Supreme Court Upholds ED’s Power to Investigate Money Laundering in Tamil Nadu Job Scam: Y. Balaji vs. Karthik Desari (2023)

Introduction

Date of the Judgment: 16 May 2023
Citation: (2023) INSC 458
Judges: Krishna Murari, J., V. Ramasubramanian, J.

Can a state police investigation into a job recruitment scam be halted by a High Court order, preventing the Enforcement Directorate (ED) from investigating potential money laundering? The Supreme Court of India recently addressed this crucial question, stemming from a complex case involving alleged corruption in Tamil Nadu’s Metropolitan Transport Corporation. The core issue revolves around the ED’s power to investigate money laundering when the predicate offenses, such as corruption, are under scrutiny. This judgment clarifies the ED’s authority and the scope of the Prevention of Money Laundering Act, 2002 (PMLA). The bench comprised Justices Krishna Murari and V. Ramasubramanian, with the majority opinion authored by Justice V. Ramasubramanian.

Case Background

The case originates from a series of complaints regarding a job recruitment scam within the Metropolitan Transport Corporation of Tamil Nadu. In November 2014, the corporation issued advertisements for various posts, including drivers and conductors. Following interviews, several individuals alleged that they were asked for bribes in exchange for jobs. The timeline of events is as follows:

• November 2014: Metropolitan Transport Corporation issues advertisements for various posts.
• 29 October 2015: Devasagayam files a complaint alleging he paid a bribe for his son’s job, which was registered as FIR No. 441 of 2015 under Sections 406, 420 read with Section 34 of the Indian Penal Code, 1860.
• 7 March 2016: Gopi petitions the Commissioner of Police, alleging he paid a bribe to associates of Minister Senthil Balaji, but no action was taken.
• 20 June 2016: The High Court directs the Assistant Commissioner of Police, Central Crime Branch (Job Racketing) to investigate FIR No. 441 of 2015, after Gopi’s petition.
• 13 June 2017: Police file a final report in FIR No. 441 of 2015 against 12 individuals, excluding Minister Senthil Balaji and his associates.
• 9 September 2017: V. Ganesh Kumar lodges a complaint against Minister Senthil Balaji and others, alleging collection of bribes, registered as FIR No. 298 of 2017.
• 7 June 2018: Police file a final report in FIR No. 298 of 2017 against Minister Senthil Balaji and others, only for offences under Sections 420 and 506(1) read with Section 34 IPC.
• 13 August 2018: K. Arulmani files a complaint alleging payment of bribes to the Minister’s PA, registered as FIR No. 344 of 2018.
• 12 April 2019: Police file a final report in FIR No. 344 of 2018, without including offences under the Prevention of Corruption Act, 1988.
• 27 November 2019: The High Court directs further investigation in CC No. 3627 of 2017 (arising from FIR No. 441 of 2015).
• 26 August 2020: The Special Court dismisses Minister Senthil Balaji’s discharge petition in CC No. 19 of 2020.
• 8 March 2021: A further report under Section 173(8) of the Code is filed in C.C.No. 24 of 2021 against 47 persons including the Minister Senthil Balaji and Shanmugam (PA to the Minister) in which the offences under the PC Act were included.
• 30 July 2021: The High Court quashes CC No. 25 of 2021 based on a compromise memo.
• 29 July 2021: The ED registers an Information Report (ECIR) and issues summons to Minister Senthil Balaji.
• 9 November 2021: The Trial Court directs the supply of certified copies of FIRs, complaints, and statements under Sections 161 and 164 of the Code to ED, but refuses unmarked documents.
• 30 March 2022: The High Court permits ED to inspect documents under Rule 237 of the Criminal Rules of Practice, 2019.
• 1 September 2022: The High Court allows writ petitions filed by Minister Senthil Balaji, his secretary, and his brother, challenging the summons issued by ED.
• 8 September 2022: The Supreme Court overturns the High Court’s order dated 30.07.2021, restoring the calendar cases and directing the inclusion of offences under the PC Act.
• 31 October 2022: The High Court orders de novo investigation based on a petition by Devasagayam.

Timeline

Legal Framework

The judgment references several key legal provisions:

• Sections 406, 420, and 506(1) of the Indian Penal Code, 1860 (IPC): These sections relate to criminal breach of trust, cheating, and criminal intimidation, respectively.
• Sections 7, 12, 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 (PC Act): These sections deal with offences related to bribery and corruption by public servants.
• Section 3 of the Prevention of Money Laundering Act, 2002 (PMLA): Defines the offence of money laundering. The court emphasizes that the “acquisition” of illegal gratification itself constitutes an activity related to money laundering.
• Section 2(1)(u) of the PMLA: Defines “proceeds of crime” as any property derived from criminal activity related to a scheduled offence.
• Section 50(2) of the PMLA: Empowers the Director of ED to summon any person during the course of an investigation.
• Section 173 of the Code of Criminal Procedure, 1973 (CrPC): Deals with police reports after an investigation.
• Section 482 of the CrPC: Grants the High Court inherent powers to prevent abuse of the process of any court.

The court also discusses the interplay between the PMLA and the predicate offenses, highlighting that the PMLA is triggered when there is a scheduled offense that generates proceeds of crime, which are then laundered.

Arguments

The arguments presented before the Supreme Court were multifaceted, involving various parties:

• Accused:
  • The accused argued that the ED’s investigation was initiated without proper jurisdictional facts, as there was no identification of proceeds of crime or money laundering activities.
  • They contended that the High Court’s order staying proceedings in predicate offenses should also halt the ED’s investigation.
  • They relied on the Supreme Court’s judgment in Vijay Madanlal Choudhary vs. Union of India [CITATION], arguing that the absence of identified proceeds of crime prevents the ED from stepping in.
  • They argued that the ED was on a “fishing expedition,” trying to find evidence of money laundering without any prior material.
  • They also argued that the High Court was correct in ordering a de novo investigation and that the earlier investigation should be wiped out.
• Enforcement Directorate (ED):
  • The ED argued that the allegations in the FIRs for predicate offenses (corruption) inherently involve the generation of proceeds of crime, which are then subject to money laundering.
  • They contended that the High Court’s orders were obstructing a legitimate investigation into money laundering.
  • The ED argued that they had sufficient material to initiate the investigation and were not on a fishing expedition.
  • They highlighted the international conventions and the FATF recommendations that emphasize the need to curb money laundering.
• Victims and NGOs:
  • Victims and NGOs argued against the High Court’s order for de novo investigation. They contended that it would derail the investigation and help the accused.
  • They argued that the State Police had not acted fairly and impartially, necessitating the intervention of the Supreme Court.
  • They highlighted the need for a thorough investigation into the corruption and money laundering activities.

The arguments also touched upon the interpretation of Section 3 of the PMLA, particularly the meaning of “process or activity connected with the proceeds of crime.”

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the High Court was correct in ordering de novo investigation in the cases relating to the predicate offences.
2. Whether the High Court was correct in setting aside the summons issued by the Enforcement Directorate.
3. Whether the High Court was right in permitting the ED to have an inspection of the records of the Trial Court.
4. Whether the High Court was correct in refusing to grant extension of time to complete the investigation.
5. Whether, without identifying the proceeds of crime or a property representing the proceeds of crime and without identifying any process or activity connected to proceeds of crime as required by Section 3, which constitute the foundational/jurisdictional fact, ED can initiate an investigation and issue summons?
6. Whether in the light of the fact that notice has been ordered in the review petition and a few interim orders have been passed in some proceedings, it is necessary for this Court to tag these appeals along with a review petition or defer the hearing of these matters until a decision is rendered in the review petition and other petitions?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered several authorities while deciding this case:

Cases:

• Vinay Tyagi vs. Irshad Ali alias Deepak (2013) 5 SCC 762 [Supreme Court of India]: Discussed the scope of further investigation, fresh investigation, and de novo investigation.
• P. Dharamaraj vs. Shanmugam 2022 SCC OnLine SC 1186 [Supreme Court of India]: This case was a previous round of litigation in the same matter, dealing with the question of locus.
• Vijay Madanlal Choudhary vs. Union of India (2022 SCC OnLine SC 929) [Supreme Court of India]: A landmark judgment on the interpretation of the PMLA. The court discussed the various facets of the PMLA and upheld its constitutional validity.
• Union of India vs. Ganpati Dealcom Private Limited (2023) 3 SCC 315 [Supreme Court of India]: This case discussed the ratio laid down in Vijay Madanlal Choudhary with respect to confiscation proceedings under Section 8 of the PMLA.
• Janata Dal vs. H.S. Chowdhary (1992) 4 SCC 305 [Supreme Court of India]: Addressed the issue of locus standi in criminal matters.
• Simranjit Singh Mann vs. Union of India (1992) 4 SCC 653 [Supreme Court of India]: Addressed the issue of locus standi in criminal matters.
• Shauqin Singh vs. Desa Singh (1970) 3 SCC 881 [Supreme Court of India]: Discussed the importance of jurisdictional facts.
• Arun Kumar vs. Union of India (2007) 1 SCC 732 [Supreme Court of India]: Discussed the importance of jurisdictional facts.
• Bihta Co-operative Development and Cane Marketing Union Ltd. vs. Bank of Bihar AIR 1967 SC 389 [Supreme Court of India]: Discussed the scope of an Explanation to a section.
• Street Tramways vs. London County Council (1898) AC 375 [House of Lords]: A precedent on the doctrine of stare decisis.
• Redcliffe vs. Ribble Motor Services (1939) AC 215 [House of Lords]: A precedent on the doctrine of stare decisis.
• Sakshi vs. Union of India (2004) 5 SCC 518 [Supreme Court of India]: Discussed the importance of the doctrine of stare decisis.
• Central Board of Dawoodi Bohra Community vs. State of Maharashtra (2005) 2 SCC 673 [Supreme Court of India]: Discussed the binding nature of judgments by larger benches.
• Badrinath vs. Government of Tamil Nadu (2000) 8 SCC 395 [Supreme Court of India]: Discussed the principle of sublato fundamento cadit opus.
• State of Kerala vs. Puthenkavu N.S.S. Karayogam (2001) 10 SCC 191 [Supreme Court of India]: Discussed the principle of sublato fundamento cadit opus.
• State of Punjab vs. Davinder Pal Singh Bhullar (2011) 14 SCC 770 [Supreme Court of India]: Discussed the principle of sublato fundamento cadit opus.
• Management of the Northern Railway Co-operative Credit Society Ltd., Jodhpur vs. Industrial Tribunal, Rajasthan, Jaipur (1967) 2 SCR 476 [Supreme Court of India]: Discussed that a party successful before High Court can always seek to sustain the judgment, on grounds other than those stated in the impugned order.
• Enforcement Directorate vs. Gagandeep Singh 2022 SCC Online Del 514 [Delhi High Court]: Cited to show contradictions in the decision in Vijay Madanlal Choudhary.
• Parvathi Kollur vs. State through ED Crl. Appeal No.1254/2022 dt.16.08.2022 [Supreme Court of India]: Cited to show contradictions in the decision in Vijay Madanlal Choudhary.
• Karti P. Chidambaram vs. The Directorate of Enforcement Review Petition (Crl.) No.219 of 2022 [Supreme Court of India]: Cited to show that a review petition has been entertained.
• Jairam Ramesh vs. Union of India SLP (C) No.13103 of 2019 [Supreme Court of India]: Cited to show that when certain questions of law are referred to a larger Bench, all subsequent matters should be tagged or deferred.
• Thomas Franco Rajendra Dev vs. Union of India WP (C) No.366/2022 dated 12.05.2022 [Supreme Court of India]: Cited to show that when certain questions of law are referred to a larger Bench, all subsequent matters should be tagged or deferred.
• Kantaru Rajeevaru (Right to Religion, In re -9 J.) vs. Indian Young Lawyers Association (2020) 9 SCC 121 [Supreme Court of India]: Cited to show that when certain questions of law are referred to a larger Bench, all subsequent matters should be tagged or deferred.
• Asgar Ali vs. State of Jammu and Kashmir 2022 SCC Online SC 3095 [Supreme Court of India]: Cited to show that when certain questions of law are referred to a larger Bench, all subsequent matters should be tagged or deferred.
• Central Board of Dawoodi Bohra Community vs. State of Maharashtra 2023 SCC Online SC 129 [Supreme Court of India]: Cited to show that when certain questions of law are referred to a larger Bench, all subsequent matters should be tagged or deferred.

Statutes:

• Indian Penal Code, 1860: Sections 406, 420, and 506(1).
• Prevention of Corruption Act, 1988: Sections 7, 12, 13(2) read with 13(1)(d).
• Prevention of Money Laundering Act, 2002: Sections 2(1)(u), 3, 50(2), and 66(2).
• Code of Criminal Procedure, 1973: Sections 173 and 482.
• Indian Evidence Act, 1872: Section 65B.

Judgment

The Supreme Court’s judgment addressed all the key issues and arguments presented. The court overturned the High Court’s order for de novo investigation, stating that it was not based on any valid ground and that it would derail the investigation. The court also overturned the High Court’s order setting aside the summons issued by the ED, holding that the ED had sufficient grounds to initiate an investigation. The court upheld the High Court’s order permitting the ED to inspect the records of the Trial Court. The court also upheld the High Court’s order refusing to grant an extension of time to complete the investigation.

The Supreme Court also held that the ED can initiate an investigation and issue summons even without identifying the proceeds of crime or a property representing the proceeds of crime. The court held that the acquisition of illegal gratification itself constitutes an activity related to money laundering. The court also clarified that the notice ordered in the review petition does not diminish the precedential value of the judgment in Vijay Madanlal Choudhary.

The court also made the following observations:

• The court emphasized that the investigation of a criminal case cannot be converted into a friendly match between the complainant and the accused.
• The court noted that the victims of crime cannot be left at the mercy of unholy alliances between complainants and accused.
• The court observed that the High Court had, in effect, wiped out the judgment of the Supreme Court by ordering a de novo investigation.
• The court held that the High Court’s order for de novo investigation was intended to help the accused.
• The court noted that the accused had changed their arguments before the Supreme Court, despite being respondents in the appeals.
• The court emphasized the importance of the doctrine of stare decisis and the binding nature of judgments by larger benches.

The court also made some specific observations about the conduct of certain parties involved in the case:

• The court noted that Devasagayam, who was originally a complainant, had turned out to be a Trojan horse, willing to sabotage the investigation against influential persons.
• The court noted that V. Ganesh Kumar, who was an employee of the Transport Corporation, had entered into a compromise with the accused and supported them in their petition for quashing of the FIR.
• The court noted that the State Police had not included the offences under the PC Act in any of the three FIRs.

The court also observed that the ED was not on a fishing expedition, as the information about the complaints and the allegations of corruption had come into the public domain.

The court also noted that the PMLA was brought in tune with the Model Law drafted by UNODC.

The court made the following observations about the decision in Vijay Madanlal Choudhary:

• The court observed that the decision in Vijay Madanlal Choudhary had taken note of different views of several High Courts.
• The court observed that unsettling the law laid down in Vijay Madanlal Choudhary would derail the whole process of curbing money laundering.
• The court observed that the review petition in Vijay Madanlal Choudhary did not diminish the precedential value of the decision.

The court also made the following observations about the PMLA:

• The court observed that the PMLA was enacted pursuant to the political Declaration adopted by the special session of the United Nations General Assembly.
• The court observed that the PMLA was brought in tune with the Model Law drafted by UNODC.
• The court observed that the PMLA was enacted to curb the menace of money laundering, which is treated by the global community as an offence of international implication.

The court also made the following observations about the doctrine of stare decisis:

• The court observed that the doctrine of stare decisis gives certainty to law and guides people to mould their affairs in the future.
• The court observed that a Bench of lesser coram cannot express disagreement with or question the correctness of the view taken by a Bench of larger coram.
• The court observed that the ratiodecidendi of a judgment is binding and not the observations made in a different context.

Decision

The Supreme Court allowed the appeals filed by the Enforcement Directorate and set aside the impugned orders of the High Court. The court upheld the ED’s power to investigate money laundering based on predicate offenses of corruption. The court clarified that the mere generation of proceeds of crime is sufficient for the ED to step in. The court also emphasized the importance of the doctrine of stare decisis and the binding nature of judgments by larger benches. The court held that the High Court’s order for de novo investigation was inappropriate and that the ED’s investigation should proceed.

The key takeaways from the judgment are:

• The ED has the power to investigate money laundering based on predicate offenses of corruption.
• The acquisition of illegal gratification itself constitutes an activity related to money laundering.
• The ED does not need to identify specific proceeds of crime before initiating an investigation.
• The High Court cannot order a de novo investigation that effectively wipes out an earlier investigation and a Supreme Court judgment.
• The doctrine of stare decisis is important, and judgments by larger benches are binding on smaller benches.

The implications of the judgment are significant. It reinforces the ED’s authority to investigate money laundering and clarifies the scope of the PMLA. It also sends a strong message that corruption will not be tolerated and that those involved in money laundering will be brought to justice. The judgment is also important for its emphasis on the doctrine of stare decisis and the binding nature of judgments by larger benches.

Flowchart of the Case

Sentiment Analysis

The sentiment surrounding the Y. Balaji vs. Karthik Desari case has been largely divided, reflecting the complex legal and political landscape of the issue. Here’s a breakdown:

Conclusion

The Supreme Court’s judgment in the Y. Balaji vs. Karthik Desari case is a significant development in Indian law. It reinforces the Enforcement Directorate’s power to investigate money laundering and clarifies the scope of the Prevention of Money Laundering Act, 2002 (PMLA). The judgment also sends a strong message that corruption will not be tolerated and that those involved in money laundering will be brought to justice. The court’s emphasis on the doctrine of stare decisis and the binding nature of judgments by larger benches is also important for the legal system.

The case highlights the challenges in tackling corruption and money laundering in India. It also underscores the importance of an independent and impartial judiciary in ensuring that justice is done. The judgment is likely to have far-reaching implications for future cases involving corruption and money laundering. It also serves as a reminder that the fight against corruption is an ongoing process that requires the cooperation of all stakeholders.