The Supreme Court earlier in Vijay Madanlal Choudhary & Ors. v. Union of India & Ors.2023 (12) SCC 1, clarified that proceeds of crime must arise from a criminal activity related to a scheduled offense that has already occurred. If the crime forming the basis of money laundering is not proven or is quashed, the entire case under PMLA would lose its foundation.
Despite the clarity provided by Vijay Madanlal's judgment, the Madras High Court recently in Vijayraj Surana adopted a different approach. In this case, the petitioner was accused of misappropriating loans taken by companies he managed. The Central Bureau of Investigation (CBI) registered a case (Regular Case “RC”) and the Serious Fraud Investigation Office (SFIO) also filed a complaint under Section 447 of the Companies Act, a scheduled offense under PMLA. Section 447 deals with the punishment for fraud in relation to the affairs of a company. It is one of the most stringent provisions introduced under the Companies Act, 2013 to address fraudulent activities. The Karnataka High Court later quashed the CBI’s RC, holding that the SFIO had exclusive jurisdiction to investigate the matter. Following this, the petitioner approached the Madras High Court, seeking to quash the PMLA proceedings initiated by the ED. However, the Madras High Court refused to quash the PMLA proceedings. It reasoned that the RC was quashed only on technical grounds (jurisdictional issues), not on the merits of the case. Further, the SFIO complaint under Section 447 was still pending before the Special Court in Chennai. Since a scheduled offense was still being pursued, the ED could continue its investigation under PMLA. The Court further observed that technical or procedural flaws leading to the quashing of an FIR do not automatically invalidate PMLA proceedings. Each case must be evaluated individually to decide if money laundering charges can continue. This judgment in Vijayraj Surana creates a potential conflict with earlier decisions. Under the PMLA, the Enforcement Case Information Report (ECIR), an internal document prepared by the ED, is directly tied to the existence of a predicate offense (“scheduled offense”). If the FIR or the criminal case forming the scheduled offense is quashed, the ECIR would naturally lose its legal basis. For instance, the Supreme Court in Vijay Madanlal and the Delhi High Court in Rajinder Singh Chada v. Union of India 2023 SCC OnLine Del 715 both held that an ECIR cannot survive if the predicate FIR is quashed. Moreover, the Punjab and Haryana High Court in Chetan Gupta v. Directorate of Enforcement 2024 SCC OnLine P&H 1326 explained that the scheduled offense is like a wall, and the money laundering case under PMLA is the plaster on it. If the wall collapses, the plaster cannot hold up by itself. In contrast, the Madras High Court in Vijayraj Surana gave the ECIR an independent existence, allowing it to survive even when the FIR was quashed. This interpretation introduces confusion and raises concerns about the misuse of enforcement powers.