Calcutta HC Quashes PMLA Prosecution Against Louis Dreyfus After CBI Exoneration in Predicate Offence
Justice Suvra Ghosh held that once the CBI exonerated Louis Dreyfus in the predicate offence, the Enforcement Directorate could not sustain a standalone money-laundering case on the same transactions.
The High Court at Calcutta has quashed a money-laundering prosecution brought by the Enforcement Directorate against Louis Dreyfus Company India Private Limited, holding that the case rested almost entirely on the statement of a co-accused and that the CBI's own investigation had found no diversion of funds attributable to the company. Justice Suvra Ghosh, sitting singly in the Criminal Revisional Jurisdiction, allowed CRR 1145 of 2024 on 22 May 2026 and directed that ML Case No. 7 of 2018 pending before the Chief Judge, City Sessions Court, Calcutta be quashed insofar as the petitioner is concerned. The proceedings against the other accused persons were left undisturbed. The judgment turns on the relationship between a finding of exoneration in the predicate offence and the viability of a downstream PMLA prosecution targeting the same transactions.
The Dispute Before the Court
The predicate offence traces back to an FIR registered by the CBI on 31 March 2014 against Manoj Kumar Jain, Director of M/s Prakash Vanijya Private Limited (PVPL), and others, on a complaint from the Central Bank of India, Corporate Finance Branch, Kolkata, alleging a loss of Rs. 234.57 crores. The CBI filed a charge sheet and supplementary charge sheet under Sections 420, 467, 468, 471 and 120B of the Indian Penal Code and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act — offences that are scheduled offences under the Prevention of Money Laundering Act, 2002 (PMLA).
On the basis of that charge sheet, the Enforcement Directorate registered ECIR No. KLZO/9/2016 on 5 September 2016. That inquiry culminated in ML Case No. 7 of 2018 under Section 45 of the PMLA, in which Louis Dreyfus was arraigned as an accused.
The allegation against Louis Dreyfus was specific: the company had engaged in circular trading in connivance with PVPL and its alleged associate M/s Quality Vintrade Private Limited (QVPL). Three letters of credit (LCs) opened in favour of Louis Dreyfus, amounting to Rs. 25 crores, were said to have been discounted and the proceeds routed back to PVPL and its sister concerns through QVPL. The ED's case was that Louis Dreyfus purchased agricultural commodities from QVPL and sold them to PVPL on the same date, with payments flowing in reverse order — first from PVPL to Louis Dreyfus, then from Louis Dreyfus to QVPL — and that both QVPL and PVPL were controlled by co-accused Manoj Kumar Jain. The ED quantified the alleged unlawful gain to Louis Dreyfus at Rs. 22,40,809/- received through the discount of the three LCs.
Louis Dreyfus had not been named as an accused in the CBI charge sheet. One of its authorised representatives, Mr. Narendra Malik, was cited as a prosecution witness in that charge sheet. The company moved the High Court seeking quashing of the prosecution complaint.
The Legal Issue
The central question was whether the ED could sustain a PMLA prosecution against a party that the CBI had expressly exonerated after investigating the very same transactions that formed the basis of the money-laundering allegation.
A subsidiary question concerned the evidentiary foundation: whether the statement of co-accused Manoj Kumar Jain recorded under Section 50 of the PMLA, standing largely alone, could constitute sufficient material to require Louis Dreyfus to face trial.
The ED resisted quashing on two grounds. First, it argued that an accused need not be named in the scheduled offence to be prosecuted under Section 3 of the PMLA — the offence of money laundering is an independent, standalone proceeding. Second, it contended that evaluation of evidence is a matter for trial and that a prima facie case existed.
How the Bench Reasoned
Justice Ghosh accepted the ED's general legal proposition that a person may be implicated in money laundering even without being an accused in the predicate offence, provided he is involved in the subsequent generation or handling of proceeds of crime. That principle was not in dispute. What mattered was its application to the facts.
The court drew a sharp distinction between two situations: a person who was simply not named in the predicate offence charge sheet, and a person who was investigated in connection with the very same transactions and then exonerated. Louis Dreyfus fell into the second category. The CBI had specifically examined the three disputed LCs and the role of the petitioner company. Its conclusion, recorded in the charge sheet, was that the petitioner was not a beneficiary in the alleged transactions and that investigation could not establish any diversion of funds in respect of the petitioner company. In the tabulation of beneficiaries and amounts that travelled back through circular trading, no amount involving Louis Dreyfus appeared.
The court relied on the Supreme Court's reasoning in Vijay Madanlal Choudhary v. Union of India for the proposition that the offence under Section 3 of the PMLA is dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence. The property must qualify as “proceeds of crime” within Section 2(1)(u). Where a person is absolved from the allegation of criminal activity relating to the scheduled offence and it is established that the property was rightfully owned and possessed, that property cannot be termed crime property. The court applied this to hold that since the CBI had exonerated Louis Dreyfus from any involvement in criminal activity relating to the scheduled offence, the company could not be accused of indulging in any activity connected to such proceeds of crime.
On the question of QVPL, the court observed that although circular trading between Louis Dreyfus, QVPL and PVPL had been alleged, QVPL had not been arraigned as an accused either in the predicate offence or in the ML case. Since QVPL — the alleged recipient of money from Louis Dreyfus — was not an accused in either proceeding, the transaction between Louis Dreyfus and QVPL could not prima facie be termed illegal. The chain of alleged circular trading therefore broke at that point.
The court also addressed the warehouse receipt transactions. Louis Dreyfus had argued that the purchases from QVPL and sales to PVPL were effected through warehouse trust receipts under The Warehousing (Development and Regulation) Act, 2007, which do not require physical movement of goods and constitute conclusive proof of sale under the Sale of Goods Act. Justice Ghosh accepted that such transactions could not be dismissed as mere paper transactions.
On the evidentiary question, the court applied the principle drawn from Prem Prakash v. Union of India and Kashmira Singh v. State of Madhya Pradesh: the prosecution cannot start with the statement of a co-accused to establish its case. The proper approach is to first marshal the evidence excluding the confession and assess whether a conviction could safely be based on it; the co-accused's statement can only lend support to other evidence. Here, the ED had primarily relied on Manoj Kumar Jain's statement recorded under Section 50 of the PMLA. No independent prima facie material was found to support the characterisation of Louis Dreyfus as a beneficiary.
The court also quoted the standard from Deepak Bhai Jagdish Chandra Patel v. State on charge framing: a strong suspicion suffices, but it must be founded on material that can be translated into evidence at trial. “Strong suspicion cannot be the pure subjective satisfaction based on the moral notions of the Judge.” Applying that standard, the court found that the material available against Louis Dreyfus did not make out a case for it to stand trial.
The court further noted that the grounds of suspicion in the ML case were a reiteration of the subject matter of the CBI's investigation in the predicate offence. The ED had, in effect, transgressed into the domain of the predicate offence investigation after the CBI had already concluded that no criminality attached to Louis Dreyfus in those transactions.
Outcome
Justice Suvra Ghosh allowed CRR 1145 of 2024. ML Case No. 7 of 2018 pending before the Chief Judge, City Sessions Court, Calcutta was quashed insofar as Louis Dreyfus Company India Private Limited is concerned. The proceedings against the other accused persons were directed to continue. The petitioner was ordered to be released at once and discharged from its bail bonds. No order as to costs was made.