PMLA| May Not Be Possible To Say That "Mere Use" Of Proceeds Of Crime Is Not Money Laundering: Supreme Court Indicates

Advocate Abhimanyu Bhandari, for one of the petitioners, had sought to differentiate between projecting of proceeds of crime as untainted money and "merely using" of proceeds of crime- "Section 3 of the PMLA Act should be read down to say that mere use or possession of tainted money does not amount to money-laundering. There has to be a projection of this money as untainted and its integration into the economy."

He sought to draw the attention of the bench to section 8(5) and 8(6) of the Act to buttress the argument. Section 8(5) says that Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government. Section 8(6) provides that Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it.

"They say 'property involved in money laundering' and not 'proceeds of crime'", argued Mr. Bhandari.

Justice C. T. Ravikumar observed, "When you are purchasing something with the proceeds of crime, you are passing on tainted money to the person you are buying it from. Are you then not projecting it as untainted money?"

Justice A. M. Khanwilkar reflected, "You know it is 'proceeds of crime'. Now you want to invest this ill-gotten money in a car. You go and purchase the car, you pay by cash but you disclose in your account that you have paid by cash, and the other party records that cash is received. Therefore, it is integrated into the system, into the regular economy. Your act is complete by the time you go and purchase and obtain the receipt from the seller. The seller does not know it is proceeds of crime but you know and you have used it and shown that this vehicle is purchased from untainted money. Money laundering is complete."

Justice Dinesh Maheshwari observed, "The concept of money laundering in our Act is very broad, very wide and not based on one expression alone. Section 3 says 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. So it encompasses many things, even a person indirectly involved."

"If in a given situation, somebody has been harassed or the provision has been wrongly applied, that does not make the provision itself bad and that can be taken care of", added the judge.

"If mere possession of proceeds of crime is money laundering and if somebody continues to possess it even today, then the biggest example that has been seen historically would be the East India Company. Then property in other countries also would be attached, if mere possession and use of proceeds of crime continues to be money laundering. The balance is found if it is said that if it has been integrated in the economy and projected", concluded Mr. Bhandari.

Justice Khanwilkar observed, "The possibility is of the plea being taken by the other side that there may be proceeds of crime generated on account of a scheduled offence which continue to have the colour of proceeds of crime even after coming into force of the Act and which then become actionable if the act of money laundering is indulged in. Therefore, though there may not seem to be proceeds of crime on the date on which the Act has come into force, but after coming into force of the statute, if the act of money laundering is indulged in, then this Act is applicable. That is a possible argument of the other side. But that would be a matter of application of the provisions and not of constitutionality."

Mr. Aggarwal urged, "It would be a case where an offence is being subsequently created for a conduct which has already been committed."

Justice Khanwilkar noted, "Money laundering is an act. It is not continuing in that sense. But the colour of proceeds of crime may be a continuing feature. Once after coming into the force of the Act, if you indulge in money laundering, it is an offence."

Mr. Aggarwal submitted, "ED says money laundering is a continuing offence, that it will continue ad infinitum, it will always keep continuing. So therefore I don't have to figure out when the offence took place. I am a standalone transaction which can happen at any point in time."

Justice Khanwilkar observed, "What is money laundering ultimately? It is placement of proceeds of crime, layering of proceeds of crime, integration of proceeds of crime in the regular economy. These are different steps. Therefore, at the time of placement, disclosure that it is proceeds of crime itself is not enough. If placement, layering, integration are the relevant quintessence of this activity, it is continuing in that context. Placement can happen on one date, next date layering will happen, on the third date integration will happen. The offence has begun with placement. It is continuing in that sense."

Mr. Aggarwal argued that if a person generates proceeds of crime, he can be said to have generated the same only after the coming into force of the PMLA Act.

Justice Khanwilkar said, "You may have a caveat there. Proceeds of crime can be even at an earlier point of time. But it becomes an offence if you indulge in laundering. That can happen on coming into force of the PMLA. Then it is not unconstitutional, that it is constitutional."

Mr. Aggarwal advanced, "If on a particular day, I indulge in the activity of committing an offence, I know on that date what are the consequences that can flow. But in 2003, or any time before 2005, if I commit a scheduled offence, on that date I am not aware, I cannot be aware that for doing this activity today, two years hence somebody will put a charge on me for having that property and projecting it as untainted."

Justice Khanwilkar noted that the intrinsic value of the Explanation is to explain what was already existing previously. "Otherwise, it would have been a proviso if something was to be created separately, if a new thing was to be created or the intent was adding a new provision to the existing Act itself. It is only an explanation added in 2019 so as to clarify if there was some confusion. It is not a creation of a new offence as such"

Mr. Agarwal continued to submit, "My submission is that the explanation in section 3 was never to apply retrospectively. Please have section 45, the Explanation after subclause (2)- 'For the removal of doubts, it is clarified that the expression 'Offences to be cognisable and non-bailable' shall mean and shall be deemed to have always meant that all offences under this Act shall be cognisable offences and non-bailable offences…'. I am not concerned with the correctness or otherwise of this provision. I am placing the phrase 'shall mean and shall be deemed to have always meant' as a reflection of legislative intent that it wants to go back in time". It was his case that Neither the PMLA, nor any of the amendments introducing changes to the Schedules or Section 3 itself, have any language indicating their retrospective effect, contrary to the explanation to section 45.

Justice Khanwilkar noted that the Explanation to section 45 is not only an explanation but a "declaratory provision"

Senior Advocate Mahesh Jethmalani, on the petitioners' side, advanced that sections 44(1)(a) and 44(1)(c) are violative of Articles 14 and 21. Section 44(1)(a) says that Notwithstanding anything contained in the Cr. P. C., an offence punishable under section 4 (money laundering) and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed: Provided that the Special Court, trying a scheduled offence before the commencement of this Act, shall continue to try such scheduled offence. Section 44(1)(c) lays down that if the court which has taken cognisance of the scheduled offence is other than the Special Court which has taken cognisance of the complaint of the offence of money-laundering, it shall, on an application by the authority authorised to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it is committed.

"44(1)(a) is oppressive to people who are not charged with PMLA but only with the predicate offence, because of the non obstante clause and the proviso. In Antulay's case, this Court has held that the right to be tried by a particular court statutorily prescribed is a fundamental right. What 44 contemplates is not a joint trial, as made clear by the explanation to 44. But it says that both sets of offences have to be tried by the special court created under this Act. Consider the position of accused who have already been accused of the scheduled offence- criminal breach of trust, cheating, abetting corruption- who are not concerned with the subsequent generation of proceeds of crime. It is only a shift of forum from one court to another, nothing else. There are 2 types of scheduled offences- those under IPC governed by Cr. P. C., and those created and punishable under special statutes. Accused persons of both categories of scheduled offences are having a change of forum to PMLA. There is no rationale for why this is being done. It is not as if there is saving of time or speedy trial. Why deprive accused of the normal forum? The PMLA, under 44, seeks to try the accused even under Prevention of Corruption Act, which itself contains a provision for exclusive trial by a special judge. It can't be done. The non-obstante clause refers to Cr. P. C. and not to any other law for the time being in force. There is the same provision in NDPS and UAPA also. Courts have exclusive jurisdiction in those Acts also. 44 cannot override those special provisions", advanced Mr. Jethmalani.

Continuing, Justice Khanwilkar observed, "Does the accused have a fundamental right to be tried only before a particular court if there is no statutory provision as to which forum will try? If there is no such provision, it will go on to Cr. P. C. If there is special law, then special law must operate on its own. And particularly when a section 44-like provision is there. Can you say I have a fundamental right to be tried only by the court referred to in Cr. P. C.? Because it is procedure established by law. While reading 44, we must bear in mind the section 71 effect also (section 71, PMLA says that The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force). We cannot lose sight of that express provision. Your argument that it only overrides Cr. P. C. provisions and not other special provisions is not available."

"The exclusivity of a particular form is a fundamental right by virtue of Antulay.'s case. Trial, which was before a special judge under the PC Act, was transferred to the High Court, a superior court, and that was struck down", advanced Mr. Jethmalani.

Justice Khanwilkar observed, "There, the assumption was that there is Original criminal jurisdiction in the High Court and that was not found to be correct. That judgment proceeds on the basis that if there is a statutory forum provided and the trial court or Supreme Court or High Court directs the transfer of the trial to some other forum, that cannot be done in law because there is a procedure prescribed by law. Here, we have a case of a specific law over-ridding Cr. P. C. and other special laws, so this law should prevail. We can understand if a predicate offence is triable by a magistrate's court and now it will come to be tried by the special judge, then it is a different forum. But it is a better forum, one more experienced and higher in hierarchy than magistrate's court. Also, this is not transfer by order of court but by legislation."

Mr. Jethmalani continued to indicate that the aforementioned Proviso to section 44(1)(a) is a "legal absurdity" and that "what is contemplated by the proviso can never transpire"- "Definition of special court in 2(1)(z) of PMLA says that a special court is a court of sessions designated as such under section 43(1) of the PMLA Act. So how can there be a special court, as referred to in the proviso, trying a scheduled offence before commencement of the Act itself?"

Justice Khanwilkar noted, "There might be some cases where some scheduled offences have already been tried. So that has been validated by this proviso. Maybe some cases were before the special court which pertained to special offences- What the provision means is the existing court of session which was trying the offences, may be under special law like PC Act. It refers to that special court, designated as such for trying other predicate offences under other special legislations, which, after designation as special court hereunder, will continue to try that offence as well as this offence."

The judge added that the proviso refers only to sessions courts which are already special courts for others laws and then also designated under PMLA as special court. "The proviso says that such court will then try both. Other side will have to explain this", said the judge.

Justice Dinesh Maheshwari also noted, "When we read section 43, the proviso's context appears then. Section 43 says that the Central Government, in consultation with the Chief Justice of the High Court, shall, for trial of offence punishable under section 4, by notification, designate one or more Courts of Session as Special Court or Special Courts for such area or areas or for such case or class or group of cases as may be specified in the notification. So there is already an existing court which would be designated as a special court. This is not that some new court is created. An existing court of session is designated as a special court. If that be so, then that designated court, if it is already trying the offence, will continue to do so. That is what the proviso appears to be meaning. The special court trying the offence before the commencement of this Act shall continue to try."

Moving on to section 44(1)(c), Mr. Jethmalani advanced that if the court which has taken cognisance of the scheduled offence is other than the special court taking cognisance of the PMLA offence, the scheduled offence case shall be committed to the special court.

Justice Khanwilkar noted that the transfer is not automatic but on application.

"And that allows the ED officer to pick and choose any case, on his whims and fancies. He is given an unfettered discretion without any guidelines. This provision is ex facie arbitrary. Your Lordships can read it down. There is not even a duty on the D officer to give reasons for making application for committal. The discretion is so wide that the ED officer may choose to do this at any stage of the proceedings! Why so much power to the ED officer for a valuable right of change of forum being taken away from accused? Also, a judicial authority is made subservient to the ED officer- when an application is made, the court has to blindly follow', argued Mr. Jethmalani.

Justice Khanwilkar noted, "A holistic reading of section 44 would be that as a rule all cases will be tried by the special court. Once the PMLA offence is registered, any other predicate offence related to it should also be tried by the special court. That is 44 (1) (a). But (c) deals with the situation where there is a possibility that some other court has taken cognisance of the predicate offence which is not known to the special court. The special court can itself not transfer cases or initiate action for transfer of cases. In such a case, the power is given to the concerned authority or officer to move a formal application on which that order has to be passed by the special court, upon which even if cognisance is taken, the case will stand transferred to the special court. That is why the provision is for application before the special court, otherwise for transfer you have to go to the High Court. That way, this provision makes sense. Then we don't have to question its validity. We will explain that position that it is only for this purpose that clause (c) has been inserted. There may be a situation where the special court is unaware of a predicate offence which is already registered elsewhere, besides the predicate offence mentioned in the complaint which is filed before it."