Outstanding from forex fluctuations are not ‘proceeds of crime’ under the PMLA Act: Telangana High Court quashes ED case against Sukesh Gupta, Director of MBS Jewellers

Telangana High Court

Telangana High Court: In case wherein Sukesh Gupta, the Director of MBS Jewellers (petitioner) was alleged of entering into a criminal conspiracy with public servants of MMTC and receiving gold, a Single Judge Bench of K. Surender, J.* held that an outstanding arising from any agreement between the parties in relation to forex fluctuations could not be termed as ‘proceeds of crime’ under the Prevention of Money Laundering Act, 2002 (“PMLA Act”) and hence, the Court quashed the case filed against the petitioner under the PMLA Act.


The allegation was that the petitioner being Director of MBS group of companies, received gold from MMTC on buyers Credit loan basis by keeping the forex position open and MMTC also collected 5% extra margin money from the petitioner to cover fluctuation of rupee and then delivered gold. The outstanding of Rs. 181 crores as claimed by MMTC was reflected in the agreement that was entered into between MMTC and MBS whereby the petitioner accepted an outstanding of Rs. 181 crores on account of devaluation of rupee by 27%. Around 5800 kgs of gold worth Rs. 20,000 crores was supplied to MBS group over 6 years.

A criminal complaint was registered by CBI under Section 13 of the Prevention of Corruption Act, 1988 against the petitioner and the CBI in its charge sheet alleged that the petitioner entered into criminal conspiracy with public servants of MMTC and received gold. MMTC stated that the petitioner’s company suffered a loss of Rs. 220 crores. Thereafter, the petitioner’s company filed an arbitration application and MMTC filed civil suits. In 2014, Enforcement Case Information Report (ECIR) was registered under Section 3 of PMLA Act based on the FIR registered by CBI. Thus, the petitioner challenged the ongoing investigation by Enforcement Directorate (“ED”).

Analysis, Law, and Decision

The issue for consideration before this Court was “whether an outstanding arising out of any agreement or condition in MOU between the parties with respect to forex fluctuation amounts to ‘proceeds of crime’?”.

The Court noted that to prosecute under Section 3 of the PMLA Act, a person had to be involved in any process or activity connected with ‘proceeds of crime’, which was defined under Section 2(1)(u) of the PMLA Act. The Court further noted that the definition specifically stated that any property derived or obtained by any person as a result of criminal activity relating to a scheduled offence would amount to ‘proceeds of crime’. The Court observed that “’criminal activity’ was not defined under the PMLA Act. However, any act which was done intentionally, prohibited by law or an act which was made punishable under law could be said to have committed a crime. It involved mens rea which meant a guilty mental state and lack of which would negate a crime. Mens rea was an essential element of every offence and by excluding mens rea, a person could not be mulcted with criminal liability”.

The Court further opined that the submission of Senior Counsel of ED could not be accepted that the petitioner was liable to pay the outstanding amount and non-payment of it was a wrongful gain and would fall within the definition of ‘proceeds of crime’. The Court observed that the intent of introducing the PMLA Act was to prevent money laundering and the said money/property should be the result of a crime and should fall within the definition of ‘proceeds of crime’.

The Court opined that in the present case, there was no property which was derived consequent to any criminal activity and the question of proceeds of crime being concealed or being in possession or the question of acquiring such property, did not arise. The Court agreed with the submission of Senior Counsel for the ED that if every commercial business or loan transaction, where an outstanding would arise in the normal course of business falls within the definition of ‘proceeds of crime’, it would have disastrous consequences and it would bring into its fold, every civil dispute. It was not the intention of the legislature to get every civil dispute or commercial transaction to be prosecuted under the PMLA Act.

The Court noted that the outstanding arose on account of the MOU that had been entered into in between the MMTC and MBS jewelers regarding dollar-rupee fluctuation and it was not in dispute that MMTC had not given any gold which was not paid for by the petitioner and there was no property that was generated on account of the dollar-rupee fluctuation. The Court opined that in fact in business terms, the outstanding that had to be paid by the petitioner would be termed as a loss occurred during the normal course of business transaction.

The Court further noted that in the present case, ECIR was registered in 2014 based on crime registered by CBI and CBI had filed the charge sheet in 2014 but the ED was still continuing the investigation. The Court opined that ED was justified in proceeding with the investigation and the said power was not in dispute but the ED was groping in the dark without laying a foundation and after nearly ten years of registration of ECIR, the ED stated that they were trying to find out whether any offence was made out or not and thus, the Court opined that in this process, valuable time and resources of ED were wasted.

The Court relied on Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929 and R. Nagender Yadav v. State of Telangana, (2023) 2 SCC 195 and opined that “every commercial activity where an outstanding arises would not fall within the ambit of Section 3 of the PMLA Act”. Thus, the Court opined that “at the most, the differential amount of rupee dollar fluctuation could be termed as an outstanding which could be recovered in a civil suit and by no stretch of imagination could it be called as ‘proceeds of crime’ or the outstanding amount could be called as ‘property’ as defined under Section 2(1)(v) of the PMLA Act.

The Court allowed the present criminal petition and held that when there was no criminal activity or property derived as a result of any criminal activity, therefore, the proceedings in ECIR could not continue. Hence, the Court quashed the ECIR proceedings.

[Sukesh Gupta v. Directorate of Enforcement, Hyderabad, 2023 SCC OnLine TS 987, decided on 3-4-2023]

Advocates who appeared in this case :

For the Petitioner: Senior Counsel S. Niranjan Reddy;

Senior Counsel Avinash Desai;

Senior Counsel Ravi Kiran Rao;

For the Respondents: ASG A.R.M. Sundaresam.

*Judgment authored by: Justice K. Surender.

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