Acquittal In Predicate Offence Won't By Itself End PMLA Proceedings : Solicitor General Tells Supreme Court
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Responding to a batch of petitions challenging the procedures under the Prevention of Money Laundering Act, Solicitor General of India Tushar Mehta on Thursday told the Supreme Court that "the impression which is created that at the drop of the hat, searches are conducted and attachments are made under the PMLA" is not correct."In the last 17 years, investigation was carried out in 4700...
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Responding to a batch of petitions challenging the procedures under the Prevention of Money Laundering Act, Solicitor General of India Tushar Mehta on Thursday told the Supreme Court that "the impression which is created that at the drop of the hat, searches are conducted and attachments are made under the PMLA" is not correct.
"In the last 17 years, investigation was carried out in 4700 matters by using investigating tools available under the PMLA. This includes only 388 searches in 17 years! The reason is the high threshold and responsibility and layers of safeguards in the Act. Proceeds of crime worth Rs.98,000 crores were identified and attached under section 5 of PMLA, out of which proceeds of crime of 55, 899 crores have been confirmed by the adjudicating authority and a substantial part of the attached proceeds of crime are still under adjudication by the adjudicating authority. 853.63 crores have already been confiscated to the central government under the orders of the courts", he submitted.
Continuing, he advanced, "The investigation in 56 cases of terror and naxal financing has resulted in identification of proceeds of crime of 1249 crores and attachment of proceeds of crime of 982 crores, that is 256 properties, and filing 37 prosecution complaints and conviction of two terrorist under the PMLA. The attachment of proceeds of crime include properties of Hafiz Mohammad Sayeed- a UN designated terrorist, Syed Salahuddin- the head of Hijbul Mujahideen and Iqbal Mirchi- who was involved in Mumbai blasts and is an international narcotics smuggler"
On Thursday, the Court discussed if attachment of property involved in money laundering can be effected by the Enforcement Directorate under section 5 of the PMLA Act even before the registration of the predicate offence.
Section 5(1) provides that where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that-
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed:
Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Cr. P. C. or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country:
Provided further that, notwithstanding anything contained in first proviso, any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.
Isn't registration of FIR in predicate offence necessary for attachment under second proviso to Section 5? Bench asks
At the outset, Justice A. M. Khanwilkar asked, "So as per the first proviso, the police report under 173 ought to have been forwarded to the magistrate before an order of attachment is made? Once he has passed the order, where is the question of the second proviso coming in?"
The SG responded that the exception to this general rule in the first proviso is found in the second proviso. "The ED officer has to record reasons why attachment is immediately necessary and why he should not wait for the police report to be filed. Because in all cases it may not be desirable to wait for the complaint or the chargesheet to be filed"
Justice Khanwilkar noted, "That very aspect is reflected in clause (b) of subsection (1) also, which says that if such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings, the officer may provisionally attach such property"
Justice Dinesh Maheshwari observed, "We are noticing that in fact this section 5, as originally standing, was amended in 2013. The requirement earlier was that the person has been charged with committing a scheduled offence. In 2013, it was modulated, that particular aspect has been taken away. We would like to know the progression, development and modulation of the section from time to time because it appears it will have some bearing on our final understanding of how it is supposed to operate"
The SG replied, "Section 66(2) might explain why the filing of the FIR was dispensed with. Suppose the director receives an intimation that proceeds of crime are lying at a place, and there is no FIR- Section 66(2) takes care of that situation, which states that if the Director or other authority is of the opinion, on the basis of information or material in his possession, that the provisions of any other law for the time being in force are contravened, then the Director or such other authority shall share the information with the concerned agency for necessary action. This expression 'material in his possession' is now used in the amended section 5. Suppose there is a predicate offence, there is an FIR, if I am satisfied about 5(1)(a) and 5(1)(b), I will pass an order for provisional attachment, I will record reason why I reached the conclusion that any person is in possession and that why the proceeds of crime are likely to be concealed, transferred etc. In some cases, immediate action might not be necessary and we can wait till the filing of the chargesheet by the police so that we can know that in fact the criminal activity culminates into the report of the police or not. But that cannot be permitted to be the rule. That is why the second proviso. So if you feel you cannot wait till the chargesheet is filed, you record reasons as to why the person is in possession, how the proceeds of crime are likely to be concealed, why you should not wait for the chargesheet to be filed chargesheet or complaint to be filed."
Justice Khanwilkar repeated, "In Subsection (1) clause (b), the same thought is reflected.There also you have to record reasons for your belief in writing based on material in your possession"
The SG replied, "This is something in favour of the potentially affected person. The threshold is that there is likelihood of proceeds of crime being concealed. But first as a rule you are required to wait for the chargesheet to be filed. Therefore the second proviso reiterates the reasons to be recorded. Therefore there are two sets of reasons to be recorded-not only is it likely to be concealed, transferred or dealt with but that it will be done immediately. That is the additional requirement and therefore we will have to record that satisfaction as to why subsection 5(1)(b) is satisfied and we cannot wait till the contingency under the first proviso comes"
Justice Khanwilkar asked, "So the emphasis is on 'immediately', not to wait for the report or the complaint? 'Immediately' means it will precede the registration of 173 report?"
"It may precede even the filing of the FIR", replied the SG
Justice Khanwilkar observed, "It could have been made simple. This provision is lawyers' paradise. The provision must be couched in such a way that layman should understand, not legal mind. You are taking so long to understand, imagine the plight of the common man"
Justice Maheshwari noted, "Because of this, the first proviso is rendered redundant"
Justice Khanwilkar added, "The Second proviso should have just said that in very extreme urgency, it can be done. Very simple language should have been used, in place of this. It is a matter of articulation. Therefore, we want to be very clear about how it will work"
"Yes, it could have said that in case of extreme emergency, you will record reasons why you are not waiting for the first proviso, and then you are not bound by the first proviso. It is a more onerous responsibility if you are not waiting for the report or the complaint", replied the SG.
Continuing, he told, "Before the amendment, FIR was necessary. Then, the provision used to read that where the director or any other officer not below the rank of deputy director authorised by him for the purpose of this section has reasons to believe, to be recorded in writing, on the basis of materials in his possession that a person is in possession of any proceeds of crime, and such person has been 'charged' of having committed a scheduled offence. So FIR existence was necessary."
Justice Khanwilkar noted, "'Charged' is different from FIR. It means framing of the charges."
"'Charged' is used in context of the allegation", said the SG.
Justice Khanwilkar remarked, "No. Otherwise the expression would have been 'accused of'. There, it was implied that after accusation, there has been something further."
"Your Lordships are right that 'charge' may have been used in terms of 227 of Cr. P. C., but that is now omitted", said the SG
Justice Khanwilkar continued to note, "Even earlier, it was police report or charge. FIR regarding the predicate offence was always required."
The SG replied, "There was a change made in 2009. The provisional attachment timeframe was increased from 90 days to 150 days. Also, the language that 'No provisional attachment is to be made unless report is forwarded or complaint made' was introduced."
Justice Khanwilkar noted, "One of the arguments before us was there was no question of proceeding unless a formal FIR is registered regarding the predicate offence."
The SG submitted, "Before the discharge etc, the accused person has a separate remedy of getting that attachment vacated before the adjudicating authority which is a neutral authority. Suppose I as a director receive some material in my possession, and there is no FIR, then I will exercise my powers under section 5(1) second proviso if it is urgent and I will intimate the local police that I have found out cash of 200 crores and you register an offence under 66(2)...otherwise suppose in absence of any FIR, the director comes to know that there is some serious offence committed, and he has material in his possession, what will he do in the absence of the FIR?"
Justice Khanwilkar commented that that does not dispense with the registration of the predicate offence.
The SG pressed, "But it will not be so at the stage where I exercise my power under 5(1) second proviso."
Justice Khanwilkar observed, "There are two different matters- One is attachment, the other is registration of offence under PMLA. Now we are on attachment procedure. Attachment can proceed only when there is formal FIR regarding predicate offence. If charge is already framed, then all the more reason you can proceed against the proceeds of crime. Before the charge, you can invoke second proviso but there must be some predicate offence registered, only then you get activated."
Justice C. T. Ravikumar added, "Under 66(2), the director can be the informant for the purpose of attachment. He passes the information for the registration of the predicate offence."
Justice Khanwilkar continued, "Therefore that argument was advanced, when we tried to interact with the counsel for one of the petitioners, that it is possible in a given case where, after taking note, the officer conducts search, seizure and also attachment, but before attachment, he has to intimate the local police and if local police refuses to do it, the option available to this officer is to go and file a formal complaint in the magistrate's Court. Without a predicate offence, can there be proceeds of crime? The answer is 'no'. Proceeds of crime is referable to the property generated from a criminal activity."
The SG urged, "Please look at the mischief which this interpretation will lead to. Suppose I have material in my possession. I intimate the local police. The local police would be the state agency. Either because of lethargy or because of the influence of the person in whose possession the proceeds of crime are lying, they do not register an offence or they may even inform the person that ED has informed us about some material lying with you. The material vanishes. Therefore this requirement is done away with. What I will do is that I will attach the property under subsection one second proviso, intimate the agency that now you register the offence and investigate the offence. If they don't, then I can file a direct complaint. I cannot permit the proceeds to vanish."
Justice Khanwilkar asked, "You want second proviso to mean that irrespective of whether any predicate offence is registered or not, this power can be exercised?"
The SG replied, "Yes. And I immediately intimate the local police also to register the predicate offence."
Justice Maheshwari observed, "The very genesis of section 5 would lie in your director having reason to believe, which he will reduce in writing, that any person is in possession of any proceeds of crime. Now when we go back to proceeds of crime definition, Proceeds of crime encompasses scheduled offences. There has to be an activity relating to or relateable to scheduled offence. So if that is the belief your director is recording, the proceeds of crime nevertheless would relate to a scheduled offence. Without there being a scheduled offence, how would that very reason to believe come?"
The SG replied, "Then I have already shown the mischief it would result in. And secondly, 66(2) would become redundant. Also if I am wrong, look at the consequences, nobody can afford to be wrong. Recording of reasons has its consequences because attachment is provisional only till confirmed by adjudicating authority. And section 62 provides that any authority or officer exercising power under this act or any rules made thereunder who, without reasons recorded in writing, searches or causes to be searched any building or place or detains or searches or arrests any person, shall for every offence be liable on conviction for imprisonment for a term which may extend to 2 years. It is a huge responsibility! Also, attachment only means preventing you from transferring, not preventing you from using."
Continuing, he advanced, "Diamonds can be concealed immediately, cash can be transferred immediately, but immovable property may not vanish or be transferred immediately. That is why in following the second proviso route, I have to record reasons."
Justice Khanwilkar noted, "So first proviso operates as a general rule. Second proviso operates as an addition to the satisfaction which is recorded in the first proviso and where it is immediately necessary to attach it without the report under 173?"
Justice Maheshwari noted, "Suppose your director comes to know about a huge amount of cash, say 200 crores of unaccounted money and unexplained money. What we are trying to understand is that having that unaccounted money or unaccounted property or diamonds, jewellery etc would not be enough. There has to be another thing attached to that for the purpose of his own satisfaction also which he will record in writing. That these are proceeds of crime. Merely having extra money may not necessarily result in that."
Justice Khanwilkar added, "Unaccounted money alone is a matter for the income tax authorities."
"There have to be proceeds of crime but the existence of an FIR at that stage is not necessary", repeated the SG.
Justice Khanwilkar continued to observe, "The possible solution to this conundrum is that you, as Officer, visit some premises, you come across unaccounted/tainted money which in your opinion is referable to proceeds of crime- namely, that being a public servant, it cannot be anything else but corruption- and for that, the predicate offence is attracted. You take notice of that, you inform the concerned authorities that this is what you have come across and that they must immediately start action as the person in question has no justification for possessing this kind of wealth. Now if the concerned authority does not do it contemporaneously, then you can send a complaint to the magistrate. If predicate offence is not registered within any reasonable time by the local police, which requirement is covered by the first proviso also, then you have authority to investigate the PMLA offence and so you can go and file complaint. Hiatus cannot be created in such a situation."
Justice Maheshwari added, "Identified crime is not necessary. It may be referable to some crime, and the identification of crime may come up later by way of other processes known to law. This is what you mean to say? Identification of the particular crime may not happen at the time when you are required to take action under 5."
"Yes. If I find 200 crores, whether that was corruption money or stolen from somebody's house or proceeds of some other crime, that is for the local agency to investigate", replied the SG.
Justice Khanwilkar noted, "It is not that you will proceed in vacuum, that these are proceeds of crime. You have to record your satisfaction that it relates to some scheduled crime. And if that information is found to be false, you can be prosecuted against under 63(1), in addition to the prosecution under 62 for vexatious search. That is how it will work. Because the definition of proceeds of crime envisages a preexisting predicate offence."
Higher safeguards are there in PMLA when compared to CrPC : SG
The SG continued to submit, "The Petitioners are saying Cr. P. C. should be followed in investigations. The Cr. P. C. has a minimum threshold- you can arrest somebody on suspicion. Here, we have an elaborate procedure. The safeguards are not there in Cr. P. C. Here, there are layers of safeguards- only the Director or deputy director can take action, not a PSI; there has to be material in possession; there is recording of satisfaction."
"The legislature ensured that all this contemporaneously becomes the part of the record of the Adjudicating Authority, which is a neutral authority. We have the Manner of Forwarding of Copy of Order of Provisional Attachment Rules, 2005. There is a secrecy, confidentiality attached to it. The director or the authorised officer shall prepare an index of the copy of the order and the material and sign each page of such index, order and material and shall also write a letter while forwarding such index, order and material to the adjudicating authority in a sealed envelope. The director or the authorised officer shall place an acknowledgement slip in the form appended to these rules before sealing the envelope. The sealed envelope will be marked 'confidential and to be opened by the addressee only'. So you cannot make any changes to the material in possession, the order or the reasons for satisfaction", told the SG.
"Then there are the Issuance of Provisional Attachment Order Rules, 2013- which require that where the director or any other officer authorised has reason to believe on the basis of material in his possession that proceeds of crime or the property involved in money laundering has to be provisionally attached, the said officer shall make a provisional attachment order. Also, I will supply to the affected parties only the attachment order and not the material because the material may contain something which may enable the affected party to alert others. The rule says the authorised officer shall endorse a copy of the provisional attachment order to all concerned including the persons in possession of the property and the adjudicating authority. This is natural justice compliance, that my attachment order with reasons will be served but the material will not be served. The material is lying in a sealed cover with the adjudicating authority", he advanced.
What happens to attachment when there is acquittal in predicate offence? Bench asks
Next, in context of sections 8(5) and 8(6) of the PMLA Act, Justice Khanwilkar asked, "confiscation becomes final on conviction for offence of PMLA and not predicate offence? Release of property should be confined only to acquittal under PMLA or even the predicate offence? Because there can be money laundering provided only that there are proceeds of crime and it becomes proceeds of crime because it is related to an activity which is the predicate offence. If there is acquittal in predicate offence, how does it take the colour of proceeds of crime or become tainted?"
"Irrespective of what happens to the predicate offence, we will continue. Recently, we encountered a case where a person from whom crores of rupees were found was acquitted on the ground that he was charged under the Prevention of Corruption Act and he is not a public servant. So technically it is an acquittal. But then somebody else will have to investigate and we will also have to investigate from where he got that money. Similarly, there can be technical non-compliance resulting in discharge that you have not taken sanction for prosecution", replied the SG
"So that would depend on the nature of acquittal. The section provides for acquittal from the offence of money laundering, the reason being that suppose 500 crores are found from my person and I am charged under the prevention of corruption act, and though I am also a public servant, but the allegation is that I received this illegal gratification from one Mr B. During the trial, either the witnesses turned hostile or the court records the finding that B had no money to give."
Justice Khanwilkar remarked, "Then it will be a case of unaccounted money and not proceeds of crime."
The SG continued to submit, "Then the court will direct further investigation that if B is not the person from whom the money came then find out from whom. Suppose I am earning say 15 lakh rupees per month. I want to save income tax. I am giving a very extreme example to satisfy the court. I will say that I have 25 lawyers working with me each of whom I am paying 10,000, so 2,50,000 would be the cash which I will generate. There is no criminal activity, it is activity relatable to defrauding the income tax department. This 2,50,000 every month becomes a huge sum after five years and then there is a raid. If I can satisfy that yes, money was found, money is illegal but this is what is an offence under the Income Tax Act, and if income tax does not come to be the predicate offence, I will not be liable. But that will be a subject matter of investigation."
"But if it is a clean acquittal, then the offence of money laundering will not survive. I am not pitching it that high. But that alone cannot be the ground for declaring the provision invalid", the SG advanced.
Case : Vijay Madanlal Choudhury and others vs Union of India and others Special Leave to Appeal (Crl.) No(s). 4634/2014 and connected cases