Money Laundering Standalone Offence Once Proceeds Of Crime Are Traced & ED Files Complaint: Madras HC Says State Tried To Bury Predicate Offense Against Santiago Martin

The Madras High Court has restored criminal proceedings against lottery baron Santiago Martin and his co-accused in a case involving Rs. 7.20 crore in allegedly unaccounted cash, overriding a previous order by a trial court to close the investigation.

The Bench of Justice SM Subramaniam and Justice V Sivagnanam set aside the Alandur Judicial Magistrate's acceptance of the closure report filed by the Tamil Nadu Central Crime Branch (CCB) police, ruling that the Enforcement Directorate (ED) has grounds to pursue a money laundering case as an independent, standalone offence under the Prevention of Money Laundering Act (PMLA).

In a 47-page judgment, the Court underscored that while a “predicate offense” is necessary to trigger an investigation under PMLA, the offense of money laundering retains independent status once a complaint is filed by the ED before the competent court. "Once the “proceeds of crime” is traced out by the Enforcement Directorate and a complaint under PMLA has been filed before the Competent Court, the offence under PMLA has become stand alone offence and stand alone process, which is to be proceeded by following the procedures as contemplated under PMLA," the Bench observed. 

"For initiation of PMLA proceedings, predicate offence is required. During the pendency of complaint under PMLA, if the predicate offence is closed, in the present case, it resulted in miscarriage of justice, the Enforcement Directorate is well within its rights to place the facts before the High Court by instituting petition under Section 482 of Criminal Procedure Code to meet the ends of justice," it added. 

Additional Solicitor General (ASG) AR.L. Sundarasan appeared for the ED, and Advocate General (AG) P.S. Raman, along with Senior Advocate N.R. Elango, appeared for the State. 

In 2022, the Tamil Nadu CCB had registered a case against Martin and four associates, including his wife M. Leema Rose, following the seizure of ₹7.20 crore from the residence of one of the accused. The case was closed after the CCB concluded there was insufficient evidence of wrongdoing. However, the ED challenged this closure, arguing that it undermined the integrity of an ongoing money laundering investigation that it was pursuing independently.

The Bench endorsed the ED’s position, asserting that the agency has the right to appeal the closure of a predicate offense if it affects the money laundering case. 

The ASG argued that allowing the closure of the case filed under predicate charges effectively hampered the ED’s ability to prosecute economic offenses under PMLA. Sundaresan pointed out that evidence against Martin included falsified sale agreements purportedly explaining the origin of the Rs. 7.20 crore, which the ED deemed a fabricated cover-up for unlawful cash holdings.

The Court found this sufficient to restore the PMLA case, noting, “The CCB’s report lacks due diligence and seemingly attempts to shield the accused without a thorough investigation.”

The Bench emphasized that paying taxes on illegally obtained proceeds, such as those derived from unlawful lottery ticket sales, cannot exempt the money from scrutiny under PMLA. Additionally, the Court highlighted procedural lapses by the CCB, noting that their closure report relied on a 2013 judgment quashing the predicate offence, which was subsequently set aside by the Supreme Court in 2018. The Bench called this oversight a “significant error” in the State’s handling of the case.

“The State agency has clearly attempted to bury the predicate offense against the accused in a suspicious manner, guided by extraneous considerations, as reflected in the closure report filed by the State police,” the Court said in its Order dated October 28.

Consequently, the Court directed both the ED and the State CCB to resume prosecution under their respective laws: PMLA for the ED and the Indian Penal Code for the State agency. "The State Investigating Agency and the Enforcement Directorate are directed to proceed with the case in tandem, so as to ensure that the criminal case instituted is proceeded in accordance with law. However, the trial must go on uninfluenced by the observations, if any made relating to facts in the present case," the Court ordered. 

Cause Title: The Assistant Directorate v. The State and Ors. [Crl.O.P. No. 28289 of 2023]

Appearance:-

Petitioner: ASG AR.L. Sundarasan, Special Public Prosecutor S.Sasikumar

Respondent: Advocate General P.S.Raman, Addl. PP R.Muniyappa, Senior Advocate N.R.Elango, Advocates A.S.Aswin Prasanna, Aruna Elango, Agilesh Kumar

Click here to read/download the Order