Supreme Court Upholds Money Laundering Charges: Anoop Bartaria vs. Enforcement Directorate (21 April 2023)

Introduction

Date of the Judgment: 21 April 2023
Citation: 2023 INSC 349
Judges: Hon’ble Justices Ajay Rastogi and Bela M. Trivedi. The judgment was authored by Justice Bela M. Trivedi.

Can a person be charged with money laundering even if they didn’t know the money they received was from illegal activities? The Supreme Court of India recently addressed this critical question in a case involving allegations of money laundering against the director of a real estate company. The Court clarified the interpretation of the Prevention of Money Laundering Act, 2002 (PMLA), specifically addressing the requirement of “knowledge” in the offense of money laundering. This judgment has significant implications for how money laundering cases are investigated and prosecuted in India.

Case Background

The case revolves around Anoop Bartaria, a director of World Trade Park Ltd., and his company. They were accused of money laundering in connection with a large-scale fraud perpetrated by Bharat Bomb and his associates. The Enforcement Directorate (ED) alleged that Bartaria and his company received over ₹160 crores of defrauded funds from fictitious firms controlled by Bomb. Initially, commercial units were booked in the name of Raj Darbar Material Trading Pvt. Ltd. by Bharat Bomb, with payments totaling ₹74.02 crores made to the petitioners. Subsequently, at Bomb’s request, the units were registered in the names of new entities, and the initial amount was returned. Later, 34 commercial spaces were sold to Bomb and his associates through registered sale deeds, with payments received via demand drafts and RTGS. Bartaria also received ₹1.4 crores for architectural services provided to Bomb.

The Central Bureau of Investigation (CBI) had registered an FIR against Bharat Bomb and Syndicate Bank officials for defrauding the bank of over ₹18,000 crores, leading to a loss of ₹1055.79 crores. The ED initiated its investigation based on this FIR, as the offenses were scheduled under the PMLA. The ED alleged that Bartaria and his companies were involved in laundering the proceeds of this crime.

Timeline:

Course of Proceedings

The petitioners, Anoop Bartaria and World Trade Park Ltd., initially filed writ petitions before the High Court of Judicature for Rajasthan, Bench at Jaipur, seeking to quash the Enforcement Case Information Report (ECIR) and the subsequent prosecution complaint filed by the ED. The High Court dismissed both petitions, imposing a cost of ₹50,000. The petitioners then approached the Supreme Court challenging the High Court’s decision.

Legal Framework

The core of the case involves the interpretation of the Prevention of Money Laundering Act, 2002 (PMLA), specifically:

• Section 3 of the PMLA: Defines the offense of money laundering as:

  “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected [proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering.”

• Section 2(1)(u) of the PMLA: Defines “proceeds of crime”
• Section 2(y) of the PMLA: Defines “Scheduled offence”
• Section 45 of the PMLA: Pertains to the offences being cognizable and non-bailable.

  The Explanation to Section 45, inserted by the Finance (No.2) Act, 2019, clarifies that all offenses under the PMLA are cognizable and non-bailable, empowering authorized officers to arrest without a warrant.

  “Explanation – For the removal of doubts, it is clarified that the expression “Offences to be cognizable and non -bailable” shall mean and shall be deemed to have always meant that all the offences under this Act shall be cognizable offences and non -bailable offences notwithstanding anything to the contrary contained in the Code of Criminal Procedure, 1973 (2 of 1974), and accordingly the officers authorized under this Act are empowered to arrest an accused without warrant, subject to the fulfilment of conditions under Section 19 and subject to the conditions enshrined under this Section”.

Arguments

Petitioners’ Arguments:

• The petitioners argued that they were not named in the FIR registered by the CBI against the Syndicate Bank officials and Bharat Bomb, nor in the initial ECIR registered by the ED.
• They contended that the essential ingredient for the offense of money laundering under Section 3 of the PMLA is “knowledge” of dealing with the proceeds of crime. They claimed they had no such knowledge, having only a “buyer-seller” relationship with Bharat Bomb.
• The petitioners stated that they had received ₹76.72 crores as sale consideration, not ₹150 crores as alleged. They also stated that they had obtained valid NOCs from UCO Bank, IDBI, and DHFL before selling the units.
• The petitioners argued that the architectural services provided to Bharat Bomb were legitimate and accounted for in their tax returns.
• They submitted that the alleged offenses under the PMLA are not cognizable, and the investigation by the ED was without legal authority.
• They relied on the judgment of the Supreme Court in Nikesh Tarachand Shah Vs. Union of India and Another to support their contention that knowledge is a prerequisite for money laundering.
• They further relied on Pepsi Foods Ltd. and Another vs Special Judicial Magistrate and Others to argue that the complaint should be quashed to prevent business loss and damage to their credibility.

Respondents’ Arguments:

• The respondents argued that the High Court’s decision to dismiss the petitions with costs was justified.
• They relied on State of Haryana and Others vs. Bhajan Lal and Others to state that the power to quash a complaint should only be exercised in rare cases where allegations do not constitute any offense.
• The ED presented evidence from their investigation, including the fact that Anoop Bartaria had taken a fraudulent loan of ₹4.80 crores from Syndicate Bank, and that the installments were being paid from the fictitious firms controlled by Bharat Bomb.
• They stated that Bartaria’s bank account with Syndicate Bank was used exclusively for receiving tainted money from Bomb, and that this account was not declared in his income tax returns.
• The ED further argued that Bartaria did not deposit sale proceeds into the escrow account with IDBI Bank, as required, and instead facilitated the parking of tainted money through his Syndicate Bank account.
• They highlighted that Bartaria and his companies had received more than ₹160 crores of defrauded funds from Bharat Bomb’s fictitious firms.
• The respondents heavily relied on the prosecution complaint, particularly paragraphs 10.5 and 10.8, to demonstrate Bartaria’s complicity in the crime.
• They emphasized that the offenses under PMLA are cognizable and non-bailable, citing Section 45 of the Act.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the primary issue addressed by the court was:

1. Whether the offense of money laundering under Section 3 of the PMLA requires proof of knowledge of dealing with proceeds of crime.
2. Whether the Prosecution complaint was lodged by the authorized officer.
3. Whether the offenses under PMLA are cognizable or not.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

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

How each authority was viewed by the Court?

• Nikesh Tarachand Shah Vs. Union of India and Another*: The court distinguished this case, stating that it did not apply to the facts of the present case.
• Pepsi Foods Ltd. and Another vs Special Judicial Magistrate and Others*: The court distinguished this case, stating that it did not apply to the facts of the present case.
• State of Haryana and Others vs. Bhajan Lal and Others*: The court upheld the principle that the power to quash a complaint should only be exercised in rare cases.
• Section 3 of the PMLA*: The court interpreted this section to mean that knowledge is not the sole criterion for the offense of money laundering, and direct or indirect involvement in activities connected with proceeds of crime is sufficient.
• Section 45 of the PMLA*: The court clarified that the offenses under PMLA are cognizable and non-bailable, as per the explanation inserted by the Finance (No.2) Act, 2019.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following points:

• Direct Involvement: The court emphasized that the definition of money laundering under Section 3 of the PMLA includes those who are “directly or indirectly” involved in activities connected with the proceeds of crime. This means that even without direct knowledge of the illegal source of funds, involvement in the process is sufficient to constitute the offense.
• Material Evidence: The court noted that the prosecution complaint contained sufficient material particulars to substantiate the allegations of money laundering against the petitioners. This included evidence of fraudulent loans, use of a specific bank account for tainted money, and failure to deposit sale proceeds into the required escrow account.
• Cognizable Offenses: The court reiterated that the offenses under the PMLA are cognizable and non-bailable, as clarified by the explanation to Section 45 of the Act. This means that the ED has the authority to investigate and prosecute these offenses, and the court should not interfere unless there is a clear abuse of process.
• Limited Scope of Quashing: The court upheld the principle that the power to quash a complaint under Section 482 of the Code of Criminal Procedure should be exercised sparingly and only in the rarest of rare cases. The court found that the present case did not fall under any of the categories where such power could be exercised.
• Threat to Financial Systems: The court recognized that money laundering poses a serious threat to the financial systems and integrity of the country. Therefore, a lenient view in dealing with such offenses would be a travesty of justice.

Key Takeaways

• Knowledge Not Mandatory: The Supreme Court clarified that for the offense of money laundering under Section 3 of the PMLA, it is not mandatory for the accused to have knowledge that the money they were dealing with was the proceeds of crime. Direct or indirect involvement in the process or activity connected with the proceeds of crime is sufficient.
• Cognizable and Non-Bailable Offenses: All offenses under the PMLA are cognizable and non-bailable, allowing authorized officers to arrest without a warrant, subject to conditions under Section 19 and Section 45 of the PMLA.
• Limited Quashing Power: The power to quash a complaint under Section 482 of the CrPC should be exercised sparingly and only in the rarest of rare cases.
• Serious Threat: Money laundering poses a serious threat to the financial systems and integrity of the country, and therefore, a strict approach is needed.

Directions

The Supreme Court directed the Registry to verify at the time of registration of Special Leave Petitions (SLPs) whether all the relevant documents, particularly those related to the relief sought, have been produced by the petitioners. The Court also vacated the interim relief granted earlier, allowing the ED to proceed with the prosecution complaint.

Development of Law

Ratio Decidendi: The ratio decidendi of this case is that the offense of money laundering under Section 3 of the PMLA does not require proof of knowledge of dealing with the proceeds of crime. Direct or indirect involvement in any process or activity connected with the proceeds of crime is sufficient to constitute the offense.

Change in Law: This judgment clarifies the interpretation of Section 3 of the PMLA, emphasizing that the definition is broad enough to include those who are directly or indirectly involved in activities connected with the proceeds of crime, even without direct knowledge of the illegal source of funds. This is a significant clarification that impacts how money laundering cases are investigated and prosecuted in India.

Conclusion

The Supreme Court dismissed the petitions filed by Anoop Bartaria and World Trade Park Ltd., upholding the High Court’s decision. The Court clarified that knowledge of dealing with proceeds of crime is not a mandatory requirement for the offense of money laundering under Section 3 of the PMLA. The judgment emphasizes the seriousness of money laundering offenses and the need for a strict approach in dealing with such cases. This ruling has significant implications for future money laundering cases in India, clarifying the scope of the PMLA and the responsibilities of individuals and entities involved in financial transactions.

Category

• Criminal Law
  • Money Laundering
  • Prevention of Money Laundering Act, 2002
• Prevention of Money Laundering Act, 2002
  • Section 3, Prevention of Money Laundering Act, 2002
  • Section 45, Prevention of Money Laundering Act, 2002
  • Section 2(1)(u), Prevention of Money Laundering Act, 2002
  • Section 2(y), Prevention of Money Laundering Act, 2002

FAQ

Q: What is money laundering?

A: Money laundering is the process of making illegally obtained money appear legitimate. This often involves concealing the source of the funds and making them look like they came from a legal source.

Q: What is the Prevention of Money Laundering Act (PMLA)?

A: The PMLA is an Indian law enacted in 2002 to combat money laundering and provide a legal framework for confiscating assets derived from illegal activities.

Q: Does the PMLA require knowledge of the illegal source of funds for a money laundering charge?

A: According to the Supreme Court’s ruling, no. The PMLA’s Section 3 states that anyone directly or indirectly involved in the process of dealing with proceeds of crime can be charged, even without direct knowledge of the illegal source.

Q: What does “cognizable and non-bailable” mean in the context of PMLA offenses?

A: It means that the police can arrest a person suspected of committing an offense under the PMLA without a warrant, and the accused cannot be released on bail easily.

Q: What was the Supreme Court’s main decision in this case?

A: The Supreme Court upheld the High Court’s decision, stating that knowledge of the illegal source of funds is not a mandatory requirement for a money laundering charge under the PMLA. Direct or indirect involvement in the process is sufficient.

Q: What should individuals and businesses do to avoid being implicated in money laundering?

A: Individuals and businesses should maintain detailed records of all financial transactions, conduct due diligence on their clients and business partners, and report any suspicious activity to the relevant authorities.