The Supreme Court on Thursday sallied forth on the next leg of the matter in the question regarding the Prevention of Money Laundering Act, 2002.
The three-judge bench headed by Justice Mr A.M. Khanwilkar heard Senior Advocate Kapil Sibal in great detail. The positive and extensive interactions between them, exemplify the fact that issues involved in the matter are of national importance.
Sibal drew the attention of the court towards the history of Section 3 of the PMLA, 2002. As per the above definition of money laundering under the original PML Bill, 1999, mere acquisition, ownership, possession or transfer of any proceeds of crime would have constituted the offence of money laundering. When the PML Bill, 1999 was looked into by the Select Committee of the Rajya Sabha, the said Select Committee recommended substitution of Clause 3 of the Bill and added words, “and projecting it as untainted property” The use of the word “and” before the term “projecting as untainted property” makes the intent of Legislature clear that mere ‘use’ or ‘possession’ will not suffice.
He further clarified how each part of the Section is supposed to be read. Further requesting the bench to appreciate the fact that predicate offence is not an offence under PMLA and emphasizing that the core of the offence under PMLA is projecting it as untainted property. “If you read it as or then the later part of the section and the Select Committee’s recommendations become redundant.” Justice Khanwilkar observed, “Explanation to the section cannot override the provision.”
Sibal further submitted, “The investigation under the PMLA therefore can only proceed if such proceeds of crime are projected or claimed as untainted property. Those facts must first be collected before launching an investigation under PMLA, that is there must be definitive determination as to whether any proceeds of crime have emanated from the scheduled offence, and further, whether such proceeds have been projected as untainted.” Proceeds of crime will not be an offence under PMLA. The extent of proceeds of crime projected or claimed to be untainted property must at least be prima facie quantified to ensure that the thresholds prescribed under the PMLA are met. Currently there are is no threshold after the Finance Act amendment. However, the ED treats itself as an exception to these principles and practices and chooses to register an ECIR on its own whims and fancies on its own file.” Justice Khanwilkar observed that the essence of this offence is predicate offence. Until predicate offence is registered there cannot be PMLA.
Further the counsel contends that Section 50(2) of PMLA gives summoning powers to the ED but does not specifically mention the nature or the procedure for the same which leaves way for the application of Section of PMLA. Thus the main emphasis of Sibal’s argument was that Section 65 (application of CrPC) would apply for exercise of power under PMLA. But contrary to it, the ED does not comply with most of the provisions of CrPC.
The next issue is that PMLA does not tell you the procedure for issuing summons. The second limb of the argument is that when you exercise your power under Section 50, PMLA you must comply with CrPC.
Sibal submitted that there is no concept of offence other than, cognizable and non-cognizable. Either way the provisions of CrPC are to be complied with. Another big issue is what happens to pending prosecutions?
Following this submission, Sibal delineated where the statute and the provision of projecting the property as untainted is borne from, under which the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances was discussed. The relevant Articles of the Convention are Article 1 (p), which defines ‘proceeds’, Article 3, especially Article 3 (b) (i) and (ii), which talk about conversion or transfer of property to conceal the illicit origin, and Article 5, which laid emphasis on proceeds derived from drugs and psychotropic substances leading to laundering. Following this, the FATF recommendations, United Nations General Assembly Resolutions etc. on the same lines were put forth.
The counsel contended that before proceeding with the prosecution, the ED should wait till the charge-sheet is filed, to give finality to the availability of enough evidence to proceed with trial. Search and seizure powers can only be exercised once the charge-sheet is filed. The PMLA, as originally stood, was contingent on the filing of charge-sheet, which is now done away with or diluted. This is violative of Articles 14 and 21 of the Constitution.
Justice Khanwilkar directed Sibal to modify his argument to the extent that investigation by the ED should start only after charge-sheet is filed.
Sibal argued that the consequences under PMLA cannot be more severe than that generated by the proceeds of crime. This is inconsistent with the basic principles of criminal law. In addition, he contended that the nature of the offences under the Schedules of PMLA is overreaching and too broad. This formed the basis for his next submission, that the purpose of the act is organised crime, including through syndicate. The object is not to prevent the predicate offence, but laundering, and that too as a part of organised crime and not individual acts. Interpretation of the word ‘process or activities’ has to be in plural sense.
The next submission put forward by Sibal was that if a person is acquitted in the predicate offence, the trial under PMLA cannot continue.
If there are no proceeds of crime generated, the question of laundering does not arise. The offence of money laundering, as opposed to what PMLA states, is not a stand-alone offence. “It is dependent on the scheduled offences which form the predicate offence, which leads to the generation of proceeds of crime”. Justice Dinesh Maheshwari noted that acquittal in predicate offence cannot lead to ipso facto acquittal in the PMLA case as well. It has to depend on a case-to-case basis.
With respect to these contentions, Sibal summarised all the submissions and stated that CrPC is a procedure established by law and there cannot be an investigation outside of Sections 154 and 155 of the Code. Several safeguards of CrPC are not complied with by the ED; they do not register FIR, there is an oversight of jurisdictional magistrate, they do not maintain a case diary, they do not provide a copy of the ECIR to the accused, and the constitutional safeguards are not present in the act. There are no provisions governing the conduct of ED, which has given unrestricted power to them.
After concluding with this line of submission, Sibal moved forward to introduce a separate line of submissions to answer the question that whether the ED officers are police officers? He put forth that their basic proposition is that PMLA is a penal statute, i.e., a statute which deals with both the prevention of crime and for punishing people who have committed this crime. “The difference between regulatory and penal statutes was explained through the examples of the Custom Officers, Railway Protection Force etc. Although, the Custom statutes etc. are both regulatory and penal, their primary objective is regulatory. The counsel argued that there are two conditions, first that the primary objective to be regulatory and second, that complaint is filed instead of a charge-sheet. In such cases, the officers shall not be police officers.
Sibal, in an attempt to prove that PMLA is a purely penal offence, took the Court through all the provisions which show the penal nature of the statute, which are Section 2 (na), which is the definition of investigation, Section 2 (u), the definition of proceeds of crime, Section 4, punishment of money laundering, Section 17, search and seizure, Section 18, search of persons, Section 19, power of arrest, Section 24, reverse burden of proof, Section 43, Special Courts for both the trials, Section 44¸ offences triable by the Special Courts, Section 45, Offences to be cognizable and non-bailable and specifically Section 45 (1A), where the Central Government can authorise a police officer to investigate, Section 46, Application of CrPC to the proceedings before the Special Court and Section 47, appeal and revision. Further, there are also the search and seizure rules. He argued that there is nothing regulatory about the statute on its own, and it is a purely penal statute, which means that the ED officers are indeed Police Officers.
The next hearing of the matter is on February 1, 2022.