A special Prevention of Money Laundering Act (PMLA) court in Mumbai on Monday accepted the closure of a nearly decade-old money laundering investigation involving Multi Commodity Exchange India Ltd (MCX), Financial Technologies India Ltd (FTIL), and their promoter Jignesh Shah. This significant legal development brings an end to prolonged proceedings that had been under scrutiny by enforcement agencies.
Court Cites Lack of Predicate Offence for Closure
The decision came after the Enforcement Directorate (ED) sought to drop the proceedings, citing the absence of a "predicate offence"—the foundational criminal case required to sustain a money laundering prosecution. The money laundering case effectively ceased after the Central Bureau of Investigation (CBI) filed a closure report in the original predicate offence.
Special judge R B Rote observed that since a special court had in 2024 accepted CBI's closure report, "the continuation of the ECIR (enforcement case information report) is not maintainable." The judge unequivocally stated, "Therefore, it is necessary to close the ECIR."
Legal Precedent from Supreme Court
The judge referred to the Supreme Court's landmark ruling of July 27, 2022, which established that when there is no predicate or scheduled offence, a case under the Prevention of Money Laundering Act, 2002, cannot continue. "The authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed," the judge noted, emphasizing the legal principle that underpinned the decision.
Further elaborating on the legal framework, the judge stated, "If the person is finally discharged or acquitted of the scheduled offence or the criminal case against him is quashed... there can be no offence of money laundering." This interpretation highlights the interconnected nature of predicate offences and money laundering charges under Indian law.
Background of the Original CBI Case
In August 2014, the CBI filed a case of criminal conspiracy and cheating against MCX, FTIL, MCX-SX (Stock Exchange), Visaka More, Rajesh Dangeti, Muralidhar Rao, J M Gupte and Jignesh Shah. The allegations centered on events during 2009-10, when Securities and Exchange Board of India (SEBI) officials, in collaboration with MCX-SX, allegedly suppressed information regarding buyback arrangements with Punjab National Bank, IFCI and IL&FS.
The CBI case further alleged that the accused entities obtained extension of recognition for MCX-SX to trade in currency derivatives from 2009-10. It also claimed that SEBI officials did not initiate any action against MCX-SX for cancellation of recognition in currency derivatives, even after whole-time members of the market regulator rejected its April 7, 2010, application to operate in other segments.
ED's Investigation and Allegations
The Enforcement Directorate's case, initiated in 2016, focused on complex share buyback deals. Prosecutors alleged that MCX and FTIL entered into side agreements with institutional investors to bypass SEBI's ownership limits. The investigation claimed that MCX sold 4.4 crore shares to IL&FS at Rs 36 per share, receiving Rs 159.1 crore, while secretly offering a buyback at a 15% internal rate of return.
According to ED estimates, MCX and FTIL allegedly secured illegal gains of over Rs 134 crore through these transactions. However, with the CBI concluding that these actions did not constitute a criminal scam under the Indian Penal Code, the essential element of "proceeds of crime" necessary for a money laundering trial ceased to exist.
Implications of the Court Decision
The closure of this long-standing case represents a significant legal outcome for the companies and individuals involved. The court's reliance on the Supreme Court's 2022 ruling establishes a clear precedent for future money laundering cases where predicate offences are not sustained. This decision underscores the importance of the foundational criminal case in money laundering prosecutions under PMLA.
The resolution of this nearly decade-old investigation brings closure to a complex legal matter that involved multiple regulatory bodies and enforcement agencies. The court's acceptance of the closure report marks the end of a chapter that began with CBI's 2014 case and extended through ED's 2016 money laundering investigation.
