The Supreme Court on Tuesday dismissed the proceedings instituted by the Directorate of Enforcement (ED) against Karnataka Deputy Chief Minister and Congress president D.K. Shivakumar under the Prevention of Money Laundering Act (PMLA) on the basis of an Income Tax department complaint in 2018.
The complaint was filed following searches on the premises of Mr. Shivakumar and his associates in Bengaluru and outside the city. The I-T department had alleged that Mr. Shivakumar, who ran business concerns, “hatched a criminal conspiracy” and engaged “different people for the purpose of concealing unaccounted and illegal money, and projecting it as untainted property” to evade income tax.
Mr. Shivakumar had maintained that the case was motivated by political reasons.
On Tuesday, the Supreme Court quashed the ED case against Mr. Shivakumar on the basis of its recent Pavana Dibbur judgment, which had held that criminal conspiracy alone would not attract money laundering charges.
A Bench of Justices Surya Kant and K.V. Viswanathan passed the order on the basis of special leave petitions filed by Mr. Shivakumar and two others, variously represented by senior advocates A.M. Singhvi, Siddharth Luthra, S. Nagamuthu and advocate Parmatma Singh, challenging the jurisdiction of the Central agency.
They had appealed to the top court against a Karnataka High Court judgment in August 2019 refusing to intervene in the case and upholding the summons issued by the ED.
However, the Supreme Court issued notice on October 15, 2019, and directed the ED to not take any coercive action against Mr. Shivakumar, Anjaneya Hanumanthaiah, and Sunil Kumar Sharma.
Mr. Shivakumar had argued that the ED had commenced “illegal proceedings” by registering an Enforcement Case Information Report (ECIR) against him under Section 3 of the Prevention of Money Laundering Act (PMLA), 2002.
The senior lawyers contended that the ED strayed far from its turf by basing its ECIR entirely on an Income Tax department complaint alleging tax and penalty offences. None of the offences were ‘scheduled offences’ under the PMLA, the petitioners said.
“The admitted basis of commencing investigations under PMLA is a criminal complaint filed by Income Tax authorities, which alleged ‘criminal conspiracy’ punishable under Section 120B of the Indian Penal Code only for alleged commission of such offences punishable under the Income Tax Act and the Code,” Mr. Shivakumar’s petition underscored.
‘No proceeds of crime’
Mr. Shivakumar had argued that with no scheduled offence alleged, there were no proceeds of crime. Evidence of crime proceeds was necessary to invoke money laundering charges.
The Supreme Court referred to the Pavana Dibbur judgment, which had held that Section 120B would be deemed a scheduled offence under the PMLA only if the conspiracy had been directed towards the commission of an offence specified in the 2002 Act.
“To invoke PMLA, the first requisite is commission or conspiracy to commit a scheduled offence resulting in the proceeds of crime. For invoking Section 3 of the PMLA against any person, it is necessary that a person must not only be involved in an activity connected with the proceeds of crime, but must also project or claim the proceeds of crime as untainted property,” Mr. Shivakumar’s plea said.
Mr. Shivakumar had argued that even the Income Tax proceedings had been separately stayed by the Karnataka High Court in 2019.
The prosecution complaint filed by the Income Tax department before the Special Court for Economic Offences was based on searches conducted in the premises of Mr. Shivakumar and his associates in different places in Bengaluru and outside the city.
The complaint said that “during the search, certain incriminating documents and materials were found and seized”.
It said Mr. Shivakumar had “active business concerns in the sectors of education, trust and real estate for a significant amount of time. In the course of conducting the business activities, there has been a modus operandi employed by him to engage different people for the purpose of concealing and projecting the unaccounted and illegal money as untainted property for the purpose of evading income tax. It was in this background that a criminal conspiracy to evade income tax and to enable the accused [Shivakumar] to evade income tax was hatched”.
