Read Time: 01 hours

Synopsis

1. Whether the procedure contemplated under all provisions of Chapter 12 of the Criminal Procedure Code 1973 is required to be followed while commencing and continuing investigation under the prevention of money laundering act, 2002?

Supreme Court has held that the offence of money-laundering cannot be registered by the jurisdictional police who is governed by the regime under Chapter XII of the 1973 Code.

“The provisions of Chapter XII of the 1973 Code do not apply in all respects to deal with information derived relating to commission of money-laundering offence much less investigation thereof. The dispensation regarding prevention of money-laundering, attachment of proceeds of crime and inquiry/investigation of offence of money-laundering upto filing of the complaint in respect of offence under Section 3 of the 2002 Act is fully governed by the provisions of the 2002 Act itself”, Court has observed.

Holding PMLA to be a a special legislation providing for special mechanism regarding inquiry/investigation of offence of money-laundering, Court has observed that analogy cannot be drawn from the provisions of 1973 Code, in regard to registration of offence of money-laundering and more so being a complaint procedure prescribed under the 2002 Act.

2. Whether the twin conditions for grant of bail as provided for in section 45 of the PMLA as it stands amended is unconstitutional? Whether the amendment takes away the basis of the judgment in 2018 and revives the twin conditions for the grant of bail?

The Court has noted that by amending the provision retrospectively, the Parliament has removed the defect or has taken away the basis on which the provision was declared void and thus, the provision cannot be said to be in conflict with Article 13 of the Constitution. Since the anomalies noted in Nikesh Tarachand Shah case have been removed by way of Act No. 13 of 2018 and it has been clarified by way of Finance (No.2) Act,2019 that amendment shall operate retrospectively, top Court has held that twin conditions under Section 45 of the 2002 Act would get revived.

“…it is not open to argue that Section 45 of the 2002 Act post decision in Nikesh Tarachand Shah stood obliterated from the statute book as such. Indubitably, it is not unknown that even after declaration of unconstitutionality by the Court owing to violation of rights guaranteed under Part III of the Constitution, it is open to the Parliament/Legislature to cure the defect reckoned by the Constitutional Court in relation to the concerned provision whilst declaring it as unconstitutional”, Court has held.

3. In case it is held that the twin conditions stand revived, whether the judgment in 2018 holding that the twin conditions cannot apply to anticipatory bail, lays down the correct proposition of Law?

Noting that that Section 45 does not make specific reference to Section 438 (anticipatory bail) of the CrPC,  Court has opined that it cannot be overlooked that sub-section (1) of Section 45 opens with a non-obstante clause and clearly provides that anything contained in the 1973 Code, no person accused of an offence under this Act shall be released on bail or on his own bond, unless the stipulations provided therein are fulfilled.

“Section 45 of the Act begins with a non-obstante clause, thus excluding the application of the 1973 Code in matters related to “bail”..”, Court has held.

Top Court has further noted that it can never be the intention of the Parliament  to exclude the operation of Section 45 of 2002 Act in the case of  anticipatory bail, as otherwise, it will create an unnecessary dichotomy between bail and anticipatory bail which not only will be irrational  but also discriminatory and arbitrary.

Thus, it is totally misconceived that the rigors of Section 45 of the 2002 Act will not apply in the case of anticipatory bail, Court has said.

4. Whether the provisions concerning the burden of proof under PMLA violate fundamental rights of the accused person?

Section 24 of the PMLA deals with Burden of Proof.

Court has noted that if a charge is already framed against the person for having committed offence of money-laundering, it would presuppose that the Court framing charge against him was prima facie convinced that the materials placed before it had disclosed grave suspicion against such person.

In such a case, Court has held that, once the issue of admissibility of materials supporting the factum of grave suspicion about the involvement of the person in the commission of crime under the 2002 Act, is accepted, in law, the burden must shift on the person concerned to dispel that suspicion.

On the aspect of Section 24 being violative of fundamental rights, court has held that a person charged or any other person involved in money-laundering, would get opportunity to disclose information and evidence to rebut the legal presumption in respect of facts within his personal knowledge during the proceeding before the Authority or the Special Court, and thus, by no stretch of imagination, provision in the form of Section 24 of the 2002 Act, can be regarded as unconstitutional.

5. What are the contours of the offence under Section 3 of the PMLA? Does the explanation to Section 3 of PMLA (added by amendment in 2019) expand the meaning of the offence under Section 3, and if so is it permissible to do so?

Section 3 has a wider reach, the top court has held.

Top Court has held that Section 3 captures every process and activity in dealing with the proceeds of crime, directly or indirectly, and not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money-laundering.

Referring to the Explanation inserted to Section 3 in 2019, Court has said that it does not entail in expanding the purport of Section 3 as it stood prior to 2019, but is only clarificatory in nature.

“Inasmuch as Section 3 is widely worded with a view to not only investigate the offence of money-laundering but also to prevent and regulate that offence. This provision plainly indicates that any (every) process or activity connected with the proceeds of crime results in offence of money-laundering. Projecting or claiming the proceeds of crime as untainted property, in itself, is an attempt to indulge in or being involved in money-laundering, just as knowingly concealing, possessing, acquiring or using of proceeds of crime, directly or indirectly….”, Court has held.

6. Whether the filing of a chargesheet/complaint/FIR in the predicate offence is a prerequisite for an exercise of power of arrest under the PMLA? Can money laundering not be a standalone offence in the context of section 3 read with section 2(u) of PMLA?

Noting that it was not the case as if after every inquiry prosecution is launched against all persons found to be involved in the commission of offence of money-laundering, Court has opined that it is also not unusual to provide for arrest of a person during such inquiry before filing of a complaint for indulging in alleged criminal activity.

“The safeguards provided in the 2002 Act and the preconditions to be fulfilled by the authorised officer before effecting arrest, as contained in Section 19 of the 2002 Act, are equally stringent and of higher standard. Those safeguards ensure that the authorised officers do not act arbitrarily, but make them accountable for their judgment about the necessity to arrest any person as being involved in the commission of offence of money-laundering even before filing of the complaint before the Special Court under Section 44(1)(b) of the 2002 Act in that regard….”, Court has said.

In regard to the question whether the offence under Section 3 is a standalone offence, Court has held that it is dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence.

Court has further observed that all or whole of the crime property linked to scheduled offence need not be regarded as proceeds of crime, but all properties qualifying the definition of “proceeds of crime” under Section 2(1)(u) will necessarily be crime properties.

Definition of “proceeds of crime” under Section 2(1)(u) will get attracted, only when the property has been derived or obtained as a result of criminal activity relating to a scheduled offence, Court has clarified.

7. Is the power of arrest conferred under section 19 PMLA violative of articles 14 and 21 of the Constitution?

In relation to the power of arrest, the court has observed that Section 19 provides for inbuilt safeguards to be followed by the authorised officers, such as of recording reasons for the belief regarding the involvement of person in the offence of money-laundering. The bench has taken note of the fact, that the statement to be recorded in writing and while effecting arrest of the person, the grounds for such arrest are to be informed to that person.

The court, has further noted that the safeguard is to ensure fairness, objectivity and accountability of the authorised officer in forming opinion as recorded in writing regarding the necessity to arrest the person being involved in offence of money-laundering. It has observed, “Not only that, it is also the obligation of the authorised officer to produce the person so arrested before the Special Court or Judicial Magistrate or a Metropolitan Magistrate, as the case may be, within twenty-four hours.”

The fact that Section 167 of the CrPC provides that a person can be arrested by the jurisdictional police without warrant under Section 41 of the 1973 Code only upon registration of a complaint under Section 154 of the 1973 Code in connection with cognizable offence or pursuant to the order of the Court.

It has been opined by the court, that the PMLA legislation is an amalgam of different facets including setting up of agencies and mechanisms for coordinating measures for combating money-laundering. The court, has noted that if the action of the authorised officer is found to be vexatious, he can be proceeded with and inflicted with punishment specified under Section 62 of the Act. It has been observed, that this power to arrest, has been given to the high-ranking officials with further conditions to ensure that there is objectivity and their own accountability in resorting to arrest of a person even before a formal complaint is filed. Investing of power in the high-ranking officials in this regard has stood the test of reasonableness in previous judgment of Supreme Court.

Thus the court has concluded that the provision has reasonable nexus with the purposes and objects sought to be achieved by the 2002 Act of prevention of money-laundering.

8. Whether the Sections 17 of PMLA as amended, relating to search and seizure are unconstitutional and void?

The court, has observed that in the matter of searches and seizures under the 2002 Act, that power can be exercised only by the Director or any other officer not below the rank of Deputy Director authorised by the Director. The court, has taken note of the fact that these officers, are not only high-ranking officials, but have to be fully satisfied that there is reason to believe on the basis of information in their possession about commission of offence of money laundering.

It has been noted that it is indisputable that the PMLA Act is a special Act and is a self-contained Code regarding the subject of searches and seizures in connection with the offence of money-laundering under the 2002 Act, coupled with the fact that the purpose and object of the 2002 Act is prevention of money-laundering; and the offence of money-laundering being an independent offence concerning the process and activity connected with the proceeds of crime.

The court has taken note of the argument by the petitioner that  Rule 3(2) proviso in the 2005 PMLA Rules regarding forms, search and seizure or freezing and the manner of forwarding the reasons and material to the Adjudicating Authority, remained unamended despite deletion of the proviso in Section 17(1) from the 2002 Act.

It has been noted by the court that it is unfathomable that the effect of amending Act is being questioned on the basis of unamended Rule. It is well-settled that if the Rule is not consistent with the provisions of the Act, the amended provisions in the Act must prevail. The court, has held that statute cannot be declared ultra vires on the basis of Rule framed under the statute. In this regard, the court has asked the central government to to take necessary corrective steps to obviate confusion caused on account of the subject proviso, if any.

The court, has concluded that “in view of the inbuilt safeguards and stringent stipulations to be adhered to by the Authorities it ought to be regarded as reasonable provision having nexus with the purposes and objects sought to be achieved by the 2002 Act. It is certainly not an arbitrary power at all.”

9. Whether reliance on the statement recorded by the officers of the Enforcement Directorate during the investigation in judicial proceedings, violate article 20(3) of the Constitution and are inadmissible in light of Section 25 of Evidence Act?

The court has ruled that the provision, inserted in 2005 as Section 45(1A) is not to empower the regular police officers to take cognisance of the offence. On the other hand, it is a provision to declare that the regular police officer is not competent to take cognisance of offence of money-laundering, as it can be investigated only by the authorities referred to in Section 48 of the 2002 Act.

Thus, the court has held that the authorities under the 2002 Act are not Police Officers. As a consequence, the statements recorded by authorities under the 2002 Act, of persons involved in the commission of the offence of money-laundering or the witnesses for the purposes of inquiry/investigation, cannot be hit by the vice of Article 20(3) of the Constitution or for that matter, Article 21 being procedure established by law. On the aspect of whether the protection given to an accused under of Section 25 of the Evidence Act , is available or not, may have to be considered on case-to-case basis being rule of evidence

10. Whether the offence of Money laundering can continue after the predicate offence has taken place? Can the offence of money laundering be committed even if the predicate or scheduled offence was not a scheduled offence on the date when the scheduled offence was committed?

The Court, has held that an offence under Section 3 of the act  is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence.

It has been held that the authorities under the 2002 cannot prosecute any person on notional basis or on the assumption that a scheduled offence is committed unless it is so registered with the jurisdictional police and/ or is pending inquiry trial before a competent forum, the Court held.

The court has thus concluded that the Authority under the 2002 Act, is to prosecute a person for offence of money-laundering only if it has reason to believe, which is required to be recorded in writing that the person is in possession of “proceeds of crime”. It has been held that the prosecution can carry on, only if that belief is further supported by tangible and credible evidence indicative of involvement of the person concerned in any process or activity connected with the proceeds of crime, action under the Act can be taken forward for attachment and confiscation of proceeds of crime and until vesting thereof in the Central Government, such process initiated would be a standalone process

11. Whether the provisions concerning attachment of property under the PMLA violates the right to property under article 300A?

The court, accepted the stand taken by the Union of India on Section 5 of the act that the objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering. The court, further accepted Union’s contention that the same is being done, in order to addresses the broad objectives of the 2002 Act to reach the proceeds of crime in whosoever’s name they are kept or by whosoever they are held.

It has thus been held, that the provision provides for a balancing arrangement to secure the interest of the person as well as to ensure that the proceeds of crime remain available for being dealt with in the manner provided by the 2002 Act. The court has concluded, “This provision, in our opinion, has reasonable nexus with the objects sought to be achieved by the 2002 Act in preventing and regulating money-laundering effectively.”

12. Whether the PMLA can be applied to acts which occurred prior to the addition of the offence under the Schedule to the Act?

The court has held that the inclusion or exclusion, of any particular offence in the Schedule to the 2002 Act is a matter of legislative policy; and the nature or class of any predicate offence has no bearing on the validity of the Schedule or any prescription thereunder.

The court has further held that

1) Supply of a copy of Enforcement Case Information Report in every case to the person concerned is not mandatory, it is enough if ED at the time of arrest, discloses the grounds of such arrest. ECIR cannot be equated with FIR in other crimes.

2) When an arrested person is produced before the Special Court, it is open to the Special Court to look into the relevant records presented by the authorised representative of ED for answering the issue of need for his/her continued detention with laundering

3) Even when ED manual is not to be published being an internal departmental document issued for the guidance of the Authorities (ED officials), the department ought to explore the desirability of placing information on its website which may outline scope of authority

4) The court has observed, "The petitioners are justified in expressing serious concern bordering on causing injustice owing to the vacancies in the Appellate Tribunal. We deem it necessary to impress upon the executive to take corrective measures in this regard expeditiously."

5) It has also been observed, "The argument about proportionality of punishment with reference to the nature of scheduled offence is wholly unfounded and stands rejected."

Case title: Vijay Mandal Choudhary Vs Union of India (Batch of petitions)