Case BriefsHigh Courts

Delhi High Court: Yogesh Khanna, J., remarked that,

Once the Parliament steps in and cures the defect pointed out by a Constitutional Court, the defect appears to be cured and the presumption of constitutionality is to apply to such provision.

Instant petitions were for grant of bail to the applicants.

Factual Matrix

An enquiry under FEMA, 1999 was commenced on 1-07-2017 by the respondent at various places against Naresh Jain and others, it was alleged that the petitioners and others had appeared on numerous occasions before the Enforcement Directorate and the enquiry was conducted for 2 years under Section 47 of the FEMA.

Further, the ED registered FIR with EOW Cell for Scheduled Offences under the Prevention of the Money Laundering Act, 2002. Thereafter, the petitioners appeared before the ED on several occasions. Searches were conducted by the ED under PMLA at the residential premises of the petitioner Bimal Jain also.

Prosecution complaint was filed before the Special Judge, PMLA against eight accused persons, including the petitioners herein. Petitioner Bimal Kumar Jain also joined the investigation of FEMA as also PMLA on various occasions.

Senior Counsel for the petitioner submitted that:

a) while arresting Bimal Jain, the procedure under Section 19 PMLA was not followed.

b) the Enforcement Directorate cannot be the complainant and the Investigating Officer at the same time; and

c) effect of declaration of twin conditions under Section 45 of the PMLA have been declared unconstitutional and ultra vires in view of decision in Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1.

Analysis, Law and Decision

Non-Compliance under Section 19 of the PMLA

High Court stated that since the arrest of accused Bimal Jain was in execution of the NBWs therefore, the provision under Section 19 of the PMLA could not be adhered to.

Admittedly, Bimal Jain was arrested in execution of the NBW by the Special Judge, PMLA while taking cognizance of prosecution complaint filed by the Enforcement Directorate and thus there was no occasion to comply with the requirement of Section 19 of the PMLA.

Bench stated that, the very fact the complaint was filed by the Enforcement Directorate arraying petitioner Bimal Jain as accused 2, prima facie shows there were reasons to believe the person was guilty of offence punishable under PMLA as the complaint was filed only against a person who was presumed to be guilty.

The Complainant and the Investigating Agency cannot be the same

Court referred to the decision of Mukesh Singh v. State (NCT) of Delhi, (2020) 10 SCC 120.

Twin conditions of Section 45 of the PMLA

Supreme Court in Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1 declared Section 45 of the PMLA as it stood then, as unconstitutional and violative of Articles 14 and 21 of the Constitution of India, but the defects pointed out were cured by the legislature and an amendment to Section 45(1) was made vide Finance Act, 2018.

Supreme Court’s decision in P. Chidambaram v. E.D., (2019) 9 SCC 24 took judicial note of the above amendment.

High Court stated that the legislature has the power to cure the underlying defect pointed out by a Court, while striking down a provision of law and pass a suitable amendment. Bench referred to the decision of Supreme Court in State of Karnataka v. Karnataka Pawn Brokers Association, (2018) 6 SCC 363 it was held:-

“24. On analysis of the aforesaid judgments it can be said that the Legislature has the power to enact validating laws including the power to amend laws with retrospective effect. However, this can be done to remove causes of invalidity. When such a law is passed, the Legislature basically corrects the errors which have been pointed out in a judicial pronouncement. Resultantly, it amends the law, by removing the mistakes committed in the earlier legislation, the effect of which is to remove the basis and foundation of the judgment. If this is done, the same does not amount to statutory overruling.”

Adding to the above analysis, Court remarked that merely because the entire section was not re-enacted would be of no consequence since the provision even after being declared unconstitutional, does not get repealed or wiped out from the statute book and it only becomes unenforceable.

Therefore, High Court held that there is a presumption in favour of constitutionality since the amended Section 45(1) of the PMLA has not been struck down, Court referred to the decision of the Supreme Court in Nagaland Senior Govt. Employees Welfare Assn. v. State of Nagaland, (2010) 7 SCC 643.

If Section 45(1) of the PMLA is ignored, whether the petitioners are entitled to bail per parameter of Section 439 CrPC?

The investigation by EG revealed that Naresh Jain and Bimal Jain along with other accomplices hatched a criminal conspiracy to cause loss to the exchequer and banks by indulging in illegal foreign exchange transaction on the basis of forged/fabricated documents.

Naresh Jain also facilitated parking of funds abroad by Indian nationals through his international Hawala transaction structure created in India and in various other jurisdictions. Naresh Jain conducted international Hawala operation and domestic operation of providing accommodation entries to co-conspirators.

Investigation so far, revealed that Naresh Jain incorporated and operated 450 Indian entities and 104 foreign entities. These entities were incorporated by using original identity proofs and documents of dummy shareholders and directors as well by fabricating identity proofs and documents of these shareholders and directors. Fabricated documents were used to open bank accounts as well.

Further, it was alleged that the petitioners were well connected in India and abroad and there was an apprehension that they will flee from the country to evade trial in case they were enlarged on bail. It was also alleged that Bimal Jain had evaded the summons issued by the department and had refused to join investigation.

ED alleged that the petitioners were involved in various criminal cases and even two Red Corner Notices were issued by Interpol against Naresh Kumar Jain.

Even the allegations were that the petitioners forged their medical certificates and Naresh Jain continues the criminal activities while in Jail and the investigation in the case is still going on and a large number of activities/fact accounts/witnesses /employees and beneficiaries are involved.

Adding to the above allegations, it was stated that if enlarged on bail there was every likelihood the petitioners may flee to Dubai or elsewhere to avoid the process of law and they were flight risks.

Hence, bail was not granted to the petitioners and the petitions were dismissed. [Bimal Kumar Jain and Naresh Jain v. Directorate of Enforcement, 2021 SCC OnLine Del 3847, decided on 30-07-2021]


Advocates before the Court:

For the Petitioner/s: Vikram Chaudhri, Sr. Advocate with Naveen Malhotra, and Harshit Sethi, Advocates.

For the Respondent: S.V.Raju, ASG, .Zoheb Hossain, Special Counsel, Amit Mahajan, CGSC, Aarushi Singh, Mallika Hiremath, Vivek Gurnani, and Agni Sen, Advocates

Case BriefsCOVID 19High Courts

Chhattisgarh High Court: Narendra Kumar Vyas, J., rejected bail and dismissed the petition being devoid of merits.

The facts of the case are such that the petitioners are engaged in trading of gold and silver ornaments in shop owned by petitioner 1 situated at Rajnandgaon where search and seizure was conducted upon receiving an intelligence output. The petitioners were thereby arrested by respondent authorities for alleged commission of offence under Section 135 of the Customs Act, 1962 (for short “the Act, 1962”) and was also held to be an offence under provision of the Money Laundering Act, 2002 (for short “the Act, 2002”) by Enforcement Directorate (ED). The petitioners moved an application for grant of interim bail for 90 days before Chief Judicial Magistrate, Raipur as per direction of Supreme Court in the matter of Suo Motu Petition (C) No. 01/2020 in Contagion of Covid 19 Virus in prisons for releasing them for 90 days looking to the present scenario of pandemic Corona (Covid-19) which was rejected. Assailing this, instant writ petition under Article 226 of the Constitution of India for grant of interim bail was filed.

Relevant recommendation made by the High Power Committee on 12.05.2021 reads as under:

“Criteria for release of Under trial prisoners:

“…… The under trial prisoners, who are satisfying the following criteria shall be released:

  1. Under Trial prisoners (UTPs)/ Remand Prisoners (with respect to whom, charge sheet are yet to be filed), who are in custody for 15 days or more, facing trial in a case which prescribes a maximum sentence of 07 years or less;
  2. Under trial prisoners (UTPs), who are senior citizens of 60 or more than 60 years of age and are in custody for three months or more, facing trial in a case which prescribes a maximum sentence of 10 years or less”

“It has further been resolved that following category of UTPs, even if falling in the above criterion should not be considers:-

  1. Those under trial prisoners who are facing trial under Prevention of Corruption Act (PC Act)/ PMLA; and
  2. Case investigated by CBI/ED/NIA/Special Cell, Crime Branch, SFIO, Terror related Cases, Riot cases, cases under Anti-National Activities and Unlawful Activities (Prevention) Act etc.”

The Court observed that as per the submission of the petitioners it is clear that that as per Section 135 (1)(b) of the Act, 1962, the case of the petitioners is squarely covered in clause 3 of recommendation issued by the High Power Committee, which provides that the under trial prisoners (UTPs)/ Remand Prisoners (with respect to whom, charge sheet are yet to be filed), who are in custody for 15 days or more, facing trial in a case which prescribes a maximum sentence of 7 years or less shall be released, whereas it reflects from clause 5 & 6 of the recommendation as mentioned above that person belong to the under trial prisoners category even if following in the above criterion should not be considered for release. The under trial prisoners, who are facing trial under Prevention of Corruption Act/ Prevention of Money Laundering Act, 2002 and cases investigate by CBI/ED/NIA/ Special Cell, Crime Branch, SFIO, Terror related cases, Riot cases, under Anti-National Activities and Unlawful Activities (Prevention) Act etc., are not entitled to be released.

The Court observed that prima facie it is established that the petitioners are habitual offenders and are very much involved in smuggling of gold and silver, which is injurious to economic growth of the nation. Further, the investigation is in a primary stage and may take some time, and since they are big financial resource persons, possibility of influencing the witnesses, cannot be ruled out.

The Court relied on judgment State of Kerala v. Mahesh, Criminal Appeal No. 343 of 2021 wherein it was held:

“37. In Suo Motu Writ Petition (Civil) No.1 of 2020 In Re: Contagion of Covid 19 Virus In Prisons, this Court expressed concern over the possibility of spread of COVID-19 amongst prisoners lodged in overcrowded correctional homes and accordingly issued directions from time to time, directing the authorities concerned to inter alia take steps as directed by this Court, to minimize the risk of spread of COVID amongst the inmates of correctional homes. This Court also directed that a High Powered Committee be constituted by the States and Union Territories to consider release of some prisoners on interim bail or parole during the Pandemic, to prevent overcrowding of prisons.

  1. It appears that the High Court has completely mis- appreciated the object, scope and ambit of the directions issued by this Court from time to time in In Re : Contagion of Covid 19 Virus In Prisons. This Court did not direct release of all under-trial prisoners, irrespective of the severity of the offence. By way of example, this Court directed the States/Union Territories to consider release of prisoners convicted of minor offences with prescribed punishment of seven years or less. The orders of this Court are not to be construed as any direction, or even observation, requiring release of under-trial prisoners charged with murder, and that too, even before investigation is completed and the chargesheet is filed. The Respondent Accused, it is reiterated, is charged with murder in the presence of an eye witness, and the impugned order granting bail was filed even before the chargesheet was filed. The Chargesheet appears to have been filed on 01.01.2021. Moreover, the Respondent Accused had been absconding after the incident.”

The Court thus held “The possibility of the accused /petitioners absconding or otherwise defeating or delaying the course of justice, reasonable apprehension of witnesses being threatened or influenced or of evidence being tempered, therefore, the petitioners are not entitled to get benefit from order of the Supreme Court and the recommendation of the High Power Committee.” [Vijay Baid v, Assistant Director, Director of Revenue Intelligence, 2021 SCC OnLine Chh 1952, decided on 07-07-2021]


Arunima Bose, Editorial Assistant has reported this brief.


Appearances:

For Petitioners: Mr. Shashank Thakur

For Respondent: Mr. Ramakant Mishra

Op EdsOP. ED.

Introduction

 William Pitt said in the British Parliament in 1763 that, “The poorest man may in his cottage bid defiance to all the forces of the Crown. It may be frail; its roof may shake; the wind may blow through it; the storm may enter; the rain may enter; but the King of England cannot enter — all his force dares not cross the threshold of the ruined tenement!”[1] 

For any democracy to thrive there must be proper checks and balances in the exercise of the powers of its law enforcement agencies. In the Indian context, the Directorate of Enforcement (ED) has massive discretionary powers vested in it, and its prosecutorial record suggests that it has been less than scrupulous about exercising those vast powers. There have been multiple instances, where the agency has been found wanting in its adherence to the procedures established under the law of its creation, the Prevention of Money-Laundering Act, 2002[2] (PMLA), especially in matters of seizure and the attachment of properties.

The fear of arbitrary action by the ED is palpable, not least because liberty and personal property are at stake. It is also because the PMLA envisages a sui generis adjudication procedure[3], under Section 8 of the Act, with its own internal checks and balances – which again, are not scrupulously followed[4].  In fact, there have even been instances[5] where ED has switched gears mid-prosecution and have even attempted to justify property attachments under two laws – the PMLA or the Criminal Procedure Code, 1973 (CrPC), using a “whatever sticks” approach. Hence a criminal statute that offers neither predictability nor clarity in its application would raise serious doubts about the integrity of the underlying prosecution in the minds of Judges.

The Supreme Court in Tofan Singh v. State of T.N.,[6] held that the “investigating officers” under the special statutes such as the Narcotics Drugs and Psychotropic Substances Act, 1985[7] shall be deemed to be “police officers,” within the meaning of Section 25 of the Evidence Act, 1872[8] (no confession made to a police officer, shall be proved as against a person accused of any offence). However, under Section 50(4) of the PMLA, all proceedings under Sections 50(2) and (3) are deemed to be a “judicial proceeding”. As ED proceedings are “judicial proceedings,” statements made before ED are admissible as evidence, negating the Tofan Singh judgment[9], and subsequently the said Section 25. While many claim[10] Section 50 of the PMLA to be violative of Article 20(3) of the Constitution of India[11] (the Constitution), the Courts have more often than not held it not to be.[12] Though, if the statement is recorded after the arrest, it does violate Article 20(3).[13] Moreover, one is not entitled to invoke Section 160 CrPC since the PMLA specifically and comprehensively deals with the “power, authority and procedure for issuance of summons” under Section 50 of PMLA.[14]

Apart from criticism about its lukewarm adherence to procedural safeguards under the Act, the ED’s enthusiasm to raid and charge individuals does not seem to lead to successful prosecutions. Naturally, this has led to strong criticism about the agency’s integrity and vulnerability to political pressure. The statistics paint a grim picture in this regard. The ED conducted over 1700 raids between March 2011 and January 2020 in connection with 1569 specific investigations; however, it managed to secure convictions in only nine.[15]

Moreover, there have been reported instances where the ED has taken recourse to wrong provisions of law, while attempting to seize the assets of an individual.[16] So, the question must arise, is there any mechanism to maintain checks and balances over ED, otherwise loaded with vast and unfettered powers?

This article focuses on the fundamental concept of seizure, and whether it can be or is being done arbitrarily and/or is there any due process to be followed while exercising this power, which often results in allegations against the ED of harassing individuals by restricting their right to private property and personal liberty.

Seizure of assets

 The ED is empowered to conduct “search and seizure” against any person, on the basis of information in possession of the officer concerned and by specifying in writing precise “reasons to believe” that the act of money-laundering has been committed or a person is in possession of any proceeds of crime involved in money-laundering.

Section 17(1-A) of PMLA gives further power to seize the record and a copy of the said order is to be served on the person concerned. The seizure memo is required to be signed by two independent witnesses. Section 17(4) of PMLA provides that on the freezing of the record of property within a period of 30 days from such seizure or freezing, an application has to be filed in writing of such record of a continuation of order of freezing before the adjudicating authority. The said reasons thereafter have to be forwarded to the adjudicating authority under sub-clause (2) and the person arrested is to be taken to the Judicial Magistrate within 24 hours or a Metropolitan Magistrate having the jurisdiction.

However, vide the Finance Act, 2019 the proviso to Sections 17(1) and 18(1) were deleted, while empowering ED to enter any property for conducting search and seizure even without reporting of a scheduled offence to a Magistrate or any other competent authority, with respect to Section 157 CrPC. This amendment massively broadened the existing powers of ED by bringing Sections 17 and 18 at par with Section 19, where there is no precondition to forward a report under Section 157 CrPC to a Magistrate – thus eliminating judicial oversight at this stage entirely.

Notably, the property seized under Section 17 or Section 18 of the PMLA can be retained by an authorised officer, if she/he has reason to believe that such property is required to be retained for adjudication under Section 8 of the PMLA.[17] The property can be retained for a period of 180 days from the day on which it was seized or frozen.[18] Details of property seized or frozen have to be informed to the adjudicating authority in a prescribed manner.[19] The seized property is required to be returned to the person from whom it was seized after 180 days, unless the adjudicating authority permits retention of property beyond this period.[20] These are some of the many procedural safeguards embedded in the statute, essentially to maintain checks and balances over powers of ED.

The Prevention of Money-Laundering (Receipt and Management of Confiscated Properties) Rules, 2005[21] makes provision for receipt and management of confiscated properties. The Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013[22] provide for specific procedures relating to taking possession of attached or frozen properties confirmed by the adjudicating authority. However, discarding the principle of natural justice, the rules make no provision as to how the administrator will dispose of the property. Though, Rule 3 of the Prevention of Money-laundering (Restoration of Confiscated Property) Rules, 2016[23], lays down a procedure by carving out power in favour of the Special Court.

Section 24 of the PMLA provides that, in any proceedings related to proceeds of crime, if a person is charged with Section 3 of the PMLA, the authority or court shall presume that such proceeds of crime are involved in money-laundering; and that in the case of any other person the authority or court, may presume that such proceeds of crime are involved in money-laundering. However, such burden only shifts onto the person, where there is a trigger of a foundational fact, based on the “reason to believe” i.e. there is reason to believe that the person is involved in the offence.[24]

Section 65 of the PMLA being one of the means of action gives the ED wide discretion by  providing that provisions of CrPC shall apply to PMLA insofar as they are not inconsistent the provisions of PMLA. Section 102(2) CrPC obligates the investigating officer to report the seizure of property to the officer in charge of the police station if the investigating officer is subordinate to the officer-in-charge. The term “any offence” and “any property” opens the floodgates for the police officer to seize any property under the suspicious circumstances under any statute. Such confusion bestows unfettered power on the ED to investigate, arrest and harass anyone under the garb of “reasonable suspicion”, as the Finance Act of 2019 clarified that the offences under the Act have always been cognizable and non-bailable.[25] Therefore, Section 102(3) balances the power of police authorities to seize any property irrespective of the nature of the offence i.e. cognizable or non-cognizable because the investigating officer is obligated to report to the Magistrate about the seizure of the property and if the property cannot be furnished to the court then the police authorities shall give that property to any person who promises to execute a bond for providing the property before the court as and when the Magistrate directs.

Requisites for an order of search and seizure

Section 17 of the PMLA provides for search and seizure, and it lays down the procedure, sub-clause (1) of which is explained here for clarity: The order of authorising any subordinate officer for search and seizure is to be passed either by Director or any officer not below the rank of Deputy Director authorised by the Director. The order for search and seizure is to be passed based on information in possession of the Director or officer not below the rank of Deputy Director authorised by him. On the basis of information received, the Director or other authorised officer not below the rank of Deputy Director must have “reason to believe” by recording these reasons of his belief that any person:

(i) has committed any act which constitutes money-laundering; or

(ii) is in possession of any proceeds of crime involved in money laundering; or

(iii) is in possession of any records related to money laundering; or

(iv) is in possession of any property related to crime.

On fulfilment of these requirements, the Director or any officer equivalent above the rank of Deputy Director authorised by the Director may direct any subordinate officer to conduct search and seize property or documents pertaining to money-laundering. The officer conducting the search has to do it in the following manner, as stipulated in Section 17(1)(iv) of the PMLA:

  1. enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;
  2. break open the lock of any door, box, locker, safe, almirah, or another receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;
  3. seize any record or property found as a result of such search;
  4. place marks of identification on such record or property, if required or make or cause to be made extracts or copies therefrom;
  5. make a note or an inventory of such record or property; and
  6. examine on oath any person who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under PMLA.

However, the said action of seizure is sustainable, subject to conditions stipulated in the proviso to Section 17(1) of the PMLA, which says that the search and seizure shall not be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under Section 157 CrPC, or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or department or unit, as the case may be, or any other officer who may be authorised by the Central Government, by notification, for this purpose.

Judicial interpretation of the power to seize assets

The Delhi High Court in Mahanivesh Oils & Foods (P) Ltd v. Directorate of Enforcement,[26] said that, “[a]ny provisional attachment under Section 5(1); seizure under Section 17 or Section 18 of the Act (PMLA); or the order of attachment by the adjudicating authority under Section 8(2) is founded on the fundamental premise that the properties attached/seized ‘are involved in money-laundering’.

Moreover, the Delhi High Court observed in Abdullah Ali Balsharaf v. Directorate of Enforcement[27] that:

  1. … Powers of seizure of properties is a draconian power. Grant of such authoritarian and drastic powers, without commensurate checks and balances, would militate against the principle of rule of law engrafted in the Constitution of India. A police officer does not possess unfettered rights to freeze any asset without the same being reported immediately to a Magistrate. The party aggrieved, thus, has immediate recourse in respect of the said action of freezing the property…. The PMLA has separate checks and balances to ensure that such powers are exercised in aid of the object of confiscating or vesting such proceeds of crime with the Government. The power to provisionally attach or seize or freeze a property can be exercised only (a) if the specified officer has material in his possession, which provides him reason to believe that the property sought to be attached or seized is proceeds of crime or related to a crime; and (b) after recording the reasons in writing.

The Delhi High Court in Directorate of Enforcement v. Axis Bank[28] noted that:

  1.  As in the case of power of survey, search and seizure, search of persons, retention of property and power to arrest, for enforcing “provisional attachment”, it is sine qua non for the empowered officer, acting under Section 5(1), to record in writing his “reason to believe” that grounds are made out to direct such provisional attachment.

The view of the Gujarat High Court in Paresha G. Shah v. State of Gujarat[29] that, “an order or instructions of attachment/freezing of bank account passed or issued by the authority under the PMLA in exercise of his powers under Section 102 of the Code read with Section 65 of the PMLA should not continue or remain in operation for an indefinite period of time” was noted by the PMLA Appellate Tribunal in Jagdishbhai Ishwarbhai Patel v. Directorate of Enforcement.[30]

For seizure under CrPC, the mandatory conditions of Section 102 were discussed by the Supreme Court in State of Maharashtra v. Tapas D. Neogy,[31] wherein it was observed that the conditions as:

(a) there must be a “property”; and

(b) in respect of that “specific property” there must be a suspicion of commission of any offence.

In M.T. Enrica Lexie v. Doramma,[32] the Supreme Court interpreted the following conditions to be construed as a property i.e. (a) property which is stolen or suspected to be stolen; and (b) the property directly linked to crime.

In Nevada Properties (P) Ltd.  v. State of Maharashtra,[33] the Supreme Court ruled that the power of a police officer to seize any property, which may be found under circumstances that create suspicion of the commission of any offence, would not include the power to attach, seize and seal an immovable property. Moreover, the Kerala High Court in Mohd. Enamul Haque v. CBI,[34] was of the view that:

  1. … No agency can arbitrarily freeze bank accounts under Section 102 CrPC, or keep the accounts frozen indefinitely, because it will have the ultimate effect of denying the constitutional or legal rights of the account-holder. Such a step can be resorted to by the investigating agencies only if it is found absolutely necessary.

In Guruprasath v. State[35] the Madras High Court reiterated that “bank accounts cannot be freezed indefinitely”. Further, the Gujarat High Court in Bhanuben v. State of Gujarat,[36] held that:

“… [t]he order of attachment of the bank accounts in exercise of powers under Section 102 CrPC  read with Section 65 of the PMLA should not continue for an indefinite period of time.”

Conclusion

The ED for achieving purposes other than the ones sought to be achieved, seizes a property at first, and decides later whether to invoke provisions of PMLA, or Section 102 CrPC as was done in Opto Circuit[37]. Such a position of law places an undue burden on individuals, as their right to private property is compromised through statutory discretion in favour of ED. Therefore, a balance must be struck between the right to property of an individual and the measures which may be required to be taken by an investigating agency for effective enforcement of the proceedings under PMLA.[38] The 44th Amendment to the Constitution deleted both Article 19(1)(f) and Article 31 from the Constitution, however, Article 300-A states that “no person shall be deprived of his property, save by the authority of the law”. Therefore, though right to property is not a fundamental right, it still is a constitutional right. And, as the Supreme Court noted, However, laudable be the purpose, the executive cannot deprive a person of his (their) property without specific legal authority, which can be established in a court of law.”[39]


* Criminal lawyer, New Delhi.

** Intern, Law Chambers of Jai Anant Dehadrai, 3rd year student, BA LLB (Hons.), Jamia Millia Islamia, Delhi.

[1] William Miller v. United States of America, 1958 SCC OnLine US SC 131 : 2 L Ed 2d 1332 : 357 US 301, 307 (1958)  (quoting the 1763 speech of William Pitt, Earl of Chatham, in the House of Commons).

[2] Prevention of Money-Laundering Act, 2002.

[3] See, Section 8 of the PMLA [Section 8(1) of PMLA provides that on receipt of specific complaints, if the adjudicating authority has reason to believe that any person has committed a defined offence, it may serve a notice of not less than thirty days on such person to justify the acquisition of such property/asset.]

[4]The adjudicating authority routinely fails to conclude proceedings under Section 5 within 180 days – thus unjustly elongating attachment of properties. See, Vikas WSP Ltd. v. Directorate Enforcement, 2020 SCC OnLine Del 1732.

(It was held that the limit of 180 days being the prescribed period, the adjudicating authority becomes functus officio after the expiry of the said limit. There is no power conferred by the PMLA upon the authority to extend the validity of the provisional attachment order.)

[5] In Opto Circuit India Ltd. v. Axis Bank, 2021 SCC OnLine SC 55 the Court rejected the ED’s argument that the “stop operation” was requested to prevent the layering/diversion of and to safeguard the proceeds of crime. The Court further rejected the ED’s contention that the power of seizure is available under Section 102 CrPC which has been exercised and as such the freezing of the account would remain valid. The Court noted that the power is to be exercised in the specified manner alone, failing which it would fall foul of the requirement of complying due process under law.

[6] 2020 SCC OnLine SC 882 .

[7] Narcotics Drugs and Psychotropic Substances Act, 1985.

[8] Evidence Act, 1872.

[9] Supra Note 6.

[10] Among several challenges include Mehbooba Mufti’s recent claim to declare Section 50 as void, inoperative, and violative of Article 20(3) of the Constitution. See, PTI, Mehbooba Mufti moves Delhi HC challenging ED summons in money laundering case (The Print, 9-3-2021) <https://theprint.in/judiciary/mehbooba-mufti-moves-delhi-hc-challenging-ed-summons-in-money-laundering-case/618674/> last accessed 25-5-2021.

[11] Constitution of India.

[12] P. Chidambaram v. Directorate of Enforcement, 2019 SCC OnLine Del 11129 ; Virbhadra Singh v. Enforcement Directorate, 2017 SCC Online Del 8930 ; Vakamulla Chandrashekhar v. Enforcement Directorate, 2017 SCC OnLine Del 12810 .

[13] Gaurav Gupta v. Director of Enforcement, 2015 SCC OnLine Del 9929.

[14] Nalini Chidambaram v. Directorate of Enforcement, 2018 SCC OnLine Mad 5924.

[15] Kaushik Deka, Who is an Enemy of the State? (India Today, 27-2-2021) <https://www.indiatoday.in/magazine/cover-story/story/20210308-who-is-an-enemy-of-the-state-1773222-2021-02-27> last accessed 22-3-2021.

[16] For instance, the ED wrongfully obtained an order of seizure (LR) of bank account located in a foreign jurisdiction under Section 57 of the PMLA, instead of satisfying and complying with the underlying preconditions stipulated under Section 60 of the PMLA. See, Directorate of Enforcement v. Gautam Khaitan, CNR No: DLCT11-000927-2019, CC No: 01/2015, order dated 26.04.2021.

[17] Section 20(1), PMLA.

[18] Ibid.

[19] Section 20(2), PMLA.

[20] Section 20(3), PMLA.

[21] Prevention of Money-Laundering (Receipt and Management of Confiscated Properties) Rules, 2005.

[22] Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013.

[23] Prevention of Money-laundering (Restoration of Confiscated Property) Rules, 2016.

[24] Naresh Jain v.  Deputy Director, Directorate of Enforcement, FPA-PMLA-1332/DLI/2016, order dated 12-9-2019 [Appellate Tribunal, Prevention of Money Laundering Act]. See also, Hanif Khan v. Central Bureau of Narcotics, (2020) 16 SCC 709

[25] Section 200, Finance (No. 2) Act, 2019.

[26] 2016 SCC Online Del 475.

[27] 2019 SCC OnLine Del 6428.

[28] 2019 SCC OnLine Del 7854.

[29] 2015 SCC OnLine Guj 6582

[30] 2017 SCC OnLine ATPMLA 40.

[31] (1999) 7 SCC 685.

[32] (2012) 6 SCC 760

[33] (2019) 20 SCC 119.

[34] 2018 SCC OnLine Ker 22772.

[35] 2017 SCC OnLine Mad 34779.

[36] 2017 SCC OnLine Guj 2517.

[37] Supra Note 5.

[38] Rose Valley Real Estate and Constructions Ltd. v. Union of India, 2015 SCC OnLine Cal 539.

[39] Hari Krishna Mandir Trust v. State of Maharashtra, (2020) 9 SCC 356.

Experts CornerKapil Madan

Introduction

The provision of bail goes back to the medieval times of Magna Carta which was drafted 800 years back and described as the keystone of individual liberty and has been consistently followed in India. Clause 39 of the Royal Charter of the Magna Carta provided that “no free man shall be seized or imprisoned or stripped of his rights or possessions, or outlawed or exiled or deprived if his standing in any other way, nor will he be proceeded against with force, except by the lawful judgment of his equals or by the law of the land”.

 

The presumption of innocence is the cardinal rule of our criminal justice system and also finds its roots under Article 21 of the Constitution of India. The  Supreme Court in several judgments have reiterated that “bail is the rule and jail is the exception”. Since presumption of innocence is attached to all the accused persons and as such they may be given the opportunity to look after and defend their own case. The Supreme Court in Sanjay Chandra v. CBI[1] has also echoed that the accused has a better chance to prepare and present his case while he is out on bail in the following words:

 

  1. It makes sense to assume that a man on bail has a better chance to prepare or present his case than one remanded in custody. And if public justice is to be promoted, mechanical detention should be demoted.

 

Furthermore, the Supreme Court in Sanjay Chandra case[2] and State of U.P. v. Amarmani Tripathi[3], has observed that the following factors among others may be considered while deciding the bail application:

 

  1. 11. … (a) The nature of accusation and the severity of punishment in case of conviction and the nature of supporting evidence.

(b) Reasonable apprehension of tampering with the witness or apprehension of threat to the complainant.

(c) Prima facie satisfaction of the court in support of the charge.

 

Most recently the Supreme Court in P. Chidambaram v. Directorate of Enforcement[4] has reiterated the “triple test” that may be satisfied for grant of bail and the same is as under:

  1. That the accused is not at “flight risk.”
  2. That there are no chances of tampering with evidences.
  3. That there is no likelihood that the accused shall influence the witnesses.

 

Offence of Money Laundering and Bail

Short History of PMLA

The Prevention of Money Laundering Act, 2002 (PMLA) was passed by Parliament in the year 2002 and it was notified on 1-7-2005. The primary object of the Act is to make money laundering an offence, and to attach the property involved in the money laundering.

 

Money laundering is a process where proceeds of crime generated out of scheduled offence is introduced as untainted money into the stream of legitimate commerce and finance. Section 2(1)(u)[5] defines proceeds of crime as under:

“proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property.

 

Section 45 (Pre-Amendment)

By virtue of Section 45, PMLA departs from the rule of presumption of innocence in as much as it introduces two further pre-conditions that may be satisfied before an accused can be enlarged on bail. Section 45 is reproduced hereinbelow for ease of reference:

 

Offences to be cognizable and non-bailable.— (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule shall be released on bail or on his own bond unless—

(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and

(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail.

 

History of  Section 45

It is submitted that Section 45[6] originally applied to Part A appended of the Schedule appended to the Act that contained only two offences i.e. Sections 121 and 121-A of the Penal Code, 1860 (IPC) that dealt with waging or attempting to wage war or abetting waging of war against the Government of India, and conspiracy to commit such offences. Part B of the Schedule, as originally enacted, referred to certain offences of a heinous nature under the IPC and even the most heinous offences under the IPC were contained only in Part B, so that if bail were asked for such offences, the twin conditions imposed by Section 45(1) would not apply.

 

It is worthwhile to observe that an interesting amendment was made in 2012 by virtue of Act 2 of 2013 whereby the entire Part B of the Schedule was transposed into Part A of the Schedule meaning thereby that the rigours of Section 45 will now apply to all the erstwhile offences that were earlier contained in Part B of the Schedule.

 

Constitutional Validity of the Rigours of Section 45

The Supreme Court had an occasion to consider the constitutional validity of the twin conditions as imposed under Section 45 in Nikesh Tarachand Shah v. Union of India[7] where the Supreme Court was pleased to struck down the said two conditions by declaring the same being violative of Articles 14 and 21 of the Constitution of India. The Supreme Court gave the following reasons while striking down the said provision:

 

  1. A person may be enlarged on bail for the scheduled offence however while considering the bail in the PMLA proceedings, the same accused has to satisfy the test as laid down in Section 45 qua the same schedule offence for which he is already on bail. Even if the accused is acquitted in the schedule offence, even then he has to satisfy the rigours of Section 45 qua the same offence for which is already acquitted.
  1. Section 45(1) leads to a problematic situation as the impugned twin conditions has no nexus to the offences under the PMLA. The Court while granting or rejecting the bail does not apply its mind to whether the person is guilty of the offence of money laundering, but instead applies its mind to whether such person is guilty of the scheduled or predicate offence. This again leads to a manifestly arbitrary, discriminatory and unjust result which would invalidate the section.
  1. There is no provision under PMLA which excludes the grant of pre-arrest bail. This again leads to an extremely anomalous situation as a person may be granted anticipatory bail without satisfying the twin conditions for an offence under money laundering together with an offence under Part A of the Schedule, however if such person happens to be arrested for the same offences, in order to get regular bail, he has to first satisfy the twin conditions under Section 45.
  1. Section 45 is a drastic provision which turns the presumption of innocence on its head, which is fundamentally detrimental to a person accused of any offence. Before application of a section which infringes the personal liberty guaranteed by Article 21 of the Constitution of India, the Court must be doubly sure of the fact that such a provision furthers a compelling State interest for tackling serious crime. In the absence of any such compelling State interest, the indiscriminate application of the impugned conditions of Section 45 will certainly violate Article 21 of the Constitution.

 

In view of the above the Supreme Court declared Section 45(1) of the PMLA, insofar as it imposes twin conditions for release on bail, to be unconstitutional as it violates Articles 14 and 21 of the Constitution of India.

 

Position Subsequent to the Amendment under Section 45, PMLA ACT

Pursuant to the Nikesh Tarachand[8] case, Section 45 was amended w.e.f. 19-4-2018 vide Finance Act, 2018 (No. 13 of 2018) wherein for the words “punishable for a term of imprisonment of more than three years under Part A of the Schedule”, the words “under this Act” were substituted in Section 45(1) of the PMLA.

 

Section 45- Pre-Amendment

Section 45- Post-Amendment

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule shall be released on bail or on his own bond unless:

(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and

(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail….

 

 

Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence (under this Act) shall be released on bail or on his own bond unless:

 

(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and

 

(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail….

 

 

Aftermath of the Amendment under Section 45, PMLA

The aforesaid Amendment in Section 45 has again sparked a debate where it is usually argued on behalf of the prosecution that the defects as pointed out in Nikesh Tarachand has been remedied. It is worthwhile to mention that the above argument does not hold any water in view of the following:

  1. Revival or resurrection of the impugned twin conditions by way of an amendment would again result in negating the presumption of innocence which is attached to any person being prosecuted of an offence and would certainly create drastic inroads into the fundamental rights of personal liberty guaranteed by Article 21 of the Constitution of India. The amendment in no manner can be said to remedy the defect qua the violation of Article 21 of the Constitution of India.
  1. The Supreme Court had an occasion to deal with the amended Section 45 in Chidambaram v. Directorate of Enforcement[9] where the Supreme Court took cognizance of amendment ensued to Section 45 and yet the bail was decided without satisfying the rigours of amended Section 45.
  1. It is submitted that the Bombay High Court in Deepak Virendra Kochhar Directorate of Enforcement[10] while dealing with the new amended Section 45 has held as under:

“… In view of clear language used in para 46 of the Supreme Court decision in Nikesh Tarachand Shah[11], Court has no hesitation in reaching a definite conclusion that amendment in sub-section (1) of Section 45 of PMLA introduced after the Supreme Court decision in Nikesh Tarachand Shah[12] does not have effect of reviving twin conditions for grant of bail, which have been declared ultra vires Articles 14 and 21 of Constitution of India….”

  1. Further, a similar view was taken by the Delhi High Court in Sai Chandrasekhar Directorate of Enforcement[13], Patna High Court in Ahilya Devi v. State of Bihar[14], Manipur High Court in Okram Ibobi Singh v. Directorate of Enforcement[15], Madhya Pradesh High Court in Vinod Bhandari v. Director[16] wherein the courts reiterated the observations laid down in Nikesh Tarachand case[17] and held that the Amendment in Section 45 no manner revives or resurrects the twin conditions that were struck down by the Supreme Court in Nikesh Tarachand[18] case.

 

Conclusion

Therefore in view of the above, it can safely be concluded that the twin conditions as imposed by the Section 45 of PMLA cannot be looked into while deciding the bail application as the same are violative of Articles 14 and 21 of the Constitution of India.

EXPERT OPINION

1. In absence of compelling state interest (offences under TADA, NDPS), the laws impinging the presumption of innocence will be in teeth with Article 21 of the Constitution of India.

2. The restrictions imposed by the special statutes on the power of the Court to grant bail must not be pushed too far that it deprives the accused of his Fundamental Rights or else the presumption of innocence secured only after centuries of struggle would lose its meaning.


† Partner, KMA Attorneys.The author can be contacted at kmadan@kmalawoffice.com or +91-9971305252.

††  Associate, KMA Attorneys.

[1] (2012) 1 SCC 40.

[2] Ibid.

[3]  (2005) 8 SCC 21.

[4] (2020) 13 SCC 791.

[5] PMLA Act, 2002

[6] Ibid.

[7] (2018) 11 SCC 1.

[8] Id.

[9] (2019) 9 SCC 24.

[10] Crl. Bail Application No. 1322 of 2020, order dated 25-3-2021 (Bom).

[11] (2018) 11 SCC 1.

[12] Id.

[13] 2021 SCC OnLine Del 1081.

[14] Crl. Misc. No. 41413 of 2019, decided on 28-5-2020 (Pat).

[15] 2020 SCC OnLine Mani 365.

[16] 2018 SCC OnLine MP 1559.

[17] supra note 7.

[18] (2018) 11 SCC 1.

Op EdsOP. ED.

Introduction

The Prevention of Money-Laundering Act, 2002[1] (PMLA) is a pro-active legislation keen on curbing money-laundering and bringing violators to justice. Such a legislation is definitely the need of the hour considering the number of scams this country has seen in its past and a strong law securing the 4 walls of justice for offenders is welcomed by the people at large. However, off-late, criminal law practitioners (defense lawyers) have found it challenging to deal with PMLA for the fact that the 4 ends securing the 4 walls of ‘presumed’ justice is far too airtight even for genuine non-offenders to escape its clutches, if caught by sheer happenstance. This article deals with one such scenario.

PMLA punishes an individual for the offence of money-laundering under Sections 3 and 4 which read as follows:

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

[Explanation. – For the removal of doubts, it is hereby clarified that,

(i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely,

(a) concealment; or

(b) possession; or

(c) acquisition; or

(d) use; or

(e) projecting as untainted property; or

(f) claiming as untainted property, in any manner whatsoever;

 (ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever].

  1. Punishment for money-laundering.— Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine:

Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words which may extend to seven years, the words which may extend to ten years had been substituted.

On a bare reading of these two provisions, any money that is construed to be ‘proceeds of crime’ is liable to be punished under PMLA. ‘Proceeds of crime’ is defined under Section 2(1)(u) as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence[2]. It is my contention that an offence under the PMLA cannot be a stand-alone offence, as an offence is required to be committed (under the Schedule) for the monies/properties to be deemed ‘proceeds of crime’. Without commission of a crime, there exists no proceeds from crime.

The Karnataka High Court in K. Sowbaghya v. Union of India[3] has observed that:

having regard to the meaning attributed to ‘proceeds of crime’ under PMLA, whereby crime contemplated is the alleged scheduled offence, the ‘proceeds of crime’ contemplated under Sections 3 and 4 are clearly and inextricably linked to the scheduled offence and it is not possible to envision an offence under PMLA as a stand-alone offence without the guilt of the offender in the scheduled offence being established.

Therefore, on a logical reasoning of the said proposition, only if an offence under the Schedule to PMLA is committed, then the question of proceeds of crime arises.

Coming to the thesis or central question for discussion in this article, there are various offences under various statutes that have been adduced as scheduled offences under the PMLA, and for the major part of the Schedule, I have no quarrel with the intention of the legislature. For example, an offence under Section 25 of the Arms Act (which is a scheduled offence under the PMLA) punishes the individual who possesses or sells unlicensed arms and ammunition. The PMLA, rightly so, punishes the individual for the proceeds he/she has made or property acquired through such possession or sale. Taking another example, certain offences under the Penal Code, 1860 such as Sections 364-A (kidnapping for ransom), 384 to 389 (extortion), 392 to 402 (robbery and dacoity) etc are also scheduled offences under the PMLA. Similar to the previous example, IPC punishes the accused for the offences of kidnapping, extortion or robbery/dacoity whereas the PMLA punishes the accused for the money made or property acquired from the commission of such crimes.

The problem arises when considering offences under the Prevention of Corruption Act, 1988[4] (the PC Act), particularly Section 13. Offences under Section 13 (criminal misconduct by a public servant), also a scheduled offence under PMLA, punishes a public servant for receiving illegal gratification by using his/her public office, misappropriating property or owning/possessing property worth beyond known sources of income or illicit enrichment of wealth (general overview). Contrary to the argument that the PC Act only punishes a person for being corrupt or misusing his public office and PMLA punishes the monies made or properties acquired from such misconduct, I argue that the PC Act collectively performs the functions of the PMLA as well.

The object of PMLA is to prevent money-laundering and to provide for confiscation of property derived from money-laundering. Therefore, the function of PMLA is to seize/confiscate the properties so enjoyed by individuals who have acquired such property by commission of one or more offences which can be acted upon under the Act, apart from punishment for holding such property. The PC Act on the other hand, not only punishes an individual for being corrupt and holding tainted property, it also takes away any property/money derived from such abuse of power/criminal misconduct for the same reason that such property was acquired through illegal means.

The Supreme Court while dealing with a case under the PC Act in Yogendra Kumar Jaiswal v. State of Bihar[5] held that:

If a person acquires property by means which are not legally approved, the State would be perfectly justified to deprive such person of the enjoyment of such ill-gotten wealth. There is a public interest in ensuring that persons who cannot establish that they have legitimate sources to acquire the assets held by them, do not enjoy such wealth.  Such a deprivation would certainly be consistent with the requirement of Articles 300-A and 14 of the Constitution which prevent the State from arbitrarily depriving a person of his property.

When the PC Act inclusively curbs and confiscates “proceeds of crime”, would prosecution for the same under PMLA not amount to double jeopardy?

Provisions of the PC Act examined

An analysis of Section 13 of the PC Act will shed further light on this theory. Section 13 reads as follows:

13. Criminal Misconduct by a Public Servant. [(1) A public servant is said to commit the offence of criminal misconduct,

(a) if he dishonestly or fraudulently misappropriates or otherwise converts for his own use any property entrusted to him or any property under his control as a public servant or allows any other person so to do; or

(b) if he intentionally enriches himself illicitly during the period of his office.

Explanation 1.- A person shall be presumed to have intentionally enriched himself illicitly if he or any person on his behalf, is in possession of or has, at any time during the period of his office, been in possession of pecuniary resources or property disproportionate to his known sources of income which the public servant cannot satisfactorily account for.

Explanation 2.- The expression known sources of income means income received from any lawful sources.]

(2) Any public servant who commits criminal misconduct shall be punishable with imprisonment for a term which shall be not less than [four years] but which may extend to [ten years] and shall also be liable to fine.[6]

Most cases pending or newly charged are predominantly under the provisions prior to the 2018 amendment due to the check period and hence, emphasis will also be placed on Sections 13(1)(a) to (e), as they were, prior to the amendment. However, the following explanation would be squarely applicable to Section 13 as it is subsequent to the amendment also.

Provision

(Before Amendment)

Key Word/Phrase
13(1)(a) Gratification other than legal remuneration
13(1)(b) Valuable thing
13(1)(c) Misappropriates property entrusted to him or under his control
13(1)(d) Valuable thing or pecuniary advantage
13(1)(e) Pecuniary resources or property disproportionate to known sources of income
(After amendment) Key Word/Phrase
13(1)(a) Misappropriates property entrusted to him or under his control
13(1)(b) Intentionally enriches himself illicitly

All these provisions have a key word or a phrase within which the alleged actions have to fit into for them to be charged with one of the above offences (all of which are scheduled offences under PMLA). At this point, it is also pertinent to examine the definition of ‘property’ as under Section 2(1)(v) of PMLA:

(v) “property” means any property or asset of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located;

Explanation.– For the removal of doubts, it is hereby clarified that the term “property” includes property of any kind used in the commission of an offence under this Act or any of the scheduled offences;”

A bare reading of this definition would show that all keywords/phrases for making one liable under Section 13 of the PC Act also (on interpretation) fall under the definition of Section 2(1)(v) of PMLA. Apart from jail time, the objective of Sections 3 and 4 of PMLA are to confiscate any property that is construed to be from proceeds of crime as the person holding the said property has not obtained and enjoyed them through legal means. This, in its very essence is what Section 13 is also trying to accomplish. The Oxford English Dictionary defines the word “pecuniary” as “of or in money”, thereby making construction of the term ‘pecuniary advantage’ to also fall under the definition of property under Section 2(1)(v) of PMLA. This comparison is only to show that cumulatively, Section 13 of the PC Act and Sections 3 and 4 of PMLA are trying to achieve the same goal and have the same objectives. Therefore, initiating action against an individual under both the provisions of law for the same offence or transaction, would amount to double jeopardy.

It is agreed as stated by the Andhra Pradesh High Court in B. Rama Raju v. Union of India[7] that punishment under Sections 3 and 4 of PMLA are distinct proceedings from Section 5 which is attachment of property and subsequent confiscation. However, in a PC Act case, the trial court (CBI Court in most jurisdictions) passes an order of attachment of tainted property or property under presumption that it is through illegal gratifications during the pendency of trial. This is where Section 5 of PMLA comes in conflict with the proceedings already pending before the trial court. Once the properties are already attached and since the PMLA also permits an order of attachment under Section 5, the Enforcement Directorate making an application to transfer all properties from CBI to ED is prima facie posing a direct threat to the investigation conducted by CBI.[8] Both the agencies are looking into the same properties for offences committed and further, only if an offence is established by CBI can it be treated as ‘proceeds of crime’ by ED.

The Supreme Court in Kanhaiyalal v. D.R. Banaji[9] had held that:

 “If a court has exercised its power to appoint a receiver of a certain property, it has done so with a view to preserving the property for the benefit of the rightful owner as judicially determined. If other courts or tribunals of coordinate or exclusive jurisdiction were to permit proceedings to go independently of the court which was placed the custody of the property in the hands of the receiver, there was a likelihood of confusion in the administration of justice and possible conflict of jurisdiction.

Even though the observations made therein were in a civil case, the same principles are to be applied to criminal cases also, as attachment of property in these matters are quasi civil in nature. If the Enforcement Directorate were to interfere with pending proceedings conducted by CBI, then there would arise a conflict of jurisdiction since both are on the basis of the same offence and properties possessed therein.

The most essential ingredient for an offence under Section 3 of PMLA is the existence of property that is deemed to be a proceed of crime and Section 13 of the PC Act, quintessentially performs the twin function by making the accused public servant liable for abusing his/her office, possessing such property as well as confiscating the said property since it is a proceed of a ‘crime’ committed by the public servant. To makes things more convincing, punishment under Section 13(2) of the PC Act is much more severe than Section 4 of PMLA, thereby justifying its twin purpose.

Double Jeopardy explained

The concept of double jeopardy has been known to mankind from time immemorial. Dating back to 355 BC in Athens, Greece, the law forbids the same man to be tried twice on the same issue. Double jeopardy or non bis in idem is a procedural defense that prevents a person from being tried again on the same or similar charges following a valid conviction or acquittal. The principle of double jeopardy in India existed prior to the drafting and enforcement of the Constitution. It was first enacted in Section 403(1) of the Criminal Procedure Code, 1898 which is now Section 300 of the amended Criminal Procedure Code, 1973. A partial protection against double jeopardy is a Fundamental Right guaranteed under Article 20 (2) of the Constitution of India, which states “No person shall be prosecuted and punished for the same offence more than once”.

In Thomas Dana v. State of Punjab[10], a Constitutional Bench of 5 Judges laid down 3 requirements for double jeopardy i.e. prosecution, punishment and same offence. If these 3 are complied with, then the protection under Article 20(2) is guaranteed.

Section 300 of the Code of Criminal Procedure also protects a person from being tried again where he/she has already been tried and acquitted/convicted for the same offence. Section 26 of the General Clauses Act states that:

 “Where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments, but shall not be liable to be punished twice for the same offence.

This is further enumerated by the Supreme Court in Manipur Administration v. Thokchom Bira Singh[11], that for Article 20(2) and Section 26 of the General Clauses Act to act as a bar for second prosecution and its consequential punishment thereunder, it must be for the same offence that is, an offence whose ingredients are the same. Applying the principles of Section 26 of the General Clauses Act, Article 20(2) and the above decision of the  Supreme Court to the present question at hand, it can be stated that since the offence for which PMLA is invoked is essentially the same offence as under the PC Act, the above provisions will get attracted. Therefore, ingredients, occurrences and circumstances are the same for an offence under Section 13 of the PC Act and Sections 3 and 4 of PMLA (including evidence, both oral and documentary) i.e. money/properties acquired through commission of an offence, it is to be concluded that prosecution under PMLA is a second trial for the same offence when the PC Act proceedings are pending or have attained finality.

Conclusions

I have, in this article, tried to give an outline that prima facie, Section 13 of the PC Act and Sections 3 and 4 of PMLA do not harmoniously gel with each other. On the one hand, only if the primary or scheduled crime is made out can a prosecution under PMLA be maintainable (there are certain lines of thought which state, offence under PMLA is stand-alone and is not dependent on any other offence being proved/committed) and on the other hand, even on the existence of an offence under Section 13 of PC Act, the PC Act is a self-sufficient Act which punishes the accused for both abusing the position of being a public servant, as well as having acquired or being in possession of illegal gratification or property that is either misappropriated or disproportionate to known sources of income. Hence, a subsequent action under  PMLA is nothing but a violation of the constitutionally protected fundamental right against double jeopardy. In concluding remarks, it would be pertinent to note that the Schedule to PMLA is to be revisited and pros and cons are to be considered by the Courts having jurisdiction as to whether the provisions of the PC Act (not restricted to Section 13) are to be considered scheduled offences under PMLA.


*Advocate, Madras High Court

[1] Prevention of Money Laundering Act, 2002

[2]Indian Bank v. Government of India, 2012 SCC Online Mad 2526  

[3] 2016 SCC Online Kar 282

[4] Prevention of Corruption Act, 1988

[5](2016) 3 SCC 183

[6]Prior to the 2018 amendment, Section 13(1) reads as follows;

  1. Criminal misconduct by a public servant.—(1) A public servant is said to commit the offence of criminal misconduct,—

(a) if he habitually accepts or obtains or agrees to accept or attempts to obtain from any person for himself or for any other person any gratification other than legal remuneration as a motive or reward such as is mentioned in section 7; or

(b) if he habitually accepts or obtains or agrees to accept or attempts to obtain for himself or for any other person, any valuable thing without consideration or for a consideration which he knows to be inadequate from any person whom he knows to have been, or to be, or to be likely to be concerned in any proceeding or business transacted or about to be transacted by him, or having any connection with the official functions of himself or of any public servant to whom he is subordinate, or from any person whom he knows to be interested in or related to the person so concerned; or

(c) if he dishonestly or fraudulently misappropriates or otherwise converts for his own use any property entrusted to him or under his control as a public servant or allows any other person so to do; or

(d) if he,—

(i) by corrupt or illegal means, obtains for himself or for any other person any valuable thing

or pecuniary advantage; or

(ii) by abusing his position as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage; or

(iii) while holding office as a public servant, obtains for any person any valuable thing or pecuniary advantage without any public interest; or

(e) if he or any person on his behalf, is in possession or has, at any time during the period of his office, been in possession for which the public servant cannot satisfactorily account, of pecuniary resources or property disproportionate to his known sources of income.

Explanation.—For the purposes of this section, “known sources of income” means income received from any lawful source and such receipt has been intimated in accordance with the provisions of any law, rules or orders for the time being applicable to a public servant.

[7] 2011 SCC OnLine AP 152

[8] I take this stand being fully aware of the fact that Section 18-A of the PC Act, pursuant to the 2018 amendment, has paved way and given priority to provisions of PMLA (with respect to attachment) over the Criminal Law (Amendment) Ordinance, 1944 under provisions of which attachment and confiscation are usually made under the PC Act. This bereft of the fact that if attachment in PMLA takes precedence over the PC Act, then the whole idea of establishing proceeds of crime would become null as the procedure for trial are different under both Acts and trial under PMLA is much more accelerated due to its narrow scope for the offence of proceeds of crime.

[9] 1959 SCR 333

[10] 1959 Supp (1) SCR 274

[11] (1964) 7 SCR 123 

Legislation UpdatesNotifications

In exercise of the powers conferred by sub-clause (iv) of clause (sa) of sub-section (1) of section 2 of the Prevention of Money-Laundering Act, 2002, the Central Government hereby rescinds the notification of the Government of India, Ministry of Finance, Department of Revenue, No. 8/2017, dated 15 November, 2017, published in the Gazette of India, Part II, Section 3, Sub-section (ii), extra-ordinary, vide GSR 1423 (E) dated the 16 November 2017, except as respects things done or omitted to done before such recession and notifies the ―“Real Estate Agents”, as a person engaged in providing services in relation to sale or purchase of real estate and having annual turnover of Rupees twenty lakhs or above, as ― “persons carrying on designated businesses or professions”.


Central Government makes the following amendment to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005:

  • Rules may be called the Prevention of Money-laundering (Maintenance of Records) Fourth Amendment Rules, 2020.
  • In the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, in rule 2, in subrule (1), in clause (fa);-

(a) For the sub-clause (iii), the following sub-clause shall be substituted, namely:- ―

“(iii) the Central Board of Indirect Taxes and Customs, constituted under Central Boards of Revenue Act, 1963, with respect to the dealers in precious metals and precious stones.”

(b) After the sub-clause (iii) as so substituted, the following sub-clause shall be inserted, namely; ―

“(iv) the Central Board of Indirect Taxes and Customs, constituted under Central Boards of Revenue Act, 1963, with respect to the real estate agents.”

Read the notification, here: NOTIFICATION


Ministry of Finance

Case BriefsHigh Courts

Orissa High Court: S.K. Panigrahi, J., while addressing a matter with regard to money laundering by way of ponzi schemes, stated that,

“Act of money laundering is done in an exotic fashion encompassing a series of actions by the proverbial renting of credibility from the innocent investors.”

Petitioner has sought bail in a complaint case pending before Sessions Judge, Special Court under PMLA.

Cheating

Case under Sections 406, 420, 468, 471 and 34 of Penal Code and Sections 4, 5 and 6 of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was registered on the basis of a complaint alleging that the complainant had been cheated and defrauded by alluring to invest Rs 10,000 in the attractive investment scheme of Fine Indiasales (P) Ltd.

Complainant further submitted that he had introduced 20 more people to invest in the said scheme.

Complainant neither received the financial product nor the product voucher as per the agreement with FIPL.

FIPL collected huge amounts of money from the public and ultimately duped huge amount from innocent public by giving false assurance of high return for their deposit of money.

In view of the above, complainant requested for an investigation.

FIPL floated a fraudulent scheme

According to the investigation it was found that, FIPL had floated a fraudulent scheme with a terminal ulterior motive to siphon off the funds collected from public.

Ponzi Scheme

The advertised scheme of FIPL, ex-facie appeared to be a bodacious Ponzi scheme, inducing the susceptible depositors by way of misrepresentation, promising immediate refund in case of any default and timely payment of return on the part of FIPL.

Investigation prima facie established that the accused persons connected with  FIPL not only criminally conspired and cheated the depositors but also lured them into the scheme with a rogue mindset.

Machiavellian Layering | Shell Companies

Investigation revealed that the said money, stained with the sweat, tears and blood of multitudes of innocent people has since been moved around and subjected to Machiavellian layering through a myriad of shell companies and bogus transactions.

The collected amount was immediately transferred to different bank accounts of individuals as well as firms under the management and control of the Promotors/Directors/Shareholders of the said FIPL which is nothing but an act of sheltering.

Money Laundering

Modus Operandi adopted while transferring the prodigious sum of ill-gotten wealth with the singular intention of concealing the original source of funds and to project the tainted money as untainted ex facie constitute the offence of money laundering.

Court’s Observation

On the cursory look, Court prima facie observed that dishonesty, untruth and greed eroded the faith of common investors.

One of the significant stages of money laundering is “layering”, and in the present case, multiple use of corporate vehicles was done and the amount was layered further.

The act money laundering involves the process of placement, layering and integration of “proceeds of crime” as envisaged under Section 2 (u) of the Act, derived from criminal activity into mainstream fiscal markets and transmuted into legitimate assets.

“…laundering of tainted money having its origins in large scale economic crimes pose a solemn threat not only to the economic stability of nations but also to their integrity and sovereignty.”

Proceeds of Crime

Petitioner along with others attempted to project the “proceeds of crime” as untainted money by transferring the same to different bank accounts in a bid to camouflage it and project it to be genuine transactions.

Financial Terrorism

Bench added to its analysis that, offence of money laundering is nothing but an act of “financial terrorism” that poses a serious threat not only to the financial system of the country but also to the integrity and sovereignty of a nation.

Supreme Court’s opinion

Supreme Court of India has consistently held that economic offences are sui generis in nature as they stifle the delicate economic fabric of a society.

Faustain bargain

Perpetrators of such deviant “schemes,” including the petitioner in the present case, who promise utopia to their unsuspecting investors seem to have entered in a proverbial “Faustian bargain” and are grossly unmindful of untold miseries of the faceless multitudes who are left high and dry and consigned to the flames of suffering.

Reputational Damage of the Country

Abuse of financial system in the manner that occurred in the present case can inflict the reputation of the country in the world of business and commerce.

Alleged offence of money laundering committed by the petitioner is serious in nature and the petitioner’s role is not unblemished.

Hence, Court refused bail to the accused/petitioner. [Mohammad Arif v. Directorate of Enforcement, Govt. of India, 2020 SCC OnLine Ori 544 , decided on 13-07-2020]


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Hot Off The PressNews

As reported by media, Ministry of Home Affairs sets up an Inter-Ministerial panel set up to probe violations by Rajiv Gandhi Foundation, Rajiv Gandhi Charitable Trust and Indira Gandhi Memorial Trust.

“MHA sets up inter-ministerial committee to coordinate investigations into violation of various legal provisions of PMLA, Income tax Act, FCRA etc by Rajiv Gandhi Foundation, Rajiv Gandhi Charitable Trust & Indira Gandhi Memorial Trust . Special Director of ED will head the committee.”

         — MHA


Media Reports

Op EdsOP. ED.

The scourge of money laundering is an issue that has plagued society for ages now, carrying with it the potential to not only destabilise the international financial system, but has also having been instrumental in funding for terrorism, illicit drugs and trafficking among a few major issues which erode modern day society. The efforts of the international community as a whole to tackle this menace though, have been relatively recent. The formation of the Financial Action Task Force (FATF), as an international organisation to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, in the year 1989 was a major step forward in the battle against money laundering. From time to time the FATF has passed stringent recommendations to curb laundering of money. Though India joined the FATF comparatively late, in 2010, its efforts to tackle money laundering as a standalone issue had already commenced with the introduction of the Prevention of Money Laundering Bill, 1998 in the Lok Sabha on 4th August 1998 by the Government of the day, which was subsequently referred to the Standing Committee on Finance and subsequently upon receipt of its recommendations was passed by both Houses of Parliament and received the assent of the President on 17th January 2003, giving birth to the Prevention of Money Laundering Act, 2002 (PMLA)[1]. The PMLA contains stringent provisions to tackle money laundering, including but not limited to a broad definition of “proceeds of crime” [Section 2(1)(u)], which is the very basis for prosecution under the Act, attachment of property prior to conviction for money laundering (Section 5), freezing of bank accounts (Section 17) arrest of a person (Section 19) on the subjective satisfaction of the Enforcement Directorate (the agency tasked with the implementation of the Act) reverse burden of proof as to the legitimacy of the “proceeds of crime” (Section 24) and making admissible statements made before specified officials of the Enforcement Directorate (Section 50).

One of the most controversial provisions of the PMLA, the constitutionality of which has already been challenged before the different High Courts of the country[2], is Section 24, which places the burden upon the accused to dispel the presumption that the property in possession of an accused is not “proceeds of crime” and is untainted. The original provision at the time of passing of the enactment read as follows: 

24. Burden of Proof: When a person is accused of having committed the offence under Section 3, the burden of proving that proceeds of crime are untainted property shall be on the accused.”

The same was subsequently amended. The present article is not seeking to comment on the constitutional validity of Section 24 PMLA but to understand upon whom does Section 24 PMLA thrust the responsibility to prove a fact i.e. the prosecution or the accused and at what stage can it be invoked by the prosecution.

Section 24 PMLA, is a shift from the traditional responsibility/duty/obligation cast upon the prosecution to prove its case against an  accused  beyond reasonable doubt. The duty of the prosecution to prove its case beyond reasonable doubt is an integral part of the Fundamental Right of a person accused of having committed an offence to be presumed innocent until proven guilty.

The parliamentary debates at the time of introduction of the same show that the same was indeed a controversial provision, with jurists of the stature of no less than Mr. Fali S. Nariman (Senior Advocate & Ex-Member of Parliament) and Late Mr. Ram Jethmalani (Senior Advocate & Ex-Member of Parliament) having voiced reservations about incorporation of such a provision.

Mr. Fali S. Nariman stated[3] “...But what worries me is the burden of proof, that is, Section 24….”. The Late Mr. Ram Jethmalani in fact argued[4] that “When a person is accused of having committed an offence under Clause 3, the burden of proving that the proceeds of crime are untainted property shall be on the accused. The presumption is not arising from, at least, some fact having been proved. Merely because you accuse somebody, he has to prove it. Therefore, please understand that this presumption is totally unreasonable, irrational, and will create a lot of problems. It will not stand the test of constitutional validity at all.”

It is noteworthy that though the Courts have upheld the validity of provisions similar to Section 24 PMLA, however, they have at the same time held that in such statutes providing for such a reverse burden, it is incumbent for the prosecution to first prove the foundational facts beyond any reasonable doubt, which would in itself be subjected to greater scrutiny, before the presumption can be raised against an  accused[5] . The Courts have further gone onto hold that even in such situations it is incumbent upon the prosecution to prove the guilt of the  accused  and it cannot be absolved of this responsibility[6]. Specifically in the context of Section 24 PMLA, various High Courts have held that the presumption contained therein is not to be interpreted that the property concerned is “proceeds of crime”, it can only be held so once it is proven by the prosecution, and it is only upon such proof can the same be taken to be involved in money laundering[7]. It has been further held that Section 24 PMLA does not contain a presumption as to the knowledge of the  accused  of the “proceeds of crime”, which still has to be demonstrated by the  prosecution. In fact, the High Court of Kerala has gone a step further and held in  Kavitha G. Pillai v. The Joint Director[8] (supra) that the presumption contained is only that the same are “proceeds of crime” and the question of whether the same are actually ill-gotten can only be determined upon the proof of the scheduled offence.

Considering the fact that Section 24 PMLA is nonetheless a very drastic provision, and prone to misuse and abuse by over-zealous and/or corrupt officials, Courts have to tread cautiously while proceeding with cases of money laundering. In the words of William Blackstone, in his commentaries on the Laws of England “It is better that ten guilty persons escape than that one innocent suffer”.The same would hold true even with respect to Section 24 PMLA, which is not a presumption as to guilt but a rebuttable presumption of a fact. Therefore, the question as to what stage the presumption kicks in, becomes pertinent. Does it apply at all stages even during a bail application? Does it apply during the stage of summoning an accused or framing charges? Or does it apply only at the final stages of the trial?

Owing to the fact that the unamended Section 24 PMLA as originally enacted was prone to abuse, arising out of the wide gamut of meanings which could be assigned to the word “ accused ” prevalent therein, Parliament deemed it fit to amend it vide the PMLA (Amendment) Act, 2012 and amended it as follows:

“24. Burden of proof—In any proceeding relating to proceeds of crime under this Act,—

(a) in the case of a person charged with the offence of money-laundering under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and

(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.”

    (emphasis supplied)

A comparison of the unamended and amended Section 24 PMLA would show that the word “ accused ” has been replaced with the phrase “Charged with the offence of money laundering”. It would thus be necessary to interpret the latter phrase to arrive at a conclusion as to when the said presumption would operate against an  accused .

Historically, the Courts had been hesitant to rely upon the Parliamentary Debates in aid of interpretation of a provision, as can be seen from decisions of the  Supreme Court in State of Travancorev. Bombay Co. Ltd.[9] , State of West Bengal v. Union of India[10]. Subsequently, the Courts commenced placing reliance upon the Parliamentary Debates to decipher the intention of an ambiguous word/phrase appearing in a provision, as discernible from the debates surrounding the said provision. As recently as 2017, a 7-Judge Bench of the  Supreme Court, in of Abhiram Singhv. C.D. Commachen[11]  placed reliance upon Parliamentary Debates to understand the connotation of the word “his” appearing in Section 123(3) of the Representation of People Act, 1951. Thus, the Parliamentary Debates while amending Section 24 PMLA would be relevant to ascertain the meaning of the word “charged” appearing therein.

During the course of the Debates leading to the passing of the PMLA (Amendment) Act, 2012, Mr. P. Chidambaram, the then Finance Minister, indicated that “If you look at the original section in the parent Act, Section 24, when a person is accused of having committed the offence, the burden of proving that the proceeds of crime are untainted property shall be on the accused. This was a drastic provision. Simply by an accusation that he had committed an offence of money-laundering, the burden of proof was shifted to the accused. He may not even be charged at that time. This was what we found to be an onerous provision and an unfair provision……then, the question was asked that by using the word ‘charged’, whether we are shifting the burden of proof even at the stage of the report under 173(8). The answer is: obviously, no. Under 173(8), what is filed is a report after investigation. The word ‘charge’ occurs for the first time in the Criminal Procedure Code under Section 211, ‘Every charge under this Code shall state the offence with which the accused is charged.’ So, we borrow the language of 211 and say, replace the word ‘accused’ and say ‘when a person is charged with an offence, that is when the court frames a charge against him under Section 211’. Only at that stage, the burden shifts to him.”  The same is a clear indication of the legislative intent that the presumption against a person is not to apply even at the stage of summoning a person or at the stage of deciding a bail application, but only to apply at the stage when charges are framed against the person.

Here it would be interesting to note that despite the legislative intent being to shield those people who are simply “ accused ” and have not yet been “charged” for the offence of Money Laundering, Courts no less than the   Supreme Court have held Section 24 PMLA to be applicable even at the stage of bail. The  Supreme Court in Gautam Kunduv. Directorate of Enforcement[12], Rohit Tandon v. Directorate of Enforcement[13], the  Gujarat High Court in Pradeep Nirankarnath Sharmav. Directorate of Enforcement[14], Rakesh Manekchand Kothariv. Union of India[15], Jignesh Kishorebhaiv. State of Gujarat[16], the  High Court of Bombay in Chhagan Chandrakant Bhujbalv. Union of India[17], the  High Court of Madras in Farouk Irani v. The Deputy Director, Directorate of Enforcement[18]  have all implicitly held Section 24 to be applicable at the stage of Bail. However, two facts become important to note here, first in none of the cases cited above did the Courts delve into the meaning of the phrase “Charged with the offence of money laundering” and second, most of the aforesaid decisions came at a time when Section 45 PMLA provided two conditions to be complied with before an  accused  person could be released on bail, one of them being the requirement of the  accused  to demonstrate that he is not guilty of the scheduled offence relating to the proceeds of crime. The twin conditions were subsequently held to be unconstitutional by the  Supreme Court in Nikesh Tarachand Shah v. Union of India[19] being violative of Articles 14 and 21 of the Constitution of India. It is possible that the views of the Supreme Court and of the  High Courts in the aforementioned decisions on Section 24 PMLA being applicable at the stage of bail were in light of the existence of the twin conditions against release on bail in Section 45 PMLA, requiring an  accused  to demonstrate his innocence, which is in essence a supplementary provision to Section 24 PMLA.

At the same time, it would be noteworthy there are also judgments which have held that Section 24 PMLA is inapplicable at the stage of bail, such as the decision of the  Bombay High Court in Chhagan Chandrakant Bhujbalv. Assistant Director, Directorate of Enforcement[20] and the decision of the  Gujarat High Court in Jignesh Kishorebhai Bhajiawala v. State of Gujarat[21] and the decision of the  High Court of Delhi in Upendra Raiv.Directorate of Enforcement[22] , wherein the said Courts have implied that Section 24 PMLA would not apply at the stage of bail. It would be relevant to note that the said judgments were passed after the judgment passed by the Supreme Court in Nikesh Tarachand Shah (supra) and the said Courts took the same into consideration, which makes it safe to infer that the earlier decisions applying Section 24 PMLA even at the stage of bail could have been in view of the existence of the twin conditions against release of a person on bail as contained in Section 45 PMLA. Now with the twin conditions having been held unconstitutional and further in view of the clear intent of the legislators while amending Section 24 PMLA it can be said that Section 24 cannot be invoked at the stage of bail or till after the framing of charges by a competent court and hence the earlier judgments mentioned above, can no longer be considered as binding precedent on the aspect of applicability of Section 24 PMLA at the stage of bail.

The above legal question about burden of proof can be tackled in another manner. To rebut the presumption raised against him, an  accused  person would have to demonstrate that the property in question is not “proceeds of crime”. In order to do that he would, as has been correctly held by the  High Court of Andhra Pradesh in  B. Rama Raju  v. Union of India (supra), the  accused  would have to show his income, earnings, assets to show how he has acquired the property in question. In  Abdul Rashid Ibrahim Mansuriv. State of Gujarat[23], the Supreme Court while dealing with a case pertaining to NDPS Act held that the burden of proof cast on the  accused  under Section 35[24] of the said Act can be discharged through different modes. Firstly, the accused  can rely on the materials available in the prosecution evidence. Secondly, he can elicit answers from prosecution witnesses through cross-examination to dispel any such doubt. Thirdly, he may also adduce other evidence when he is called upon to enter on his defence. At the first opportunity, “the accused  can rely on the materials available in the prosecution evidence” is fraught with its own difficulties i.e. how do ensure the prosecution relies upon material which will favor the accused. It must also be kept in mind that it is not something alien to investigating agencies to place reliance upon only those materials which favor the prosecution and to either ignore or to keep from the Court the material favoring the accused. This has prompted the Courts to hold that in the interests of a fair trial, complete disclosure of materials in the possession of the investigating agencies has to be made to the accused so that he is in a position to effectively defend himself/ herself[25]. But here also there are limitations in terms of whether the un-relied upon documents are documents which were seized by the Investigating Officer under a seizure memo or the same are simply in his custody or it is a situation where the accused  claims that he handed the said documents over to the Investigating Officer during the course of investigation, but the same have been neither seized by him nor are the same in his custody. In such situations whether the said documents can be summoned by a Court before framing of charges is debatable and therefore would it be fair to place a reverse burden of proving that the “proceeds of crime” are untainted upon an accused? The answer has to be a loud and resounding NO. To apply the reverse burden on an accused person in such situations would be violative of the right to fair trial as prescribed under the Constitution of India.

In fact, the Supreme Court has recently, in Mohan Lal v. State of Punjab[26], while dealing with a case involving the NDPS Act, 1985, held that in statutes providing a reverse burden, “…the onus will lie on the prosecution to demonstrate on the face of it that the investigation was fair, judicious with no circumstances that may raise doubts about its veracity. The obligation of proof beyond reasonable doubt will take within its ambit a fair investigation, in the absence of which there can be no fair trial. If the investigation itself is unfair, to require the accused to demonstrate prejudice will be fraught with danger vesting arbitrary powers in the police which may well lead to false implication also. Investigation in such a case would then become an empty formality and a farce…”

Likewise, in a  prosecution for the offences punishable under Section 3 PMLA it is incumbent upon the  prosecution to demonstrate its fairness otherwise the Court ought to be loathe to convict an  accused  based on an unfair  prosecution.

Therefore, this presumption under Section 24 PMLA can be effectively discharged by an accused  only during the course of Trial and not at the pre-charge stages, as normally the Courts do not permit reliance upon defence material before charges are framed. Therefore to invoke the presumption under Section 24 PMLA at a stage prior to framing of charges would be unfair, illegal and contrary to the legislative intent as discussed above.


*Advocates, practicing in Delhi on the criminal side for the last 16 and 4 years respectively. Authors specialise in white collar crimes. Regularly appearing before trial courts, appellate courts and Adjudicating Authorities in matters relating to Prevention of Corruption Act, Prevention of Money Laundering Act and other economic/white collar crimes.

[1] Prevention of Money Laundering Act, 2002

[2] B. Rama Raju v. Union of India, 2011 SCC OnLine AP 152 The said judgment is presently under challenge before Supreme Court as Special Leave to Appeal (C) No. 28394/2011 titled as B. Rama Raju v. Union of India and is pending for arguments along with a batch of other petitions and; Usha Agarwal v. Union of India, 2017 SCC OnLine Sikk 146  ; K. Sowbhagya v. Union of India, 2016 SCC OnLine Kar 282 . All the said judgments have upheld the constitutional validity of Section 24 PMLA.

[3] Rajya Sabha Debate dated 25.07.2002

[4] Rajya Sabha Debate dated 25.07.2002

[5] Hanif Khan v. Central Bureau of Narcotics, judgment dated 21.08.2019 passed by Supreme Court in Criminal Appeal No. 1206 of 2013; Babu v. State of Kerala, (2010) 9 SCC 189; Naresh Jain  v. The Deputy Director, Directorate of Enforcement, judgment dated 12.09.2019 passed by Appellate Tribunal for Money Laundering in FPA-PMLA-1332/DLI/2016, FPA-PMLA-1333/DLI/2016, FPA-PMLA-1929/DLI/2017, MP-PMLA-3813/DLI/2017, FPA-PMLA-1930/DLI/2017, MP-PMLA-3816/DLI/2017, FPA-PMLA-1931/DLI/2017, MP-PMLA-3837/DLI/2017, FPA-PMLA-1952/DLI/

[6] State of Maharashtra v. Wasudeo Ramchandra Kaidalwar, (1981) 3 SCC 199

[7] Jafar Mohammed Hasanfatta v. Deputy Director, 2017 SCC OnLine Guj 2476; Kavitha G. Pillai v. The Joint Director, 2017 SCC OnLine Ker 10118; Tech Mahindra Limited v. Joint Director, Directorate of Enforcement, Hyderabad, judgment dated 22.12.2014 passed by Andhra Pradesh High Court in WP No. 17525/2014

[8] 2017 SCC OnLine Ker 10118

[9] 1952 SCR 1112

[10] (1964) 1 SCR 371

[11] (2017) 2 SCC 629

[12] (2015) 16 SCC 1

[13] (2018) 11 SCC 46

[14] 2017 SCC OnLine Guj 1372

[15] 2015 SCCOnLine Guj 3507

[16] 2017 SCC OnLine Guj 1371

[17] 2016 SCC OnLine Bom 9938

[18] Judgment dated 05.05.2017 passed by  Madras High Court in Criminal Original Petitions Nos. 20423, 20454 and 20581 of 2016

[19] (2018) 11 SCC 1

[20] 2016 SCC OnLine Bom 9938

[21] 2017 SCC OnLine Guj 1371

[22] 2019 SCC OnLine Del 9086

[23] (2000) 2 SCC 513

[24] Section 35 NDPS states as follows-

35. Presumption of culpable mental state.–?(1) In any prosecution for an offence under this Act which requires a culpable mental state of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation.?In this section culpable mental state? includes intention, motive knowledge of a fact and belief in, or reason to believe, a fact.

(2) For the purpose of this section, a fact is said to be proved only when the court believes it to exist beyond a reasonable doubt and not merely when its existence is established by a preponderance of probability.”

[25] P. Gopalkrishnan v. State of Kerala,  2019 SCC Online SC 1532; V.K. Sasikala v. State, (2012) 9 SCC 771; Shashi Bala v. State, Govt. NCT of Delhi, 2016 SCC OnLine Del 3791; Ashutosh Verma v. CBI, 2014 SCC OnLine Del 6931

[26] (2018) 17 SCC 627

Case BriefsHigh Courts

Delhi High Court: The Bench of Rajendra Menon, CJ and V. Kameshwar Rao, J. dismissed a petition filed by Jairam Ramesh of the Rajya Sabha challenging the amendments to the Prevention of Money Laundering Act, 2002 vide the Finance Acts of 2015, 2016 and 2018.

The petitioner submitted that before 2015, PMLA was amended on various occasions through Ordinary Bills. However, since 2015 most amendments to PMLA have been enacted vide Finance Act as “Money Bills” defined under Article 110(1).

Submissions by Senior Advocate P. Chidambaram appearing for the petitioner:

(a) A Money Bill is deemed to be such if it contains only provisions dealing with all or any of the matters under (a) to (g) of Article 110 (1). In other words, a Money Bills is restricted only to the specified matters and cannot include within its ambit any other matter.

(b) Amendments made in the years 2015, 2016 and 2018 were per-se unconstitutonal and liable to be set aside.

(c) On justiciability of the issue- K.S. Puttaswamy v. Union of India, (2019) 1 SCC 1 has settled that decision of the speaker on whether a Bill is a Money Bill or not is justiciable.

(d) On delay in challenge- Petitioner came to know that such Bills were passed as Money Bills only after the information taken under RTI Act. There is no issue of limitation in challenging a parliamentary enactment, more so when amendments are unconstitutional.

Submissions by Additional Solicitor General Maninder Acharya for the Union of India:

(a) Petition challenging amendments effected in 2015, 2016 and 2018 on the behest of a person not affected by the amendments must not be entertained.

(b) Reliance placed upon Kusum Ingots and Alloys Ltd. v. Union of India, (2004) 6 SCC 254.

After hearing the learned counsels, the High Court was of the opinion that merely because the petitioner came to know recently that such amendments were carried out as Money Bills would not justify the delay. The Court observed, “Mr Chidambaram’s  submission that it was only after the judgment was rendered by the Supreme Court, on a similar issue, did the petitioner thought it fit to challenge the amendments of 2015, 2016 and 2018 by filing this petition, does not answer the submission made by Ms Acharya that the challenge, apart from being hit by delay and laches, is by a person who has no locus, being not aggrieved by the amendments.” Finding the reliance placed by Maninder Acharya on Kusum Ingots justified, the High Court declined to exercise its extraordinary jurisdiction. [Jairam Ramesh v. Union of India, 2019 SCC OnLine Del 7367, decided on 28-02-2019]