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J. Sekar @ Sekar Reddy vs. Directorate of Enforcement

Criminal Appeal · 2022 INSC 519Decided 5 May 2022
Criminal Appeal No. 738 of 2022
Vineet Saran · J.K. Maheshwari

Background

J. Sekar Reddy, managing partner of a sand-mining firm, had deposited a large amount of money (over Rs. 312 crore) across bank accounts. During the 2016 demonetisation period, the Income Tax Department raided his premises and seized over Rs. 106 crore in cash (much of it in newly-introduced Rs. 2000 notes) and a large quantity of gold. The CBI registered a case (the "schedule offence") against him, but this was later closed for want of evidence, and separate FIRs on the same allegations were also quashed by the High Court. Despite this, the Enforcement Directorate continued to prosecute him for money laundering under the PMLA, arguing that money laundering is an independent offence. The Madras High Court refused to quash the PMLA proceedings, and Sekar Reddy appealed to the Supreme Court.

Decision Breakdown

The Supreme Court allowed the appeal and quashed the PMLA proceedings against him. It held that while money laundering is technically a distinct offence from the underlying "scheduled offence," a valid scheduled offence must still exist as its foundation, and here, the CBI itself had closed its case for lack of evidence, related FIRs had been quashed, and even the Income Tax Department's own report had found no evidence of wrongdoing. After more than five years, the Enforcement Directorate had still failed to produce any material capable of proving the case beyond reasonable doubt. Relying on its earlier rulings in Radheshyam Kejriwal and Ashoo Surendranath Tewari, the Court held that continuing the prosecution in these circumstances was unjustified, since a person remains presumed innocent until proven guilty and cannot be kept indefinitely under prosecution on an unproven foundation.

Lesson Learnt

A money-laundering prosecution cannot indefinitely continue in a vacuum. If the underlying criminal case it depends on has been closed for lack of evidence and no independent evidence of laundering exists after a reasonable passage of time, courts can and will quash the proceedings to prevent prolonged, baseless prosecution.

Official source (sci.gov.in)View Judgment (PDF)

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