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PMLA Is A Penal Statute And Enforcement Directorate Officials Are Police Officers: Kapil Sibal Submits Before Supreme Court

Mehal Jain
15 March 2022 4:27 PM GMT
PMLA Is A Penal Statute And Enforcement Directorate Officials Are Police Officers: Kapil Sibal Submits Before Supreme Court
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The Supreme Court on Tuesday resumed hearing on a string of petitions challenging the constitutional validity of several provisions of the PMLA Act.Senior Advocate Kapil Sibal, for the petitioners, made his rejoinder submissions."The heart of criminal jurisprudence is the fundamental constitutional premise that you cannot start an investigation without information that you record and without...

The Supreme Court on Tuesday resumed hearing on a string of petitions challenging the constitutional validity of several provisions of the PMLA Act.

Senior Advocate Kapil Sibal, for the petitioners, made his rejoinder submissions.
"The heart of criminal jurisprudence is the fundamental constitutional premise that you cannot start an investigation without information that you record and without the accused knowing the information that you record. The reason behind that is that under the code of criminal procedure, in the absence of my knowing that procedure, I will not be able to exercise my right of anticipatory bail or bail, in the context of any piece of information that is kept within the confines of the ED. The second fundamental premise is that the code of criminal procedure is to regulate investigation; it is a procedure through which you do not allow the police officer to do what he likes. That is why there is judicial oversight, provisions requiring the maintenance of a case diary- why is the case diary necessary and why is it important to paginate? So that you cannot fudge the investigation, you will have to include all the statements recorded in the case diary when you file the challan ultimately and seek prosecution. It is necessary to regulate the conduct of the police officer by virtue of Article 21", he began.
Mr. Sibal countered the ED's argument that by virtue of Section 3 of the PMLA, mere acquisition, possession and use of proceeds of crime alone is sufficient to constitute money laundering and the projection of tainted property as untainted is not a mandatory requirement. SG Tushar Mehta had told the Court the 'and' in section 3 which preceded the phrase 'projecting or claiming' is to be read as 'or'.
Mr. Sibal advanced on Tuesday, "Without claiming and projection of tainted property as untainted, possession itself will result in money laundering, because the SG said that the provision regarding projecting as untainted of tainted is otiose? The argument of the other side is that PMLA is also a preventive statute- if possession itself is money laundering, how is it a preventive statute? Because in that case, if there are proceeds of crime, which the ED officer seizes, then it is money laundering! So projecting is at the heart of section 3; it is only when there is projection is the offence committed."
"In the case of 'use', take the example of a person stealing a car. If he steals the car and simply uses it, it will not amount to money laundering. But if the same person, after stealing the car, sells the car, projecting it to be legitimately purchased by him, he will be committing money-laundering. Mere use is not money-laundering", he continued.
The SG had traced the evolution of the PMLA statute in its present form from the 1988 Convention Against Illicit Traffic in NDPS to the Palermo Convention to the UN Convention Against Corruption. "It started off for drug money as it was drug money which was laundered. 'Determined to deprive persons engaged in illicit traffic (in NDPS) of the proceeds of their criminal activities and thereby eliminate their main incentive for so doing', the 1988 Convention said that Each Party shall adopt such measures as may be necessary to establish as criminal offences under its domestic law, when committed intentionally: The organisation, management or financing of any [drug trafficking] offences, and so on...So 'Intentionally' is an ingredient from the beginning. The argument of prejudice was that if a property is taken or purchased out of proceeds of crime and I am living there as a tenant, I would also be liable. No, unless I live there knowing that this is a part of criminal proceeds. But 'knowingly' is a part essential to constitute a criminal offence", the SG had advanced.
Responding to the same, Mr. Sibal on Tuesday submitted, "Article 3(1) of the Vienna convention says that each State party has to have a law to prohibit the possession of narcotics. This does not deal with PMLA; it deals with the Narcotics Act where mere possession is an offence. It is a separate offence under the Narcotics Act, and not in reference to the PMLA Act. Possession of what? Narcotics! Section 3 is dealt with in Article 3(1)(b) of the Vienna convention which deals with transfer etc (transfer, conversion, concealment and disguise of property derived from offences established under the Article). When you transfer something, when you convert something, you want to conceal its origin. That is why it is a PMLA offence. You get proceeds of trial, you transfer it and conceal it in a way to show it as untainted money. That is why it is money laundering. Concealing means concealing the origin of the proceeds of crime, it does not mean to physically hide."
The SG had also told the bench, "The second major breakthrough came in the year 2000 in what is known as the Palermo convention. Global community recognised the need to expand horizons of PML statutes beyond drug money and to all organised crimes of transnational nature. The Petitioners' perspective has been that the law was meant to tackle just drug money and nothing else. There is the United Nations convention against transnational organised crime, 2000. This is called the Palermo convention". He had taken the bench to Article 6(1) of the convention that speaks of criminalisation of the laundering of proceeds of crime, which, he said, became our PMLA law- "'Concealment' even then was deemed to be part of the money laundering offence. Possession and use is also part of the offence if it is done knowingly. They are trying to be as strict as possible so that there is no incentive left. Somebody may purchase the property in my name and I occupy it saying that I have done nothing and that I am not a part of any criminal activity. But if I am using it or I am in possession knowing that it is proceeds of crime, then I am equally guilty. That is the global understanding of the problem."
In this context, Mr. Sibal urged, "Palermo convention is against transnational organised crime. It has nothing to do with PMLA. Read the definition—For the purposes of this Convention: 'Organised criminal group' shall mean a structured group of three or more persons, existing for a period of time and acting in concert with the aim of committing one or more serious crimes or offences established in accordance with this Convention, in order to obtain, directly or indirectly, a financial or other material benefit. Then 'structured group' is defined as a group which is not randomly formed for the immediate commission of an offence and that does not need to have formally defined roles for its members, continuity of its membership or a developed structure. Then 'proceeds of crime' is defined in that context! How did the SG bring in Article 6 and tell your lordships that we have to honour the PMLA in view of this convention?"
"We are dealing with psychotropic substances in case of Vienna and transnational organised crime including more than one state and a structured group of three or four people so far as Palermo is concerned. We are not dealing with any other offence in the schedule to the PMLA. Any offence included in the schedule will have to be tested on the basis of whether inclusion, application of section 3 is fair, just and reasonable because it must satisfy both the test under 14 and 21", he continued.
"FATF (Financial Action Task Force, a body consisting of several countries which give recommendations as to what should be done for the purpose of strengthening the money laundering regime of each country; the SG had advanced that section 3 and other provisions of the PMLA have been amended in terms of the recommendations of the FATF to meet international standards) is examining the PMLA statutes of various countries on the parameters of and against the backdrop of the Vienna convention and the Palermo convention and therefore in the context of transnational organised crime and narcotics. Therefore, the interpretation given to section 3 by the SG cannot be, in the context of international obligations which have nothing to do with the other scheduled offences...If the Parliament has made any legislation which is inconsistent with international obligations, then the Indian courts are bound to give effect to the Indian law. When there is a Parliamentary law, we cannot look at international law, we can only try to find out the origin of the national law by looking at international law. But the words of our Parliamentary legislation will override everything else. We cannot start interpreting the provision of the domestic law in the light of what an international convention says", submitted Mr. Sibal.
Next, he addressed the issue of the absence of a procedure for investigation under the PMLA in the backdrop of the ED's assertion that they are not bound by the Cr. P. C.
"When an investigating agency calls a person before it, whether under the PMLA or under the IPC, it has to call him in one of the two capacities- as a witness or an accused. Therefore, when you are calling somebody, you have to inform him in what capacity you have called him. To say that 41A Cr. P. C. does not apply, to say that 160 does not apply is to say that I don't have to tell you in what capacity I am calling you. How is that possible as a fundamental principle of law? You may call me as a witness and I may become an accused. You may call me as an accused and you may find nothing against me. But you have to tell me in what capacity you are calling me because only you know. For example, a person is arrested under PMLA section 19 and then he is investigated. The other side argued that he is only an accused when a complaint is filed because he has to be accused of an offence and he is accused of an offence only when a complaint is filed. After he is arrested, then what capacity is he in? Is he not an accused? He has been arrested! And section 19 says that you will be arrested only when the ED find that he is prima facie guilty of the offence! So the Director finds him guilty, arrest him and the argument of the ASG is that he is not formally an accused until a complaint is filed!", urged Mr. Sibal.
"What is the procedure provided for investigation under the PMLA? The answer is no procedure at all except for the procedure provided for search, seizure and arrest. How you will investigate, how you will record statement, will you keep a daily diary, will you have it paginated, Magisterial oversight?- there is no procedure at all! Absence of procedure cannot be a procedure established by law! PMLA section 65 says Cr. P. C. will be followed unless there are express inconsistent provisions under the PMLA. So saying that Cr. P. C. will not apply as regards these provisions is inconsistent with 65 itself!", he continued.
"If Cr. P. C. did not have the provision of judicial oversight and case diary etc, it would have been violative of 14 and 21. How can it be that PMLA which does not have any of this is not violative of 14 and 21? The case diary contains a detailed day-to-day account of investigation, all statements of witnesses under 161 must be entered, it must be duly paginated. Here (under PMLA), you can insert any document, remove any document! What is the public purpose behind ED also doing the same? You say I don't have to do this? Why? Is the ED officer an unregulated, all pervasive, powerful person that does not have to be regulated under any provision of the law? Requirement of the daily diary is a very important safeguard at the investigating stage- it ensures that every evidence, whether incriminating or not, is recorded by the police officer for the perusal of the court and even for the purpose of contradiction under 145 (Evidence Act). How will the magistrate call for it? If that statement is not even placed before the magistrate at the time of trial, how will any contradiction take place? Now even the SG says Cr. P. C. section 167 procedure applies. Why? Because 65 says so. So the same has to be here- if 167 applies, 172 (case diary) will apply on the same principle!", he advanced.
"And the power of an ED officer is much greater than the police officer. If these provisions are not read into the PMLA, it is a case of no procedure. If arrest under section 19 is after the investigation, then what is the procedure which has to be followed for the investigation? The PMLA does not say anything about it; it only says investigation. The argument of the government is that I don't have to follow the Cr. P. C., then the question will be asked: what is the procedure that you wish to follow? And then their argument is that they are not police officers. I say they are much greater than police officers!"
Then, Mr. Sibal responded to the argument of the ED that its officials are not Police officers. "They say that PMLA is primarily a regulatory statute and therefore, the dominant purpose of the PMLA is not investigation and prosecution of crime. They say this to argue that ED officers are not police officers. How can that be? The only offence is section 3! So how is it regulatory? It is a penal statute. They say that ED officers are empowered to collect evidence and file complaint and therefore they are not police officers? Are you going to test the nature of whether a person is a police officer or not on the grounds of whether a complaint is filed? That cannot be. The outcome of the investigation cannot be the basis of testing the basis of exercise of power, of whether he is a police officer or not. Every power of an ED officer, from discovering an offence has been committed right to the extent of filing chargesheet and conviction are all powers of a Police officer- including summoning any person, search, seizure, confiscation, arrest."
"Customs Act, Excise Act, Companies Act are primarily regulatory statutes. This is a penal statute and the only offence is of section 3. How can that argument be made that since a complaint is filed, an ED officer is not a police officer? In the Customs statute, the customs authority has the power to impose a duty, to confiscate the goods. If you take away prosecution from them, that statute will still stand. If you take away section 3 from here, then this statute will become redundant because there is nothing else to be done. There is no under offence under the PMLA independent of section 3!', he elaborated.
"There has been a Complete misreading of PMLA section 50. There is a difference between a proceeding and an investigation. Section 50(4) applies only to proceeding and not to an investigation. This issue has not been dealt with by the other side, it has not been answered by the other side. Under section 63(2)(b) of the PMLA, if he refuses to sign any statement made by him in the course of any proceedings under this Act, he will be liable to fine. This applies to proceedings under 5 (attachment) and 8 (adjudication) and 13 (power of director to impose fine). Investigation cannot be a judicial procedure The person is not bound to sign that statement under 50(2) [It was argued by ASG S. V. Raju that 50(2) statements are to be signed unlike Cr. P. C. section 161 statements recorded by police officers]. Signature is with regard to only a proceeding and not as regards the statement of the accused. Investigation is not proceeding, which is a judicial procedure. This is what is happening every day, deeming it as a judicial proceeding! What is the consequence, if he refuses to sign any statement made by him in the course of any proceeding under this act, he shall pay by way of penalty which shall not be less than Rs.500. This cannot apply to a person who is being investigated for an offence! Investigation can never be a judicial proceeding! Penalty is not applicable to statements under 50 taken during investigation, there is no requirement for him to even sign the statement if taken during investigation!", he urged.
"If your lordships come to the conclusion that they are not police officers, what happens to the accused whose statement is recorded under a penal statute during the course of an investigation? Evidence Act 25 and 26 will not apply and he will be convicted on that? Then you will call him, you will record the statement and that will be enough? Then what do you need an investigation for? God help the country then. It will be a death knell. That statement can only be excluded (from evidence) if they are police officers, how will you exclude that statement if they are not police officers? So far, I have never seen a court hold that a person not deemed to be a police officer calls you, records the statement, and then it can file the complaint and there is no need for further investigation. This provision is not even there in the UAPA. This will be an uncharted exercise of power by a person who is a member of the enforcement directorate and who they say is not a police officer, he is not controlled by any statute, no judicial oversight, no 25 and 26 of the evidence act, and the person is just convicted! And you say no procedure is needed to be followed because PMLA is a special statute?", pressed Mr. Sibal.
Thereafter, Senior Advocate Abhishek Manu Singhvi, also for the petitioners, addressed the bench on the ED's argument that the foundational fact under PMLA section 24 (for reversal of burden of proof) which the ED has to prove beyond reasonable doubt is the existence of proceeds of crime.
"I have argued that 24 is unconstitutional because it inverts the presumption of innocence, especially relating to an essential ingredient, being that properties are involved in money-laundering, without putting the initial burden on the prosecution. I can understand the burden-shifting to me as an accused, but the initial burden itself is not put on them in this construction of 24. The Union has not only argued that the provision is constitutional but also the foundational fact under 24 which the ED has to prove beyond reasonable doubt is the existence of proceeds of crime. Very carefully chosen words by the government of India! PMLA act is not a strict liability offence, as your lordships have held in case of drugs etc where possession itself. In Malaysia, there is a law which says that A. mere possession of a drug at the airport, B. reverse burden of proof and C. mandatory death penalty. But this is not a strict liability offence as here we have mens rea. By saying that mens. rea is difficult to prove, how can the prosecution reverse the burden of proving to the court that the property is involved in money-laundering?", he began.
"Existence of proceeds of crime cannot be the foundational fact. It is the fact which has to be proved beyond reasonable doubt in the trial of the scheduled offence! So the ED is saying that it does not have to prove any facts or conduct any investigation beyond that which is revealed in the FIR? So initially, the buden is shifted, then in the trial, ED says there was no burden on me on account of 24? This is what we say in Hindi, 'Chitt bhi meri, patt bhi meri'. My entire conviction, acquittal etc, my entire criminal trial is made subject to 24", he continued.
"They cannot make a presumption which applies to virtually all parts (of the offence). Suppose an offence has four ingredients- Your Lordships have a genuine situation which is, by experience, found by the legislature that ingredient 'C' is very, very difficult to prove and innumerable prosecutions have been feeling only an element 'C'. Your lordships find that element 'C' is being reasonably put to your lordships and not in some sort of fanciful or make-believe way, there it can be that prosecution will go by presumption and in the initial stage, they might not be required to prove it. Then Your Lordships will look at the context of 'C', the location of 'C'. But it cannot be said that 'A' also presume, 'B' also presume and 'C' also presume. In a rape situation- IPC section 376, it has been said as regards a particular element of lack of consent. Here, there is a blanket approach which hits the innocence presumption!", urged Dr. Singhvi.

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