Quashing of Predicate FIR for Lack of Ingredients Necessitates Simultaneous Quashing of PMLA Proceedings

The Petitioner, a digital news media company, was accused in FIR No. 116/2020 by the Economic Offences Wing (EOW) of receiving Foreign Direct Investment (FDI) of approximately ₹9.59 crores from M/s Worldwide Media Holdings (WWMH), USA, at an allegedly inflated share premium.

The prosecution alleged that these funds were siphoned off for salaries and rent to promote ulterior motives and to circumvent a 26% FDI cap in digital media.

Based on this FIR, the Enforcement Directorate (ED) registered ECIR/14/HIU/2020 to investigate money laundering under Sections 3 and 4 of the PMLA.

The Petitioners sought quashing of the FIR and ECIR, arguing that there was no FDI cap at the time of investment (2018), the share valuation followed FEMA guidelines, and no person was cheated or entrusted with property to satisfy Sections 420 or 406 of the IPC.

The Court applied Section 415 (Cheating) and Section 406 (Criminal Breach of Trust) of the IPC, noting that cheating requires a person to be deceived and dishonestly induced to deliver property, while criminal breach of trust requires an "entrustment" of property.

The Court applied the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, which mandates that shares issued to foreign entities must be at a price not less than the fair value determined by internationally accepted pricing methodologies.

The Court followed the principle established in Vijay Madanlal Choudhary v. Union of India, which holds that if a person is absolved of the scheduled offence through quashing or acquittal, no action for money laundering under PMLA can be maintained as there are no "proceeds of crime".

The Court observed that for an offence under Section 420 IPC, there must be an aggrieved party; however, the investor (WWMH) never claimed to be cheated, and the informant was a third party with no personal stake.

The allegation of "overvaluation" was dismissed because the shares were issued above the fair value of ₹9,188, as required by FEMA guidelines, based on a certified valuation report.

The Court found the 26% FDI cap inapplicable as it was only introduced in 2019, whereas the investment occurred in 2018.

The routine payment of salaries and rent from investment funds does not constitute "siphoning" or criminal misappropriation.

Regarding the PMLA, the Court noted that while Section 120B (Conspiracy) is a scheduled offence, the ED failed to provide any material showing an "illegal objective" or "illegal means".

The Court emphasized that a PMLA investigation cannot exist in a vacuum without a valid subsisting scheduled offence.

The Court quashed FIR No. 116/2020. Applying the Vijay Madanlal Choudhary precedent, the Court held that since the predicate offence was quashed, the ECIR (ECIR/14/HIU/2020) could not stand alone and was also quashed; the petition for the supply of the ECIR was disposed of as infructuous and all three writ petitions were allowed.