Discharge In Predicate Offence Does Not Invalidate PMLA Proceedings U/S 3 Of Act: J&K High Court

Justice Wasim Sadiq Nargal, while dismissing a petition seeking quashing of an Enforcement Case Information Report (ECIR) and related summons, underscored that money laundering under Section 3 of the PMLA is a "standalone offence," distinct from the predicate offence that generates the proceeds of crime.

“.. While the commission of a scheduled offence is necessary to give rise to proceeds of crime, the act of laundering those proceeds through concealment, possession, acquisition, use, or projection as untainted property constitutes a separate crime under the PMLA”, explained Justice Nargal.

He further underscored,

“.. A mechanical or blanket approach in treating the discharge in a FIR as conclusive for the outcome of an ECIR would contradict the objectives and framework of the PMLA and could, in certain instances, undermine the legislative intent, which is to prevent, control, and prosecute money laundering offences that pose a significant threat to the financial systems and integrity of the nation”

Background of the Case:

The court was hearing a petition filed by one Niket Kansal, a 27-year-old resident of Delhi and the operational head of M/s N.K. Pharmaceuticals Pvt. Ltd., who was implicated in the unlawful diversion of Codeine-Based Cough Syrup (CBCS) "Cocrex". FIRs were registered by the Narcotics Control Bureau (NCB), and Complaints were filed before the Special NDPS Court, Jammu, alleging illicit manufacturing and marketing of the CBCS by Kansal and others.

However, the Trial Court, discharged Kansal and two other accused, citing complete lack of material evidence to frame charges. It was noted that the only evidence against Kansal was a confessional statement recorded under Section 67 of the NDPS Act, without corroboration. The court observed that no cogent or substantive evidence existed linking Kansal to any conspiracy or commission of the alleged offences.

Following the discharge, the Enforcement Directorate initiated ECIR under the PMLA based on the NCB's FIR and issued summons under Section 50 of the Act. The petitioner challenged the ECIR, summons, and related search/seizure proceedings, arguing that without a scheduled offence, the ED lacked the jurisdiction to proceed.

Observations Of The Court: 

Resolving an important question of law as to whether discharge in the predicate offence invalidates PMLA proceedings the Court held that PMLA proceedings are independent of the outcome of the predicate offence. Relying on the Supreme Court's judgment in Vijay Madanlal Choudhary v. Union of India, Justice Nargal observed,

"The offence under Section 3 of the PMLA is dependent on the scheduled offence, but it is a separate and independent offence once the activity of laundering begins... A person can be prosecuted for money laundering even if not directly involved in the scheduled offence, so long as they are involved in the laundering process."

The Court emphasised that the ED's authority to investigate money laundering is not extinguished merely because the accused is discharged in the predicate offence. The existence of "proceeds of crime" property derived from criminal activity remains central to PMLA actions, the court underscored.

Commenting on the validity of summons under Section 50 PMLA when the predicate offence is discharged as the petitioner had contended that the ED's summons lacked jurisdiction post-discharge the Court cited the Supreme Court's ruling in Director, Enforcement Directorate v. Vilelie Khamo and observed,

“.. The Enforcement Directorate's authority to summon individuals under Section 50 is intended for the acquisition of factual evidence pertaining to money laundering offences; obtaining a summons under this section does not inherently indicate that one is an accused in a money laundering investigation. This indicates that the individual may have information or documents pertinent to the investigation”

It added,

“.. The issuance of summons under the PMLA should be regarded as an essential element of due process, intended to advance the rule of law and bolster public trust in the legal system. The discharge in the predicate offence, albeit substantial, does not, as a legal principle, impact the ongoing validity of the summons”

Justice Nargal also discussed in detail the definitions under Sections 2(1)(u) and 3 of the PMLA and explained that the offence of money laundering is linked to the process or activity connected with the proceeds of crime, such as concealment, possession, acquisition, or projection as untainted property.

The Court clarified that a person may be prosecuted under the PMLA even if not named in the predicate offence, so long as they are involved in laundering activities.

"If the accused assisted in concealing or using the proceeds of crime, they may be held liable under PMLA despite not being charged in the predicate case," the Court observed.

The Court concluded that the question of quashing an ECIR must be assessed independently on a case by case basis, in light of the legal principles laid down in Vijay Madanlal Choudhary & Ors. and other binding precedents, and that a discharge in the predicate offence cannot, by itself, be treated as a conclusive ground for similar relief under the PMLA.

Accordingly, the Court declined to interfere with the lawful issuance and enforcement of summons by the authorities.

APPEARANCES:

Mr. Sunil Sethi, Sr. Advocate with M/s Nitin Parihar& Siddharth Jamwal, Advocates For Petitioners,

Mr.Vishal Sharma, DSGI for Respondents

Case Title: Niket Kansal Vs Union Of India Through ED

Citation: 2025 LiveLaw (JKL) 205

Click Here To Read/Download Judgment