PMLA Interpretation : 'Whole Act An Attempt To Aggrandize Power Of State', Kapil Sibal Argues In Supreme Court

Mehal Jain

27 Oct 2021 4:21 PM GMT

  • PMLA Interpretation : Whole Act An Attempt To Aggrandize Power Of State, Kapil Sibal Argues In Supreme Court

    The Supreme Court on Wednesday commenced hearing on the batch of petitions concerned with the interpretation of the Prevention of Money Laundering Act.Senior Advocate Kapil Sibal enumerated the broad propositions for consideration by the bench of Justices A. M. Khanwilkar, Dinesh Maheshwari and C. T. Ravikumar.(1) How can there be a penal statute in the absence of procedure on how to...

    The Supreme Court on Wednesday commenced hearing on the batch of petitions concerned with the interpretation of the Prevention of Money Laundering Act.

    Senior Advocate Kapil Sibal enumerated the broad propositions for consideration by the bench of Justices A. M. Khanwilkar, Dinesh Maheshwari and C. T. Ravikumar.
    (1) How can there be a penal statute in the absence of procedure on how to commence investigation?
    "Your Lordships are supposed to presume as a matter of law that the Cr. P. C. is a procedure established under the law for the purpose of life and liberty. It is the procedure established by law for the purpose of Article 21. It prescribes two methods of investigation– cognisable and non-cognisable offences. In case of non-cognisable offences, the procedure applied is section 155 and for the cognisable, the procedure applied is section 154. Under the PMLA, there is no such procedure. You have neither an FIR, nor a 155 procedure. So how can you have a penal statute in the absence of a procedure as to how you commence the investigation?", submitted Mr. Sibal.
    "The PMLA has an internal manual where they record an ECIR- Enforcement Case Information Report. That is something which is kept by the ED to themselves and not revealed to anybody. There is a matter before the Delhi High Court where the ED says that I am not obliged to reveal the ECIR to the prospective accused. In other words, I can prosecuted without an FIR, without a magisterial oversight, without telling him anything, only pursuant to an ECIR which I shall keep in my office. In some cases, we have had orders for giving us the copy of the ECIR and what we find is that the ECIR is nothing but an FIR though they do not call it that", he continued.
    (2) Not generating 'proceeds of crime', but legitimising them is an offence under the PMLA; Something beyond the FIR under the predicate offence needs to be established for the ED to take cognisance
    "The third broad proposition that we are going to advance is that PMLA deals with proceeds of crime pursuant to an act of criminality. So there must be a predicate offence- If there is an act of corruption, then the money which is taken in respect of corruption are the proceeds of crime. But generating proceeds of crime is not an offence under the PMLA, the offence is by attempting to or by legitimising them and showing them as legitimate money. If I indulge in an act of corruption and keep the money at my home, it is not an offence under the PMLA. But the moment I invest it in property and show it in my income tax returns, it amounts to money laundering. Your Lordships will have to decide at what stage this Act can come in. At what stage can the officer under PMLA take cognisance? The money is tainted but you show it as untainted and the act of showing it as untainted is money laundering. The ED must have some evidence to show that tainted money has been converted into untainted money. Without that I cannot be prosecuted. So how do they register an ECIR without that evidence? What is that stage they can prosecute me?", submitted Mr. Sibal.
    Justice Khanwilkar observed, "So legitimising tainted money is something like destroying evidence of crime committed. That is what has been made an offence here"
    "It is an act of destruction by changing the character of the proceeds of crime", responded Mr. Sibal.
    Continuing, he advanced, "Suppose I get money to cheat somebody or kill somebody and I keep that money and I am caught, then I will be prosecuted for cheating or murder but I will not be prosecuted under PMLA. If I convert it into jewellery and show it in my tax returns as jewellery and that link is established, then I will be prosecuted under PMLA. Something beyond the FIR under the predicate offence needs to be established for the ED to commence!"
    "And that information must be given to me that now you are showing this as untainted money. Otherwise, how will I go to the court in anticipatory bail? That information needs to be given to me in the form of an FIR or under 155 for my right to defend myself. Otherwise it is a violation of 21. There is no procedure for knowledge, no procedure for explanation under the Act. The moment there is a predicate offence, they register an ECIR. It is not the same thing! I can understand if there is a show cause notice. Under the GST, there is the same problem. Under Customs Act, it is different. But under the Customs Act, I am importing goods which are prohibited, say gold, and I get caught. I am aware why I am being prosecuted. But none of this happens under PMLA", he submitted.
    Justice Khanwilkar noted, "If you are informed about the source and contents of the information which has come to the knowledge of the official, there is possibility that by the time you make explanation and consideration takes place, the proceeds will be altered in different form and different places"
    "That is the same for cheating, that is the same for criminal breach of trust. Once I convert it from tainted to untainted, it is part of the mainstream, it is property, it is jewellery, it is bank account. It will never go away. I know the value of it. And there is also a provision for them to seize my bank account or my house or any other property of that much value", replied Mr. Sibal.
    (3) Whole investigation transferred from predicate offence to PMLA by virtue of section 50
    "Under the predicate offence, they just register an FIR and they never investigate. The FIR just lies over there. Say 420, they register it. Then an ECIR is registered. And then the local police does not investigate the FIR under 420. Because the ED officer has the power to investigate me and record my statement which is admissible in evidence under section 50 of the PMLA, then for the predicate offence also they go to the court and say 'you made that statement under PMLA' and then that statement is admitted in evidence there also. So the whole investigation is transferred from the predicate offence to the PMLA because they have that power under section 50. Both are then tried simultaneously. Is that reasonable?", submitted Mr. Sibal.
    Justice Khanwilkar noted, "That procedure may be doubtful. Every offence is to be tried on its own under the relevant norms and procedure"
    (4) Genesis of PMLA was to check illicit drug trafficking the proceeds of which funded terrorism
    "This entire PMLA was structured because of illicit drug trafficking and that money was used for terrorist activities. There was a United Nations Convention against Illicit Trafficking in Narcotic Drugs way back in 1998. In Mexico and Afghanistan, poppy seeds and cannabis were grown. This money then feeds terrorism. That is why a global action programme was adopted by the UN General assembly and a special resolution was passed to countering the problem together in 1998. This is the genesis of the 2002 PMLA Act. The leitmotif of the global community was growing of poppy seeds, raising money through drugs, legitimising it through banking channels, using it in terrorism", told Mr. Sibal.
    "But now what has happened is that we have started applying it to ordinary crimes. For example, 420 has now become a part of PMLA. It has nothing to do with this design-to use proceeds of crimes for the purposes of countering an activity of this nature. It was never meant for ordinary IPC offences. 420 is a compoundable offence under IPC but the moment PMLA comes in, I will not get bail. Is it consistent with Article 14? Is it not arbitrary? It was supposed to be in respect of heinous crimes. Suppose there is a gangster cartel which deals with only illicit stuff then maybe but not 420. It is there for 329 also. Just look at the kind of offences", he continued.
    Justice Khanwilkar observed, "Your argument is that the Act should be confined to drug cases and extended to corruption? Then the schedule should only contain NDPS Act and Corruption Act if we go by your argument"
    "I am not questioning the plenary power of the Parliament, I am only questioning it on the touchstone of (Article)21. The consequences are horrendous for the individual", submitted Mr. Sibal.
    (5) Later amendments to PMLA moved in a money bill
    "All of these later amendments are now moved under the Finance Act. One of the issues that will have to be decided is that they can not be moved in a money bill.We have a dissent by Justice D. Y. Chandrachud in the Aadhaar matter and the matter is now referred to 7 judges. Your Lordships may request the Chief Justice to actually first decide that and then take this up", told Mr. Sibal.
    (6) The moment ECIR is registered, all money and properties are attached
    "The moment a predicate offence is registered and ECIR is registered, the same moment all money and all properties are attached. My business is stopped completely. I may be running corporations, selling properties, selling assets, doing many things- all that is stopped", urged Mr. Sibal
    Justice Khanwilkar asked, "The attachment is only corresponding to the proceeds of crime?'
    "They attach all assets. There is a provision for an order after 180 days, which is not to sell my assets but to make the attachment permanent. Even if the final order is in my favour, by that time my business is destroyed", replied Mr. Sibal.
    (7) Interpretation of section 50 of the Act
    "Section 50 proceeds on the assumption that every proceeding before an officer, director, joint director, additional director, deputy director shall be deemed to be a judicial proceeding. If it is an investigation, it can't be deemed to be a judicial proceeding as a matter of law. And if it is not a judicial proceeding, I should not be compelled to answer as I am the accused", told Mr. Sibal
    "Connected to that, the statement made by the accused is protected under section 25 of the evidence act. Under section 50, there is no such procedure. They just summon me. I should know if I am being summoned as an accused or witness. And if there is an FIR I will know that I am an accused! But here I don't know! They do this in all cases. They summon me, take my statement and then arrest me!", he continued.
    "Section 50 Sub-section (1) says that the Director shall for the purpose of section 13 have the same powers as a civil court in trying a suit under C. P. C. for the purpose of summons, production of document or giving evidence. Section 13 talks of reporting authority. Who are the reporting authority? Banks, financial institutions and intermediaries. The idea being that for the purposes of finding out whether this money is being used as untainted money, we can call upon these banks or other reporting authorities to tell us what has happened. Sub-section (2) says that director additional director etc shall have the power to summon any person whether to give evidence or produce any record during any investigation or proceedings under this Act. Sub-section (3) says that any person summoned shall be bound to attend in person or through authorised agent and bound to state the truth. Now, while Sub-section (2) says 'investigation or proceedings under the Act', the word 'investigation' is not used in sub-section (3). Sub-section (4) says that every proceeding under (2) and (3) will be a judicial proceeding. Now proceedings under (2) include an 'investigation' but investigation cannot be a judicial proceeding. So how am I bound to tell the truth?", pointed out Mr. Sibal.
    "So how are these proceedings the statements being recorded under 50? I am being investigated but if I don't tell the truth, then under 193 and 228 of the IPC, I can be prosecuted. These provisions are entirely unconstitutional!", he stated.
    (8) No control of jurisdictional magistrate
    "The Enforcement Directorate is located in Delhi. Under the Cr. P. C., based on the situs of the offence, it is the police station in that area which has jurisdiction and it for the magistrate of that area to take control. Under PMLA, there is no such procedure. But here, suppose an offence is committed in Maharashtra, then ED has jurisdiction. Under the code of criminal procedure, for that predicate offence, it is a police station which will have jurisdiction. But here the ED has jurisdiction for the Union of India . Under the Act, they have territorial classification of offences but their argument is that this classification of areas is only for convenience. As an individual, some magistrate must have control over me! That cannot be left to the whims and fancies of the PMLA authorities!", submitted Mr. Sibal.
    (9) Interpretation of section 65 for applicability of provisions of Cr. P. C. consistent with PMLA
    "The PMLA in section 65 also says that Cr. P. C. shall apply so long as it is not inconsistent with the provisions of PMLA. This is interesting because there is no inconsistency. The PMLA does not say that the FIR shall not be registered or that 155 cannot apply. There are provisions of the Act which talk of summon, search and seizure. Now these are somewhat inconsistent with the Cr. P. C. procedure. So to that extent, PMLA will prevail, but for the other provisions, they are all consistent with the PMLA!", he submitted.
    (10) Amendment deems offence to be continuing offence enabling cognisance under PMLA for past acts
    "By virtue of an amendment to section 3, they have provided by law that this will be deemed to be a continuing offence. The offence stands committed when I project tainted property as untainted property. How can that be a continuing offence? Through that process, they seek to take jurisdiction for crimes committed in the past. So for an act of conspiracy or 420, which was not money laundering earlier, they seek to take cognizance now", told Mr. Sibal
    "The PMLA Act as framed, unless you can sever certain portions, is unconstitutional. Your Lordships will have to apply the doctrine of severability", he submitted.
    Justice Khanwilkar observed that it is depending on the scheduled entries, the particular offences included in the schedule, that the bench will consider what are the other issues which arise.
    [Schedule to the Act] 'Whole Act is an attempt to aggrandize power of the State'- Mr. Sibal
    Mr. Sibal then took the bench through the schedule.
    "120 B 'criminal conspiracy' is an entry! This can be applied for any offence. You take 120 B and you bring it under PMLA?", he submitted.
    Justice Khanwilkar said that section 120 B of the IPC cannot be standalone and that it has to be with some other offence.
    "I may not be directly responsible for anything but you will apply 120 B and then PMLA will apply to me. These are extremely draconian provisions. Whether 120 B should be there at all is the question. Because what is the threshold for 120 B? Merely an allegation", advanced Mr. Sibal.
    Justice Khanwilkar observed, "Only yesterday we came across one case where the findings recorded by the High Court was that that he was not part of the fraud committed. But the conspiracy theory would extend on fraud for both. They said a PMLA case would be applicable to that person"
    "So if you want to have 120 B in PMLA, then the threshold standards must be higher for applying it, higher judicial standards", submitted Mr. Sibal.
    "Then we have 'waging war or attempting to wage war against the State'. This must be there! That is good!", remarked Mr. Sibal.
    "But counterfeiting government stamps? This is not that kind of an activity of drugs etc!", he continued.
    "There was a case in Maharashtra in 1990 of counterfeiting government stamps. The scam was worth Rs. 6000 crores", quipped Justice Khanwilkar.
    "That was the Telgi scam. That was a specific case, it was a planned offence", submitted Mr. Sibal.
    "The whole Act is an attempt to aggrandise power of the State!", he commented.
    "Murder is one entry! It is an isolated act! How can it come under PMLA? Why should it come under PMLA?", he asked.
    Justice Maheshwari noted, "On the face of it, connecting money with murder may be doubtful. But there will be cases of contract killing?"
    "Even if it is contract killing, it should not come under PMLA. Only if it is a gangsters' activity with prior intent is it covered", replied Mr. Sibal
    "You mean organised crime syndicate?", asked Justice Khanwilkar. Mr. Sibal replied in the affirmative.
    "There, 120 B can also come. So the scheduled entries by themselves do not become wrong", observed Justice Maheshwari
    "Your lordships are saying there may be a situation where there is organised activity, a conspiracy which is organised for the purpose of terrorist activity, then it should come. But on its own it cannot", replied Mr. Sibal.
    "Simpliciter murder does not come, that is what you are saying?", asked Justice Khanwilkar.
    "Yes. Entries can be re-formulated in a manner so that they cover the offences which were envisaged to be covered. You may find extreme examples in any of these entries but that is not the purpose", replied Mr. Sibal.
    Continuing to discuss the entries in the Schedule, he advanced, "You have 'attempt to commit culpable homicide'. How is that PMLA? 'Voluntary causing hurt to extort property'?"
    Justice Khanwilkar reflected, "Under section 3 of the PMLA, it is money laundering which is the offence- Legitimising of the proceeds of crime is the offence, and not proceeds of crime"
    "That is right. So you may have offences under the schedule which are proceeds of crime but that may not be money laundering", replied Mr. Sibal.
    "There is no rationale as to when money laundering will apply and when it will not apply. That is the discretion of the officer. If it is some big fish then money-laundering comes in under 120 B also! That is why the genesis of this Act becomes very important!", he submitted.

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