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Prevention Of Money Laundering Act, 2002: An Inherently Flawed Legislation?

Tarun Gaur
16 April 2020 8:40 AM GMT
Prevention Of Money Laundering Act, 2002: An Inherently Flawed Legislation?

Money laundering is a process of projection of tainted money as an untainted one. It is a process which disguises illegal profits without compromising the people who wish to benefit from the proceeds. It is the process by which the Proceeds of Crime are ploughed into the financial system to disguise their illegal origins and make them look like legitimate money. Money laundering can be linked to any crime that generates significant proceeds such as corruption, arms smuggling, smuggling of prohibited drugs etc. It is a dynamic three-stage process that requires, a. Placement: moving the funds from direct association with the crime, b. Layering: disguising the trail to foil pursuit and c. Integration: making the money available to the criminal once again with the occupational and geographic origins hidden from view.

Concept of money laundering isn't something which has come to fore in the past few decades but has been prevalent since way before the world saw the shifting of regimes through world wars. It was only after the Second World War, the majority of legal systems started classifying the process of money laundering as a crime. Though these were victimless crimes they were affecting economies of nations severely. People who used to indulge in such activities were from all spheres of life such as drug traffickers, wealthy businessmen, politicians etc. and all of them used to operate in an organized sector. To protect the economy of nations, it was resolved internationally that the process of money laundering be made an offence and laws be made at the national level by nations to curb this menace, identify the properties involved in money laundering, confiscate them and punish the offenders to create deterrence among others thinking of indulging in same.

Prevention of Money Laundering Act, 2002 (hereinafter referred to as PMLA) is India's way of complying with its international commitments towards this growing menace. It was designed to be overall special legislation dealing with every aspect of the offence of money laundering. Despite the heart and soul of Indian lawmakers being at the right place in making one stringent law to deal with the same, they ended up making legislation that is inherently flawed and is doing the opposite of what was intended from it.

The legislation itself, I feel, has become a menace instead of it curbing the menace it was designed to curb. According to me, following are the flaws under PMLA which require immediate attention and rectification.

  1. Offence of money laundering construed as an independent offence

Offence of money laundering is defined u/s 3 of PMLA as follows:

Section 3: whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money laundering.

Explanation.—For the removal of doubts, it is hereby clarified that,—
(i) a person shall be guilty of offence of money-laundering if such person
is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:—
(a) concealment; or

(b) Possession; or
(c) acquisition; or
(d) use; or
(e) projecting as untainted property; or
(f) claiming as untainted property,

in any manner whatsoever;

At this juncture, it is imperative to know what Proceeds of Crime are and same is defined u/s 2(u) PMLA as follows:

Section 2(u): "Proceeds of Crime" means any property derived or obtained directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the county, then the property equivalent in value held within the country.

On a conjoint reading of both, section 3 and 2(u), it becomes amply clear that the offence of money laundering is not an independent offence but is one whose existence depends upon the commission of offence/offences listed under the schedule appended to the act (Predicate Offences) and making money out of its commission, which is then referred to as tainted or ill-gotten money.

In a nutshell, the offence of money laundering, as is prescribed u/s 3, is committed in two parts i.e. first, when one acquires Proceeds of Crime via the commission of Predicate Offence and second, when said Proceeds of Crime are laundered.

Despite the offence being this clear, enforcement authorities have been taking a stand since the beginning, that the offence prescribed u/s 3 of PMLA is an independent offence and the worrisome part is, lately, courts have also started affirming such interpretation of the authorities. According to me, the offence of money laundering, by virtue of its very nature, can never be an independent offence as it is one which is dependent on the commission of some Predicate Offence and simply cannot exist in absence of same.

The fact that the offence of money laundering is not a standalone one, is also evident from the fact that first proviso of section 5, PMLA, itself prescribes that there has to be some complaint/charge sheet/report in the concerned court for the commission of Predicate Offence and it is only after that proceedings u/s 5 can be commenced.

But when it comes to initiation of prosecution or filing of complaint by the specially appointed authority i.e. Enforcement Directorate (ED), in the special court for prosecution of alleged offenders under PMLA, there is no requirement of prior filing of any report/charge sheet regarding commission of Predicate Offence, which gives immense power to ED to launch prosecution against anyone without even ascertaining if there has been any commission of Predicate Offence or not and therefore whether some Proceeds of Crime even exists regarding which offence u/s 3 can be presumed to be committed.

Now, one vital issue is, since offence of money laundering is dependent upon commission of Predicate Offence, what will happen when a person against whom prosecution or trial is going on for the commission of Predicate Offence, and ED also start their prosecution for the commission of offence under PMLA and while the prosecution or trial under PMLA is ongoing, the said accused person gets discharged or acquitted from the charge of commission of Predicate Offence by the competent court?

Before the amendment of PMLA in 2019, there was no provision to take care of such situation in the entire act, due to which several instances occurred where the person sought to be prosecuted under PMLA, was already discharged or acquitted from the charge of commission of Predicate Offence. Certain instances are enumerated as follows.

In Arun Kumar Mishra v. Directorate of Enforcement[1], Delhi High Court quashed an ECIR registered by ED on the ground that RC (FIR in Prevention of Corruption cases) filed by CBI on the basis of which ECIR was registered has already been quashed by High Court.

In Rajiv Chanana v. Dy. Director of enforcement[2], Delhi high court held that after the acquittal of a person from a scheduled offence, his trial for an offence under section 3 of PMLA would not survive while observing that it was hard to imagine as to how a trial for an offence of money laundering could continue where the fundamental basis, that is the commission of a scheduled offence, has been found to be disproved and that after acquittal from the scheduled offence, the attachment of the property under section 5 of the act would also come to an end.

This aforementioned order of Delhi High Court was further challenged by ED in Dy. Director Directorate of Enforcement v. Rajiv Chanana[3] via intra court appeal in Delhi High Court and when it came up for hearing, it was contended by Ld. ASG, that in the impugned order, interpretation of certain sections of PMLA have been given by the single judge while dealing with the question of attachment of properties by Enforcement Directorate, which is being treated as a precedent and same shouldn't be used as precedent. Though in this case, an appeal was also pending before appellate authority against the attachment of property therefore, the counsel of respondent, gave his consent, on instructions, for the court to overrule the findings of Ld. Single Judge and the Division Bench gave time of 8 weeks for appellate authority to finally adjudicate the appeal against attachment.

The aforementioned overruling of single judge's order by a Division Bench cannot, in my opinion, be taken as a precedent since the appellate order is in the nature of a consensual order.

After the aforementioned decisions, came Ajanta Merchants Pvt Ltd. v. Directorate of Enforcement[4] where Delhi High Court, quashed proceedings under section 3 of PMLA majorly on the ground that the RC registered by CBI was already quashed by High Court and besides that there was no cogent material in possession of ED for the prosecution under section 3 and also ordered properties provisionally attached by ED to be released.

In Sushil Kumar Katiyal v. Union of India[5], summoning order issued for the offence u/s 3 of PMLA was assailed before Allahabad High Court on the ground that when accused has been discharged form Predicate Offence and that order of discharge has also attained finality, then such summoning u/s 3 is bad in law. The Allahabad High Court, after relying on the judgment of Ajanta Merchants (supra) & Rajiv Chanana (supra) held that no trial for scheduled offence was pending on the date when the complaint was filed and summoning order was passed u/s 3 therefore the impugned summoning order suffers from manifest error and is liable to be quashed.

But on the contrary, in Janata Jha v. AD, Directorate of Enforcement[6] Orissa High Court took a different view than the views taken by Delhi and Allahabad High Courts. The Orissa High Court held that PMLA is a special statue and therefore it has overriding effect on the statute which deals with Predicate Offence hence even if an accused person is discharged from the Predicate Offence, proceedings under PMLA can still go on and refused to quash the proceedings.

However, via Finance Act 2019, an explanation has been added to section 44(1)(d) PMLA, which is as follows:

Explanation: For the removal of doubts, it is clarified that,—
(i) the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial;

(ii)…

This newly added explanation didn't solve the problem but created more. Vide this explanation, legislature had once again brushed away the fact that offence under PMLA is dependent on existence of commission of Predicate Offence and orders passed with respect to Predicate Offence will have direct bearing on prosecution of offence under PMLA. Legislature has now made it clear that despite the accused person's getting discharged or acquitted of the allegation of commission of Predicate Offence, his prosecution and that of others, whose roles are of aiding in the laundering of Proceeds of Crime, under PMLA, won't be affected.

This specific flaw, I feel, can be dealt with in practice by employing the principle of harmonious construction which stipulates that when two provisions of an act or provisions of an act with rules made under it, conflict with each other then, instead of striking one of them down and reducing it to dead letter, courts must try to first harmoniously construe them to find out some workable solution of said conflict in accordance with the scheme of the act.

In Sultana Begum v. Prem Chand Jain[7], Supreme Court held as follows:

15. On a conspectus of the case-law indicated above, the following principles are clearly discernible:

(1) It is the duty of the courts to avoid a head-on clash between two sections of the Act and to construe the provisions which appear to be in conflict with each other in such a manner as to harmonise them.

(2) The provisions of one section of a statute cannot be used to defeat the other provisions unless the court, in spite of its efforts, finds it impossible to effect reconciliation between them.

(3) It has to be borne in mind by all the courts all the time that when there are two conflicting provisions in an Act, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is the essence of the rule of "harmonious construction".

(4) The courts have also to keep in mind that an interpretation which reduces one of the provisions as a "dead letter" or "useless lumber" is not harmonious construction.

(5) To harmonise is not to destroy any statutory provision or to render it otiose.

In the present context, scheme of the act is to tackle the menace of money laundering, prosecution of offenders and confiscation of Proceeds of Crime. The theme of the act thus being the offence of money laundering, which is dependent on commission of Predicate Offence, the newly added explanation has to be construed in harmonization with same.

In order to harmonise newly added explanation with section 3 of the act, I feel, principle mentioned at no. 3 above can be applied in present situation as the collision between them is one that can be reconciled best when they be interpreted in a way that makes all of them workable.

Therefore, the explanation can be read as, "The jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders, except order of discharge or acquittal, passed in respect of the scheduled offence".

  1. Procedure for initiation of attachment of property involved in money laundering

Section 5 of the act deals with the procedure of attachment and it reads as follows:

Section 5: attachment of property involved in money laundering

  • Where the director or any other officer not below the rank of deputy director authorised by the director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that-
  • Any person is in possession of any proceeds of crime; and
  • Such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this chapter,

He may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed:

Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a magistrate under section 173 of the code of criminal procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that schedule, before a magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country:

Provided …

Here, the logic behind offence of money laundering is somewhat taken care of. First proviso to the section does stipulate that there must be a suspicion regarding commission of Predicate Offence regarding which charge sheet/report/complaint has been filed and it is only after that the authorities under PMLA can act under section 5.

In my opinion, filing of a complaint/report/charge sheet in competent court for commission of Predicate Offence, doesn't ipso facto makes prima facie case of commission of said Predicate Offence. It simply means that investigating agency has found some material based on which they formed an opinion of prosecuting one for the commission of Predicate Offence.

True, expression "prima facie case of commission of Predicate Offence" doesn't find mention in first proviso to section 5 but given the scheme of PMLA, I feel, one won't be wrong in interpreting the proviso in said manner.

In practice, trend has been, the moment some complaint or a report is filed for the commission of Predicate Offence by dedicated investigating authorities, in the competent court, ED starts tailing those agencies and initiates prosecution under PMLA, start harassing or worst, detaining people, on the mere assumption that since one has been named under report of commission of predicate offence therefore they have also committed the offence under PMLA. All this is despite the fact that no prima facie satisfaction of commission of Predicate Offence has happened yet. Besides depriving people from their liberty, the authorities also end up attaching whatever property they can lay their hands on, of suspects, without there being any reason for same.

The first proviso, I feel, is one which has become root cause of harassment and loss property to people who are not even connected with commission of Predicate Offence. The offence under PMLA is of such a wide amplitude, that it includes in its ambit not only those who have committed Predicate Offence but also people who have joined him later i.e. during the stage of laundering of Proceeds of Crime. In such situation, it is all the more harassment where a person who has been alleged to have committed Predicate Offence does not even gets charge-sheeted or don't get accused of commission of Predicate Offence or that person though is accused of commission of Predicate Offence, gets discharged from the commission of Predicate Offence yet, people against whom only allegation is of aiding in the process of laundering, assumed by enforcement authorities, keep suffering the wrath of ED despite the fact that there are no Proceeds of Crime in existence.

Logically speaking, when there is no Predicate Offence, then there cannot be Proceeds of Crime, there cannot be its laundering in any manner whatsoever and harassing people on the allegation of them aiding in its laundering where the existence of Proceeds of Crime is itself in doubt, is just vague and absurd.

According to me, the flaw in first proviso can be ironed out if it be interpreted with the help of golden rule of interpretation which says, if literal meaning of a provision of statute leads to absurdity, repugnance, hardship, injustice then court must modify the meaning to such an extent and no further, as would prevent such a consequence. This rule was also defined as "subject-and-object" rule in Tarlochan Dev Sharma v. State of Punjab[8].

In the present scenario, the subject of the provision u/s 5 is to ascertain property involved in money laundering i.e. Proceeds of Crime, which is predicated on commission of Predicate Offence and object of the provision is to attach/confiscate said Proceeds of Crime and prevention of same from destruction. In order for there to be prima facie existence of Proceeds of Crime, I feel, prima facie ruling for the commission of Predicate Offence must also be there. Therefore, if the first proviso be interpreted as "when the charges are framed for the commission of Predicate Offence by the competent court, that the procedure u/s 5(1) be initiated", it will solve the hardship being caused by the first proviso at present.

Also, I feel, aforementioned interpretation will not cause any unreasonable restraint on ED as for the urgent and emergent situations, where imminent threat of destruction of Proceeds of Crime is there, second proviso to section 5(1) is always there for them to take appropriate action u/s 5(1).

  1. Registration of FIR/ECIR

PMLA being a special statute, is expected to be a complete code in itself. However, it is one which incorporates provisions of CrPC as well for proper execution of provisions given under the act. Section 65 is one which stipulates that provisions of CrPC will be applicable so long as they aren't inconsistent with the provisions of PMLA. Section 65 reads as follows:

Section 65: Code of Criminal Procedure, 1973 to apply: the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply, insofar as they are not inconsistent with the provisions of this Act, to arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings under this Act.

Such explicit inclusion of CrPC in the PMLA is to be read with section 4(2) CrPC which provides for application of CrPC with respect to investigation, inquiry, trial and other processes, if the special law is silent on same and there is no explicit exclusion of provisions of CrPC from same. When both the said sections are read together, it shows that provisions of CrPC with respect to investigation, inquiry, trial and other process, must apply to PMLA.

In Gurucharan Singh v. Union of India[9], question arose whether offence under PMLA is cognisable or non-cognisable and whether chapter XII CrPC will be applicable to PMLA? A Division Bench of Delhi High Court held that irrespective of final verdict whether offence under PMLA is cognisable or not, chapter XII of CrPC will be applicable to PMLA. However, in the end, the court added a rider whereby which it stated that the findings and interpretation given under the order are preliminary in nature and are only for the purpose of consideration of plea of bail of applicant.

Later, on 14 March 2017, came judgment of Ashok Munilal Jain v. Assistant Director, Directorate of Enforcement[10], where Supreme Court categorically held that provisions u/s 167(2) CrPC, which is also part of Chapter XII CrPC, are applicable to PMLA and enlarged petitioner on default bail on the ground that complaint hasn't been filed in requisite number of days by ED.

On 13 February 2018, came judgment of Rajbhushan Omprakash Dixit v. Union of India[11], where question of applicability of Chapter XII CrPC to PMLA, came up for consideration one more time. Said question has also been part of earlier decision of Delhi High Court in Vakamulla Chandrashekhar v. Union of India[12], which was per incuriam according to the bench dealing with Rajbhushan(supra) therefore, while referring the question of application of chapter XII CrPC to PMLA, the bench also referred the Vakamulla's(supra) judgment for reconsideration, which is currently pending.

However, despite there being aforementioned judgments/orders of Courts, in practice, there is no compulsion for ED to follow provisions under chapter XII CrPC since question about their application to PMLA is still pending consideration. This lingering confusion bestow unfettered power on ED to start investigation, make arrests and harass anyone they feel like, under the garb of their having "reasonable suspicion" without having to register any FIR/ECIR.

Post aforementioned decisions, vide Finance Act 2019, PMLA was amended one more time whereby which one question, amongst several pending consideration in Rajbhushan(supra) case, was answered i.e. offence under PMLA is, and has always been, cognizable. This clarification when read with rulings of Courts mentioned above, makes it clear, that chapter XII of CrPC must be read as a part and parcel of PMLA.

However, until such time this question is answered finally, I feel, this particular flaw still lingers, not as a potent but potential one.

  1. Arrest

Section 19, PMLA deals with arrest and it reads as follows:

Section 19: Power to arrest

  • If the director, deputy Director, Assistant Director, or any other officer authorized in this behalf by the central government by general or special order, has on the basis of material in his possession reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under this Act, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.

This section again is one which, in light of section 65 PMLA, cannot exist in isolation but will have to co-exist with section 41 of CrPC. Since offence u/s 3 PMLA is punishable with 7 years, as is prescribed u/s 4 PMLA therefore, application of section 19 PMLA, majorly amongst other sub sections, shall be in conjunction with section 41(1)(b) CrPC.

According to me, the moment provisions of arrest under section 41 CrPC becomes applicable to PMLA, guidelines issued by Supreme Court in Arnesh Kumar v. State of Bihar[13] comes to play automatically and are required to be followed by ED and noncompliance of same must expose ED to an action of contempt of court.

In Vakamulla's(supra) judgment, a Division Bench of Delhi High Court also held that it is mandatory for ED officers to comply with section 41 and 41A CrPC in accordance with guidelines of Arnesh Kumar(supra). However, said judgment, as of now, is under consideration before lager bench in Rajbhushan's(supra) case.

However, in practice, ED officers, many times, do not record any FIR/ECIR and simply issue a notice u/s 50 PMLA requiring one's presence in their office on the basis of suspicion. In doing same, they don't have to inform the person if he is being called as an accused person or as a witness which makes the situation more worrisome as the person summoned cannot determine, in absence of any ECIR/FIR, for what he has been summoned. Many times, person summoned in such manner end up getting arrested on flimsy grounds and then comes cherry on cake for ED i.e. absence of requirement for ED to serve reasons, recorded for making arrest, to the arrestee as the only requirement under section 19 is to "inform" the arrestee. In Moin Akhtar Quereshi v. Union of India[14] Division Bench of Delhi High Court, after placing reliance on two judgments on same point of Bombay High Court also held that the word used in section 19 is "inform" and not "communicate" hence informing does not mean serving reasons in writing and same is not in contravention of Art 22(1) of Indian Constitution.

However, in Rajbhushan(supra), verdict of Moin Akthar Qureshi(supra) has also been sent for reconsideration but so long as no verdict of larger bench comes, the situation stands that even verbal communication of grounds for arrest is sufficient compliance of mandate under section 19. Such process of depriving an individual of his liberty is just barbaric and painful.

The arrest of a person isn't just restricting his movement but is also violative of his fundamental right under Article 21 of the Indian Constitution which reads as follows:

Article 21: no person shall be deprived of his life or personal liberty except according to the procedure established by law.

In Maneka Gnadhi v. Union of India[15], the Supreme Court held that procedure in Article 21 "has to be fair, just and reasonable, not fanciful, oppressive or arbitrary. The court further held that "Law" in Article 21 "is reasonable law, not any enacted piece".

Later in Sunil Batra v. Delhi Admn.[16], it was held "true our constitution has no 'due process' clause but after R. C. Cooper v. Union of India[17] and Maneka Gandhi's case (supra), the consequence is same."

Therefore, laws, especially those which abridges ones liberty must stand the test of principles mentioned above and only when they pass that test, should be enacted in a statute. Section 19 PMLA, in my opinion, is one which falls foul of principles mentioned above as it is completely unreasonable, oppressive and arbitrary.

  1. Bail

Section 45 of the act deals with the provision of bail but only subsection 1 of same is important here which reads as follows:

Section 45. Offences to be cognizable and non-bailable:

  • Notwithstanding anything contained in the code of criminal procedure, 1973, no person accused of an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule shall be released on bail or on his own bond unless-
  • The public prosecutor has been given an opportunity to oppose the application for such release; and
  • Where the public prosecutor opposes the application, the court I satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:

On 23rd November 2017, conditions prescribed under section 45(1) (twin conditions) were struck down by Supreme Court in Nikesh Tarachand Shah v. Unionf of India & Anr.[18] for being unconstitutional as they fell foul of Art 14 and 21 of Indian Constitution. Post this verdict, on 29.03.2018, legislature amended section 45 PMLA via Finance Act 2018, which came into force on 19.04.2018, whereby which phrase "punishable for a term of imprisonment of more than three years under Part A of the Schedule" was substituted with "under this Act". This amendment came shortly after Supreme Court struck down twin conditions and in same, nowhere has it been clarified if twin conditions were resurrected by the aforementioned substitution done in the act. Absence of same created problems for courts as to whether to apply twin conditions while dealing with bail applications under PMLA or not.

Same confusion arose in Upendra Rai v. Directorate of Enforcement[19], wherein Delhi High Court, on 9th July 2019, after referring to views already taken by two other High Courts, held that substitution of phrase "punishable for a term of imprisonment of more than three years under Part A of the Schedule" with "under this act" does not resurrect twin conditions listed u/s 45(1) which were struck down by Supreme Court in 2017 and therefore, for deciding bail applications under PMLA, only considerations are, prima facie material available to fortify commission of offence, gravity of offence, severity of punishment, chances of fleeing and tampering with evidence. The court held as follows:

22. A bare perusal of the amended Section 45 would reveal that the introduction of the words "under this Act" would not revive the twin conditions as imposed in Section 45(1) PMLA which view has also been expressed by two other High Courts. In Bail Application No. 286/2018 Sameer M. Bhujbal v. Assistant Director, Directorate of Enforcement, the Bombay High Court held:

"9. It is to be noted here that, after effecting amendment to Section 45(1) of the PMLA Act the words "under this Act" are added to Sub Section (1) of Section 45 of the PMLA Act. However, the original Section 45(1)(ii) has not been revived or resurrected by the said Amending Act. The learned counsel appearing for the applicant and the learned Additional Solicitor General of India are not disputing about the said fact situation and in fact have conceded to the same. It is further to be noted here that, even Notification dated 29.3.2018 thereby amending Section 45(1) of the PMLA Act which came into effect from 19.4.2018, is silent about its retrospective applicability. In view thereof, the contention advanced by the learned A.S.G. cannot be accepted. It is to be further noted here that, the original Sub-section 45(1)(ii) has therefore neither revived nor resurrected by the Amending Act and therefore, as of today there is no rigor of said two further conditions under original Section 45(1)(ii) of PMLA Act for releasing the accused on bail under the said Act."

23. Similar view was expressed by the Madhya Pradesh High Court in M.Cr.C. No. 34201/2018 titled as Vinod Bhandari v. Assistant Director, Directorate of Enforcement decided on 29th August, 2018. This Court finds no reason to disagree with the two views expressed.

29. Indubitably, this Court while granting bail has to take into consideration prima facie material available to fortify the commission of the offence, gravity of the offence, severity of the punishment, chances of the petitioner not being available for trial or tampering with the evidence or the witnesses. As noted above, in regard to the prima facie satisfaction of the Court in support of the charge in the two Predicate Offences on the basis of which ECIR stands recorded, the CBI has already clarified that in RC 0003 no pecuniary advantage has been received by the accused and thus there is no question of laundering the proceeds of the crime. In RC 0004 the complaint is by Kapil Wadhawan on behalf of M/s. White Lion Real Estate Developers Private Limited and it is alleged that a sum of Rs. 16,40,06,000/- has been extorted. There is no complaint from any of the entities noted in Para 25 above. Even otherwise as per the respondent, the total amount stated to have been laundered is approximately Rs. 52,55,00,000/- out of which Rs. 26,65,45,476/- stands attached. The maximum punishment provided for the offence punishable under Section 4 PMLA being 7 years imprisonment and the petitioner having undergone more than 1 year 1 month of custody and the trial likely to take some time, there being no material placed on record to show that the petitioner has been tampering of evidence and the statement of Alok Sharma which has been pressed in by the respondent stating that the petitioner forced him to remain associated with him, this Court finds it to be a fit case for grant of bail to the petitioner.

Post this verdict, came another amendment in section 45 PMLA on 1st August 2019 vide Finance Act 2019 whereby which a new explanation has been added which stipulated that, notwithstanding anything contained in CrPC, offences under PMLA shall mean and shall be deemed to have always meant to be cognisable and non-bailable.

Both the aforementioned amendments are affected post Supreme Court's verdict in Nikesh's case (supra) and none clarified even once, if twin conditions have been resurrected or revived by any of those two amendments.

Post these amendments, on 12th September 2019, came judgment of SFIO v. Nittin Johari[20] where, Supreme Court while overruling the order of Delhi High Court enlarging Nittin Johari, Ex CFO of Bhushan Steel Limited, on bail, recorded categorical statement of Ld. Solicitor General with respect to the current situation of section 45 of PMLA which is as follows:

15. The learned Solicitor General also referred to Nikesh Tarachand Shah v. Union of India [Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1 : (2018) 2 SCC (Cri) 302] , wherein this Court had struck down Section 45 of the Prevention of Money Laundering Act, 2002 (for short "the PMLA"), another provision analogous to Section 212(6) of the Companies Act. It was contended that this decision was irrelevant to the present case, since the classification because of which the provision was held to be unconstitutional had been done away with. This was because when the said judgment was passed, Section 45 of the PMLA imposed the twin conditions for bail only for offences found in Schedule A of the PMLA (i.e. "Predicate Offences" found in other penal statutes) which were punishable with imprisonment for three years or more, and this Court had struck down this provision as unconstitutional mainly on the ground that the aforesaid classification did not seem to have a rational nexus to the object of that legislation. However, Parliament had subsequently amended Section 45 of the PMLA, imposing the twin conditions for bail for offences under the PMLA itself, and not for offences found in Schedule A. It was further submitted that after the said amendment, Section 45 of the PMLA had become in pari materia with Section 212(6) of the Companies Act, as the latter section also imposed the twin conditions for offences under Section 447 of the Companies Act itself.

What falls from afore quoted para is that, according to enforcement agencies, twin conditions u/s 45(1), which were struck down by SC in Nikesh's case (supra), are still in existence and are still applicable but only to the offence mentioned u/s 3 of PMLA.

However, on 4th December 2019, came Supreme Court's verdict in P. Chidambaram v. Directorate of Enforcement[21] where Court was hearing the challenge to Delhi High Court's infamous order denying bail to appellant under PMLA. While dealing with same, the Supreme Court categorically held that only considerations required to be considered for the adjudication of this appeal relating to grant of bail to appellant, are those given u/s 439 CrPC and neither the Solicitor General nor Court, went on to discuss or include the test of twin conditions in the said order while dealing with considerations of bail and enlarged the appellant on bail as the considerations given u/s 439 CrPC were satisfied.

Now, the problem today is, there is no conclusive view as to whether twin conditions have been revived by legislature through aforementioned amendments or whether the fact that in none of said amendments nowhere has it been stipulated that twin conditions have been revived, combined with judicial pronouncements mentioned above, they are to be taken as omitted once and for all? Government on one hand seems to take a stand that twin conditions are still in existence whereas in another breath, did not even whisper anything about the existence and applicability of twin conditions when court is seized of another like matter.

According to me, the way forward is to first understand the effect of Supreme Court's holding a provision unconstitutional and then coming to question if twin conditions still exist. Answer to the former part above is no more res integra as same has been settled down way back in 1955, in Behram Khurshid Pesikaka v. State of Bombay[22], where Supreme Court held that once a statute is declared void under Art 13 (1) or 13(2) by this Court, that declaration has the force of law, and the statute so declared void is no longer law qua persons whose fundamental rights are thus infringed. The Court categorically held that American doctrine stated by Willoubhy has no application in India in view of Art 13 and therefore, once a law has been struck down as unconstitutional by this court, no notice can be taken of that law by any court, and in every case an accused person need not start proving that the law is unconstitutional. The court is not empowered to look at that part of the law which has been declared as void.

According to the principles mentioned above, I feel, it wouldn't be wrong if we take twin conditions to be non-existent and non-applicable, at least as of now, and it is only the provisions mentioned u/s 439 CrPC that should govern the question of grant of bail to people accused of offence under PMLA as well.

  1. Process of institution of proceedings before Special Court

PMLA being a special statute, provides for the constitution of Special Courts for the prosecution of offences mentioned under the act. Sections 43 and 44 deals with the constitution of special courts and offences triable by special courts, respectively.

Section 44. Offences triable by special courts.-

  • Notwithstanding anything contained in the code fo criminal procedure, 1973 (2 of 1974),-
  • An offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the special court constituted for the area in which the offence has been committed:

Provided that special court, trying a scheduled offence before the commencement of this act, shall continue to try such scheduled offence; or

  • A special court may, upon a complaint made by an authority authorised in this behalf under this act take cognizance of offence under section 3, without the accused being committed to it for trial.

Here, according to me, the biggest flaw of the act is, i.e. section 44(1)(b). The provision stipulates that a special court may take cognizance of an offence u/s 3 PMLA upon filing of a complaint by the competent authority. The only thing it requires is filing of a complaint by competent authority. The proviso, like the first proviso of section 5, though flawed, is completely absent here. The absence of such proviso, gives unfettered power to ED to file a complaint according to their whims and fancies.

In practice, because of such unfettered power, the enforcement officers have started abusing same and have started encroaching upon the liberty of people on the basis of mere suspicion without there being any cogent reason for same and in several cases, filing complaints in special courts despite the fact that they don't have any material to support their suspicion.

Before PMLA was amended in 2019, conflict arose quite often if the term "Complaint" also includes "Supplementary Complaint" as ED was continuously abusing the process of law by filing supplementary complaints, one after other, in almost every prosecution they have instituted. One example is, the highly infamous Augusta Westland scam, in which numerous supplementary complaints were filed by ED without there being any provision for same. Maintainability of such supplementary complaints was challenged in several High Courts, majority of which held them to be maintainable whereas others held them to be non-maintainable. Majority of them held that supplementary complaint is maintainable and ED also have the right to further investigate as is given under section 173(8) as the complaint u/s 45(2) is akin to police report.

With all due respect, I differ from the conclusion reached by majority of High Courts where they held that complaint under PMLA is akin to police report under CrPC.

Section 65 PMLA provides that provisions of CrPC will be applicable so long as they are not inconsistent with PMLA and section 71 provides that in the event of any inconsistency with any other law for the time being in force, PMLA shall prevail.

According to these two sections, it is to be seen if the concept of complaint is defined under PMLA and the answer to that is, no, it is not. Therefore, according to section 65, provisions of CrPC will come into picture and in CrPC, complaint is defined under section 2(d) and it stipulates as follows:

Section 2(d): "complaint" means any allegation made orally or in writing to a magistrate, with a view to his taking action under this code, that some person, whether known or unknown, has committed an offence, but does not include a police report.

A bare perusal of the definition shows that complaint is one which is definitely not a police report. Such clear demarcation between both stipulates beyond doubt that complaint under PMLA can never equate to report u/s 173 CrPC. Besides, there is also no provision regarding supplementary complaint under CrPC which makes it further clear that there cannot be any supplementary complaint under PMLA as well.

However, via Finance Act 2019, Legislature has permitted filing of supplementary complaint. This concept of supplementary complaint, which has been alien to our criminal jurisprudence, has now been incorporated in the PMLA. This addition is another boost to the unfettered powers provided to ED as now they can easily manipulate anyone to toe their line in some ongoing prosecution and become their witness or they will add him as an accused in said prosecution by filing supplementary complaint.

  1. Trial of both PMLA and Predicate Offences by one Court

Another major flaw under section 44 only is in subsection 'c', which reads as follows:

Section 44. Offences triable by special courts: (1) …

  • If the court which has taken cognizance of the scheduled offence is other than the special court which has taken cognizance of the complaint of the offence of money laundering under sub clause (v), is shall, on an application by the authority authorised to file a complaint under this act, commit the case relating to the scheduled offence to the special court and the special court shall, on receipt of such case proceed to deal with it form the stage at which it is committed.

By virtue of this provision, the law makers have empowered appropriate authorities to file an application to get the Predicate Offence, being tried in special court specially made to try such offences, transferred to the special court which is created under PMLA to try the offence u/s 3. This concept of combining trials of both Predicate Offence and offence of money laundering, according to me, is completely flawed, vague and absurd. The genesis, investigating authorities, procedure of investigation, evidence, role of mens rea to name a few, are all different for both the said offences hence a joint trial is completely absurd and highly prejudicial to both accused and investigating authorities.

The constitutionality of this concept of joint trial was also challenged in K. Sowbhaghya v. Union of India, Ministry of Finance, North block Department of Revenue[23], wherein which said provision was challenged on the ground that same is violative of article 14, 20, 21 and 300. Kerala High Court, dismissed the challenge on the ground that the challenge rests more on speculation and not on some actual occasion whereby which some prejudice has been caused to some accused person hence in absence of any actual material on record, it didn't find the said provision unconstitutional.

With all due respect, I differ from the conclusion reached by the court as it is not always that one must wait for something wrong to happen in order to cure a patent error which is present in a legislation. True, courts cannot rewrite the law but they sure can struck it down if some provision of same is highly mischievous and is capable of causing miscarriage of justice.

After these instances, certain additions are made in section 44 via Finance Act 2019 whereby which an explanation has been added after section 44(1)(d) and the section currently stands as follows:

Section 44: offences triable by Special Courts (1) …

  • A special court while trying the scheduled offence or the offence of money laundering shall hold trial in accordance with the provisions of the code of criminal procedure, 1973, as it applied to a trial before a court of session.

Explanation: For the removal of doubts, it is clarified that,—
(i) the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial;

(ii) …

According to me, addition of underlined part above is completely impractical in practice. It is well known that no law can ever exist in isolation or in theory. Laws are made to serve a practical purpose, solve a problem or mischief which has been in existence. Eliminating the mischief does not mean its elimination only on paper but also its elimination in practice. It is completely impossible to fathom as to how exactly will both the trials, of Predicate Offence and offence u/s 3 PMLA, will proceed separately when both will be transferred to one court. When the court will try both the offences, the court invariably will end up making the trial run together and that in itself will be highly prejudicial to both accused person as well as the investigating agencies.

Solution?

According to me, the act needs an overhaul, overall. The flaws listed above are not the only flaws but are just few amongst many. These flaws, I feel are such, that they can't be eliminated via more amendments. The need of the hour is to not give cosmetic changes to act here and there but to change the entire structure. Only when a new structure be considered, that an actual workable law can be assumed will effectively deal with the menace of money laundering which at the same time will not abridge an individual's fundamental and constitutional rights unreasonably and arbitrarily


Tarun Gaur is an Advocate majorly practicing in the field of Criminal Law. He is also All India Rank 1 holder of AILET LLM (NLUD) 2017". The Author's views are personal.









[1] 2014 SCC OnLine Del 493

[2] 2014 SCC OnLine Del 4889

[3] 2015 SCC OnLine Del 6552

[4] 2015 SCC OnLine Del 8659

[5] 2016 SCC OnLine ALL 2632

[6] 2014 CRLJ 2556

[7] (1997) 1 SCC 373

[8] (2001) 6 SCC 260

[9] 2016 SCC OnLine Del 2493

[10] (2018) 16 SCC 158

[11] 2018 SCC OnLine Del 7281

[12] WP(Crl) 852/2017; Delhi High Court

[13] (2014) 7 SCC 273

[14] 2017 SCC OnLine Del 12108

[15] (1978) 1 SCC 248

[16] (1978) 4 SCC 494

[17] 1970 AIR 564

[18] (2018) 11 SCC 1

[19] 2019 SCC OnLine Del 9086

[20] (2019) 9 SCC 165

[21] 2019 SCC OnLine SC 1549

[22] (1955) 1 SCR 613

[23] 2016 SCC OnLine Kar 282

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