Supreme Court clarifies jurisdiction in money laundering cases: Rana Ayyub vs. Directorate of Enforcement (2023)

Date of the Judgment: 7 February 2023

Citation: (2023) INSC 86

Judges: V. Ramasubramanian, J. and J.B. Pardiwala, J.

Can the location of a bank account where funds are deposited determine the jurisdiction of a money laundering case? The Supreme Court of India recently addressed this crucial question in a case involving allegations of money laundering. The court clarified that the jurisdiction isn’t solely determined by the location of the bank account, but rather by the various stages of the offense, including where the proceeds of crime were acquired, possessed, concealed, or used. This judgment provides clarity on the complex issue of territorial jurisdiction in cases under the Prevention of Money Laundering Act (PMLA), 2002.

The bench comprised Justices V. Ramasubramanian and J.B. Pardiwala, with the opinion authored by Justice V. Ramasubramanian.

Case Background

The case revolves around a writ petition filed by Rana Ayyub challenging a summoning order issued by the Special Judge, Anti-Corruption, CBI Court No.1, Ghaziabad. The order was based on a complaint lodged by the Directorate of Enforcement (ED) under Section 45 read with Section 44 of the Prevention of Money-laundering Act, 2002 (PMLA).

The petitioner, Rana Ayyub, initiated three crowdfunding campaigns through an online platform called “Ketto” between April 2020 and September 2021. Subsequently, the Mumbai Zonal Office of the Enforcement Directorate initiated an inquiry against her under the Foreign Exchange Management Act, 1999 (FEMA) on August 3, 2021.

On September 7, 2021, an FIR was lodged by Vikas Sankritayan, claiming to be the founder of Hindu IT Cell, at Indirapuram Police Station, Ghaziabad. The FIR alleged offenses under Sections 403, 406, 418, and 420 of the Indian Penal Code (IPC), along with Section 66D of the Information Technology (Amendment) Act, 2008, and Section 4 of the Black Money Act.

Following this, the petitioner received an order from the Mumbai Zonal Office of the ED under Section 37 of FEMA and Section 133(6) of the Income-tax Act, 1961, seeking further documents. After the petitioner responded, the Delhi Zone-II Office of the ED registered a complaint in ECIR No.DLZO-II/58/2021 on November 11, 2021, in the Court of the Special Judge at Ghaziabad, based on the FIR filed in Indirapuram.

The petitioner’s statement was recorded under Section 50 of the PMLA on December 15, 2021. A provisional attachment order for her bank account in HDFC Bank, Koperkhairane Branch, Navi Mumbai, was issued on February 4, 2022. The Adjudicating Authority issued a show cause notice on March 8, 2022.

A Look Out Circular issued against the petitioner was set aside by the High Court of Delhi. The High Court also restrained the ED from taking further steps under Section 8 of the PMLA due to the expiry of the 180-day validity period of the provisional attachment order.

The Special Judge, Anti-Corruption, CBI Court No.1, Ghaziabad, took cognizance of the complaint on November 29, 2022, and summoned the petitioner to appear on December 13, 2022. The petitioner then filed the present writ petition challenging the summoning order, specifically on the grounds of lack of territorial jurisdiction.

Timeline:

Course of Proceedings

The proceedings began with a complaint lodged by the Directorate of Enforcement (ED) in the Court of the Special Judge at Ghaziabad, based on an FIR registered at Indirapuram Police Station, Ghaziabad. The Special Judge took cognizance of the complaint and issued a summoning order to the petitioner.

The petitioner challenged the summoning order before the Supreme Court, limiting her challenge to the issue of territorial jurisdiction, arguing that the Special Court at Ghaziabad lacked jurisdiction as no part of the alleged money laundering offense occurred within its jurisdiction. The petitioner contended that her bank account, where the alleged proceeds of crime were deposited, was in Navi Mumbai, Maharashtra.

Legal Framework

The core of the legal framework in this case is the Prevention of Money-laundering Act, 2002 (PMLA). The following provisions are central:

• Section 2(1)(p) of the PMLA: Defines “money-laundering” by referring to Section 3.
• Section 3 of the PMLA: Defines the offense of money laundering as involvement in any process or activity connected with the proceeds of crime, including concealment, possession, acquisition, use, or projecting it as untainted property. It states, “a person shall be guilty of offence of money-laundering, if such person directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property.”
• Section 2(1)(u) of the PMLA: Defines “proceeds of crime” as any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offense. It states, “any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad.”
• Section 43(1) of the PMLA: Provides for the constitution of Special Courts by the Central Government for trying offenses under Section 4 of the PMLA. It states, “The Central Government, in consultation with the Chief Justice of the High Court, shall, for trial of offence punishable under section 4, by notification, designate one or more Courts of Session as Special Court or Special Courts for such area or areas or for such case or class or group of cases as may be specified in the notification.”
• Section 43(2) of the PMLA: Empowers Special Courts to try offenses other than those under Section 4, if the accused is charged with them in the same trial. It states, “While trying an offence under this Act, a Special Court shall also try an offence, other than an offence referred to in sub-section (1), with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974), be charged at the same trial.”
• Section 44(1) of the PMLA: Deals with the territorial jurisdiction of Special Courts, stating that offenses under Section 4 and related scheduled offenses should be tried by the Special Court in the area where the offense has been committed. It states, “Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),— (a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed”. It also outlines procedures for cases where the scheduled offense is being tried by a court other than the Special Court trying the money laundering offense.
• Section 71 of the PMLA: Gives overriding effect to the PMLA.
• Section 46(1) of the PMLA: States that the provisions of the Code of Criminal Procedure (Cr.P.C.) apply to proceedings before a Special Court.
• Section 65 of the PMLA: States that the provisions of Cr.P.C. apply to arrest, search, seizure, attachment, confiscation, investigation, prosecution and all other proceedings under the Act.

The Supreme Court also referred to Sections 177 to 184 of the Code of Criminal Procedure (Cr.P.C.), which deal with the territorial jurisdiction of criminal courts.

Arguments

Petitioner’s Arguments:

• The petitioner argued that under Section 44(1) of the PMLA, the offense of money laundering should be tried by the Special Court in the area where the offense was committed.
• Relying on the Supreme Court’s decision in Vijay Madanlal Choudhary & Ors. vs. Union of India & Ors. [2022 SCC OnLine SC 929], the petitioner contended that the trial for money laundering should be conducted by the Special Court designated for the area where the money laundering offense occurred.
• The petitioner asserted that no part of the alleged money laundering offense was committed within the jurisdiction of the Special Court at Ghaziabad. The petitioner’s bank account, where the alleged proceeds of crime were deposited, is located in Navi Mumbai, Maharashtra.
• The petitioner also pointed out that the provisional attachment proceedings were initiated in New Delhi, further supporting the argument that Ghaziabad lacked jurisdiction.
• The petitioner contended that the complaint at Ghaziabad was an abuse of process, initiated at the behest of the founder of the Hindu IT Cell.
• The petitioner argued that the Special Court should have returned the complaint to the respondent under Section 201 of the Code of Criminal Procedure, and that the order taking cognizance was made without proper application of mind.

Respondent’s Arguments:

• The respondent, represented by the Solicitor General, argued that the complaint for money laundering should follow the complaint for the scheduled offense. Since the scheduled offense was registered in Indirapuram Police Station, Ghaziabad, the Enforcement Case Information Report (ECIR) was necessarily filed in the same court’s jurisdiction.
• The respondent contended that a part of the cause of action arose within the jurisdiction of the Special Court at Ghaziabad. The respondent argued that the petitioner received money through an online crowdfunding platform, and several victims who contributed money were within the territorial jurisdiction of the Ghaziabad court.

Submissions by Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the trial of the offense of money-laundering should follow the trial of the scheduled/predicate offense or vice versa.
2. Whether the Court of the Special Judge, Anti-Corruption, CBI Court No.1, Ghaziabad, can be said to have exercised extra-territorial jurisdiction, even though the offense alleged, was not committed within the jurisdiction of the said Court.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Vijay Madanlal Choudhary & Ors. vs. Union of India & Ors. [2022 SCC OnLine SC 929] – The Court referred to this case to discuss the territorial jurisdiction of Special Courts in money laundering cases. The Court highlighted that the trial of the offence of money-laundering should proceed before the Special Court constituted for the area in which the offence of money-laundering has been committed.
• Kaushik Chatterjee vs. State of Haryana & Ors. [2020 (10) SCC 92] – The Court referred to this case to discuss the principles of territorial jurisdiction in criminal cases, which revolve around the place of commission of the offense, the place where the consequence of an act ensues, or other relevant places.

Legal Provisions:

• Section 2(1)(p) of the PMLA: Defines “money-laundering” by referring to Section 3.
• Section 3 of the PMLA: Defines the offense of money laundering.
• Section 2(1)(u) of the PMLA: Defines “proceeds of crime”.
• Section 43(1) of the PMLA: Provides for the constitution of Special Courts.
• Section 43(2) of the PMLA: Empowers Special Courts to try other offenses with which the accused may be charged at the same trial.
• Section 44(1) of the PMLA: Deals with the territorial jurisdiction of Special Courts.
• Section 71 of the PMLA: Gives overriding effect to the PMLA.
• Section 46(1) of the PMLA: Makes provisions of Cr.P.C. applicable to proceedings before a Special Court.
• Section 65 of the PMLA: Makes provisions of Cr.P.C. applicable to arrest, search, seizure, etc.
• Sections 177 to 184 of the Cr.P.C.: Deal with the territorial jurisdiction of criminal courts.

Authorities Considered by the Court

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court relied on Vijay Madanlal Choudhary & Ors. vs. Union of India & Ors. [2022 SCC OnLine SC 929] to emphasize that the trial for money laundering should occur in the jurisdiction where the money laundering offense was committed. The Court used Kaushik Chatterjee vs. State of Haryana & Ors. [2020 (10) SCC 92] to explain the principles of territorial jurisdiction in criminal cases. The Court analyzed the relevant sections of the PMLA, including Sections 2(1)(p), 3, 2(1)(u), 43(1), 43(2), 44(1), 71, 46(1), and 65, to determine the jurisdictional aspects. Additionally, the Court considered Sections 177 to 184 of the Cr.P.C. to understand the general principles of territorial jurisdiction.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to establish a clear framework for determining territorial jurisdiction in money laundering cases. The Court emphasized that the determination of jurisdiction is not solely based on the location of the bank account where the proceeds of crime were deposited. Instead, the Court highlighted the importance of considering the various stages of the money laundering process, including where the proceeds of crime were acquired, possessed, concealed, or used. The Court also stressed the primacy of the Special Court constituted under the PMLA, stating that the trial of the scheduled offense should follow the trial of the money laundering offense. The Court’s reasoning was also influenced by the need to avoid deciding factual disputes in a writ petition, emphasizing that such issues should be addressed by the Trial Court.

Logical Reasoning:

The Court’s reasoning is based on a careful analysis of the PMLA and the Cr.P.C. The Court emphasized that the Special Court constituted under the PMLA has primacy in deciding cases related to money laundering. The Court also highlighted that the definition of money laundering includes various activities, such as acquisition, possession, concealment, and use of proceeds of crime. Therefore, the determination of territorial jurisdiction cannot be based solely on the location of the bank account where the proceeds of crime were deposited. The Court noted that the issue of where the offense was committed is a factual matter that must be determined by the Trial Court. The Court also pointed out that the trial of the scheduled offense should follow the trial of the offense of money laundering.

The Court considered the argument that the complaint should follow the scheduled offense, but rejected it based on the primacy of the Special Court under the PMLA. The Court also considered the argument that a part of the cause of action arose in Ghaziabad due to donors being located there. However, the Court stated that this is a factual matter that must be determined by the Trial Court.

The Supreme Court stated, “Therefore, it is clear that the trial of the scheduled offence should take place in the Special Court which has taken cognizance of the offence of money-laundering. In other words, the trial of the scheduled offence, insofar as the question of territorial jurisdiction is concerned, should follow the trial of the offence of money-laundering and not vice versa.”

The Court also observed, “The area in which each one of these places is located, will be the area in which the offence of money-laundering has been committed. To put it differently, the area in which the place of acquisition of the proceeds of crime is located or the place of keeping it in possession is located or the place in which it is concealed is located or the place in which it is used is located, will be the area in which the offence has been committed.”

The Court further stated, “Therefore, we are of the view that the issue of territorial jurisdiction cannot be decided in a writ petition, especially when there is a serious factual dispute about the place/places of commission of the offence. Hence, this question should be raised by the petitioner before the Special Court, since an answer to the same would depend upon evidence as to the places where any one or more of the processes or activities mentioned in Section 3 were carried out.”

Key Takeaways

• Primacy of Special Courts: The judgment clarifies that the Special Court constituted under the PMLA has primacy in deciding cases related to money laundering. The trial of the scheduled offense should follow the trial of the money laundering offense.
• Multiple Locations for Offense: The offense of money laundering can be committed in multiple locations, including where the proceeds of crime are acquired, possessed, concealed, or used. The location of the bank account is not the sole determinant of jurisdiction.
• Factual Determination: The issue of territorial jurisdiction often involves factual disputes that must be decided by the Trial Court, not in a writ petition.
• Need for Evidence: The determination of territorial jurisdiction depends on the evidence presented regarding the various stages of the money laundering process.

Directions

The Supreme Court directed the petitioner to raise the issue of territorial jurisdiction before the Trial Court. The Court dismissed the writ petition, stating that the issue of territorial jurisdiction cannot be decided in a writ petition due to factual disputes.

Development of Law

The ratio decidendi of this case is that the trial of the scheduled offense should follow the trial of the offense of money laundering, and that the determination of territorial jurisdiction in money laundering cases depends on where the various activities related to the proceeds of crime (acquisition, possession, concealment, use) took place, not just the location of the bank account. This judgment further clarifies the interpretation of Section 44(1) of the PMLA and emphasizes the primacy of the Special Courts constituted under the Act. It also highlights that factual disputes regarding the place of commission of the offense should be determined by the Trial Court, not in a writ petition. The judgment provides a framework for determining territorial jurisdiction in money laundering cases, ensuring that the trial takes place in the appropriate jurisdiction.