Sec 13 PMLA- ED Empowered To Investigate Money Laundering Offence Only, Cannot Assume Predicate Offence Committed: Delhi HC

The Delhi High Court while pronouncing a judgment held that the Prevention of Money Laundering Act (PMLA) empowers the Enforcement Directorate (ED) to investigate Section 3 offences only.

The Court said that the power of ED to investigate is confined to the offence of money laundering only and it cannot assume that a predicate offence has been committed.

A Single Bench of Justice Yashwant Varma while dealing with the two writ petitions asserted, “What needs to be emphasised is that the PMLA empowers the ED to investigate Section 3 offenses only. Its power to investigate and enquire stands confined to the offense of money laundering as defined in that Section. However, the same cannot be read as enabling it to assume from the material that it may gather in the course of that investigation that a predicate offense stands committed. The predicate offense has to be necessarily investigated and tried by the authorities empowered by law in that regard.”

The Bench further said that the primary function to investigate and try such offenses remains and vests in authorities constituted under those independent statutes.

“ED cannot possibly arrogate unto itself the power to investigate or enquire into the alleged commission of those offenses. In any case, it cannot and on its own motion proceed on the surmise that a particular set of facts evidence the commission of a scheduled offense and based on that opinion initiate action under the PMLA”, the Court also held.

Advocate Ankur Chawla appeared for the petitioner while Advocate Zoheb Hossain appeared for the respondents.

Facts –

The writ petitions raised a question relating to the powers of the ED to provisionally attach properties under Section 5 of the PMLA. In this case, the proceedings drawn by the ED emanate from an allocation of the Fatehpur Coal Block in the State of Chhattisgarh. An FIR was lodged by the CBI under the provisions of the IPC and Prevention of Corruption Act against the companies for misrepresenting their net worth to procure coal block.

The ED thereafter registered an Enforcement Case Information Report and then the allocation of the coal block was cancelled after the 2014 judgment passed by the Supreme Court. The matter, therefore, came before the High Court.

The issue before the High Court was whether the ED could be recognised to have the jurisdiction to enforce the measures contemplated in Section 5 of PMLA solely upon it being of the opinion that the material gathered in the course of an investigation or enquiry evidences the commission of a predicate offense.

The Court while considering the above issue noted, “… the fact that the Special Judge so constituted to try criminal cases and offences would clearly lack the authority to either deal with or rule upon the validity of PAOs that may be made. If the submission addressed by and on behalf of the ED in this regard were be accepted, it would also amount to short circuiting the adjudicatory mechanism with respect to attachment orders as structured and placed in terms of the provision of the Act.”

It was further noted by the Court that if the submission of the counsel for the respondents were to be accepted, it would essentially amount to recognizing a power inhering in the Special Judge to not only don the robes of the Adjudicating Authority under Section 8 of PMLA but to also deprive the appellate forums of the jurisdiction to decide appeals against the orders that may ultimately come to be passed under the said Section.

“What needs to be emphasised is that while the adoption of peremptory measures by the ED may be justified and are so sanctioned by the Act, it would be incorrect to construe those powers as the ED alone being entitled to adjudge or declare that a predicate offense stands committed. The Court finds itself unable to countenance such a power being conferred upon the ED under the provisions of the Act”, the Court said.

The Court further observed that the ED failed to take any steps as envisaged under Section 66(2) of the PMLA.

“In any case and independent of Section 66(2), the Court finds itself unable to recognize ED as being statutorily empowered to either try or examine whether an offence under any other statue stands committed nor can it and more importantly pass a PAO on a mere assumption that an offence independently created under any other statute is established to have been committed”, the Court asserted.

The Court also said that despite the proceedings being pending since 2014, ED did not deem it fit, appropriate or imperative to furnish any information to the CBI in order to enable it to examine whether the allotment of preferential shares would evidence the commission of an offence under the IPC or any other Statute.

“… in the considered opinion of the Court, the aforesaid facts render the impugned PAO‘s not only violative of the statutory provisions but also patently arbitrary and illegal”, said the Court.

The Court, therefore, left it open for the petitioner to assail the complaint in the appropriate proceedings and if permissible in law.

Accordingly, the Court allowed the writ petitions and quashed the PAO as well as the original complaint.

Cause Title- M/s Prakash Industries Limited v. Union of India & Anr. (Neutral Citation: 2023/DHC/000481)

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