Case BriefsSupreme Court

Supreme Court: The 3-judge bench of SA Bobde, CJ and AS Bopanna* and V. Ramasubramanian, JJ has held that  under the Prevention of Money ­Laundering Act, 2002, though the Directorate of Enforcement is vested with sufficient power to freeze the accounts; such power is circumscribed by a procedure laid down under the statute.

“It certainly is not the requirement that the communication addressed to the Bank itself should contain all the details. But what is necessary is an order in the file recording the belief as provided under Section 17(1) of PMLA before the communication is issued and thereafter the requirement of Section 17(2) of PMLA after the freezing is made is complied.”

Background

Enforcement Directorate in order to track the money trail relating to the predicate offence by the appellant company and prevent layering of the same had initiated the proceedings under the Prevention of Money ­Laundering Act, 2002 (PMLA). This led to the freezing of the accounts maintained by the appellant company.

It was Appellant Company’s case that the freezing of the accounts has prejudiced the appellant, inasmuch as, the amount in the account which belongs to the appellant is made unavailable to them due to which statutory payments to be made to the Competent Authorities under various enactments is withheld and the payment of salary which is due to the employees is also prevented. The limited issue before the Supreme Court, hence, is that of defreezing the bank account so as to enable the appellant to make the statutory payments.

Analysis

Scheme of PMLA

While PMLA seeks to achieve the object of preventing money laundering and bring to book the offenders, it also safeguards the rights of the persons who would be proceeded against under the Act by ensuring fairness in procedure. Hence a procedure, including timeline is provided so as to ensure that power is exercised for the purpose to which the officer is vested with such power and the Adjudicating Authority is also kept in the loop.

Section 17 of PMLA

The pre-requisite of Section 17 of PMLA is that the Director or such other Authorised Officer in order to exercise the power under the section, should on the basis of information in his possession, have reason to believe that such person has committed acts relating to money laundering and there is need to seize any record or property found in the search.  Such belief of the officer should be recorded in writing.

  • Sub-section (1A) to Section 17 of PMLA provides that the Officer Authorised under sub-section (1) may make an order to freeze such record or property where it is not practicable to seize such record or property.
  • Subsection (2) provides that after search and seizure or upon issuance of a freezing order the Authorised Officer shall forward a copy of the reasons recorded along with material in his possession to the Adjudicating Authority in a sealed envelope.
  • Sub-section (4) provides that the Authority seizing or freezing any record or property under sub-section (1) or (1A) shall within a period of thirty days from such seizure or freezing, as the case may be, file an application before the Adjudicating Authority requesting for retention of such record or properties seized.

The Court. Further, emphasised that the freezing of the account will also require the same procedure since a bank account having alleged ‘proceeds of crime’ would fall both under the ambit “property” and “records”.

Discussion on facts

The Directorate of Enforcement in their counter affidavit had taken contradictory stand inasmuch as, while explaining the need to freeze the account has stated that the ‘stop operation’ was requested to stop the further layering/diversion of proceeds of crime and to safeguard the proceeds of crime, which we notice is a power available under PMLA. But in the counter affidavit it is strangely stated that the same has not been done under Section 17(1) of the PMLA. However, in contrast it has been further averred with regard to the power available under PMLA and that PMLA being a stand-alone enactment and independent process whereunder Section 71 of PMLA has an overriding affect over other laws. Irrespective of the stand taken, the power exercised by the Competent Authority should be shown to be in the manner as has been provided in law, in this case under PMLA.

In the instant case, the procedure contemplated under Section 17 of PMLA to which reference is made above has not been followed by the Officer Authorised.

“Except issuing the impugned communication dated 15.05.2020 to AML Officer to seek freezing, no other procedure contemplated in law is followed. In fact, the impugned communication does not even refer to the belief of the Authorised Officer even if the same was recorded separately. It only states that the Officer is investigating the case and seeks for relevant documents, but in the tabular column abruptly states that the accounts have to be ‘debit freezed/stop operations’.”

Hence, the freezing or the continuation thereof is without due compliance of the legal requirement and, therefore, not sustainable.

Power of seizure under Section 102 CrPC – Applicability

The Court rejected Additional Solicitor General S.V. Raju’s contention that the power of seizure is available under Section 102 of the Code of Criminal Procedure, which has been exercised and as such the freezing of the account would remain valid, on the following grounds:

  1. Directorate of Enforcement has contended that PMLA is a standalone enactment. If that be so and when such enactment contains a provision for seizure which includes freezing, the power available therein is to be exercised and the procedure contemplated therein is to be complied.
  2. When the power is available under the special enactment, the question of resorting to the power under the general law does not arise.
  3. The power under Section 102 CrPC is to the Police Officer during the course of investigation and the scheme of the provision is different from the scheme under PMLA. Further, even sub¬section (3) to Section 102 CrPC requires that the Police Officer shall forthwith report the seizure to the Magistrate having jurisdiction, the compliance of which is also not shown if the said provision was in fact invoked. The impugned communication dated 15.05.2020 does not refer to the power being exercised under the Code of Criminal Procedure.

The Court, hence, said that,

“The action sought to be sustained should be with reference to the contents of the impugned order/communication and the same cannot be justified by improving the same through the contention raised in the objection statement or affidavit filed before the Court.”

Conclusion

The Court noticed that in the instant case, though the Authorised Officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall foul of the requirement of complying due process under law.

Finding fault with the Authorised Officer and declaring the action bad only in so far as not following the legal requirement before and after freezing the account, the Court directed the banks to defreeze the respective accounts and clear the cheques issued by the appellant, drawn in favour of the Competent Authority towards the ITDS, PF, ESI, Professional Tax, Gratuity and LIC employees’ deductions, subject to availability of the funds in the account concerned.

It further directed that if any further amount is available in the account after payment of the statutory dues and with regard to the same any action is to be taken by the Directorate of Enforcement within a reasonable time, it would open to them to do so subject to compliance of the required procedure afresh, as contemplated in law.

[OPTO Circuit India Ltd. v. Axis Bank, 2021 SCC OnLine SC 55, decided on 03.02.2021]


*Justice AS Bopanna has penned this judgment

Appearances before the Court

For the appellant company: Senior Advocate Mukul Rohatgi,

For Directorate of Enforcement: Additional Solicitor General S.V. Raju

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 

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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Case BriefsHigh Courts

Delhi High Court: While deciding the instant matter which revolved around the interplay and interpretation of Sections 306 and 308 of the CrPC, C. Hari Shankar, J., observed that pardoning an accomplice under Section 306 (1) CrPC, and his conversion into an approver, must mandatorily be followed by his examination as a witness under Section 306 (4) of CrPC. However, during the course of such statement, if the Public Prosecutor is able to discern that the approver is not abiding by the conditions, subject to which pardon was tendered to him, i.e. making a full and true disclosure of all facts within his knowledge; or the approver is concealing something essential; or is tendering false evidence, then the Public Prosecutor would so certify under Section 308 (1) of CrPC.

As per the facts, a case was registered against the respondent under various provisions of IPC and Prevention of Money Laundering Act, 2002. The respondent filed application under Section 306 of CrPC, for grant of pardon, which was allowed by the Special Judge, CBI. Later on the petitioner (Directorate of Enforcement) moved an application for revocation of the pardon. However, the Special Judge, in his Order dated 05-03-2020, disposed off the application moved by the petitioner on the ground that the application is premature and there is no merit in the interpretation of Sections 306 and 308 implying that pardon granted to any person can be revoked at any stage, even before the approver is examined before Session Court/Trial Court. The ED therefore challenged the impugned Order in the instant case. Appearing on behalf of the petitioners, Aman Lekhi, ASG, contended that the Special Judge has misconstrued the scheme of Sections 306 and 308 of CrPC and has erred fundamentally in holding that the statement of the approver is required to be recorded, before deciding on the issue of revocation of the pardon extended to him. R.K. Handoo on behalf of the respondent submitted that at the first instance, the application of the petitioner, before the learned Special Judge, was itself not maintainable, as the CrPC does not contemplate revocation of pardon tendered to an accused; pardon, once granted cannot be revoked, cancelled or withdrawn.

Perusing the rival contentions and referring to various Supreme Court decisions, especially State v. Jagjit Singh, 1989 Supp (2) SCC 770 and Bipin Behari Sarkar v. State of West Bengal, AIR 1959 SC 13, the Court observed that examination of the approver, as a witness under Section 306 (4) is intended, inter alia to ascertain whether the approver is abiding by the conditions of his pardon, or is an untrustworthy witness. It was further observed that a holistic and conjoint reading of Sections 306 and 308 reveals an “inexorable sequence”, in which the most mandatory step is the examination, of the approver, as a witness, under Section 306 (4).

The Court therefore observed that ex facie, the view adopted by the Special Judge in the impugned order is in sync with the law laid down in multiple Supreme Court decisions and as well as the statutory scheme of Sections 306 and 308 of the CrPC, and does not merit any interference. Thus endorsing the view expressed by the Special Judge, the Bench therefore decided to dismiss the instant petition. [Directorate of Enforcement v. Rajiv Saxena, 2020 SCC OnLine Del 719 , decided on 08-06-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal, Prevention of Money Laundering Act (New Delhi): A Coram of Manmohan Singh (Chairman), J. and G.C. Mishra (Member) allowed an appeal under Section 26 of the Prevention of Money Laundering Act, 2002 against an order passed by the Adjudicating Authority for attaching property.

In the instant case the CBI registered a criminal case under Section 120-B of Penal Code, 1860 read with Sections 7, 12, 13(2) and 13(1)(d) of Prevention of Corruption Act, 1988 against one Joint Director of Enforcement Directorate (ED) wherein it was alleged that he assisted the appellant (herein), indulging in corrupt practices in an investigation. It was also alleged that they had taken a huge amount of bribes as quid-pro-quo for acts of omission and commission during the said investigation. As a result, the appellant was arrested by CBI and a charge sheet was filed against him. On the basis of the registration of the case by CBI, a Prevention of Money Laundering Act, 2002 (PMLA) case was also recorded at New Delhi. The ED provisionally attached the immovable property of the appellant which was confirmed by the Adjudicating Authority.

The respondent’s counsel, Shilpi Satyapriya Satyam, contended that the aforesaid property was attached as a “value thereof” in accordance with provision made under Section 2(1)(u) read with Section 2(1)(v) of the PMLA. The counsel for the appellant, R.K. Handoo, drew the attention of the Tribunal to the provision in Section 8(3)(a) of PMLA, 2002 as amended by Act 13 of 2018 which reads as, “a) continue during [investigation for a period not exceeding ninety days or] the pendency of the proceedings relating to any [offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be. On the basis of this the counsel contended that the confirmation order of attachment passed by the Adjudicating Authority did not survive. Also, no prosecution complaint was filed against the appeal, and hence the appeal be allowed.

The Tribunal found, “It is strange to note here that an immovable property of a person has been made part of a prosecution complaint for confiscation without making that person as a party and affording that person an opportunity to defend his case.” It was further noted, “Section 8(3)(a) of PMLA has been amended by the Act 13 of 2018, wherein a limitation period has been provided for continuation of attachment or retention of property or record post confirmation of attachment/retention and it is the intention of the legislature not to allow the Investigating Authority to get the property attached or retained the record/documents/items indefinitely in the name of investigation.”

Thus, the appeal was allowed. The Tribunal directed the appellant to move to the concerned Special Court for an appropriate remedy, wherein the Prosecution Complaint was pending and his property was made part and parcel of that complaint.[Sanjay Kumar v. Deputy Director Directorate of Enforcement, New Delhi, 2019 SCC OnLine ATPMLA 9, decided on 12-04-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for Prevention of Money Laundering Act: The Bench of Manmohan Singh, J. (Chairman) and G.C. Mishra (Member) set aside Adjudicating Authority’s order allowing retention of property seized from appellant.

An Enforcement Case Information Report (ECIR) was filed against the appellant, for acting as a mediator and helping two people in providing tax evasion to a set of corporate entities. A search was conducted at appellant’s office under Section 17(1) of Prevention of Money Laundering Act, 2002 on the strong belief that records/documents relating to money laundering could be recovered from his office. Pursuant to seizure of requisite property and documents, the respondent filed an application under Section 17(4) of the Act for retention of the seized property until pendency of the proceedings. The said application was allowed by the Adjudicating Authority. Aggrieved thereby, instant appeal was filed.

Appellant argued that the impugned order was contrary to law as due process mandated under Section 20 of the Act had not been followed by the Enforcement Directorate.

The Court noted that Section 17(4) of the Act mandates that the authority seizing any record or property under Section 17(1) PMLA shall, within a period of thirty days from such seizure, file an application, requesting for retention of such record or property. In the present case, the respondent had filed this application. However, it was further noted that as per Section 20(2) PMLA, immediately after passing of retention order, a copy of the said order along with the material is to be referred to the Adjudicating Authority in a sealed envelope. But no order had been passed under Section 20 (2) of the Act.

It was observed that PML Act is a special Act, provisions of which are very stringent and have to be applied strictly. No different meaning can be given in the absence of ambiguity in any provision. Reliance in this regard was placed on Dipak Babaria v. State of Gujarat, 2014 (3) SCC 502 and J. Jayalalitha v. State of Karnataka, 2014 (2) SCC 401 to hold that if a particular thing is to be done in a particular manner, it must be done in that way and none other. In view thereof, it was held that the impugned order was unsustainable in the eyes of law.[Rajesh Kumar Agarwal v. Directorate of Enforcement, Delhi, 2019 SCC OnLine ATPMLA 1, decided on 06-02-2019]

Case BriefsSupreme Court

Supreme Court: The bench of RF Nariman and SK Kaul, JJ declared Section 45(1) of the Prevention of Money Laundering Act, 2002, insofar as it imposes two conditions for grant of bail where an offence punishable for a term of imprisonment of more than 3 years under Part A of the Schedule to the Act is involved, to be unconstitutional as it violates Articles 14 and 21 of the Constitution of India.

The Conditions that the Court held to be unconstitutional are:

  • Public Prosecutor must be given an opportunity to oppose any application for release on bail;
  • The Court must be satisfied, where the Public Prosecutor opposes the application, that there are reasonable grounds for believing that the accused is not guilty of such offence, and that he is not likely to commit any offence while on bail.

Calling Section 45 of PMLA Act a drastic provision, the Bench said the provision

“turns on its head the presumption of innocence which is fundamental to a person accused of any offence. Before application of a section which makes drastic inroads into the fundamental right of personal liberty guaranteed by Article 21 of the Constitution of India, we must be doubly sure that such provision furthers a compelling State interest for tackling serious crime. Absent any such compelling State interest, the indiscriminate application of the provisions of Section 45 will certainly violate Article 21 of the Constitution.

Senior Advocate Mukul Rohatgi, appearing for the petitioners, argued before the Court that Clauses 43 and 44 of the 1999 Bill, which correspond to Sections 44 and 45 of the present Act, were very differently worded and dealt only with offences under the 2002 Act. He said that the twin conditions laid down as additional conditions for grant of bail were, at this stage, only qua offences under the 2002 Act. However, when Parliament enacted the 2002 Act, this scheme was completely changed in that Section 45 of the Act now spoke only of the predicate/scheduled offence and not the offence under the 2002 Act.

Attorney General AK Venugopal, on the other hand, argued that the twin conditions contained in Section 45 are only in furtherance of the object of unearthing black money and that the Court should, therefore, be very slow to set at liberty persons who are alleged offenders of the cancer of money laundering.

Taking note of the Para 18 of State of Uttar Pradesh v. Amarmani Tripathi, (2005) 8 SCC 21, that laid down the conditions for grant of bail, the Court held that it is obvious that the twin conditions set down in Section 45 are a much higher threshold bar than any of the conditions laid down in para 18 of the said judgment. In fact, the presumption of innocence, which is attached to any person being prosecuted of an offence, is inverted by the conditions specified in Section 45, whereas for grant of ordinary bail the presumption of innocence attaches, after which the various factors set out in paragraph 18 of the judgment are to be looked at.

The Court further noted:

“a classification based on sentence of imprisonment of more than three years of an offence contained in Part A of the Schedule, which is a predicate offence, would have no rational relation to the object of attaching and bringing back into the economy large amounts by way of proceeds of crime. When it comes to Section 45, it is clear that a classification based on sentencing qua a scheduled offence would have no rational relation with the grant of bail for the offence of money laundering and hence, the twin conditions need to be annulled on the basis of the equal protection clause.”

The Court, hence, directed that all the matters that were placed before it, in which bail has been denied, because of the presence of the twin conditions contained in Section 45, will now go back to the respective Courts which denied bail and considering that persons are languishing in jail and that personal liberty is involved, all these matters are to be taken up at the earliest by the respective Courts for fresh decision. [Nikesh Tarachand Shah v. Union of India,  2017 SCC OnLine SC 1355, decided on 23.11.2017]