Delhi High Court partially quashes money laundering probe by ED against real estate company director

The Delhi High Court recently passed an order partly quashing the Enforcement Directorate (ED)’s investigation in a money laundering case against the director of a real estate company accused of siphoning funds collected from flat buyers. [Rajinder Singh Chadha vs Union of India Ministry of Home Affairs Through its Chief Secretary & Anr].Justice Amit Sharma said the ED cannot continue probing its 2019 Enforcement Case Information Report (ECIR) as far as it concerned two First Information Reports (FIRs), registered in 2018 and 2019, since they have been quashed or compounded.The judge reasoned that the Supreme Court has already held that once the FIR or predicate offence stands quashed, the offence of money laundering tied to such a predicate offence cannot be prosecuted.However, the High Court clarified that the central agency can continue its probe in relation to a a third FIR registered in 2021 by the Economic Offences Wing (EOW), which was taken on record in the same ECIR.Therefore, the ECIR cannot be quashed in view of the registration of the last FIR involving scheduled offences under the Prevention of Money Laundering Act (PMLA), the Court held."It is pertinent to note that even in an FIR being investigated by the local police involving multiple complainants, compounding with some of them will not be a ground for quashing of the said FIR. However, partial compounding/quashing is permissible," the Court added..The order was passed on the petition moved by Rajinder Singh Chadha, a director of Uppal Chadha Hi-Tech for quashing of an ECIR against him on the ground that the two FIRs, which formed the basis of the money laundering probe, have been settled.Opposing the petition, ED argued that only some of the complainants were settled and that another FIR with similar allegations was still pending, which was registered by the EOW. The FIR was taken on record by the ED for further investigation in the same money laundering case, the Court was told..After hearing the arguments, the Court noted that the Supreme Court in Vijay Madanlal Choudhary & Ors. v. Union of India & Ors had held that in absence of a predicate offence, there can be no prosecution of a money laundering offence.The Court then considered the question of whether the ED was justified in continuing with the investigation in the 2019 ECIR on the basis of third FIR registered recently on similar allegations.It noted that the ECIR was initially registered on the basis of the FIR registered in 2018 and that even though the 2018 case was compounded in 2019, the ED continued the probe in the same ECIR on the basis of another FIR registered in 2021. “The fact that FIR No. 49/2021 was taken on record by the department in the present ECIR despite an order of compounding and acquittal was not challenged by the petitioner,” the Court observed..The Court also noted that the ED was not investigating allegations concerning home-buyers or investors in the first two FIRs. Rather, it was only looking into the alleged ‘proceeds of crime’ generated by the offences alleged in the FIRs.The Court opined that "even if separate FIRs are registered at the instance of separate home-buyers/ investors, each of the said FIRs cannot be considered as a separate cause of action for registration of different ECIRs.".Observing that since ECIR is an internal document of the ED and not equivalent to FIR, the Court proceeded to hold that there cannot be any restriction on expanding the scope of the ED investigation if another scheduled offence is later alleged. “There cannot possibly be a restriction to bringing on record on any subsequent ‘scheduled offence’ registered by way of an FIR alleged to have been committed in respect of the same transaction which was the subject matter of such ECIR," the Court said. Thus, the Court concluded that since the third FIR was already taken on record, the ECIR cannot be stated to be without a predicate offence.It accordingly only partly allowed the petition with relief only limited to the FIRs settled with the victims..Senior Advocate Sandeep Sethi with Advocates Giriraj Subramanium, Akhilesh Talluri, Joy Banerjee, Ravi Pathak, Simarpal Singh Sawhney, Urvashi Singh and Siddhant Juyal represented the petitioner.Senior Panel Counsel Amit Tiwari represented the Union of India.Special Counsel Zoheb Hossain with Advocates Vivek Gurnani and Kartik Sabharwal represented the Enforcement Directorate..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.