S. 197 CrPC Applies To PMLA : Supreme Court Holds Prior Sanction Mandatory To Prosecute Public Servants For Money Laundering Offence

The Supreme Court held today that section 197(1) of CrPC, which provides that prior sanction from the government is required to prosecute public servants and judges for offences alleged while discharge of public duties, will apply to cases under the Prevention of Money Laundering Act.

A bench of Justice Abhay Oka and Justice Augustine George Masih dismissed an appeal by the Directorate of Enforcement challenging Telangana High Court's order that set aside cognizance orders against two IAS officers on the ground of lack of prior sanction.

“Appeal dismissed. We have held that provisions of Section 197(1) CrPC will apply to PMLA”, Justice Oka pronounced.

"Section 65 makes the provisions of the CrPC applicable to all proceedings under the PMLA, provided the same are not inconsistent with the provisions contained in the PMLA. The words 'All other proceedings' include a complaint under Section 44 (1)(b) of the PMLA. We have carefully perused the provisions of the PMLA. We do not find that there is any provision therein which is inconsistent with the provisions of Section 197(1) of CrPC. Considering the object of Section 197(1) of the CrPC, its applicability cannot be excluded unless there is any provision in the PMLA which is inconsistent with Section 197(1). No such provision has been pointed out to us. Therefore, we hold that the provisions of Section 197(1) of CrPC are applicable to a complaint under Section 44(1)(b) of the PMLA", the Court held.

The allegations against respondents Bibhu Prasad Acharya and Adityanath Das involved misuse of official position in land allotments, undervaluation of assets, and unauthorized concessions that allegedly benefitted private companies linked to then Andhra Pradesh CM YS Jagan Mohan Reddy while causing significant financial loss to government. The ED alleged that Acharya conspired with prominent figures to facilitate these transactions.

The ED alleged that Acharya, in his capacity as Vice Chairman and Managing Director of Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC), and Das, the Principal Secretary of the I&CAD Department of the Andhra Pradesh government, committed acts constituting money laundering. Acharya was accused of conspiring with Reddy to allot 250 acres of land for a special economic zone (SEZ) project in violation of regulations, thus indirectly facilitating money laundering. Das was accused of improperly approving an additional water allocation to India Cements Limited, allegedly in violation of norms and procedures.

The Special PMLA Court took cognizance of the complaints and issued summons to both respondents.

Before the HC, Acharya contended that he acted within official capacity, arguing that prior government sanction under Section 197 of the CrPC was necessary for prosecution.

The ED argued that the PMLA, being a special statute with overriding provisions under Sections 65 and 71, does not require such sanction. The ED maintained that the allegations involve abuse of official powers for private gain, thus negating the protection offered by Section 197 CrPC. ED further argued that the proceedings under the PMLA do not necessitate sanction as the PMLA is a complete code providing procedure for everything.

The Telangana High Court on January 21, 2019 allowed the quashing petition, setting aside the cognizance orders. The HC held that lack of required prior sanction under Section 197 of the CrPC rendered the cognizance orders unsustainable. The ED filed the present appeal against this decision in the Supreme Court, asserting that the PMLA overrides the CrPC, including Section 197, under Section 71 of the PMLA.

Arguments before the SC

Additional Solicitor General SV Raju for the ED argued that the PMLA's provisions, particularly Section 71, which confers an overriding effect over other laws, exempt the need for sanction under Section 197(1) of the CrPC. He submitted that the requirement for such a sanction contradicts the objectives of the PMLA, aimed at tackling money laundering. Raju contended that Acharya did not qualify as a public servant under Section 197(1) as he was not employed in connection with the affairs of the State government in his role with APIIC, a corporation separate from the State administration. He asserted that the allegations against the respondents were not actions in the discharge of their official duties but rather individual misconduct.

Senior Advocate Kiran Suri for the respondents argued that APIIC's Memorandum and Articles of Association authorized the Andhra Pradesh government to appoint and remove its directors, including the Vice Chairman and Managing Director. This, she argued, rendered Acharya a public servant under Section 197(1). She further contended that the requirement of prior sanction could be raised at any stage in proceedings and was not limited to the trial phase.

Supreme Court's Verdict

The Court referenced previous rulings, such as Centre for Public Interest Litigation v. Union of India and Prakash Singh Badal and Anr. v. State of Punjab, which clarified that protection under Section 197 applies only to actions reasonably connected to the discharge of official duties, not those done solely under the guise of duty. It also recognized that the requirement of sanction could be raised at any stage, including after cognizance is taken, and that the question of sanction may require examination throughout the trial, depending on the evidence presented.

The Court observed that Das, the Principal Secretary, was indisputably a public servant and thus removable only with government approval. Regarding Acharya, the Court noted that the government appointed him as APIIC's Vice Chairman and Managing Director on deputation, thus extending public servant status under Section 197(1). The Court examined APIIC's Memorandum and concluded that the Andhra Pradesh government had the authority to appoint and remove directors, including the Vice Chairman, supporting Acharya's claim to public servant status.

The Court determined that the acts alleged in the complaint—land allotment by Acharya and water allocation by Das—fell within the scope of official functions assigned to the respondents. Thus, the protection of Section 197(1) applied, as the actions were not mere opportunities afforded by official status but were directly connected to their official duties.

Section 65 of PMLA states that CrPC provisions apply to PMLA proceedings unless inconsistent with the PMLA, while Section 71 grants the PMLA overriding status over conflicting laws. The Court held that Section 197(1) of the CrPC is not inconsistent with the PMLA, finding no provision in the PMLA that explicitly excludes Section 197(1) requirements. Therefore, CrPC provisions, including Section 197, apply to PMLA cases as long as they are consistent with the PMLA's objectives, the Court held.

The Court noted that an interpretation excluding Section 197(1) from the PMLA would render Section 65 meaningless. The Court reasoned that Section 71 could not override CrPC provisions like Section 197(1) when the CrPC provisions are integrated into the PMLA through Section 65. Consequently, the requirement of prior sanction under Section 197(1) applied to the PMLA, affirming that public servants facing prosecution for acts connected to their official duties are entitled to protection under Section 197, the Court concluded.

The Supreme Court upheld the High Court's decision. The Court clarified that the effect of the impugned judgment was that the orders of the Special Court taking cognizance only against the two accused, B.P. Acharya and Adityanath Das, stand set aside. The order of cognizance against the other accused would remain unaffected. The Court further stated that it would be open for the appellant to move the Special Court to take cognizance of the offence against the two respondents if a sanction under Section 197(1) of CrPC is granted in the future, subject to any legal or factual objections available to the respondents.

Case no. – Crl.A. No. 4314-4316/2024

Case Title – Directorate of Enforcement Etc. v. Bibhu Prasad Acharya Etc. Etc.

Citation : 2024 LiveLaw (SC) 940

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