PMLA Discharge: Trial Court Order Must Demonstrate Application of Mind, Not Confuse with Predicate Offences: Madras HC (Madurai) - 2025-05-01

Madras High Court Sets Aside PMLA Discharge Dismissal, Orders Fresh Hearing Citing Trial Court's "Non-Application of Mind"

MADURAI: In a significant ruling concerning the procedural requirements for deciding discharge petitions under the Prevention of Money Laundering Act, 2002 (PMLA), the Madurai Bench of the Madras High Court has set aside a trial court's order dismissing such a petition, citing a lack of reasoning and "non-application of mind."

Justice G.R.Swaminathan , in his order (while Justice R. Poornima dissented), allowed the criminal revision petition filed by S. Nagarajan , accused No. 2 in a PMLA case linked to alleged illegal granite quarrying. The High Court remanded the discharge petition back to the II Additional District Judge (CBI Cases), Madurai, for a fresh hearing and decision.

Case Background

The Directorate of Enforcement (ED) had filed a complaint (C.C.No.3 of 2020) against M/s. Olympus Granites Private Limited (OGPL), its director S. Nagarajan (the petitioner), and another director, alleging offences under Section 4 of the PMLA. This case (ECIR/CEZO/11/2013) stemmed from predicate offences registered by Keelavalavu Police Station (FIR No. 161/2012) concerning alleged illegal granite quarrying, resulting in an estimated loss of Rs. 256.44 crores to the exchequer.

Nagarajan filed a discharge petition (Crl.M.P.No.4274 of 2023) under Section 227 of the Criminal Procedure Code (Cr.PC) before the trial court, arguing against the framing of charges under PMLA. The trial court dismissed this petition via an order dated 30.05.2024. Nagarajan challenged this dismissal before the High Court.

Arguments Presented

Petitioner ( S. Nagarajan ): Represented by Senior Counsel Mr. Vikram Chaudhry, the petitioner raised numerous legal and factual arguments contending that no prima facie case under PMLA was made out. Key arguments included that the alleged violations fell under the Mines and Minerals Act, not IPC or PMLA; issues with the quantification of 'proceeds of crime'; lack of independent PMLA investigation; and improper reliance on evidence from the predicate offence case, including confessional statements. While arguing extensively, the counsel ultimately requested the matter be remitted for fresh consideration.

Respondent (Directorate of Enforcement): Represented by Additional Solicitor General Mr. ARL. Sundaresan, the ED argued that sufficient grounds existed to proceed against the petitioner under PMLA. They maintained that the PMLA offence is independent, evidence from the predicate case is relevant, statements recorded under Section 50 of PMLA are admissible, and a prima facie case demonstrating the generation and laundering of Rs. 256.44 crores as proceeds of crime was established.

High Court's Reasoning (Justice G.R.Swaminathan )

Justice Swaminathan allowed the revision petition primarily on the ground that the trial court's order was "virtually non-speaking" and suffered from "non-application of mind."

He pointed specifically to paragraph 77 of the impugned order, where the trial judge concluded grounds existed to proceed against the petitioner but listed the predicate offences (under IPC, Explosive Substances Act, TNPPDL Act) instead of the PMLA offence for which the discharge was sought.

> "The learned Trial Judge has proceeded in the matter as if he is dealing with a discharge petition in the prosecution for predicate offences. He appears to have forgotten that he is dealing with PMLA prosecution. I am not able to gloss over the said paragraph as if it is a typing error. It is only from the written text, the mental process of the judge is often discerned... Paragraph 77 of the impugned order is an instance of casual approach."

Justice Swaminathan further observed that the trial court order largely reproduced the contentions from the discharge petition and the ED's counter without undertaking an independent analysis of the materials on record.

> "I am not able to notice any discussion of the materials on record. There is no demonstration as to how prima facie case is made out against the revision petitioner... The court below was obliged to scan the materials on record and give a finding if there is sufficient ground for proceeding against the accused. No such exercise appears to have been undertaken by the trial court."

Given the stringent nature of PMLA, including reverse burden and presumptive provisions, Justice Swaminathan emphasized the need for the trial court to meticulously examine the record at the discharge stage and provide clear reasons for its decision. He clarified that his decision to remand was based solely on the inadequacy of the trial court's order and was not an opinion on the merits of the PMLA case against the petitioner.

Dissenting Opinion (Justice R. Poornima )

Justice R. Poornima , in a separate detailed order, found merit in the ED's case and held that prima facie materials (including official reports, bank statements, property documents, and evaluation reports) existed to proceed against the petitioner under PMLA. She addressed and dismissed the specific legal objections raised by the petitioner regarding the applicability of laws, admissibility of Section 50 statements, and the existence of proceeds of crime, concluding that the trial court's decision to dismiss the discharge petition was justified as the threshold for framing charges was met.

Final Decision and Implications

With Justice Swaminathan 's order allowing the revision, the trial court's order dated 30.05.2024 dismissing the discharge petition was set aside. The matter (Crl.M.P.No.4274 of 2023 in C.C.No.3 of 2020) has been remitted to the II Additional District Judge (CBI Cases), Madurai, for a fresh hearing and reasoned decision on merits, specifically considering the PMLA charges.

This judgment highlights the critical importance of judicial application of mind and the necessity for well-reasoned orders by trial courts when deciding discharge petitions, particularly under complex and stringent laws like the PMLA.