The Supreme Court on Tuesday heard submissions made by Senior Advocate Kapil Sibal on the interpretation of the Prevention of Money Laundering Act, 2002 (PMLA).
Sibal briefly discussed the shortcomings in the Act that arose from the set of petitions filed before the three-Judge Bench, led by Justice A.M. Khanwilkar.
First, he argued that the procedure followed by the Enforcement Directorate (ED) in registering an Enforcement Case Information Report (ECIR) is opaque, arbitrary and violates of the constitutional rights of an accused.
He stressed on the fact that the procedure followed by the Directorate of Enforcement, while investigating offences under the PMLA, by recording an internal document called the ECIR, without informing a proposed accused of the contents of the ECIR, and the acts for which he is being investigated, is against the procedure followed during any criminal investigation.
The accused should be informed about the nature of the investigation, the statutes, and offences for which he is being investigated, and the allegations on which the investigation has commenced.
Further, he placed reliance on the Youth Bar Association vs Union of India case, where the aspect of transparency and fairness has been acknowledged even by the Supreme Court in cases of First Information Reports (“FIRs”) under the Cr.P.C.
He also substantiated the same through Article 22 of the Constitution, the Supreme Court’s Report on CrPC, while highlighting the extent of transparency through the case of Court on its own Motion v. Justice Deepak Mishra (Delhi High Court), stating that the presumption of innocence is a human right.
Second, the ED must necessarily satisfy itself that proceeds of crime have been projected as untainted property before registering an ECIR. That cause of action being entirely different from the generation of proceeds of crime through alleged commission of the predicate offence, requires prima facie, for the ED to establish the act of money laundering i.e. the act of projecting or claiming the alleged proceeds of crime as untainted property, and thereafter start proceedings, and not simultaneous with the lodging of an FIR.
Otherwise, there will be no difference between the predicate offence and the offence of money laundering. Thus, as the PMLA originally stood, the exercise of powers under the PMLA were contingent on the filing of a charge sheet u/S 173 Cr.P.C. in relation to the alleged scheduled offence and it is only by way of subsequent amendments that these safeguards have either been diluted or completely done away with. Therefore, any attempt to commence proceedings under the PMLA without prima facie recording the commission of the offence of money laundering would be a procedure inconsistent with the PMLA itself, and therefore violative of Articles 14 and 21 of the Constitution.
Third, derivate act cannot be more onerous than the original. He contended that, “The failure to treat the schedule offence and subsequent offence under the PMLA on similar planes insofar as provisions/ protections of the Cr.P.C. are concerned would amount to a disproportionate application of the criminal law and subject to be struck down under Article 21 of the Constitution”.
Fourth, the whole schedule is over-broad and is inconsistent with the PMLA in the context. The inclusion of offences in the schedule without the same having any rational nexus with the objects and reasons of the PMLA is violative of Article 14 and 21 of the Constitution of India being unreasonable and arbitrary.
Fifth, PMLA cannot be a standalone statute. He argued that the legislative intent of the PMLA is to stem the flow of money laundering from illicit trade, primarily in narcotics. This is apparent from the Statement of Objects and Reasons of the PMLA. “Even the Speeches of the Ministers in Parliament while introducing the PMLA and the 2012 Amendment to the PMLA made it clear that the offence of money laundering pre-supposes the existence of a scheduled offence which generated the funds which were subsequently laundered by ‘projecting or claiming it as untainted property’”.
His main contention was with respect to the multiple amendments to the Act made through Financial Acts, i.e., Money Bills, when the provisions of PMLA are not at all related to the matter which come under the Money Bill, in accordance with Article 110 of the Constitution of India. In this respect, Mr. Sibal made submissions by placing reliance on the case of Roger Mathew as well as the Puttaswamy judgement and discussed in detail the definition of Money Bill, its constituents and analysed the term ‘only provisions’ mentioned in Article 110 of the Constitution.
He further went on to explain in detail all the amendments made to Sections 2 (1) (u), 2 (1) (y), 3, 17, 45 (1) etc of the PMLA. and discussed significant repercussions of the same. Arguing that amending the PMLA does not fall under any category of items under the Money Bill as per Article 110 (1) (a)- 110 (1) (g) of the Constitution, he highlighted the fact that since the Rajya Sabha can merely give recommendations to the Money Bill, only within 14 days, and those recommendations are also not obligatory to be included by the Lok Sabha in the Money Bill. Simply to avoid the discussion on the amendments, they were introduced and passed through a Money Bill.
Following this, a discussion took place to understand the definition of money laundering by dissecting the definition of the offence as under Section 3 of PMLA with the aid of Black’s Law Dictionary, which stated that the act of transferring illegally obtained money through legitimate people or accounts so that its original source cannot be traced is money laundering. In accordance with this, the latter part of Section 3 of PMLA, which reads as “and projecting it as untainted property shall be guilty of offence of money-laundering”, becomes the heart of the Section and mere possession or use etc. cannot constitute the offence. Further he contended that the offence of money laundering requires proceeds of crime generated from the predicate offence and their projection as untainted. Therefore, the cause of action for ED can only arise if the commission of the predicate offence has generated proceeds of crime which have been projected as untainted. The definition provided in the United Nations Convention against Illicit traffic in Narcotic Drugs and Psychotropic Substances was also taken into account. Therefore, not the mere acquisition or use of the property, but its conversion or transfer to conceal the illicit nature of the property constitutes money laundering. The legislative intent was highlighted by discussing the Select Committee’s Report and comparing the original and amended provisions.
The Hon’ble Justices and Mr. Sibal, constantly went back and forth in trying to understand what constitutes the offence of money laundering. Justice A.M. Khanwilkar, while agreeing with Mr. Sibal on certain contentions, observed that there should be certain guidelines for the ED as to when their role begins in a particular instance. It was also stated that PMLA does not get triggered just because of the predicate offence, it gets triggered when there is ‘laundering’, and ED is supposed to begin at that stage.
The court, before reaching to any conclusion, decided to hear the other side on the issues raised by Sibal today. The matter will be next heard on January 27, 2022.