Manish Sisodia Bail | Supreme Court Doubts ED's Contention That Mere Generation Of Proceeds of Crime Amounts To Money Laundering

The Supreme Court, even while denying bail to former Delhi Deputy Chief Minister Manish Sisodia in the Delhi excise policy case, refused to accept the Enforcement Directorate's contention that even mere generation of the proceeds of crime could constitute a money laundering offence. The central agency had drawn support from the Y Balaji ruling, in which an argument that such generation would not be sufficient to constitute an offence of money laundering was rejected as 'preposterous'. 

The Aam Aadmi Party (AAP) leader is facing money laundering and corruption charges over alleged irregularities in the framing and implementation of a now-scrapped liquor policy in the national capital. He has been in custody since February of this year and is being investigated by both the Central Bureau of Investigation (CBI) and the Directorate of Enforcement (ED).  

The judgment rejecting his bail application was delivered today by a bench of Justices Sanjiv Khanna and SVN Bhatti that heard Sisodia’s pleas against the Delhi High Court denying him bail in both the CBI and ED cases. An argument advanced before the Supreme Court against the grant of bail was that the generation of proceeds of crime came within the ambit of the expression 'possession' in Section 3 of the Prevention of Money Laundering Act, 2002 and that such possession also included constructive possession. Relying on Y Balaji v. Karthik Desari (2023), Additional Solicitor-General SV Raju had argued that generation of such proceeds of crime was an offence in itself. In that case, the Supreme Court, while lifting a stay on an ED investigation into allegations of money laundering against Tamil Nadu minister V Senthil Balaji, held that a criminal activity and the generation of the proceeds of crime are like ‘Siamese twins’ in the case of an offence of corruption and the acquisition of the proceeds of crime in such cases would itself tantamount to money laundering. Drawing support from this judgment by a bench headed by retired Justice V Ramasubramanian, the additional solicitor-general had told the court, "If the proceeds of crime are created, there will be some possession. After generation, someone must have possession. It cannot be simpliciter generation."

During the hearing, Justice Khanna notably expressed doubts over this interpretation that conflated the generation of the proceeds of crime with possession under the PMLA. "Suppose a person has been caught red-handed with a bribe. Is that money laundering?" Justice Khanna had asked ASG Raju. When the law officer said yes, Justice Khanna had reasoned,"No, generation is not covered. Suppose after generation, nothing happens. It'll only be an attempt. If it is a separate offence, you'll be in difficulty because of double jeopardy and Section 26 of General Clauses Act. It may also run foul of Vijay Madanlal Choudhary. This is a grey area."

This reasoning advanced by the court also finds mention in its judgment. Justice Khanna, speaking for the bench, has written -

"The contention of the Directorate of Enforcement that generation of proceeds of crime is itself ‘possession’ or ‘use’ of the ‘proceeds of crime’, prima facie, appears to be unclear and not free from doubt in view of the ratio in Vijay Madanlal Choudhary. Further, the DoE’s contention that ‘generation’ amounts to possession and the expression ‘possession’ includes constructive possession, for which reliance is placed upon Mohan Lal, is not assured."

The bench referred to the observations made by a three-judge bench in Vijay Madanlal Choudhary, particularly para 406 that the PML Act is an independent and distinct Act which deals with offences relating to only proceeds of crime, and not with the crime itself which generates the proceeds of the crime

Countering ASG Raju's claim, Senior Advocate Abhishek Manu Singhvi, on behalf of the embattled legislator, had argued that the court in Y Balaji did not specifically examine whether ‘generation’ will be included in the six activities covered under the head ‘process or activity’ in Section 3. Section 3, it was held in Y Balaji, encompassed three ‘p’s, namely, the person, the process or activity, and the product. The process or activity comprises six parts – concealment, possession, acquisition, use, projecting or claiming the proceeds of crime as untainted property. The second ‘p’ must relate to the activity or process with the third ‘p’, that is, the product, which is the proceeds of crime, it was argued.

Although the Justice Khanna-led bench initially voiced its unwillingness to accept the interpretation proposed by the central agency, ultimately, it decided to leave the issue open. "We need not," the judgement reads, "Definitively pronounce in the present case on the said aspects as these issues and contentions will have to be examined threadbare by the trial court, or in an appropriate case by this court."

Other reports about the judgment can be read here.