Predicate Offence: Myth Or Reality Under Prevention Of Money Laundering Act, 2002
To protect the economy of nations, it was felt internationally that the process of money laundering be made an offence and laws be made at the national level, by nations to curb this menace, identify the properties involved in money laundering, confiscate them and punish the offenders to create deterrence among others, thinking of indulging in same. In furtherance of the same, the political declaration & global programme of action adopted by the United Nations, General Assembly, by its resolution dated 23.02.1990, wherein the member states were called upon to develop a mechanism to tackle the menace of laundering of the proceeds of the crime. In consonance of the same the Indian Parliament enacted the Prevention of Money Laundering Act,2002, hereinafter referred as "The Act", with intent to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering. Money laundering can be linked to any crime that generates significant revenue such as corruption, arms smuggling, smuggling of prohibited drugs etc. There are three components of money laundering a. Placement: moving the funds from direct association with the crime, b. Layering: disguising the trail to foil pursuit and c. Integration: making the money available to the criminal once again with the occupational and geographic origins hidden from view.
Placement,Layering, Integration The act was enacted by the lawmakers with noble intentions that there must be a stringent law which can not only tackle the menace of money laundering but also creates deterrent effect. However, with the passage of time, it has been felt across the circles, that the manner in which the vested powers are exercised by the authorities under the act itself becomes a menace.
Before going further, it is imperative to understand the term money laundering. As per section 3 of the act:- "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.
- Concealment; or
- Possession; or
- Acquisition; or
- Use; or
- Projecting as untainted property; or
- Claiming as untainted property; or
in any manner whatsoever;
At this juncture, it is further imperative to know what Proceeds of Crime are and same is defined u/s 2(u) PMLA as follows:
Section 2(u): "Proceeds of Crime" means any property derived or obtained directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the county, then the property equivalent in value held within the country.
If we go by the literal interpretation of both the sections 3 & 2(u) of the act, then we can easily understand that the offence of money laundering is not a standalone offence but instead it is an offence dependent upon other scheduled offence. Also, we can say that when proceeds of crime are derived from any scheduled offence and an attempt has been made to launder such proceeds then only the offence under the act is committed and not before that.
Apart from the section 3 & 2(u) of the act, Section 5 of the act is also amply clear about the proposition that there has to be some complaint/charge sheet/report in the concerned court for the commission of Predicate Offence and it is only after that proceedings u/s 5 can be commenced.
However, despite of this clear and unambiguous interpretation there have been many instances where not only the authorities but also the courts have been interpreting that the offence of money laundering is independent offence. This often leads to very peculiar situation where the designated authorities under the act initiates prosecution under the act against the person against whom any investigation for schedule offence has been going on or who has been going under trial for any schedule offence. But during the investigation or trial of schedule offence, if such person is discharged or acquitted then what will happen to the prosecution initiated by the authorities under the act.
Earlier the higher courts on few occasions while dealing with the issue of predicate schedule offence have held:
In Arun Kumar Mishra v. Directorate of Enforcement 2014 SCC Online DEL 493, Delhi High Court quashed an ECIR registered by ED on the ground that RC (FIR in Prevention of Corruption cases) filed by CBI on the basis of which ECIR was registered has already been quashed by High Court.
In Rajiv Chanana v. Dy. Director of enforcement 2014 SCC Online Del 4889, Delhi High Court held that after the acquittal of a person from a scheduled offence, his trial for an offence under section 3 of PMLA would not survive while observing that it was hard to imagine as to how a trial for an offence of money laundering could continue where the fundamental basis, that is the commission of a scheduled offence, has been found to be disproved and that after acquittal from the scheduled offence, the attachment of the property under section 5 of the act would also come to an end.
In Ajanta Merchants Pvt Ltd. v. Directorate of Enforcement 2015 SCC Online Del 8659 where Delhi High Court, quashed proceedings under section 3 of PMLA majorly on the ground that the RC registered by CBI was already quashed by High Court and besides that there was no cogent material in possession of ED for the prosecution under section 3 and also ordered properties provisionally attached by ED to be released.
In Sushil Kumar Katiyal v. Union of India 2016 SCC OnLine ALL 2632, summoning order issued for the offence u/s 3 of PMLA was assailed before Allahabad High Court on the ground that when accused has been discharged form Predicate Offence and that order of discharge has also attained finality, then such summoning u/s 3 is bad in law. The Allahabad High Court, after relying on the judgment of Ajanta Merchants (supra) & Rajiv Chanana (supra) held that no trial for scheduled offence was pending on the date when the complaint was filed and summoning order was passed u/s 3 therefore the impugned summoning order suffers from manifest error and is liable to be quashed.
To avoid the mis-interpretation by the authorities and the courts, the legislature has inserted an explanation to Section 44(1)(d) of the act which reads as "Explanation: For the removal of doubts, it is clarified that,—(i) the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial;"
On the strength of the above-mentioned explanation recently the Bombay High Court in Babulal Verma & Ors. Vs. Enforcement Directorate & Ors. 2021 SCC OnLine Bom 392 have held that once an offence under the PMLA is registered on the basis of a scheduled offence, it stands on its own and thereafter does not require the support of the scheduled offence. Even if the scheduled offence is compromised, compounded, quashed or the accused therein is acquitted, the investigation by the ED under the PMLA does not get affected and can continue. This judgement of the Bombay High Court is in stark contrast to the judgement of the Apex Court in matter of P. Chidambram Vs. Directorate of Enforcement (2019) 9 SCC 24 wherein it was categorically held that "scheduled offence" is a sine qua non for the offence of money laundering which would generate the money that is being laundered". However, the Bombay High Court has interpreted the aforesaid to mean that the registration of the predicate offence is necessary for the initiation of the investigation by the ED and thereafter, the trials would be conducted separately.
Though the intention of the legislature may be noble & the lawmakers in their wisdom have acted wisely but the complexity is still not resolved because by plain reading of the explanation it is clear that the explanation does not differentiate between the order of discharge /acquittal and the order of conviction passed by the Trial Court in respect of scheduled offence which predicates the offence under section 3 of the act. Legislature by discarding the principle that offence under section 3 of the act is based upon the schedule offence, has now made it clear that despite the accused person's getting discharged or acquitted of the allegation of commission of Predicate Offence, his prosecution and that of others, whose roles are of aiding in the laundering of Proceeds of Crime, under PMLA, won't be affected.
This may lead to the continuation of the prosecution and trial of offence under the act despite of the acquittal /discharge of person for schedule offence which not only amounts to undue harassment of the person but also is violative of Article 21 of the Constitution and at the same time adverse to the legal maxim of "sublato fundamento cadit opus" which means that once the foundation of the matter is removed, the structure built thereupon must fall.
It would not be out of place to mention at this stage that this contentious issue of "predicate offence" is now subject to the judicial interpretation by three judge bench of the Hon'ble Supreme Court in batch of around 200 odd petitions wherein the provisions of the Prevention of Money Laundering Act are sought to be interpreted and few of the petitions are pending since 2014. Also, amongst various other questions of law as has been formulated by the Solicitor General of India the undermentioned are touching the aspect of predicate offence and those are: -
- What are the contours of the offence under Section 3 of the PMLA? Does the explanation to Section 3 of PMLA (added by amendment in 2019) expand the meaning of the offence under Section 3, and if so is it permissible to do so?
- Whether the filing of a chargesheet/complaint/FIR in the predicate offence is a prerequisite for an exercise of power of arrest under the PMLA? Can money laundering not be a standalone offence in the context of section 3 read with section 2(u) of PMLA?
- Whether the PMLA can be applied to acts which occurred prior to the addition of the offence under the Schedule to the Act?
- Whether the offence of Money laundering can continue after the predicate offence has taken place? Can the offence of money laundering be committed even if the predicate or scheduled offence was not a scheduled offence on the date when the scheduled offence was committed?
However, we all will be guided as and when the above questions of law along with various others would be finally adjudicated by the Hon'ble Supreme Court but till then in order to meet the end of justice the explanation ought to be read as, "The jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders, except order of discharge or acquittal, passed in respect of the scheduled offence", else it gives enormous scope to the authorities and the special courts for the arbitrary exercise of power vested within them by applying illogical interpretation.
Author: Akhand Pratap Singh Chauhan, Senior Associate, Maheshwari & Co. Views are personal.