To Say That ED Has To Wait For FIR In Scheduled Offence Will Make PMLA Unworkable, Says Supreme Court During Hearing

On Wednesday, Justice A. M. Khanwilkar observed, "Don't make arguments that will make the system unworkable. Offences can be registered at different points of time also- we don't know, it depends from case to case. The obligation of the special court is to try both the offences, and expeditiously. Accepting this argument is asking the trial court not to try this offence. Then until the predicate offence is tried and the judgment of conviction attains finality, that is, until the Supreme Court decides, nothing would proceed as regards the PMLA offence? For 20 years, nothing would happen? Look at the uncertainties. The way out should be such that it serves both- the justice system also and the interest of the accused"

Continuing, the judge noted, "Suppose, the predicate offence is registered, the trial commences, then at some stage some information is received by the ED about commission of such predicate offence being registered and that there are proceeds of crime which are being used or in possession and therefore an offence is committed under PMLA. So it can be after one year also, it can be simultaneously also. One thing is certain is that PMLA cannot proceed without a predicate offence. Now the question is whether registration is essential, or even before registration, you can take notice of PMLA offence and inform the police officer concerned to take notice of this predicate offence and register it and proceed. It can be a mix of it. For one cause of action, we cannot deny the other cause of action which has arisen under the PMLA itself..."

"Keep in mind one of the possibilities- The person involved is so influential or placed at a high authority position. If the local police refuse to register the predicate crime, saying 'we will enquire' and all. If the accused is influential, he will put his weight in ensuring the police do that. Now, the ED cannot proceed without 'proceeds of crime'. In that case, the PMLA offence will also not be tried. What is the way out? There are situations and situations. We cannot visualise all of them at this point of time. Any rigid formula may impact that process also. You have seen what is happening now- certain states are refusing to give access to CBI investigation. It is a political decision, administrative decision on whatever, but it is happening. We cannot be ignorant or oblivious about that. We have to keep that situation in mind also. Otherwise, then the whole purpose of this Act will be defeated", elaborated Justice Khanwilkar.

Justice Dinesh Maheshwari also opined, "We have to look at things from a workable point of view. That will always depend on the case to case basis. We are not doing any academic exercise here. We can make it more complicated- say, in a given case, a closure report is filed. Perhaps because the accused is an influential person. Then a protest petition is filed that is pending. At a later point of time, the protest petition is accepted and the case is registered and proceeds further. So like this, there cannot be a hiatus situation or a vacuum"

Justice Khanwilkar added, "The situation of special court's jurisdiction comes later. The first is the power of the investigating officer, the ED's power to proceed when he receives the knowledge. If we direct, as a formula, that the registration of the predicate offence must come priorly, we will be ignoring several possibilities. Whether the whole Act will be defeated by creating such a situation?"

Mr. Reddy advanced, "The Special Court can await the result of the scheduled offence or proceed independently. If it proceeds independently and returns a finding of conviction, and if the scheduled offence was to be determined tomorrow that no offence was committed, and hence, there were no proceeds of the crime, the entire foundation of the money laundering offence would fall to the ground!"

Justice Khanwilkar said, "Before the question of jurisdiction of the special court,we must first answer whether investigation itself can commence. If investigation itself is not permitted, the ED has no authority to search, to arrest"

Mr. Reddy responded that in terms of the provision as it today stands, investigation can be commenced by ED, without an FIR being formally registered.

Justice Khanwilkar expressed that there is no procedure for investigation under the Act per se and what is contemplated is only a form of inquiry, where material is gathered for attachment, arrest etc and the ED can only file a complaint under Act. Justice Ravikumar also said that the expression 'investigation' should be understood in the way it is defined in section 2(na) of the Act, as implying collection of evidence.

Mr. Reddy submitted that the scheme of the Act implies it in the nature of investigation where the police is kept out and the power is entrusted to enforcement directorate officials.

"What may be the commencement point of the investigation, your lordships will have to consider. It is a penal statute. The whole legislative exercise is to prevent and to take deterrent steps with regard to a crime. If there was to be an investigation, what is the commencement point? My argument is that the registration of the ECIR, in Cr. P. C. timelines, would be the 154 (Cr. P. C.) stage of the registration of the FIR. Because it is from there that they have the full range of investigative powers to conduct searches, seizures, summon persons and cause arrest. Just like the police officer after 154 has all the powers. In Cr. P. C. timeline, the 173 report which the police files would be the filing of the complaint before the special court", he continued.

"The registration of the FIR is only noting of the jurisdictional fact that there must be a scheduled offence which has been committed. But it is quite possible, as your lordships put it to me, that in the way things workout practically, if CBI does not have jurisdiction in a region, so the predicate offence is never registered, the FIR is never registered. In that case, does the statute provide enough safeguards for the ED to commence investigation under the Act? The necessity for the ED to start even if the FIR is not registered would be largely because if there is money, the money needs to be secured, if there is an offender, he should not be permitted to abscond, if there is investigative material, through search and seizure that needs to be forthwith compounded. So there is a small latitude where the ED may be able to act even in the absence of the FIR being registered. But when the matter comes to trial, the offence of money laundering is made out under section 3 of the PMLA only if there is an effort to launder proceeds of crime, and Proceeds of crime is defined", submitted Mr. Reddy.

Continuing, he urged, "But for the special court to return a conviction for money laundering, it must be satisfied that there were some proceeds of crime which were sought to be laundered. When the special court is conducting trial, it cannot conduct the trial and hold a person guilty of the offence of money laundering unless there is a clear fact available before it that there were proceeds of crime. What is happening practically is that the ED, after it registers ECIR, it does not conduct any investigation with regard to the scheduled offence because it has no jurisdiction. It's jurisdiction starts when there is a criminal activity because of which proceeds of crime have been laundered. The beginning of the complaint under the PMLA is at the conclusion of the scheduled offence. Otherwise, the special court would have to presume that scheduled offence has been committed and the accused is guilty of it."

Justice Khanwilkar observed, "When the ED officers raid some premises and find some huge quantity of cash, they will report it to the local police, which will be in the nature of the information given for 154. If the local police do not register 154, the ED can file a complaint before the magistrate to initiate investigation of the predicate offence, who can then issue direction under 156(3) Cr. P. C. But saying that unless FIR for predicate offence is registered, ED cannot initiate investigation is asking them to wait till the registration, which is counter-productive for the purpose of this act. The intention of the act is to grab the property immediately so that it is not wasted or moved further"

Justice Maheshwari also noted, "Suppose a huge amount of unaccounted cash is found. It is not necessary always that there is an offence pertaining to income tax act. Which particular predicate offence it relates to may come later. Having a predicate offence already registered and then only proceeding cannot work. Every unaccounted money is not necessarily an income tax related issue. But it could still be proceeds of crime. Which particular crime, that is the point. That would not be known at that particular point of time. It would depend on further enquiry and investigation"

Justice Khanwilkar added, "It is well settled that for the same act, 2 actions can proceed simultaneously- Civil and criminal. Income tax violation would be civil but this is criminal and it can still proceed. It is independent of that. The fact that you are acquitted does not mean there is no civil liability and vice versa"

Justice Maheshwair continued, "In the schedule to the PMLA, though IPC offences are given, interestingly section 511 of the IPC is not stated. It would have been very easy for the legislature to have simply inserted 511- an attempt to commit an offence is an offence! Then most of your arguments would have been out. It does not mean that there has to be an offence pre-hand before the ED officer registers the PMLA-ECIR."

Justice C. T. Ravikumar added, "Suppose there is a criminal activity relating to a scheduled offence and proceeds of crime arose. Merely because the predicate offence is not registered, can you say that the proceeds of crime or the predicate offence is not in existence? It may be registered subsequently. What is required is the existence of the predicate offence."

Mr. Reddy advanced, "The Predicate offence or criminal activity relating to a predicate offence must as a fact have been committed. If ED knows there is no scheduled offence or criminal activity relating to scheduled offence, like income tax evasion, the ED will not be able to say that just because a stash of cash is found, it will conduct investigation under PMLA. Because Parliament is entrusting investigative powers in the ED on some jurisdictional facts. Most important jurisdictional fact is there has to be proceeds of crime. Even if the predicate offence not registered, it doesn't matter. But if there is no such offence or criminal activity relatable to schedule offence, then ED would have no jurisdiction. If regardless of this, the ED proceeds and attaches, and it is found that there is no scheduled offence or criminal activity relatable to it, then the procedure lapses. After registering the ECIR, the complaint is to be laid before the court. Even before the special court takes up trial, the ED needs to point out the jurisdictional facts before the special court. It needs to say that such-and-such is a scheduled offence; whether it is registered or not is separate. The complaint will say that these are the proceeds of crime and that section 3 is made out."

At this, Justice Khanwilkar observed, "Suppose the ED comes across some cash or property, and it concludes that it is from a criminal activity relating to a scheduled offence, though not the offence per se. Such activity includes planning to do it, conspiring to do it. Everything is included, but it is not the scheduled offence itself. Once that satisfaction is received and they record the satisfaction, then they can go for search, seizure, arrest."

Mr. Reddy advanced that his limited submission is that the decision in the PMLA case cannot precede the decision in scheduled offence case, though conducted simultaneously.

Justice Khanwilkar noted, "Proceeds of crime or property which has been made available from that criminal activity or predicate offence is proceeds of crime for the purpose of this Act, not for Cr. P. C. There is no proceeds of crime in Cr. P. C., it is only relevant for PMLA."

Justice Maheshwari added, "That particular proceeds or particular property answers to the description of this 'proceeds of crime', where would that be established? In this PMLA trial only. In the scheduled offence trial, the offence would be established. Whether it was proceeds generated out of that crime or relatable to or relating to that crime is established in the PMLA case. In the scheduled offence case, would there be a charge that you have committed the offence and generated proceeds of crime? No"

Mr. Reddy insisted that even if the 'proceeds of crime', its quantum and whether it was laundered is determined by the special court in PMLA trial, that would also hinge on the scheduled offence having been committed; that if it was held in the ancillary matter that there is no act of cheating or other offence committed, then there would be no 'proceeds of crime' for the special court; and that though the proceeds of crime may be quantified by the special court, they still hinge on the predicate offence.

Justice Khanwilkar noted that if this argument is accepted, that would tantamount to reading "proved scheduled offence" in the definition of 'proceeds of crime'. Section 2(1)(u) of the PMLA defines 'proceeds of crime' as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. The Explanation appended to it states that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.

Justice Ravikumar asked, "Suppose the prosecution is challenged for want of sanction for prosecution in the predicate offence. Then the other proceedings will still not go on?". Justice Khanwilkar commented that the sanction denial can be for various considerations.

"Property is property simpliciter for the scheduled offence, but for PMLA, it is actionable proceeds of crime. Therefore, the latter is independent of that offence in the former. What happens to that offence is not relevant- If it is not proved there, it doesn't mean it cannot be proved in the PMLA proceedings that the property is derived or obtained or relatable to criminal activity. It is a fact to be proved here", repeated Justice Khanwilkar.