Landmark Judgments on Prevention of Money Laundering Act by the SC and HC’s in 2022 Part II

Part I of the compendium on landmark judgments on Prevention of Money-Laundering Act, 2002 covered judgments from January to June 2022. In view of the considerable volume of judgments delivered in the year 2022 on the subject, the compendium has been divided into three parts, so as to ensure brevity and flow in reading for the reader. Part II of this compendium continues the discussion into landmark judgments on money laundering laws and covers judgments delivered from July to December 2022. Around 19 to 20 judgments were covered under Part I from January to June 2022 and the remaining 24  judgments are being covered in the remaining parts . They are as follows:

(1) Bhupinder Singh v. Enforcement of Directorate¹

(Delivered on July 1, 2022)

Coram: Single Judge Bench of HM Justice Arvind Singh Sangwan

Authored by: HM Justice Arvind Singh Sangwan

Petitioner applied for grant of regular bail in relation to offences registered under PMLA against him. The scheduled offences were regarding illegal mining by excavation of mining sites/areas on different khasras other than that allotted by the State Government. Cash in huge amounts was recovered from one of the co-accused which allegedly belonged to the petitioner. The role of the petitioner in the whole scenario was alleged to be of helping in supervising the mining activities as a close acquaintance on the site, but was not the partner in the firm. The court enlarged the petitioner on a regular bail in the scheduled/predicate offence after registration of FIR in 2018. The Enforcement Directorate (ED) filed the complaint after 4 years and there was no further FIR or complaint regarding illegal mining to suggest petitioner being a habitual offender or being involved in any other case. The name of the petitioner was not there either in the FIR relating to the scheduled/predicate offence or the charge-sheet filed eventually in relation to the same. The principal co-accused persons who were alleged to be involved in the said activity of illegal mining were let off either in the charge-sheet or subsequently at the stage of framing of charge by the trial court, in relation to their prosecution under predicate/scheduled offence. Though the challan/charge-sheet against predicate/scheduled offences was filed against 56 persons, the PMLA complaint however was filed naming only the petitioner applicant and one other person as accused by ED. There were reasonable grounds to believe that the petitioner was not involved in commission of scheduled/predicate offences or in generation or laundering of “proceeds of the crime” derived as the result thereof. The petitioner was found to be qualifying the “triple test“ laid down under Section 45 of the PMLA and thus enlarged on regular bail.

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(2) Ajay Kumar Chandraparkash Baheti v. Directorate of Enforcement²

(Delivered on July 7, 2022)

Coram: Single Judge Bench of HM Justice Anil S. Kilor

Authored by: HM Justice Anil S. Kilor

The petitioner applied for grant of regular bail in connection with offences under PMLA. The predicate/scheduled offences were registered under Sections 406, 467, 468, 471, 477-A, and 120-B of the Penal Code, 1860 against the applicant. The allegation was illegal storage and transportation of essential commodities of wheat and rice. A forensic audit was carried out of the total amount transferred to various accounts during the same period from the account of the applicant with the allegation that all the accounts of fake firms to which the tainted money were transferred were operated by the applicant and his business firms. The Court held that primary allegations were against the company, but not against the applicant as the director of the company. And thus, vicarious liability was not attracted in the absence of specific allegations. Three stages/processes of money laundering viz. placement, layering and integration were explained by the court. Relying on judgment of Supreme Court in J. Sekar v. Directorate of Enforcement³, it was held that court should not proceed on basis of preponderance of probabilities or presumptions. Interpreting words/phrase — “attempts to indulge and knowingly assists or knowingly is a party“, the Court held that a higher level of state of mind “much more than reason to believe” must be existing for knowledge to be inferred. Relying on judgments of State of Maharashtra v. Mohd. Yakub⁴, Joti Parshad v. State of Haryana⁵, it was held that knowledge of tainted nature of property being “proceeds of crime” derived or obtain directly or indirectly as a result of criminal activity would be at most necessary on part of the accused. There is no legal presumption under Section 24 that a person is involved in or “guilty of money laundering” merely for possessing or having any concern with the “proceeds of crime”, till and until he has a knowledge that property is “proceeds of crime” which has floated down to him. The offence of money laundering is not to be appreciated in isolation but with complimentary provisions. Allegations must be substantiated by authorities beyond reasonable doubt and proved against a person in the court of law. The only allegation at best in the forensic audit report is that all the said firms received amounts from applicant’s company with some unidentified receipts, when they actually did not carry any business relation with India Mega Agro Anaj Limited (“IMAAL”). However, nothing is on record to show or demonstrate that “proceeds of crime” were generated or connected with scheduled offence. The transaction appears to have taken place prior to registration or scheduled offence and no findings or material provided by ED that proceeds of crime relate to the scheduled offence. The deriving or obtaining of property must be directly as a result of the criminal activity, relating to scheduled offence. Thus, having a sizable unaccounted money would not ipso facto indicate commission of an offence under PMLA. The court found that nothing has been pointed out by ED to show that the applicant was having any control over accounts of those 8 firms or was operating bank accounts of the said firms, so as to fasten the vicarious liability and connect him with “proceeds of crime”. No offences were registered against any of the abovereferred 8 firms or the amounts credited in their respective bank accounts. Relying on the judgment of the Supreme Court in Union of India v. Mohd. Nawaz Khan⁶, it was held that the court must record its satisfaction whilst considering the bail application that accused is not reasonably believed to be guilty and that grounds do not exist. Accordingly, the bail application under Section 439 was allowed enlarging the applicant on bail.

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(3) Satender Kumar Antil v. CBI⁷

(Delivered on July 11, 2022)

Coram: 2-Judge Bench of HM Justices Sanjay Kishan Kaul and M.M. Sundresh

Authored by: HM Justice M.M. Sundresh

This is one of the landmark judgments on consti-criminal jurisprudence relating to enlargement of accused on bail in various categories of offences. The court categorised the offences under various enactments under 4 broad categories depending on the rigours and stage of consideration of bail application and discussed threadbare about what should be the broad approach of courts in granting bail in all such cases. Various stages of investigation and trial from the stage of registration of FIR, till the suspension of sentence in criminal appeals against conviction were discussed while laying down broad parameters and considerations for grant of bail by the Magistrates, Sessions Courts and the Appellate Courts. The judgment possesses significance in constitutional law for the reason that it correlated the concept of bail with liberty, freedoms and Part III articles, especially Articles 19(1)(a), 19(1)(d) and 21 of the Constitution of India. The court discussed essentially the origin of concept and idea of bail; the principle of “bail as a rule and jail as an exception” by referring to a longline of precedents specially Gurbaksh Singh Sibbia v. State of Punjab⁸, Gudikanti Narasimhulu v. High Court of A.P.⁹, Sanjay Chandra v. CBI¹⁰, etc. in the Indian criminal jurisprudence. The court also broadly laid down guidelines regarding the approach to be followed by the trial as well as High Courts whilst considering bail applications under various provisions of the CrPC. A tabular narration of provision-wise semantics of CrPC as detailed by the Supreme Court is as follows:

Sl.	Section and Analysis
1.	Sections 41, 41-A and 60-A CrPC: Powers of arrest.— Referring to the longline of judgments, especially Arnesh Kumar v. State of Bihar11, Rakesh Kumar v. Vijayanta Arya12 and Mahesh Kumar Chaudhary v. State of Jharkhand13, the Court held that the “power to arrest” is entirely different from the “necessity of arrest” to be felt by the police officer. Issuance of notice under Section 41-A, coupled with the reasons for satisfaction and necessity must be recorded by the police officer before curtailing the liberty of any person. In light of Section 60-A, any arrest made in contravention of abovementioned provision is illegal and the accused is not only entitled to be enlarged on bail, but the police officer must also be subjected to departmental action for misusing the policing powers. This will ensure that courts are not flooded and clogged with bail applications, specially for offences punishable up to seven years. This interpretation is in accord with the constitutional values of our country, where liberty and freedoms are given utmost premium over their restrictions which have to be resorted to in situations of extreme urgency.
2.	Sections 87 and 88 CrPC: Issuance of warrants by courts.— The discretion conferred under Sections 87 and 88 with the courts for issuing non-bailable warrants (NBWs) must be resorted to exceptionally, in heinous offences, that too where the accused is apprehended for destroying the evidence or tampering with the evidences. Referring to the longline of judgments of Pankaj Jain v. Union of India14 and Inder Mohan Goswami v. State of Uttaranchal15, the Court held that NBWs should not be issued ordinarily against the accused as they amount to unreasonable coercive measures operating to the prejudice of liberty of any citizen unless and until convicted.
3.	Section 170 CrPC: Filing of charge-sheet — Interpreting Section 170, the Court held that it nowhere debars the trial court from taking a charge-sheet on record without the accused being taken into custody. Referring to the longline of judgments of Siddharth v. State of U.P.16 and Court on its Own Motion v. CBI17, the Court observed that it is not essential in every case pertaining to cognizable and non-bailable offence that actual custody of the accused should be impressed upon at the time of filing of charge-sheet even in cases of offences under special enactments like PMLA, Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS), etc. This is however subject to the proviso that accused was never arrested during investigation and he cooperated or responded to all the notices of appearances by the police. Even the accused is not entitled to file any application for the grant of bail through a formal application for the said purpose at the stage of issuance of process or of the filing of the charge-sheet viz. Section 190, CrPC.
4.	Sections 204 and 209 CrPC: Interpreting both the provisions, the Court held that the Magistrate at the time of issuance of process, must exercise the power of remanding accused to custody only when there is a necessity for doing so or accused possessing potential to destroy evidence or disturb witnesses or interfere with the smooth trial. Even at this stage there is no requirement of a separate formal application for grant of bail, but must be enlarged in due course.
5.	Section 436-A CrPC: Accused must be enlarged on bail when maximum period of incarceration for an undertrial prisoner, as one half of the maximum period of imprisonment specified for the offence has expired so committed by him. The period has to be reckoned from the date of the custody of the accused during investigation, inquiry and trial. The court referred to a famous quote of Sir Edmund Burke in his book The World’s Famous Orations referring to impeachment of Warren Hastings about iinherent inconsistency between law and arbitrary powers. Thus, it held that the approach of the court should be always towards granting of bail, rather than denying the same, unless and until the gravamen of allegations points to active complicity of the accused.
6.	Section 440 CrPC: Provides for the amount of bond and surety as a precondition for grant of bail. It was held that individuals should always be able to comply with conditions whatever are imposed for grant of bail, failing which, the conditions become onerous and violative of Section 44o. Referring to the longline of judgments of US courts as also the precedents of a series of judgments in Hussainara Khatoon v. State of Bihar18, the Court held that conditions must be conducive for the accused to be met for being enlarged on bail.

The Court eventually directed the Parliament to consider introducing separate enactment in the nature of “Bail Act” to streamline the grant of bails for various categories of offences in one consolidated singular piece of enactment. Detailed guidelines were issued at the end as a summary of the whole judgment.

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(4) Prakash Industries Ltd. v. Directorate of Enforcement¹⁹

(Delivered on July 19, 2022)

Coram: Single Judge Bench of HM Justice Yashwant Varma

Authored by: HM Justice Yashwant Varma

The writ petitions were filed challenging the orders of attachment passed by the adjudicating authority under PMLA. The primary challenge to the attachment was mounted on the ground that offences alleged to have been committed were not enumerated as scheduled/predicate offences at the relevant point of time; or the offences of money laundering were alleged to have been committed when the PMLA had not come into force i.e. prior to 1-7-2007.

The allegations arose out of allocation of a coal block in Chhattisgarh to the petitioner Company. It was argued by the petitioner that the allocation of coal blocks cannot be treated as “proceeds of crime” under Section 2(1) of the PMLA. Undisputedly the allocation of coal block was made on 4-9-2003, when PMLA was neither enforced nor offence of money laundering being in existence.

Dealing with the primary issue of applicability of Article 2o(1) of the Constitution of India, the Court referred to Sections 9(3) and 10 of Article 1 of the American Constitution. It went on to hold that the phrase “law enforced” employed under Article 20(1) must be understood as a law in fact being in existence and in operation on the date and time of commission of the alleged offence or act in question. It must be understood in its natural sense as being law in operation and not the law “deemed to have become operative by the virtue of legislature to pass retrospective laws“. The benefit of Article 20 of the Constitution of India leads to an examination of applicability of ex post facto laws. Referring to the judgment of Rao Shiv Bahadur Singh v. State of Vindhya Pradesh²⁰, it was thus held that prior to 1-7-2005, there was indisputably no law in force, which constructed a statutory definition of offence for money laundering, empowering respondent to attach and confiscate the “proceeds of crime” derived from the criminal activity. Thus, while the commision of predicate/schedule offence would constitute the bedrock for initiation of action, the date on which the act of money laundering is alleged to have taken place is the date to be reckoned for the purposes of applicability of PMLA. Referring to the judgment of Mahanivesh Oils & Foods (P) Ltd. v. Directorate of Enforcement²¹ of Delhi High Court, if “proceeds of the crime” had been used by the accused for acquisition of property much prior to the advent of PMLA and the said process of activity of utilising the “proceeds of crime” stood concluded prior to it, then Act cannot be applied retrospectively to bring the person concerned under its dragnet. For any offence of money laundering to be alleged, the acts must have been done after the Act was brought in force and it cannot be presumed to empower the authorities to initiate proceedings in respect of money laundering for offences done prior to 1-7-2005. Reference in this respect was made in judgments of various High Courts as well to hold that PMLA would be attracted only if the act of money laundering was committed prior to 1-7-2005. However, if the offence of money laundering has been found to be committed subsequent to implementation of PMLA, but the predicate/scheduled offence has been committed prior to the said date, then also prosecution under PMLA would lie, the latter being a standalone substantive offence.

It was further held that it is essential for ED that before the provisional order of attachment is passed or the same is confirmed there must be some assessment as to the value of wrongful gain made from the said criminal activity. The confiscation which can be eventually ordered must be restricted to the approximate value of the wrongful gain by the crime and cannot be made on assumptions. The ED cannot attach all and every property suspecting it to be “proceeds of the crime“, but must examine and be satisfied that such property is derived or obtained from the criminal activity and that there must be some live nexus or link between such property on one hand and the person accused of a charge of offence of money laundering on the other. Any and every property having no link, direct or indirect with the property derived or obtained from the submission of the scheduled offence, because of a criminal activity, cannot be attached arbitrarily.

The allegations against the petitioner were that they had submitted false and forged documents in support of their application of allocation for their coal blocks, misrepresented facts and thus fraudulently, dishonestly obtained the coal allocation. The allocation of a coal block per se cannot possibly be viewed or understood as representing “proceeds of crime” in itself. This is because allocation of coal block at the highest be construed only as a right conferred by the Union to its leaseholder who applies to the State Government concerned for grant of mining lease. The financial benefit proceeds that may possibly arise from the working or excavation activities of the said coal mine may be the “proceeds of the crime“, subject to further examination by the court. However, the allocation of coal block per se can by no stretch of imagination lead to attachment of coal blocks under Section 2(1)(u). Relying on the judgment of Directorate of Enforcement v. Gagandeep Singh²² of its Coordinate Bench, it was further held that the offence of money laundering shall disappear when the predicate/scheduled offence is quashed or set aside by the High Court. It cannot thus be said that the petitioner indulged in any criminal activity and resultantly the attachment by ED is rendered unsustainable. All the writ petitions were allowed and the orders quashed and set aside by the High Court.

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(5) Vijay Madanlal Choudhary v. Union of India²³

(Delivered on July 27, 2022)

Coram: 3-Judge Bench of HM Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar

Authored by: HM Justice A.M. Khanwilkar

Challenge was laid to various provisions of the Prevention of Money Laundering Act, 2002 (hereinafter “PMLA”) and the various Rules framed thereunder, specifically the provisions relating to the following three heads:

(a) the registration of ECIR and procedures relating to disclosure of the same to the accused person;

(b) powers of arrest and grant of bail in relation thereto; and

(c) attachment of property as proceeds arising out of crime/offence committed under the scheduled offences.

PMLA and objectives

The Court whilst referring to the parliamentary intent of PMLA observed that money laundering has become a means of livelihood for drug dealers, peddlers, terrorists, human traffickers, and host of white-collar criminals. Circulation of tainted money breeds discontent in the society and the country both, leading to more crime and civil unrest, consequentially obliging the Central Government to protect the people from such offences. The proactive steps taken towards checking such serious and deleterious offences for society must always be facilitated and the interpretation of various provisions must also be in accord thereof.

The Court while adjudicating upon the constitutionality of the PMLA extensively referred to the international background, conferences and resolutions that compelled the enactment of such a strongly worded enactment viz. UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances,1988 ( “Vienna Convention” or “1988 Convention”), Basel Statement of Principles , enunciated in 1989; the financial action task force (hereinafter “FATF”) established therein in July 1989, later adopted by the UN General Assembly in February 1990, urging the State parties and signatories to enact comprehensive legislation for dealing with the serious threat of money laundering. The court also examined and scanned the Preamble, legislative intent, parliamentary objective and other provisions behind enactment of the PMLA, to arrive at a finding that the purpose of PMLA was as serious as the major design to remedy it viz. putting a lid on activities emanating, relating, perpetuating or leading to money laundering.

Section 5 — Attachment, adjudication and confiscation of property involved in money laundering

Whilst repelling the challenge to Section 5 the Court held as follows:

(a) The powers are vested in a senior responsible officer of the rank of director (not below the rank of Deputy Director in any eventuality). Such authorised senior officer is expected to act only when there are reasons to believe “on the basis of material in his possession, recorded in writing“ that when proceeds of crime (money laundering) are likely to be concealed, transferred or dealt with in any manner resulting in frustrating, wiping out of the proceedings concerning confiscation, then he may order for immediate attachment of the property involved.

(b) The order of attachment is preceded by order of provisional attachment, only after approval by the Magistrate or court competent to take cognizance of the scheduled offence (under Schedule II, PMLA). This acts as another check on arbitrary attachment or confiscation of the subject property.

(c) The efficacy and urgency of prevention of money laundering demands an urgent, timely intervention by the authorised investigating agency, for which reason therefore without registering FIR the power has rightly been conferred for provisionally attaching the apprehended proceeds of crime without formal registration of FIR.

(d) The provisional attachment is operative for a time-bound period of 180 days, within which it has to be approved by 3-member adjudicating authority of senior responsible judicial officers, failing which it ceases to exist. The orders of adjudicating authorities are subject to appeal before Appellate Tribunal constituted under Section 25 of the 2002 Act, thus not making the adjudicating authority the final arbiter on the said issue. The Appellate Tribunal can always decide on the validity of the sis is further appellable before the High Court under Section 42 of the 2002 Act on both questions of fact and law.

Thus, Section 5 was held to be not arbitrary, unguided or violative of Article 14 of the Constitution of India.

Validity of Sections 17 and 18 — Search and seizure

The Court then examined the validity of Sections 17 and 18, whereupon it was argued that without registration of any FIR by the authorised officer, the powers of search and seizure could be resorted to. Holding the 2002 Act as a self-contained code and not influenced or affected by any of the provisions of Criminal Procedure Code, 1973, especially relating to arrest, search and seizure, attachment, investigation, prosecution, etc., the Court held that CrPC cannot be made the basis for adjudicating upon the constitutionality of Section 17 of the PMLA. Even otherwise the pari materia provisions relating to such potent powers of search and seizure in other enactments viz. Income Tax Act, 1961, Customs Act, 1962 (Sections 105 and 136), Foreign Exchange Regulation Act, 1973 (FERA Act) (Section 37), Court held that such powers and provisions are not new to PMLA, but have been existing for many decades in other enactments, affirmed and upheld by the Constitution Benches of the Supreme Court.

Validity of Section 19 — Power to arrest

Considering challenge to Section 19, the Court declined to hold the same to be arbitrary or violative of Articles 14, 19 and 21 of the Constitution of India on the ground that powers of arrest are invested with high ranking officials with strong inbuilt safeguards (reasons to be recorded in writing and grounds of arrest to be informed to the affected person at the earliest). Referring to other statutory safeguards guarding against arbitrary, immediate or impulsive arrest, Court held that justifiably arrest can be effected under Section 19 without any formal FIR; such a practice and power has been provided in multiple other enactments, which have been governing the field for long and even held to be constitutional by the Supreme Court in the past.

Reference in this regard was made to the pari materia provisions under the other economic legislations affirming and upholding the wide powers of arrest viz. FERA Act (Section 35), Customs Act (Section 104). Referring to the Constitution Bench judgments in Ramesh Chandra Mehta v. State of W.B.²⁴ and Union of India v. Padam Narain Aggarwal²⁵, on the powers of arrest, since the arrest could not be effected without “reasons to believe“, with immediate production before the Magistrate within 24 hours, it was stated that both measures ensure as a check over possibility of any arbitrary mechanical arrest. Referring to the judgments of Premium Granites v. State of T.N.²⁶, Sukhwinder Pal Bipan Kumar v. State of Punjab²⁷ and Ahmed Noormohmed Bhatti v. State of Gujarat²⁸, it was held that the requirement 0f giving specific reasons for exercise of powers vested with higher and senior officers leads to presumption that the discretion will not be ordinarily abused. Section 19 cannot be held unreasonable or arbitrary merely because the authority in power may abuse its authority.

Validity of Section 45 — Provisions relating to bail

Referring to the Constitution Bench judgment of M.P.V. Sundararamier & Co. v. State of A.P.²⁹, the court drew a fine distinction between the effects of unconstitutionality of the statute, arising firstly, because of incompetency of the legislature and secondly, because of some of its provisions infringing constitutional guarantees (fundamental rights). In the latter case, the law becomes effective without re-enactment, if the constitutionally offensive provisions are zipped, tailored, and deleted, but not in the former. Thus, holding that amendment of 2018 as the validating Act removed the defect retrospectively, the basis of Section 45 being declared unconstitutional in Nikesh Tarachand Shah v. Union of India³⁰. The defect which had led to Section 45 being declared unconstitutional viz. the existence of the phrase “punishable for a term of imprisonment of more than three years” under Part “A” of the Schedule, stood substituted by words under this Act “through the 2018 Amendment“, and thus the effect of Nikesh Tarachand Shah³¹ judgment was undone. The twin conditions now stand associated with all the offences under the 2002 Act, and Section 45 becomes operative, constitutional and enforceable. The court also referred to reasoning in the Constitution Bench judgment of Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality³², wherein “the doctrine of taking away” for validating Acts was elaborated and discussed for reviving the validity of unconstitutionally declared provisions under a re-enacted law. For the same proposition, reference was also made to the judgments of Comorin Match Industries (P) Ltd. v. State of T.N.³³, Indian Aluminium Co. v. State of Kerala³⁴, State of H.P. v. Narain Singh³⁵, to reiterate and emphasise upon the said proposition. Accordingly, the challenge to Section 45 was repelled, in view of the 2018 Amendment and the defect being rectified by the Parliament.

On the aspect of the twin conditions being reasonable conditions per se, the Court referring to Constitution Bench judgments in Kartar Singh v. State of Punjab³⁶, and Usmanbhai Dawoodbhai Memon v. State of Gujarat³⁷, held that twin conditions as imposed by Section 45 have been held to be justifiable in the cases of heinous and serious offences in case of other enactments. On this aspect, the reasoning and observations of the previous judgment of Nikesh Tarachand Shah³⁸ were distinguished and held to be inconsonant with the judgments of the Constitution Bench in Kartar Singh³⁹ and Usmanbhai Dawoodbhai Memon⁴⁰. Holding that economic offences have a serious impact on the community, society, and the nation at large; they should not be viewed with any permissive eye, especially when the international community and State have felt the necessity of treating the offence of money laundering as a graver one, the twin conditions for grant of bail for under Section 45 can very well be held to be justifiable. The twin conditions do not impose absolute restraint on the grant of bail, but just restrict the discretion, vested in courts with judicial powers and judicial officers. On this aspect, the Court referred to the judgments of Ranjitsing Brahmajeetsing Sharma v. State of Maharashtra⁴¹, in case of pari materia provisions in other enactments like Maharashtra Control of Organised Crime Act, 1999 (MCOCA) [Section 21(4)]; Serious Fraud Investigation Office v. Nittin Johari⁴², in the context of Section 212(6) of the Companies Act, 2013.

Referring to the mandate of Articles 38 and 39 of the Constitution of India, Court held that economic offences stand on far graver footing as they harm the society as a whole and lead to illicit accumulation of wealth. Being a serious offence affecting the society and country at large, therefore, the twin conditions for grant of bail introduce an effective proportionate mechanism for checking the commission of such serious economic offences. The court accordingly upheld and affirmed the twin conditions for grant of bail.

Validity of Section 50 — Powers to summon, seizure, eliciting evidence and prosecution for any false disclosure

On the aspect of validity of Section 50, the said provision was challenged as being violative of Article 20(3), the fundamental right against self-incrimination. The court explaining the scope of applicability, relied on the judgments of Raja Narayanlal Bansilal v. Maneck Phiroz Mistry⁴³, State of Bombay v. Kathi Kalu Oghad⁴⁴, Ramesh Chandra Mehta v. State of W.B.⁴⁵ and other host of judgments holding that Article 20(3) shall be attracted only if there is a formal accusation against any person in the capacity of an accused in the course of an investigation. The proceeding contemplated under Section 50 is more in the nature of an inquiry and not investigation treating the person summoned as an accused in the proceedings, as the PMLA is also about prevention of the very activity and action of money laundering, which is a civil action per se. Thus, the constitutional bar under Article 20(3) or Section 25 of the Evidence Act, 1872 cannot be resorted to as a sword for challenging Section 50, unless and until the person is arrested and such information contemplated under Section 50 is sought to be extracted after his arrest. The investigation under Section 50, even though titled as investigation, is more in the nature of inquiry which is not being undertaken “by a police officer” but by the authorities designated under PMLA. Referring to the judgment of State of Punjab v. Barkat Ram⁴⁶ wherein while dealing with Customs Officer under Land Customs Act, 1924, the Court opined that not every officer so authorised with powers to issue summons, or inquiry can be treated as a police officer. Multiple other judgments on the same proposition were referred as to when an officer in such circumstances vested with such powers can be treated as “a police officer” to attract Constitutional protection under Article 20(3) viz. Badaku Joti Savant v. State of Mysore⁴⁷ and Ramesh Chandra Mehta⁴⁸ . These all were quoted to highlight the difference between police officers exercising powers of ensuring law and order for controlling crime vis-à-vis the officers conducting inquiry under specialised legislations like PMLA.

Validity of the Schedule Part A to the PMLA (Providing for various offences under which the PMLA offences are said to have been commissioned)

On the validity of Schedule to the PMLA, especially Part A, (Providing for various offences under which the PMLA offences are said to have been commissioned), the Court held that it is a matter of pure legislative policy, which the Courts are not supposed to be interfering into. It is the Parliament’s prerogative to decipher which offences to be covered under the fold of PMLA, which prerogative cannot be declared to be unconstitutional till and until the legislative competence to do so exists under Schedule VII to the Constitution of India.

Accordingly, the challenge to various provisions and Rules made under the PMLA was repelled by the Supreme Court.

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(6) Rashmi Metaliks Ltd. v. Directorate of Enforcement⁴⁹

(Delivered on August 10, 2022)

Coram: Single Judge Bench of HM Justice Moushumi Bhattacharya

Authored by: HM Justice Moushumi Bhattacharya

The petitioner assailed the twin orders of freezing of accounts of the petitioner issued on the same day under Section 17(1)(a) of the PMLA, 2002. A further direction was assailed of the ED that funds lying in various accounts of petitioner shall not be transferred or otherwise dealt with the prior permission of the ED. The proceedings under the commission of predicate offences were stayed by the Supreme Court, after 7 years of which (passing of order of stay) the ED got activated. Examining the mandate of Section 17(1)(a) of the PMLA, it was held that the prerequisite for any officer for initiating attachment proceedings against any person are as follows:

1. “committed any act of money laundering; or

2. is in possession of any proceeds of crime involved in money laundering; or

3. is in possession of records relating to money laundering; or

4. is in possession of any property related to crime.“

The phrase “reason to believe” employed under Section 3 of the PMLA clearly mandates writing down of reasons to believe along with a prima facie material that the person concerned (prospective accused) knowingly indulged or assisted in the commission of an activity connected to the proceeds of crime. The defining characteristics of money laundering and “proceeds of crime” must be their interconnection with each other. The preconditions for any officer exercising power under Section 17(1)(a) of the PMLA for attachment of any property are as follows:

(a) satisfy the prerequisites of Section 17(1) stated in para 13 above;

(b) upon satisfaction of the conditions, enter the place and search and seize the property;

(c) come to a conclusion that seizing the property under Section 17(1) is not practicable;

(d) record the reasons why it is not practicable to search and seize under Section 17(1); and

(e) satisfy the reason/basis of the apprehension that the property may be transferred or otherwise dealt with unless such freezing order is passed.

The orders freezing the account of the petitioner failed to disclose the necessity of passing such a drastic order of freezing of accounts under Section 17. There was no connecting live link between the reasons given and the actions taken by the ED prior to passing of the order of attachment with the scheduled/predicate offences and the apprehension that he will divert the monetary financial resources at his disposal to third party. The ED cannot resort to any action against any person for allegations of money laundering on an assumption that property recovered by them constitutes “proceeds of crime”. Accordingly, it was held that impugned order of attachment could not be sustained and accordingly said notices/order of attachment were thus quashed by High Court.

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(7) Parvathi Kollur v. State⁵⁰

(Delivered on August 16, 2022)

Coram: 2-Judge Bench of HM Justices Dinesh Maheshwari and Krishna Murari

Authored by: Per Curiam

The challenge was laid to order of High Court which set aside the discharge order discharging the petitioners of offences under PMLA. The appellants were discharged of the scheduled/predicate offences registered under the provisions of Prevention of Corruption Act, 1988 (PC Act). It was thus contended that there was no question of the existence of “proceeds of crime” when the crime of scheduled offences itself was not proved. Accordingly, judgment of the High Court was set aside, restoring the order of discharge passed by the District and Sessions Court by the Supreme Court. The Supreme Court held that since the original accused already stood acquitted of the scheduled offence and the appellants before it were not accused of the commission of the said offence, but were only a financial accessory to the same, when the foundation of commission of scheduled offences itself was not proved, the appellants (before the SC) could not be proceeded against under PMLA. Accordingly, the Supreme Court allowed the appeal.

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(8) B. Shanmugam v. Karthik Dasari⁵¹

(Delivered on September 1, 2022)

Coram: 2-Judge Bench of HM Justices T. Raja and K. Kumaresh Babu

Authored by: Per Curiam

(However recently reversed and set aside by the Supreme Court through its final judgment in Y. Balaji v. Karthik Desari⁵², )

The petitioner sought quashing of the enforcement case information report (ECIR) registered by the ED on the ground of quashing of criminal proceedings relating to scheduled/ predicate offences. It was contended that since the proceedings relating to scheduled/predicate offences were quashed, there was no question of existence of “proceeds of crime” and thus the prosecution under PMLA was not maintainable at all. The scheduled offences being fundamental and essential to initiate the proceedings under PMLA were not surviving, the summons issued under Section 50 hence would also vanish. There are no live proceedings relating to scheduled/predicate offences that may provide trigger to PMLA offences.

The High Court examining the contentions, held that since the ECIR was premised on the FIRs relating to scheduled offences, that were already stayed by the Supreme Court on the date of their registration, therefore the ECIRs could not have been registered at the first instance. Referring to judgment of Arun Kumar v. Union of India⁵³, it was held that a ‘jurisdictional fact‘ must exist before a court , tribunal or any authority for it to assume jurisdiction over any matter. If the “jurisdictional fact” does not exist, the court authority, or any officer cannot act. If the existence of such fact is wrongly assumed, such order can be set aside by way of writ of certiorari. The High Court also referred to the judgment of State of Punjab v. Davinder Pal Singh Bhullar⁵⁴, to state that if the foundation is being removed, the superstructure automatically falls; when there is no cause of action, there is no “jurisdictional fact” for the ED to have registered ECIR. The grant of stay of any particular proceedings would amount to eclipsing of proceedings initiated on the premise thereof. Thus, when the criminal proceedings pertaining to scheduled/predicate offence were stayed by the Supreme Court, they stood eclipsed, suspended during the period of stay and thus ED ought to have waited for the finality of the said proceedings before the Supreme Court. The initiation of proceedings under PMLA was non-maintainable. Accordingly, the ECIR was quashed by the Division Bench of Madras High Court.

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(9) V. Vijay Sai Reddy v. Directorate of Enforcement⁵⁵

(Delivered on September 8, 2022)

Coram: Single Judge Bench of HM Justice Ujjal Bhuyan

Authored by: HM Justice Ujjal Bhuyan

The petition filed under Section 482 CrPC laid challenge to order passed by Special Judge, PMLA court, through which Special Court held that inquiry and trial in PMLA case is not at all dependent on the trial of the sessions trial arising out of predicate offence. The case of petitioner was that unless the trial relating to predicate/scheduled offences heard earlier and disposed off, the trial of the PMLA proceedings cannot be convened either prior thereto or simultaneously. Thus three substantial issues arose before the High Court, which were as follows:

1. Whether money laundering offence (SC No. 1 of 2018) is a standalone offence or not?
2. If the answer is in the affirmative, whether SC No. 1 of 2018 should precede the trial under scheduled offence i.e. CC No. 26 of 2013?

3. If the answer is in the negative, whether scheduled offence (CC No. 26 of 2013) must precede the trial in SC No. 1 of 2018 or both the offences i.e. scheduled offence and money laundering offence shall be tried simultaneously?

Interpreting various provisions of PMLA, specially the non obstante clause of Section 44, it was held that trial of both the offences viz. that of scheduled/predicate offence and the other one of PMLA offence has to be carried out before the same court. The case related to scheduled/predicate offence even if being tried in another court shall stand committed to the Special Court where the trial arising out of PMLA offence is instituted or pending. Referring to the judgment of Vijay Madanlal Choudhary v. Union of India⁵⁶, it was held that the expression “proceeds of crime” must be construed strictly to mean that the property must be derived directly, indirectly or be “as a result of criminal activity”. Mere possession of unaccounted property acquired by legal means may be actionable for tax violation, but cannot be proceeded under PMLA till and until it is shown to have been “as a result of criminal activity”. Only such property shall fall within the bail of “proceeds of crime”, and not each and every property, which is owned by the accused persons. Further held that even though offence under Section 2(1)(u) read with Section 3 of the PMLA is a “standalone offence“, what is necessary is the scheduled/predicate offence must have been shown to have been committed. If it is established that the crime property isrightfully owned and possessed by him, such a property by no stretch of imagination can be termed as a criminal property and the court would be obliged to return such property back to the person concerned. Physical dispossession under Section 8 by the authorities under PMLA would be completely unwarranted until a formal order of a confiscation is passed by Special Court. In the event of acquittal of a person concerned or being absolved from allegations of criminal activity alleged in relation to scheduled/predicate offence, the prosecution under PMLA in relation to acquisition of properties also cannot proceed. Thus the conviction under Sections 3 and 4 of the PMLA is entirely dependent on conviction for scheduled/predicate offence. It was thus held that it would be in the interests of justice if the Special Court trying the PMLA offence awaits the ultimate decision and pronouncement of the trial arising out of scheduled/predicate offence. Accordingly, Section 482 petition was allowed by the High Court granting the relief as prayed for.

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(10) Devki Nandan Garg v. Directorate of Enforcement⁵⁷

(Delivered on September 26, 2022)

Coram: Single Judge Bench of HM Justice Jasmeet Singh

Authored by: HM Justice Jasmeet Singh

The petitioner was arrested in relation to offences under PMLA and whilst in custody bail was being sought on medical grounds. Relying on various medical reports, examinations, etc., it was contended that the treatment of ailments of petitioners cannot be attended to from jail. His health condition cannot be addressed or resolved whilst being in custody and that jail would be unable to provide that level of medication care and treatment which his body requires. Interpreting the proviso to Section 45(1), PMLA, it was held that by the court that an exception is carved out for persons who are “sick or infirm” and once person falls in the said proviso, then he need not satisfy the twin conditions of the section. Reference in this respect was made to the judgment of Gautam Kundu v. Directorate of Enforcement⁵⁸. Referring to the judgment of Directorate of Enforcement v. Ashok Kumar Jain⁵⁹, Court held that prisons provide medical facility, but the services are not comparable to or equivalent to that level of treatment and care one can avail from private hospitals. Jails are not equipped to provide special and intensive treatment and care that the petitioner applicant may fall in need of. Referring further to the judgment of D.K. Shivakumar v. Directorate of Enforcement⁶⁰ and examining the medical reports and health condition of the petitioner it was held that the applicant suffers from serious comorbidities, heart conditions, non-functional kidney and thus falls under the category of aged, sick and infirm proviso to Section 45(1) of the PMLA. Accordingly the court enlarged the accused person on bail on medical grounds.

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(11) Harish Fabiani v. Directorate of Enforcement⁶¹

(Delivered on September 26, 2022)

Coram: 2-Judge Bench of HM Justices Mukta Gupta and Anish Dayal

Authored by: HM Justice Anish Dayal

The Bombay High Court had set aside the order passed by the Judicial Magistrate and the FIR registered in consequence of the directions issued by former under Section 156(3) CrPC. Thus, the proceedings in relation to the scheduled/predicate offences were quashed and the question arose whether a person sued not being accused before the Bombay High Court, but were accused persons in the PMLA offences were also benefited and deserved to be exonerated in view of quashing of the criminal proceedings by Bombay High Court. The High Court held that quashing of FIR by the Bombay High Court as also the setting aside order of Judicial Magistrate was unconditional, complete and not truncated in any manner. There was no residue left in the matter against the accused (of the PMLA offences) insofar as the allegations pertaining to the scheduled offences were concerned. Referring to the judgment of State of Punjab v. Davinder Pal Singh Bhullar⁶², it was held that FIR is unquestionably inseparable corollary to the initial actions. If the initial action itself is not legal, then all subsequent and consequential proceedings would fall through as the illegality strikes as the root of the order. If an order is a nullity, all subsequent criminal proceedings/FIR/investigation automatically stands vitiated and liable to be declared non est. The question of registration of ECIR against the accused persons for PMLA offences could not be sustained in isolation without existence of underline preceding scheduled/predicate offence. Authorities under PMLA cannot resort to any action against any person for money laundering on assumptions, surmises and speculations that property recovered from the person accused of scheduled offence must be “proceeds of crime“. The action of PMLA stands upon the substratum of scheduled offence on legal, live and subsisting existence of the scheduled offence and not otherwise. Accordingly the High Court quashed all the ECIRs which were registered by the ED premised upon the directions passed by the Judicial Magistrate, Thane/Palghar, Maharashtra. All the proceedings under the PMLA were set aside, restraining the ED from taking any coercive action, search, seizure, summons in relation thereof. The lookout circulars issued against various petitioners in pursuance of the ECIRs as aforementioned were also quashed and set aside by the High Court.

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(12) Umsaw Khwan Village Durbar v. Union of India⁶³

(Delivered on September 27, 2022)

Coram: Single Judge Bench of HM Justice Arun Dev Choudhury

Authored by: HM Justice Arun Dev Choudhury

Challenge on behalf of the petitioner, who had succeeded in the challenge to land acquisition proceedings was to the provisional attachment order under PMLA as well as proceedings initiated and pending in reference thereto. Prayer was also made for defreezing of the bank accounts mentioned under schedule of properties in the provisional attachment order. The petitioner had successfully laid a challenge to land acquisition proceedings in respect of the land belonging to him. FIR by the CID came to be registered under Sections 120-B, 420 and 423 read with Section 109 IPC, 1860. On the basis of registration of said predicate/scheduled offences, ECIR under PMLA also came to be registered with consequential orders of provisional attachment of the properties. The said challenge was opposed by ED on the ground of availability of alternative remedy and maintainability of the writ petition in view of remedy available before the Appellate Tribunal, PMLA. Held that since the petitioner questioned the power and jurisdiction of the ED, as also entire proceedings initiated under PMLA therefore the writ petition was held to be maintainable, when the jurisdiction of the authority itself was under cloud.

On the issue of whether “criminal activity” contemplated under PMLA is a proved criminal activity or an alleged criminal activity, it was held that Section 2(u) of the Act has not used the phrase “guilty of scheduled offence”. Therefore a criminal activity will encompass even alleged involvement in the said activity, even if same is yet to be proved before the competent court of law. The criminal activity for invocation and exercising powers of provisional attachment of properties under Sections 5 and 8 of the PMLA cannot be presumed or interpreted as “proof of commission of offence”, but a reasonable belief to proceed thereunder. It will include within its ken even an “alleged criminal activity”. Thus, ED was said to be possessing the jurisdiction to pass orders of provisional attachment under the PMLA.

On the next issue of whether the subjective satisfaction was arrived at by the ED whilst issuing the provisional attachment order, ED had any credible material or information or whether such decision was supported by supervening factors. The Court held that what is necessary for exercising powers of provisional attachment is the existence of a material to substantiate that “proceeds of crime” are likely to be concealed/frustrated or disappeared at the instance of the accused person. Such a belief is a must, which must be reduced in writing. However whether the conditions and stipulations under Sections 5 and 8 have been duly satisfied prior to passing of the attachment order by the director can all be examined by the adjudicating authority under Section 8 of the Act. The petitioner had adequate remedy of taking up the matter or opposing the attachment before the adjudicating authority and thereafter before the Appellate Tribunal. The court therefore declined to interfere with the validity of the provisional attachment order. The writ petition was disposed of granting petitioner liberty to agitate their matter before the adjudicating authority and thereafter before the Appellate Tribunal for PMLA (ATPMLA).

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