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]