PMLA Offences Non-Cognizable In The Sense Local Police Can't Arrest, Says Supreme Court During Hearing
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The Supreme Court on Wednesday remarked that the PMLA Act offences are not cognisable only to the extent of the scheme of the Cr. P. C.- that they are cognisable in the sense that arrests can be effected without a warrant by authorities specified in the Act, but they are non-cognisable qua the local police so that arrests cannot be made under the Cr. P. C.The Court was hearing SG Tushar...
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The Supreme Court on Wednesday remarked that the PMLA Act offences are not cognisable only to the extent of the scheme of the Cr. P. C.- that they are cognisable in the sense that arrests can be effected without a warrant by authorities specified in the Act, but they are non-cognisable qua the local police so that arrests cannot be made under the Cr. P. C.
The Court was hearing SG Tushar Mehta's response to the primary contention of the Petitioners that the offence of money laundering under the PMLA is a non-cognisable offence, and that therefore, as a corollary, without obtaining an order from a competent magistrate under section 155 of the Cr. P. C., no investigation could have been initiated under the PMLA. By the Amendment Act of 2005, the erstwhile section 45(1)(a) of the PMLA, which said that 'every offence punishable under this Act shall be cognisable', was deleted.
At the outset, the SG advanced, "This compartmentalisation as cognisable and non-cognisable for the purpose of PMLA is only irrelevant. I will show Your Lordships that money laundering offences are cognisable but it may ultimately lead us nowhere. Because a cognisable offence, as defined under the Cr. P. C., is one where the police officer can arrest a person without warrant. He is not supposed to go to the court, wait till the court hears the matter and then issues the warrant. Whereas in case of the non-cognisable offences, he has to take a warrant and only then he can arrest. Because of the very peculiar nature of the money laundering offence, the very volatile nature of the evidence which can be erased with the click of a button, we have a separate provision for arrest, that is, section 19 of the PMLA. It has several safeguards. It is of a very high standard. Under section 41 Cr. P. C, a police officer making arrest can include even a head constable, and arrests can be made even on credible information or even a reasonable suspicion. But here, there are several safeguards- only the director or other designated officer can arrest, you have to record reasons, you must have material in your possession, you will have that material sent in sealed cover to a neutral authority namely the adjudicating authority which will be retained for 10 years so that you don't tamper with the material, which is very easy in case of Cr. P. C. arrest. So when there is a specific contrary provision in section 19, the argument whether it is cognisable or non-cognisable is irrelevant. Because there is a specific provision providing for power of arrest without warrant!"
"In so far as section 45, as it stood then, said that a PMLA offence is cognisable, police officers started using powers of arrest under the PMLA on the ground that it is a cognisable offence. The police said that since it is cognisable offence, in terms of section 2(c) of the Cr. P. C., I have the power to arrest without warrant. But that was not the intention of the legislature. The intention of the legislature was to have a separate team of officers appointed especially for the purpose because of the peculiar nature of the offence. And therefore, with a view to clarify that a police officer is not supposed to arrest or undertake the investigation, the amendment was made, which is now misused! But this was the mischief sought to be remedied by deleting the word 'cognisable'", he continued.
Further, it was the SG's case that not only the authorities are not 'police officers', the scheme of PMLA provides for filing of a complaint before the Special Court. In other words, in case of an investigation by police officers under Cr. P. C., the Court takes cognisance on a police report filing under section 173(2) while in case of investigation by authorities under PMLA, the Court takes cognisance upon a complaint made by an authority. "To remove this anomaly and only for the said purpose, the said words viz. 'cognisable' were deleted... Interestingly, with a view to obviate any possible misinterpretation, the definition of 'investigation' was also inserted. This is very crucial since in absence of definition of the term "investigation in PML Act" [till the said amendment of 2005], someone can rely upon the definition 'investigation' given in section 2[h] of Cr. P. C...Since the term 'police officer' was creating confusion which was sought to be removed by the amendment made in 2005, the definition of the word 'investigation' was inserted wide section 2[na] in the PML Act which reads as under- (na) 'investigation' includes all the proceedings under this Act conducted by the Director or by an authority authorised by the Central Government under this Act for the collection of evidence", it was submitted.
At this, Justice Dinesh Maheshwari noted, "Even while introducing this 2005 amendment, the heading of section 45- 'offences to be cognisable and non-bailable'- was not changed. The section itself starts with 'notwithstanding anything contained in the Cr. P. C.', so this is not supposed to mean 'cognisable' in terms of as it is understood in the Cr. P. C."
Justice A. M. Khanwilkar added, "The other way to put it is that it is not cognisable under the Cr. P. C. scheme. It is cognisable in the sense that you can arrest without the warrant. But not under the Cr. P. C. so that the police cannot arrest. That is why by the same amendment of 2005, sub-section (1A) was inserted to section 45 correspondingly [section 45(1A) says that Notwithstanding anything contained in the Cr. P. C., or any other provision of this Act, no police officer shall investigate into an offence under this Act unless specifically authorised, by the Central Government by a general or special order, and, subject to such conditions as may be prescribed].... so it is non-cognisable only qua the local police; the provision is contextual and loosely-worded"
'Section 4(2), Cr. P. C. alone is good enough to say that PMLA would regulate investigating, inquiring into, trying or otherwise dealing with money laundering offences'- SC
The SG was addressing the connected argument of the petitioners that all Cr. P. C. provisions, as contained in its Chapter 12, including registration of FIR, intimation to magistrate etc, would apply to PMLA offences.
"Cr. P. C. is a generic procedure and will be applicable only if there is no special act, A special law, by providing for a separate mechanism different from Cr. P. C., will prevail over Cr. P. C. And the issues which the special law deals with differently would be governed by the special law. If there are provisions in the 2 legislations that cannot co-exist, that cannot be followed simultaneously, then the PMLA prevails. However, if there is nothing contrary in our special law, we will also go by Cr. P. C. Wherever the PMLA is silent, Cr. P. C. will apply. But whatever the PMLA says is to be strictly complied with", he advanced.
"Section 4 of the Cr. P. C. itself excludes application of Cr. P. C.. Section 4(1) says All offences under the IPC shall be investigated, inquired into, tried, and otherwise dealt with according to the provisions hereinafter contained. 4(2) says that All offences under any other law shall be investigated, inquired into, tried, and otherwise dealt with according to the same provisions, but subject to any enactment for the time being in force regulating the manner or place of investigating, inquiring into, trying or otherwise dealing with such offences. So you apply Cr. P. C., but if the special law provides for something contrary as to what manner or place of investigation which includes arrest, inquiring into, trial or otherwise dealing with that offence in whatever manner, the special law will apply. Like while search and seizure provisions are there in Cr. P. C. but special provisions are there in PMLA so PMLA will apply. Section 5, Cr. P. C. says the same thing", submitted the SG.
He indicated that sections 65 (the provisions of the Cr. P. C. shall apply, in so far as they are not inconsistent with the provisions of this Act, to arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings under this Act) and 71 (the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force) of the PMLA also repeat the same principle.
Justice Khanwilkar remarked, "Even if the specific provision was not there (in PMLA), even 4(2) of Cr. P. C. is good enough. This (section 65 and 71) is only reiteration of the same position"
It was the SG's case that the object which PML Act seeks to achieve, intricacies involved in the offence of money laundering [which would have nation and trans-border implications], the speed at which evidence can be destroyed, the moment the accused comes to know about the investigation, the legislature has provided for a separate architecture which explicitly and by implication oust the provisions of Chapter 12. He submitted that the petitioners cannot insist on the application of Chapter 12 or the other Cr. P. C. provisions in their entirety to the effect that the very purpose with which the PMLA is enacted and the object it seeks to achieve is negated. "Some provisions of Chapter 12, in particular, and of the Cr.P.C., in general, may however, apply in view of section 71 read with section 65 of PML Act. For example, while the procedure to be followed in case of commencement of investigation after an FIR, forwarding the copy of the FIR to the Magistrate etc. will not apply. But any time any right is affected, Cr. P. C. is complied with. If he is being arrested, everything will be supplied. If there is an attachment, he will be supplied the order of attachment. But there is no concept of registration of FIR so as to alert everybody and risk losing evidence. That is a very considered, customised departure. However, provision like Section 167, provision for remand and other provision for conduct of trial etc contained in Cr. P. C. will apply as there are no pari materia provisions in PML Act that occupy the place and, therefore, such generic provisions of Cr. P. C. would apply since they are not inconsistent with the special provisions of PMLA. D. K. Basu guidelines for arrest will apply. 167 does apply- Every time the person is arrested, we produce him before the court and his remand is taken. But that cannot be the basis to say that entire chapter 12 applies which means you have to register FIR etc. Because of the very nature of offence of money laundering and the potential of the accused to remove even the traces of offence with a view to frustrate the investigation, the legislature has consciously avoided either provision of registering FIR for PMLA offence, supply the FIR to the Magistrate and requiring the authorities to obtain warrant before effecting arrest. Any form of intimation or notice will enable the accused to wipe off the evidence in a matter of literally a few minutes. The legislature has, therefore, very consciously provided for a different customised scheme to ensure effective investigation of the novel offence about which the entire world is troubled. Any interpretation either as canvassed by the petitioners or otherwise requiring the authorities to do anything more than what is specifically stipulated in the Special Act and under the special scheme will defeat the very object of the Act", it was submitted.
It was pointed out that Chapter XII of the Cr. P. C., pertains to the "information given to the Police and their powers to investigate". As per Section 155(1) of the Cr. P. C., whenever the information as to non-cognisable offence is given, a Police Officer cannot investigate into the same without the order of the Magistrate, having power to try such case or commit such case for trial. "It has been urged by the petitioners that if the offence under the PMLA is non-cognisable, then, the authorities under the PMLA could not have carried out investigation and arrest any person without the order of the Magistrate. But the said provisions in the Cr. P. C. are clearly made to be applicable to the Police Officers, when they receive any information relating to cognisable and non-cognisable offences as is evident from the title of Chapter XII which states 'Police and Their Powers to Investigate'. Chapter XII of Cr. P. C. concerns the restrictions on the powers of Police and the manner of investigation in respect of the information received by them about commission of cognisable or non-cognisable offence and, depending thereon, arrest of the concerned accused. Therefore, when the power to investigate is not entrusted to a Police Officer and when PMLA contains specific provision relating to arrest, then, the PMLA being a complete Code in itself and also being a special law enacted with a particular object, in view of Section 5 of the Code, no such restriction as specified in Chapter XII in relation to investigations by Police officer can be imported into PMLA or any other Special Act", it has been submitted.
The SG proceeded to indicate how this ground of the offence being "cognisable" and "non cognisable" and the applicability of entire Chapter 12 was misused by abuse of process of law- "One Raj Bhushan Dikshit filed writ petition before the Delhi High Court praying for a writ of habeas corpus. He is a co-accused in what is notoriously known as the Sterling Biotech scam that involves the Sandesara brothers. The rough and ready estimate shows a scam of Rs. 14,000 crores. All the accused are now staying in some island. We are trying with extradition proceedings. He challenged some provisions of the PMLA and sought interim order that my arrest under section 19 is bad in law and therefore I may be released on bail. This is the starting point of how this matter came to be before Your Lordships", began the SG.
"After the writ petitions pending before High Court of Delhi in which interim orders were granted, were transferred by the Supreme Court to itself, the accused started filing Article 32 petitions raising the same grounds. After issuing notice in some matters, orders of 'no coercive steps' were passed in numerous petitions. Various high profile accused in cases involving Sterling Biotech, Bhushan Steel etc. availed such orders which were passed exparte...This order enabled the promoters of Sterling Biotech to scuttle the investigation pending against them and further granted them protection despite being absconders from the law and escaping the country. The petitioners [Sandesaras] suppressed the crucial fact that non-bailable warrants are issued against them and the proceedings under the Fugitive Offenders Act are over and the judgment of the competent special court for declaring as "fugitive offenders" is reserved to be pronounced on 03.07.2019. Shockingly, on the very next day on which the Supreme Court passed the order quoted above, the counsel for the petitioner-fugitives appeared before the special court, relied upon the aforesaid order passed by this Hon'ble Court and successfully thwarted the pronouncement of the order of the special court under the Fugitive Offenders Act. The Petitioner accused place on record the order dated 02.07.19 passed by this Hon'ble Court before the Special Judge who directed ED to seek clarification from the Hon'ble Supreme Court with regard to the effect of the 'no coercive step' order on the Fugitive Economic Offenders Act Application...The said order is an instance of how the magnanimity and the deference of this Hon'ble Court has been misused by high profile accused persons", it was submitted.
[Section 3, PMLA] 'Dealing with proceeds of crime in any manner, or even handling it, without especially projecting it as untainted money, is money laundering?'- SC discusses
Earlier during the day, it was the SG's submission that "projecting" of proceeds of crime as untainted is not a mandate to constitute the offence of money laundering and that mere use or possession alone is also sufficient. It was submitted that the language of Section 3 of the PMLA will become otiose if "projecting proceeds of any process or activity connected with crime as untainted property" is required as a mandatory pre- condition. It was his case that the 'and' preceding the phrase 'projecting...' is to be read as 'or', lest this section become non-functional, meaningless. He told the bench that this had been the country's response to the Financial Action Task Force when in its 2013 assessment it had inquired why India had diluted the recommended standards for money laundering by inserting the requirement of 'projecting'. The definition of money laundering had been amended with effect from 2013 to mean that 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. The earlier phrase was "proceeds of crime and projecting"
"Kindly consider the argument advanced by the petitioners- I take a bribe of 50 crores, I keep it in my safe custody, the money does not go out of my hand so there is no laundering which has taken place. This is what the hon'ble finance minister in his 2013 speech in the Lok Sabha is clarifying that that is the colloquial understanding of money laundering, and that is not how the Act intends it. The FM says that there must be proceeds of crime and anybody who deals with it is guilty of money laundering- he may keep it in his possession, he may use it, he may conceal it- he is guilty!", began the SG.
Justice Khanwilkar observed, "The amendment intent is amply clear from these two sentences in the FM's speech- 'I may clarify that the money laundering used in the colloquial sense is not the money laundering that has been referred to in the Act'. So the common understanding of money laundering in common market or commercial terms, that is not the meaning given in the Act. The act has some different meaning . It is explained in the next sentence in the minister's speech that 'there must be proceeds of crime and whoever deals with them'- deals means in any manner, handling of that money is itself a money laundering offence. That is the meaning from these two sentences"
"I am obliged. That is the legislative intent", said the SG.
"The other side says it is a technically defined offence so you have to read it very strictly. Reading of the penal provision is a very known phenomena but not de hors from the intent which is manifested in the minister's speech. The speech is not personal, it is based on some exercise which has been undertaken", he continued.
Justice Khanwilkar asked, "So you are saying the Explanation (appended to section 3 in 2019) is nothing but what ought to be understood correctly?"
"And what has always been understood", said the SG.
Justice Khanwikar noted, "No, no, no, it was not always so understood. That is why there was confusion and therefore, the explanation. That correct meaning is now explained in 2019- The correct meaning which can be culled out from the statement of the minister himself from the speech which was given when the amendment in 2013 was effected"
Justice Maheshwari observed, "How much of the speech would be taking us to the correct interpretation...but one feature remains. Even in this one particular passage which you just read, the hon'ble minister retains the expression 'and' before 'projecting'..."
At this, Justice Khanwilkar said, "That is what he is saying that it was presented to the FATF, that perhaps you (SG) have explained by saying that you have presented before the international community that in our jurisprudence, in our jurisdiction, 'and' is always understood as 'or', or it can be interchangeable. Where is that debate, that discussion?"
The SG said, "I am obliged"
Justice Maheshwari continued, "That is what we are trying to understand. Because the fact of the matter remains that even while amending in 2013, we retained the expression 'and'. That was not removed"
Justice Khanwilkar repeated, "That 'and' has been explained by you (SG) before the international community. Where is that material?"
The SG then showed the relevant page number where this provision was assessed by the FATF and again subjected to review in 2013 in its 8th follow up report, where the country was given the rating 'Partially compliant'.
Justice Maheshwari indicated the following paragraph from the report- "While the current formulation specifically refers to concealment, possession, acquisition and use, it does not do away with the condition that the proceeds of crime need to be projected or claimed as untainted property". "That was the query", said the judge.
In response, the SG indicated a subsequent paragraph in the report- "...case law provided by India appears to mitigate the concern regarding the possible limiting effect of the conditional element in the main ML offence (That is projection, commented the SG). On that basis it can be concluded that the scope of these technical deficiencies is relatively minor. It is not expected that there will be any impact on India's ML regime. The deficiency is mostly addressed"
Justice Khanwilkar remarked, "The FATF's concern was that this 'and' is creating problem to which you responded and that response was dependent on the case law that you cited before the committee"
The SG replied, "I am obliged. That is how we could pass the muster"
Justice Khanwilkar continued to note, "If this is not read as 'or', it will be a contradictory position. You say mere concealment is good enough- that is what the requirement of the law is as per FATF. If mere concealment is enough, use is not necessary. If you say 'and', then use and projecting becomes necessary. Then the provision will be diluted. Concealment by itself means intrinsically that it is not being used, it is not being projected"
The SG said, "exactly"
Justice Khanwilkar asked, "If this was your position before FATF in 2013, what was the need to bring this explanation in 2019?"
The SG replied, "to remove any difficulty"
Justice Khanwilkar asked, "is there anything on record to that effect that there was a difficulty faced?"
"There was nothing. That is why I started by saying that this angle that the PMLA act must be understood in the context of what has happened at the global level in the past has not been projected before any court, not only in India but anywhere in the world. This is being examined by your lordships for the first time", replied the SG
Justice Maheshwari asked, "You said the expressions occurring after 'including' are basically illustrative in nature. They could be other eventualities also. 'Including' is not exhaustive. This is what you said. You at that time projected that 'and' has to be read as 'or'- the 'And' before projecting has to be read as 'or'. If that 'and' remains as 'and' only and that is read as conjunctive to 'use', that could be another way of interpretation. But the point is that that interpretation is not occurring in your explanation which has been inserted in 2019 where 'and' has been made as 'or'?"
"You don't have to read 'and' as 'or', it is 'or'", replied the SG
Justice Maheshwari asked, "So you have converted into 'or'?"
"I would not say converted, but we have made explicit what was supposed to be implicit", replied the SG.
Justice Maheshwari noted, "The problem is that the section is still retaining 'and', but now in the explanation, 'or' has been added. This is the problem"
At this, Justice Khanwilkar observed, "The last part of the statement of the minister throws some light on your (SG's) submission- 'The FATF has now come around to the view that if the predicate offence has thrown up some proceeds and you deal with those proceeds...'. You deal with those proceeds in any manner whatsoever is the statement. It can be individual use, individual concealment, individual projecting as untainted money. That is what you say. That is reinforced from this very statement also"
Next, the judge asked if 'knowledge' also is not relevant for the offence of ML.
"Knowledge is relevant. Someone purchases a big house from proceeds of crime and rents it, the tenant may not know that it is out of proceeds of crime. But suppose I purchase a house from POC, I don't project as untainted or honest money or that I have taken a loan from SBI, but then even use and possession of property is ML", replied the SG.
Justice Khanwilkar commented, "So knowledge is necessary, you are not going there"
Justice Maheshwari said, "Section 3 says whoever directly or indirectly attempts to indulge or knowingly assist. 'Knowingly assist' comes later. Prior to that is 'directly or indirectly attempts to indulge'. Knowingly is not there"
"If I attempt to commit an offence, I know it is an offence. I will not commit an offence without knowing", responded the SG
Justice Maheshwari continued to ask, "Then there is indirectly also- Indirectly attempts to indulge. Knowingly is not the expression used there. Knowledge can also go in the background. We will test that"
Justice Khanwilkar added, "Take a case where I have no knowledge whatsoever that something has been concealed in the house and that house has been purchased by me. Now after that, the action is initiated under this act. So whether the subsequent purchaser who has no knowledge whatsoever is accused?"
The SG replied that he has to be an informant or witness
Justice Khanwilkar asked, "he is not an informant also because he has no knowledge that it is there. Search would be conducted and during the search, that amount is recovered from some concealed portion of that house"
"Then he would not only be a witness. He would be a 'panch' witness that it was brought out in his presence", said the SG
Justice Maheshwari observed, "No...sorry...there can be an infinite number of eventualities. All possibilities nobody would be in a position to comprehend. All said and done, we take your submission that section 3 was always intended to be wide enough, all-encompassing and whatever was limiting it or whatever was missing in it or whatever was modulation required, you have done"
The SG replied, "When we say knowledge, if somebody has acquired a very costly diamond. Now even precious metal is part of the definition clause itself. Somebody comes to me that I am going out of station for three months, I have a valuable diamond which I have inherited, please protect it in your custody or your safe . If I accept it, I do not know it is not an ancestral diamond but he has purchased it from proceeds of crime. So I am not knowingly concealing the proceeds of crime. So I would not be guilty. Knowledge has to be there. Knowledge that it is purchased or derived from proceeds of crime is an ingredient mandatorily"
Justice Khanwilkar noted, "'Or' has to be interpreted accordingly. Even if it is 'or', knowledge is essential"
The SG submitted, "if knowledge is not considered an ingredient, it would be irresponsible on my part that suppose a person is doing money laundering through a web of shell companies through the banking system. The bank is also permitting him to utilise its services-the bank would keep the money for some time, the bank would deal with that money but the bank is not aware that what it is doing is proceeds of crime. Bank might even pay interest if the money remains for some time. Therefore there are statutory requirements now that the bank will now have to have its own know your customer (KYC) and vigilance system, due diligence etc and file report with the ED. So that the bank cannot say that I was not aware. If you find some suspicious transactions, alert us. They will have to do the duty. When the banking people knowingly allow this, they are made accused. For example in the Nirav Modi case, officials of the bank are arrayed as accused because they were hands in glove in creating false letter of credit. So knowledge can be a defence, but not that I did not project it as untainted"
Justice Maheshwari noted, "Taking your argument, for that matter, not only knowledge, but with reference to the principles of section 511 IPC, at least the attempt part would be an offence with respect to those offences where an attempt to commit an offence is an offence. Attempt encompasses within itself even any intent, specific intent also. Knowledge is not always the intent. Intent is higher. So attempt would include even intent with reference to 511 principles"