is referred to as “the first property”). The Appellant purchased the first property from ABS on 1st July, 2013 through a registered sale deed for a consideration of 13.05 crores.
   
• The Accused No.1 purchased a property bearing survey no.s.61,62,63 at Karpur Village, Bangalore. (For the sake of convenience, the said property is referred to as “the second property”). The Appellant purchased the second property by a registered sale deed on 29th June 2019 for a consideration of Rs. 2.47 crores from the Accused No.1.
   
• For a period of 5 years i.e. from 2010 to 2015, the Appellant’s husband was the Vice Chancellor of the Alliance University. The Appellant acted as the Vice Chancellor of the Alliance University for a brief period. On 11th November, 2017, an FIR was registered on the complaint of the Registrar of the Alliance University against Accused No.1 alleging that he collected a sum of Rs. 107 crores from the students by claiming himself as the Chancellor of the Alliance University. The allegation was that he collected the said amount between January 2017 and November 2017 which was deposited in the account of Srivari Education Services. Subsequently, crores of rupees were transferred to the account of Accused No.1.
   
• An Enforcement Case Information Report (ECIR) was registered by the ED against the Accused Nos.1, 2 and 3 and other unknown accused alleging the commission of the offence of money laundering under Section 3 of the PMLA. The ECIR was based on four FIRs. In the chargesheets filed in respect of three FIRs, the name of the Appellant was not mentioned as an accused. Further, amongst various offences mentioned in the chargesheet, only offence of criminal conspiracy under Section 120B of the Indian Penal Code, 1860 was a scheduled offence under PMLA. Other offences mentioned in the chargesheet were not scheduled offences under PMLA.
   
• On 27th September, 2021, the ED passed an order under Section 5 of the PMLA attaching the first and second properties. A complaint was filed before the adjudicating authority on 13th October 2021, in which the Appellant was shown as the fifth defendant.
   
• The allegation against the present Appellant in the complaint filed under the second proviso of Section 45 (1) of the PMLA is that she has entered into a conspiracy with accused no.1 by getting executed nominal sale deeds in respect of the first and second properties in her name for the benefit of the accused no.1. The allegation of the ED was that the Appellant facilitated the Accused No.1 to use her bank accounts to siphon the university funds, thereby assisting the accused no.1 in the activity connected with the proceeds of crime.

By the impugned judgment, the Learned Single Judge of the Hon’ble High Court of Karnataka dismissed the Petition filed by the Appellant. The Learned Single Judge relied upon the decision of a Bench of three Hon’ble Judges of the Hon’ble Apex Court in the case of Vijay Madanlal Chaudhary & Others. Vs. Union of India & Others².

Arguments advanced in favour of the Appellant
The Learned Senior Counsel appearing for the Appellant firstly submitted that the first and second properties are not tainted properties and therefore, the same are not covered by the definition of “proceeds of crime” under clause (u) of sub-section (1) of Section 2 of the PMLA. The Learned Senior Counsel pointed out that the first property was acquired on 1st July, 2013, much prior to the commission of the first scheduled offence. The allegation in the FIR dated 11th November, 2017 against accused no.1 is that he collected a sum of about Rs. 107 crores from the students between January and November 2017 and transferred the said amount to his account. Therefore, the Learned Senior Counsel argued that the Appellant’s acquisition of the first property can never be linked with the proceeds of the crime regarding the scheduled offence. She submitted that the regarding the acquisition of the second property, the Appellant had her own resources available to acquire the same. The Learned Senior Counsel relied upon an Income Tax Return filed by the Appellant under the Income Declaration Scheme, 2016, by which she declared a total undisclosed income of Rs. 26,42,54,193/-. The Appellant paid Rs. 11,89,08,385/- towards income tax and penalty on 8th September 2016.The return was filed on 12th September, 2016. Therefore, the Appellant had a source of money for acquiring the second property for the consideration of Rs. 2.47 crores. Both the properties acquired by the Appellant had no nexus at all with the proceeds of crime of the scheduled offences. The Learned Senior Counsel pointed out that consideration of Rs. 2.47 crores were agreed upon as it was mentioned in the sale deed that it was a distress sale made by the accused no.1.

The second limb of the submissions of the Learned Senior Counsel was that as the Appellant has not been arraigned as an accused in the chargesheets filed pertaining to the alleged scheduled offences, she cannot be roped in as an accused for the offences punishable under Section 3 of the PMLA. The Learned Senior Counsel relied upon the decision of the Hon’ble Apex Court in the case of Vijay Madanlal Chaudhary. In this decision, the Learned Senior Counsel submitted that the Appellant’s case stands on a better footing as she was not even shown as an accused in any scheduled/predicate offences. She submitted that therefore, the cognizance of the crime under the PMLA could not have been taken against the Appellant.

The third submission of the Learned Senior Counsel was that out of the four scheduled/ predicate offences, chargesheets were filed in case of three offences and in those three chargesheets, only one offence covered by the Schedule to the PMLA has been mentioned, which is Section 120B of the Indian Penal Code, 1860.The Learned Senior counsel pointed out that in FIR No.119 of 2016 and FIR No.52 of 2017, Section 420 of Indian Penal Code, 1860 was included. However, in FIR no.52 of 2017, while filing the chargesheet, Section 420 of the Indian Penal Code, 1860 was excluded. She therefore contended that Section 120B of the Indian Penal Code, 1860 alone, in the absence of any other Scheduled offence, cannot sustain a charge under PMLA.

Relying upon the proviso to Section 120A of the Indian Penal Code, 1860, the Learned Senior counsel submitted that an illegal act or a legal act by illegal means, in furtherance to an agreement, committed by any person is a sine qua non for attracting the offence of conspiracy under Section 120B of the Indian Penal Code, 1860. She contended that if Section 120B of the Indian Penal Code, 1860 can be treated as a standalone offence to attract prosecution under the PMLA, by that logic a complaint under the PMLA can be filed where the allegation is of criminal conspiracy to commit an offence which is not a scheduled offence. Therefore, she submitted that the complaint against the Appellant deserves to be quashed.

Submissions of the Respondent
The Learned Additional Solicitor General appearing for the ED, submitted that even assuming that the Appellant had monetary capacity to acquire the second property, one cannot conclude that the funds siphoned by the accused no.1 which constitute the proceeds of crime, were not used by the Appellant for acquiring the second property. He submitted that a person can be held guilty of the commission of a money laundering offence under Section 3 of the PMLA, even if he is not shown as an accused in the predicate offence. He submitted that it is apparent from the provision of Section 3 of the PMLA that in a given case, a person who is not accused in the predicate offence can commit the offence of money laundering. He further submitted that the validity of the Schedule has been upheld in the case of Vijay Madanlal Choudhary. He therefore concluded that no interference is required in the present matter.

Findings of the Hon’ble Supreme Court
The Hon’ble Supreme Court in its Judgment held that there were no proceeds of crime in respect of the present case as the alleged criminal conspiracy did not relate to the commission of any of the scheduled offences and therefore, proceedings under PMLA cannot be initiated.

Section 2, Sub-Section 1, Clause (y) of the PMLA is as follows:

Section 2(1) in The Prevention of Money-Laundering Act, 2002
(1) In this Act, unless the context otherwise requires, -
     (y) “scheduled offence” means-
          (i) the offences specified under Part A of the Schedule; or
          (ii) the offences specified under Part B of the Schedule if the total value involved in such offences are thirty lakh rupees or more; or
          (iii) the offences specified under Part C of the Schedule;

The Hon’ble Apex Court observed that the legislative intent which can be gathered from the definition of the scheduled offence under clause (y) of Sub-Section (1) of Section 2 of the PMLA is that every crime which may generate proceeds of crime need not be a scheduled offence. Therefore, only certain specific offences have been included in the Schedule. While hypothetically considering the submissions made by the Learned Additional Solicitor General, the Hon’ble Apex Court observed that the Schedule will become meaningless or redundant as even if an offence registered in not a scheduled offence, the provisions of the PMLA and, in particular, Section 3 will be invoked by simply applying Section 120B of the Indian Penal Code, 1860.The Hon’ble Apex Court further observed that only because there is conspiracy to commit an offence, the same does not become an aggravated offence.

The Hon’ble Supreme Court reminded the Counsels that the object is to punish those involved in conspiracy to commit a crime, though they may not have been committed any over act that constitutes the offence. If no specific punishment is provided in the Statute for conspiracy to commit a particular offence, Section 120B treats a conspirator of the main accused as an abettor for the purposes of imposing the punishment. Therefore, the Hon’ble Apex Court concluded that the interpretation suggested by the ED will be defeat the legislative object of making only a few selected offences as scheduled offences. It observed that if such interpretations are accepted, the statute may attract the vice of unconstitutionality for being manifestly arbitrary.

Coming back to the facts of the present case, the Hon’ble Apex Court observed that in the chargesheets filed in the alleged scheduled offences, there is no allegation of the commission of criminal conspiracy to commit any of the offences included in the Schedule. As except for Section B of the Indian Penal Code, 1860, no other offence in the schedule has been applied. Therefore, in the present case, the Hon’ble Apex court held that the scheduled offence does not exist at all and therefore, the Appellant cannot be prosecuted for the offences punishable under Section 3 of PMLA.

Legal Position decided by the Hon’ble Apex Court
While rejecting the first and second submissions canvassed by the Learned Senior Counsel for the Appellant, the Hon’ble Supreme Court upheld the third submission and concluded that:

• It is not necessary that a person against whom the offence under Section 3 of the PMLA is alleged, must have been shown as the accused in the scheduled offence;
   
• Even if the accused shown in the complaint under the PMLA is not an accused in the scheduled offence, he will benefit from the acquittal of all the accused in the scheduled offence or discharge of all the accused in the scheduled offence. Similarly, he will get the benefit of the order of quashing the proceedings of the scheduled offence;
   
• The first property cannot be said to have any connection with the proceeds of the crime as the acts constituting scheduled offence were committed after the property was acquired.
   
• The issue of whether the Appellant has used tainted money forming the part of the proceeds of crime for acquiring the second property can be decided only at the time of the trial; and
   
• The offence punishable under Section 120B of the Indian Penal code, 1860 will become a scheduled offence only if the conspiracy alleged is of committing an offence which is specifically included in the Schedule.

Accordingly, the Hon’ble Supreme Court quashed and set aside the order passed by the Hon’ble Karnataka High Court and further quashed the complaint pending before the Special Court for PMLA cases, Bangalore in so far as the present Appellant is concerned.

By - Soumya Kamat