17 May 2023 9:26 AM GMT
In a significant development increasing the jurisdictional remit of the Enforcement Directorate (ED), the Supreme Court has on Monday clarified that a criminal activity and the generation of the proceeds of crime are like ‘Siamese twins’ in the case of an offence of corruption and the acquisition of the proceeds of crime in such cases would itself tantamount to money laundering. The...
In a significant development increasing the jurisdictional remit of the Enforcement Directorate (ED), the Supreme Court has on Monday clarified that a criminal activity and the generation of the proceeds of crime are like ‘Siamese twins’ in the case of an offence of corruption and the acquisition of the proceeds of crime in such cases would itself tantamount to money laundering. The top court held:
“It is true that there are some offences, which, though scheduled offences, may or may not generate proceeds of crime. For instance, the offence of murder punishable under Section 302 is a scheduled offence. Unless it is a murder for gain or murder by a hired assassin, the same may or may not generate proceeds of crime. It is in respect of such types of offences that one may possibly argue that the mere commission of the crime is not sufficient but the generation of proceeds of crime is necessary. In the case of an offence of corruption, the criminal activity and the generation of the proceeds of crime are like Siamese twins. Therefore, even if an intangible property is derived as a result of criminal activity relating to a scheduled offence, it becomes proceeds of crime under Section 2(1)(u)…Wherever there are allegations of corruption, the acquisition of proceeds of crime itself tantamount to money laundering.”
This observation was made by a bench of Justices Krishna Murari and V Ramasubramanian, while allowing a batch of appeals against an order of the Madras High Court directing a fresh enquiry into the cash-for-jobs scam, in which the Tamil Nadu minister and DMK MLA V Senthil Balaji, among others, has been accused of accepting bribes from job aspirants in exchange of appointments to the state transport corporation between 2011 and 2015. The top court also set aside a direction of the high court staying the proceedings in the money laundering case lodged by the Directorate of Enforcement.
One of the central planks of the argument by the accused persons was that the jurisdictional facts necessary for the directorate to begin an investigation was the commission of an offence, together with the generation of the proceeds of crime with respect to that offence. Senior Advocate CA Sundaram submitted that the existence of identified property or ill-gotten gains in the hands of the accused were the sine qua non of an offence of money laundering. Senior Advocate Siddharth Luthra also raised a similar concern. Senior Advocate Kapil Sibal went one step further and said that an interpretation which removed the difference between the proceeds of crime and money laundering was constitutionally suspect, and only when any tainted property was integrated into the formal economy, should charges of money laundering be attracted. However, Solicitor-General for India Tushar Mehta responded to these contentions by saying, “The moment a predicate agency, be it a state agency or the Central Bureau of Investigation, registers an FIR which falls within the predicate offence list in the schedule annexed, the jurisdiction of the Enforcement Directorate starts.”
The apex court was reluctant to accept the submissions made by the petitioners with respect to the requisite jurisdictional fact or lack thereof. Justice Ramasubramanian, who authored the judgement, wrote:
“The common theme of the song of the learned counsel for the accused is that the mere registration of an FIR for a predicate offence, even if it is a scheduled offence, is not sufficient for the ED to register an Information Report and summon anyone. According to the learned counsel, the commission of the scheduled offence should have generated proceeds of crime and those proceeds of crime should have been laundered by someone, for the ED to step in. Going a step further, it was contended by the learned senior counsel that the ED should first identify some property as representing the proceeds of crime, before an Information Report is registered and a summon issued under Section 50(2). These contentions, in our opinion, if accepted, would amount to putting the cart before the horse. Unfortunately for the accused, this is not the scheme of the Act.”
“It is no rocket science to know that a public servant receiving illegal gratification is in possession of the proceeds of a crime. The argument that the mere generation of proceeds of crime is not sufficient to constitute the offence of money-laundering, is actually preposterous,” the bench observed, after highlighting the scheme of act, with emphasis on Section 3 read with Section 2(1)(u). Section 3, which lays down the offence of money laundering, addresses three parameters, namely, the person, process or activity, and the product. Out of these three, the bench noted, the first two do not require any interpretation, but for the third aspect – the product – reference must be made to Section 2(1)(u), which defines ‘proceeds of crime’. It added:
“Under Section 3, there are six processes or activities identified. They are, (i) concealment; (ii) possession; (iii) acquisition; (iv) use; (v) projecting as untainted property; and (vi) claiming as untainted property. If a person takes a bribe, he acquires proceeds of crime. So, the activity of “acquisition” takes place. Even if he does not retain it but 'uses' it, he will be guilty of the offence of money-laundering, since 'use' is one of the six activities mentioned in Section 3.”
In light of the essential elements that made up the ‘molecular structure’ of Section 3, the bench concluded:
“The FIRs for the predicate offences identify all three components of Section 3, namely, (i) persons; (ii) process; and (iii) product. The allegations in the FIR point out (i) involvement of persons in criminal activity relating to scheduled offences; (ii) the generation as well as (iii) laundering of the proceeds of crime within the meaning of Section 3. This is in view of the fact that wherever there are allegations of corruption, there is the acquisition of proceeds of crime which itself tantamount to money laundering. Therefore, all the arguments as though there are no foundational facts or jurisdictional facts, are simply aimed at hoodwinking the Court.”
Duty of ED to register case on getting information about illegal gratification
“A lot of heat and dust was generated about the ED registering an Information Report without any material whatsoever and thereafter indulging in a fishing expedition both by summoning the respondents and by seeking copies of various documents from the Special Court before which the complaints relating to the predicate offences are pending,” the court remarked, “But we do not see any substance in these arguments.”
The information about all complaints, the nature of the complaints, and the amount of money allegedly collected towards illegal gratification had all come into the public domain, the Supreme Court pointed out before adding, “To say that the ED should have adopted an Ostrich-like approach, without trying to find out where and to whom the huge money generated in the scam had gone, is something unheard of.” Then, the bench observed:
“Once a piece of information relating to the acquisition of a huge amount of illegal gratification in the matter of public employment has come into the public domain, it is the duty of the ED to register an Information Report. This is because 'acquisition' is an activity amounting to money laundering and the illegal gratification acquired by a public servant represents 'proceeds of crime' generated through a criminal activity in respect of a scheduled offence. Therefore, it does not require any expedition, much less a fishing expedition for someone to say that the receipt of bribe money is an act of money-laundering.”
With respect to the timing of registering an enforcement case information report (ECIR) – which the petitioners had assailed as unsustainable – the bench said:
“If the ED registers an Information Report immediately upon the registration of an FIR for a predicate offence, ED will be accused of acting in haste. If they wait until the drama unfolds up to a particular stage, ED will be attacked as guilty of delay. The accused should be thankful to ED for giving a long rope from 2016 till 2021. Therefore, all the arguments on facts and all the legal contentions emanating from some portions of the judgment in Vijay Madanlal Choudhary, to challenge the validity of the proceedings initiated by ED are completely unsustainable.”
The 2-judge bench also turned down a plea to refer Vijay Madanlal Choudhary judgmetn, which upheld PMLA powers, to a larger bench.
PMLA | Accused Not Entitled To Bail In Money Laundering Case Merely Because Chargesheet Has Been Filed In Predicate Offence : Supreme Court
In the years 2014-2015, recruitment for the post of reserve crew drivers, crew conductors, junior tradesmen (JTM), junior assistant (JA), junior engineer (JE) and assistant engineer (AE) was conducted in all the transport corporations in the State of Tamil Nadu. It has been alleged that in these appointments, various officials of the transport department colluded jointly and severally, including the then-electricity minister Senthil Balaji in the AIADMK-led regime. Balaji currently holds, among others, the ‘electricity’ and ‘prohibition and excise’ portfolios in the Tamil Nadu cabinet, as a minister of Tamil Nadu’s ruling DMK party.
In 2018, a complaint was filed by K Arulmani against Balaji and others for taking bribes from job aspirants on the false promise of appointing them to various posts in the Metro Transport Corporation (MTC). Arulmani – an MTC technical staff – claimed that he had been approached by one of the accused in 2014, around the time of the issuance of a notification for recruitment to the posts of driver and conductor in the state transport corporation. Arulmani was allegedly told that these jobs could be secured by leveraging the influence of the transport minister (Senthil Balaji), in exchange for the payment of a sum of money.
It was further alleged that Arulmani collected about Rs 40 lakhs from a number of aspirants and paid the same to another conspirator – who, it has been claimed, received it in Balaji’s presence. However, those who had paid the accused to secure their jobs apparently did not find their names in the recruitment list that was published. Nor was their money returned.
Balaji and others were booked for offences under Sections 406 (punishment for criminal breach of trust), 420 (cheating) and 506 (punishment for criminal intimidation) of the Indian Penal Code, 1860. Subsequent to the lodging of an FIR in 2018, a charge sheet was filed in the following year. However, in 2021, the Madras High Court quashed the cheating case pending before a special court for Members of Parliament (MP) and Members of Legislative Assembly (MLA) in the state, after being told that the complainant and the thirteen alleged victims – arrayed as witnesses in the case – had arrived at a settlement with the accused. Two other FIRs filed in this connection were also stayed subsequently.
In the meantime, Balaji received a summons from the office of the Deputy Director, Enforcement Directorate, Madurai Sub Zonal Office in connection with the recruitment scam. The summons was challenged before the Madras High Court on the ground that there were no jurisdictional facts to initiate any proceedings under the Prevention of Money Laundering Act. This argument found favour with the bench which, in September 2022, allowed the petitions moved by Minister Senthil Balaji and two others and quashed the summons issued by ED.
Not long after this, a Supreme Court bench headed by Justice S Abdul Nazeer set aside the order of the Madras High Court by which it had quashed the proceedings against the former transport minister and restored the criminal complaint against him and the others.
In November of the same year, the Madras High Court ordered a fresh enquiry into the cash-for-job scam, with Justice V Sivagnanam observing that there were irregularities in the investigation conducted by the investigating agency and that it has overlooked certain crucial aspects.
The single-judge bench pronounced:
“The investigation should be conducted ab-initio comprehensively without reference to the earlier investigation on record covering all the aspects, including whether the offence under the Prevention of Corruption Act, 1988 are made out against the accused…Further, on completion of the investigation, if the investigating agency makes out a case for cognizance of offence against the accused then the investigating agency of the predicate offence shall provide the relevant materials/documents to the Directorate of Enforcement so as to enable it to invoke its jurisdiction to commence its enquiry under the PMLA Act thereafter.”
It is against this order that a batch of appeals was preferred before the top court.
Y. Balaji v. Karthik Desari & Anr. | Special Leave Petition (Criminal) No. 12779-12781 of 2022 and other connected matters
Citation : 2023 LiveLaw (SC) 440
Offence of Money Laundering – Prevention of Money Laundering Act (Act 15 of 2003) – Sections 3 and 2(1)(u) – Definition of proceeds of crime – In offences of corruption, criminal activity and generation of proceeds of crime go hand-in-hand – Wherever there are allegations of corruption, the acquisition of proceeds of crime itself tantamount to money laundering – Even if an intangible property is derived as a result of criminal activity relating to a scheduled offence, it becomes proceeds of crime under Section 2(1)(u) – Held, arguments that there are no foundational facts or jurisdictional facts unsustainable and as such, proceedings before Enforcement Directorate not illegal – Writ petition challenging ED investigation dismissed.
Registration of ECIR – Prevention of Money Laundering Act (Act 15 of 2003) – Section 3 – Effect of delay – Information about all complaints, the nature of the complaints, and the amount of money allegedly collected towards illegal gratification had all come into the public domain – Once a piece of information relating to the acquisition of a huge amount of illegal gratification in the matter of public employment has come into the public domain, it is the duty of the ED to register an Information Report – Held, registration of ECIR does not amount to fishing expedition – Further held, argument that there is no explanation for the delay in registering the ECIR self-serving – Writ petition challenging ED investigation dismissed.
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