PMLA Interpretation: Senior Lawyers Question Constitutionality Of Bail, Arrest & Attachment Procedure

The Supreme Court on Wednesday continued hearing the batch of petitions concerned with the interpretation of the Prevention of Money Laundering Act, 2002 ("PMLA Act").

The matter was listed before the bench of Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar.

Submission Of Counsels

Substance Of PMLA Is That It's Impossible For Accused & Judge Per Se To Give Bail Which Amounts To Saying There Shall Be No Bail: Senior Advocate AM Singhvi

Senior Advocate AM Singhvi on the aspect of twin conditions u/s 45 of PMLA Act submitted the bench had to see whether the twin conditions independently satisfied Article 14, 19 and 21 of the Constitution of India, 1950 irrespective of the overlap.

To further substantiate his contention, Senior Counsel said, "We're talking about the power of bail which makes an arrest final pre-conviction. You can arrest but it should not bar the judge from even the possibility of granting bail. Your lordship has to see whether it independently satisfies all the articles irrespective of the overlap."

Contending that the substance of PMLA was that it was impossible for the judge and the accused to per se give bail which amounted to saying that there shall be no bail, Singhvi said, "Mere fact' which says that "there shall be no bail" make bail to a vanishing point, even that'll have to be tested. This is exactly the pernicious evil which your lordships will not permit under Art 21. Please keep open the reasonable right of a person to seek bail. Only reasonable right."

Explanation Under Section 44 of PMLA Runs Contrary To Section 3 And Therefore Cannot Be Sustained; Act Of Lodging ECIR Being A Carbon Copy Of FIR On Same/Next Day & Commencing Process Of Investigation With Threat Of Arrest Is Not Proper Implementation Of This Act; Some Investigation Has To Be Done Even If You Take Prima Facie View Before Wheels Of Criminal Law Are Set Into Motion: Senior Advocate Mukul Rohatgi

Senior Advocate Mukul Rohatgi limited his submissions on the validity of the explanation under section 44 of PMLA Act which says,

"For the removal of doubts, it is clarified that,—

(i) the jurisdiction of the Special Court while dealing with the offense under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offense, and the trial of both sets of offenses by the same court shall not be construed as joint trial;

(ii) the complaint shall be deemed to include any subsequent complaint in respect of further investigation that may be conducted to bring any further evidence, oral or documentary, against any accused person involved in respect of the offense, for which complaint has already been filed, whether named in the original complaint or not."

Explanation Under Section 44 of PMLA Runs Contrary To Section 3 And Therefore Cannot Be Sustained

Senior Advocate submitted that giving pre-eminence to the trial with regards to the money laundering offense and not the scheduled offense was contrary to Section 3 of the PMLA Act and would result in "manifest arbitrariness".

To further substantiate his contention Senior Advocate gave an example: "If I robbed a bank & gave my money to someone else to launder it. I will be accused of a scheduled offense & the other person of Section 3 offense said, "What happens in reality is they make me an accused u/s 3 offense as well as scheduled offense."

Referring to section 3, Rohatgi said, "2 things are important: 1. You should be connected with the activity of proceeds of crime and 2. Offense will be complete only if you do another act & that is of projecting those funds- the act of projecting the funds of robbery projecting it as untainted property"

"If I have not robbed the bank & I'm acquitted or discharged, how can I be guilty of money laundering", Rohatgi asked. He requested the bench to clarify or lay down that, "Jurisdiction of one court is not to be affected by something which may happen in other court but this may not be read to mean that offence u/s 3 will go on if the scheduled offence has gone."

Act Of Lodging ECIR Being A Carbon Copy Of FIR On Same/Next Day & Commencing Process Of Investigation With Threat Of Arrest Is Not Proper Implementation Of This Act; Some Investigation Has To Be Done Even If You Take Prima Facie View Before Wheels Of Criminal Law Are Set Into Motion

During the course of hearing Senior Counsel while drawing court's attention to FIR and ECIR being lodged on the same day in verbatim, commencement of investigation and arresting the accused in both the offenses at different times said,

"The act of lodging ECIR being a carbon copy of FIR on the same/next day & commencing the process of investigation with threat of arrest is not proper implementation of this act. From a CBI FIR or police FIR, you cannot start the investigation. There cannot be mechanical lodging of ECIR on verbatim opening me to arrest under this act without anything more. What is the proper way to structure is- that is the dilemma."

He also submitted that the jurisdiction of the ED officers was dependent only on the FIR/Challan and they were concerned with the actual act of money laundering and not from anything else.

While requesting the bench to iron out the existing creases, Rohatgi argued that, "I have come across cases where FIR & challan are under sec 420 of IPC & money laundering is triggered by 420. But when the ED is investigating under this act, it widens the investigation by saying that I have come across that you have done other acts. Say forgery, benami property- what they say is we will not restrict our offense to the predicate offense but we may look at A B C D E F which is not mentioned in the challan. Can ED's jurisdiction which is based on predicate offense be expanded or widened to include offenses under other acts which are not mentioned in the FIR?"

Referring to the Top Court's judgment in P. Chidambaram vs Directorate Of Enforcement, Rohatgi submitted that scheduled offense has been stated to be sine qua non of the PMLA offense.

Justice AM Khanwilkar the presiding judge of the bench at this juncture said, "Suppose a person claims cash to be his property which he claims is untainted. In due course, it happens that once the offense is registered as money laundering that complaint is registered as stated earlier. Suppose the cash amount is not attached adjudication proceedings will commence here but if the case ends up in acquittal, discharge or compounding, the money laundering offense will also go. It's the quintessence."

Responding to the remarks made by the bench, Rohatgi said, "Moment unaccounted money- which may be offence triable under IT but if that amount is found in my house & if I have not converted it, that'll not trigger that offence."

Concealment By Itself Without Anything More Of Ill-Gotten Money Or Crime Cannot By Itself Mean Money Laundering Otherwise It'll Result In Incongruous Result

Senior Counsel also submitted that concealment of "proceeds of crime" by itself would not amount to money laundering. He further contended that,

"Any person connected with crime is roped up in the first part. What ED is doing is the same people who are in FIR are projected as those who are committing money laundering. Concealment by itself without anything more of ill gotten money or crime cannot by itself mean money laundering otherwise it'll result in incongruous results. Individuals' offense under section 3 will be complete if he has in some manner done or assisted the offense of robbery and that person's activities fall in both the compartments. At the same time if concealment is there in proceeds of crime, then next part as whole,"use, projecting or claiming" it as untainted money- otherwise when someone conceals proceeds of money they can say "no money laundering""

To further substantiate his contention Senior Advocate said, "I need not be the robber but I can be instrumental in projecting or tainting it. If I have robbed the bank or abetted the robbery or as principal directed robbery, I'll be guilty of predicate offense; Whoever has assisted- is guilty of doing that robbery or abetment- I may not have robbed the bank or assisted but if A & B come at my house & they say that you keep the money, I'll be concealing the proceeds of robbery- I'll be guilty of proceeds of crime".

"You need not have abetted but after the offense proceeds of crime are given to you & you keep it in your possession- that'll also be offense under PMLA," remarked Justice AM Khanwilkar

Referring to the judgment of Privy Council in Barendra Kumar Ghosh v. Emperor Senior Counsel cited an example, For eg A, B & C conspire of robbing. One person provides a car knowing that it is for robbery- that person will also be an abettor. Another person provides a gun- that person will also be an abettor: all this is being expanded in 1st compartment: "activities related with proceeds of crime" but it does not militate the 2nd compartment which is water tight.

During the course of hearing, Justice CT Ravikumar posed a question to Senior Counsel as to whether merely acquiring proceeds of crime would amount to money laundering or not.

To answer the question posed by Justice Ravikuamr, Senior Counsel while giving another example said, "Moment he acquires the property & projects or claims to the world at large including all departments that I claim it to be my property he will have to declare it somewhere. If I go to the jeweler & purchase something from proceeds of crime & if I just go home & keep it- then it'll not be money laundering & I don't even present it to any department. But if I show that in my returns & project it for purchasing it through agricultural income- then I'll be guilty. Projecting is to an audience."

Real Issue Would Not Be Whether The Twin Conditions Under Section45(1) Apply Or Not Or Of Their Constitutional Validity But Would Be As To Whether They Exist Or Not; Umbilical Cord Connection Between The Predicate & Money Laundering Offense: Senior Advocate Vikram Chaudhari

Senior Advocate Vikram Chaudhari while referring to the Top Court's judgment in Nikesh Tarachand Shah's case and the amendment introduced in the section 45 vide Finance Act, 2018 submitted that the the real issue would not be whether the twin conditions under Section 45(1) apply or not or of their constitutional validity but would be as to whether they exist or not.

Relying on State of Manipur v. Surjakumar Okram & Ors. 2022 SCC OnLine SC 130 , Senior Counsel said, "Various factors went into the mind making while declaring twin conditions as unconstitutional in Nikesh. All parameters for bail would remain the same & the twin conditions are no longer in existence & were never revived." 

It was also Senior Counsel's contention that there is umbilical cord connection between the predicate & money laundering offense. To buttress the submissions, Chaudhari while requesting the bench to read down the explanation to section 44 of PMLA Act said, "Derivation of proceeds of crime are connected with scheduled offense & it's only based on scheduled offense activity that the proceeds of crime are projected & then there is placement, layering & integration."

The bench would continue hearing the matter tomorrow.

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PMLA Reverses Burden Of Proof Without Safeguards; Gives Unchecked Powers To ED To Take Over Properties: Singhvi To Supreme Court