Prevention of Money Laundering Act and its Gainsaying with Fundamental Rights

Introduction

Prevention of Money Laundering Act, 2002 is one of the legislation, whose provisions have been frequently challenged to be arbitrary and violative of Fundamental Rights of the citizens. The legislature has diligently maintained the arbitrary feature of the Act through amendments under the garb of “serious nature of the crime of money laundering”.

The latest amendment in the act made through the Finance Act, 2019 is an attempt of the legislature to widen the scope of the Act, thereby opening floodgates for one more investigating agency to misuse its power under the garb of “investigation and prevention of crime”. The amendment sought to be made by way of a Money Bill in 2017 was challenged by Jairam Ramesh, a Member of Parliament from Congress in Rajya Sabha before Supreme Court contending that the amendments sought in PMLA Act has no connection with the Money Bill under Article 110 of Constitution of India.

There are obvious reasons to bring the amendments by way of a Money Bill since it cannot be amended or rejected by the Rajya Sabha. The prevailing regime of government similarly introduced the Aadhar Bill as Money Bill which raised several controversies and the same is under reference to a larger bench at Supreme Court in KS Puttaswamy v Union of India.

The government has earlier also in 2015, 2016 and 2018 brought amendments in the Act through the Money Bills. The recent amendments, respectively, to Sections 2(1)(u), Section 3, Section 44 and Section 45 of the Act are also under challenge at the Madras High Court in K. Liayakat Ali Vs Union of India and Ors., W.P. No. 29268 of 2019, in which vide order dated 25.10.2019 the High Court has issued rule nisi which is now pending adjudication. This article examines the provisions which enable PMLA Act to subjugate masses leading up to their Fundamental Rights violations. It is also used as a political tool as we have seen in the recent case of P.Chidambaram. It further percolates the courts view and stances where the court has conducted a comparative study in respect of the PMLA Act with other special statutes.

Basis of strife between the act and other statutes

The conflict between a special law such as PMLA Act and Criminal Procedure Code is not new in fact, similar conflicts have arisen before also and will continue to arise in future whenever a statute will result in the creation of a new authority apart from the identified authority i.e., ‘police officer’ and give them same/wider powers as of a police officer under CrPC. The reason for such conflicts is a departure from the principles of natural justice and giving wide powers to the officers under the special statute. One common deviation in most of these special statutes is the recording of statement of an accused person by the special officers to be admissible in the court of law which is in direct contravention with the protection given to an accused under section 161 Cr.PC.

This sacred right of an individual against self-incrimination is a widely appreciated right under the Constitution of India in Article 20(3) and is further backed by Section 25 of Indian Evidence Act. However, the legislature by providing recognition to special officers to act as investigators has bestowed upon them the powers and makings of the police officers but at the same time has kept the two officer categories apart which allows the statements made before special officers to be admissible in a court of law. Consequentially, the courts have also time and again upheld the same to be not ultra vires of the Constitution or Evidence Act paving the way forward for conflicts.

For example, the statements made to an officer under Section 67 of the NDPS Act are admissible in contrast to the scheme of Section 161 CrPC. However, the issue is also pending before the Supreme Court in a reference in Tofan Singh Vs. State of Tamil Nadu to resolve whether officer recording the statement u/s 67 of NDPS Act is a police officer or not for the purpose of Section 25 of Evidence Act. The Supreme Court in an earlier judgment (Badku Joti Savant vs State Of Mysore, 1966 AIR 1746) held that Central Excise Officer is not a police officer within the meaning of those words in S. 25 of the Evidence Act and hence the statement made to the officer is admissible.

In the case of Poolpandi Etc. Etc vs Superintendent, Central Excise, 1992 AIR 1795 an interesting question was raised before the Supreme Court ‘whether a person is entitled to the aid of a counsel when he is questioned during investigation under the provisions of the Customs Act, 1962 or the Foreign Exchange Regulation Act, 1973’.

While answering in negative to the said question, the Court answered to other issues also arising out of the same proposition. The Court further rejected the entitlement of protection under Article 20(3) on the ground that the Customs Officer does not at that stage accuse the person suspected of infringing the provisions of the Sea Customs Act with the commission of any offence.  The court even rejected the argument of right of silence of an accused in a criminal case flowing from the judgment of Carlos Garza De Luna, Appt., v. United States, 1 American Law Reports 3d 969. The above case finds resonance in examining the tug-of-war because Section 50 of PMLA Act and Section 108 of the Customs Act are similar in nature and both are special statues with separate designated authorities for investigation.

In Usha Agarwal Vs Union Of India, the constitutional validity of the provisions of Sections 2(u), 3, 4, 5, 8, 13, 24, 45 and 50 of the PMLA Act was challenged as being ultra vires Articles 14, 19, 20, 21 and 22 of the Constitution. The court while upholding the validity of the provisions held that mere possibility of abuse of a provision by those in charge of administering it cannot be a ground for holding a provision procedurally or substantively unreasonable. The said reasoning goes against the fundamental principle behind making the confessions inadmissible which is itself ‘the possibility of abuse of powers’ by the investigating authorities.

The admissibility of the statement before an ED officer further raises another problem. The trial of the scheduled offences and the offences under PMLA Act is conducted by the same court by virtue of Section 44 of the PMLA Act. The recent amendment has added an explanation to Section 44 (1) (d) of PMLA Act which gives the Special Court an exclusive jurisdiction regarding scheduled offences. The amendment further makes it clear that the trial conducted by the Special Court for scheduled offences shall be distinct from any other trial being conducted for the same scheduled offence. The problem that arises is to constitute an offence under PMLA Act, a predicate offence is necessary which is the scheduled offence as described under the PMLA Act. However, the recent 2019 Amendment to Section 2 of the Act changes this position and widens the meaning of proceeds of crime. The explanation was also added to Section 2(1) u of the Act through the amendment which is as follows:

(u) “proceeds of crime” means 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.

‘Explanation.—For the removal of doubts, it is hereby clarified that “proceeds of crime” including 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;’.

What the legislature has done here is that by adding words such as “Explanation”, “for removal of doubts” has attempted to bring in a retrospective amendment to the Act while making it independent of the scheduled offence.

Through the said amendment now ‘proceeds of crime’ can be as a result of ‘any criminal activity relatable to the scheduled offence’. What flowed naturally in the pre-amendment Act was if a person is acquitted in the scheduled offence, he could not be convicted under the PMLA Act since proceeds of crime had to be from the scheduled offence which is prerequisite to offence under PMLA Act. Still, the courts adopted a different approach even at pre-amendment times and held that the offence under PMLA is a distinct offence and acquittal in scheduled offence does not mean acquittal under PMLA Act.(Refer Supreme Court decision in Binod Kumar vs. State of Jharkhand and Ors. (2011)11 SCC 463 and Bombay High Court in Radha Mohan Lakhotia Vs. The Deputy Director, PMLA, Department of Revenue (2010 (5) BomCR 625).

The Madras High Court in a recent judgment relying on the 2019 amendment reiterated the above stand of Apex Court in M/s. VGN Developers P Ltd., Represented by its Managing Director, D. Pratish, Chennai & Another v/s The Deputy Director, Directorate of Enforcement and held that – “Therefore, it cannot be stated that a mere closure by the Central Bureau of Investigation would provide a death knell to the proceedings of the respondent. In a given case, the complaint may emanate from a registration of a case involving scheduled offence. But the fate of the investigation in the said scheduled offence cannot have bearing to the proceedings under the Prevention of Money Laundering Act, 2002. Section 2(u) of the Act merely speaks of a criminal activity relating to a scheduled offence. Therefore, we are concerned with the criminal activity qua a scheduled offence. Section 3 deals with the offence on money laundering. Once the respondent is of the view that a person is involved in any process of activity connected with the “proceeds of crime”, which definition is very wide then he gets the power to investigate further. When such an investigation gets completed and found that there indeed was a money laundering, then the matter will have to be proceeded with before the jurisdictional Court, on a complaint being taken on file. Hence, there is no difficulty in holding that both the investigations can go on using the same channel while their waters need not mix all the time.

The Madras High Court in the above judgment even went ahead and held that the amendments can be applied retrospectively. In para 17 of the judgment the court held that- “Sub Section 1 of Section 44(1) of the Act as amended by way of an insertion through The Finance (No.2) Act, 2019 No.23 of 2019 dated 01.08.2019…..Though it has come into force subsequently, it is nothing but a clarificatory one. Therefore, looking from any perspective, the submissions made on the side of the petitioners cannot be countenanced.”

The reasoning stated above is not only reprehensible but also the very interpretation goes against the basic criminal jurisprudence that the criminal law should not be applied retrospectively.

Now coming to the earlier point as to how the statements given to an ED officer being admissible under PMLA Act is problematic when two trials are going before the same judge related to an offence which are connected to each other. In the present position of law, ideally, the acquittal in scheduled offence should mean acquittal under PMLA Act though the same is not followed. Now, a possible scenario is that a person can be acquitted under the scheduled offence and convicted under the PMLA Act because the burden of proof is on the accused and the statements/documents given to the ED officer is admissible.

A conflict closely similar to the present one also arose in case of offences under Terrorist and Disruptive Activities (Prevention) Act. The Supreme Court while dealing with a similar conflict in Ashrafkhan @ Babu Munnekhan vs State Of Gujarat, (2012) 11 SCC 606 held that-  “The necessary corollary is that once the other offence is connected with the offence under TADA and if the accused is charged under the Code and tried together in the same trial, the Designated Court is empowered to convict the accused for the offence under any other law, notwithstanding the fact that no offence under TADA is made out. This could be the only intendment of the legislature. To hold otherwise, would amount to rewrite or recast legislation and read something into it which is not there. We have held the conviction of the accused to have been vitiated on account of non-compliance of Section 20-A(1) of TADA and thus, it may be permissible in law to maintain the conviction under the Arms Act and the Explosive Substances Act but that shall only be possible when there are legally admissible evidence to establish those charges. The Designated Court has only relied on the confessions recorded under TADA to convict the accused for offences under the Arms Act and the Explosive Substances Act.

In view of our finding that their conviction is vitiated on account of non- compliance of the mandatory requirement of prior approval under Section 20- A(1) of TADA, the confessions recorded cannot be looked into to establish the guilt under the aforesaid Acts. Hence, the conviction of the accused under Section 7 and 25(1A) of the Arms Act and Section 4, 5 and 6 of the Explosive Substances Act cannot also be allowed to stand.”

Whether the trial in PMLA amounts to Double Jeopardy?

The next question that flows is whether the proceedings under PMLA Act amounts to double jeopardy after being acquitted in the scheduled offence. It has been settled by the courts by answering it in negative. The Odisha High Court in Smt. Janata Jha And Another vs Assistant Director by relying on Section 3 and 24 of the PMLA Act held that even if the person has been acquitted of the charges framed against him in the sessions trial, a proceeding under the PMLA 2002 cannot amount to double jeopardy, where the procedure and nature of proof are totally different from a criminal proceeding under the Indian Penal Code.

The issue of double jeopardy has been raised in several cases when a person has been prosecuted under the special law and general statute (IPC for example) such as in Customs Act, Gold Control Act, FERA, Import Export (control) Act,1947, Army Act. The courts have been following the principle laid down in State of Bombay v. S.L. Apte and another (1961) 3 SCR 107, in which the Supreme Court while dealing with the issue of double jeopardy under Article 20(2), had held that to operate as a bar the second prosecution and the consequential punishment there under, must be for “the same offence”. The crucial requirement therefore for attracting the Article was that the offences are the same i.e. they should be identical. In situation the two offences are distinct, then notwithstanding that the allegations of facts in the two complaints might be substantially similar, the benefit of the ban cannot be invoked.

Deviating from the principle- “Bail and not jail”.

Now coming to the provisions of bail under the Act, the Supreme Court in Nikesh Tarachand v. Union of India (2018) 11 SCC 1, the Supreme Court partly struck down Section 45 of the PMLA Act on the grounds of it being unconstitutional. The court held that Conditions which required the accused to establish that the accused was not guilty of “such offence” and that the accused was not likely to commit “any offence” while on bail were manifestly arbitrary and discriminatory. Thereafter, the government amended the section again by way of the Finance Act, 2018 and made it applicable to offences “under the Act” instead of the offences referred to in Part A of the Act.

Restrictions on bail under a special law is also not new and the same can also be found under NDPS Act. The Supreme Court in Narcotics Control Bureau Vs, Kishan Lal, 1991 SCC (Cri) 265held that It must, therefore, be held that the powers of the High Court to grant bail U/S 439 are subject to the limitations contended in the amendment section 37 of the NDPS Act and the restrictions placed on the powers of the court under the said section are applicable to the High Court also in the matter of granting bail.

An analogous provision can be found in Section 212 of the Companies Act, which imposes the same twin conditions as found in the PMLA Act. The vires of Section 212(6)(ii) and Section 212(7) of the Act is already under challenge and is pending before the Supreme Court in the matter of Serious Fraud Investigation Office V. Neeraj Singal & Anr.

Reversing the burden of proof on the accused

This burden of proof under Section 45 of PMLA can be read with the burden of proof put on the accused under section 24 of the Act. Section 24 has also been challenged before the Supreme Court in Usha Aggarwal Case, in which the Court held that in fact by shifting the onus to the accused, it affords him an opportunity of establishing his innocence and clarifying to the prosecution the source of his property and therefore, contains a safeguard for the accused. Consequently, it cannot be said that the provision is unconstitutional. Thus, when considering the Acts the object has to be given primary importance and the provision thereof cannot be said to be ultra vires when the end goal is to be achieved. Section 24 unequivocally extends an opportunity to the offender to establish the source of his property, which illegitimate can be fully justified by the Petitioner.

Conclusion

The PMLA Act was brought in order to curb money laundering and protect the economic interests of the nation. In the attempt to do the same, the legislation has severely violated the fundamental rights of a person accused under the Act. However noble the intention of the government be, it is their prime duty to maintain a balance in the criminal justice system. The Supreme Court in Prakash Kumar @ Prakash Bhutto vs State Of Gujarat, (2005) 2 SCC 409 has clearly held that-:

“217. If the procedural law is oppressive and violates the principle of just and fair trial offending Article 21 of the Constitution and is discriminatory violating the equal protection of laws offending Article 14 of the Constitution, then Section 15 of TADA Act is to be struck down.

 Another important observation of the Supreme Court in Ashrafkhan @ Babu Munnekhan case which is much relevant to the present statute is-

We emphasize and deem it necessary to repeat that the gravity of the evil to the community from terrorism can never furnish an adequate reason for invading the personal liberty, except in accordance with the procedure established by the Constitution and the laws.


ABOUT THE AUTHOR

Jatin Sehgal

J.Sehgal

Jatin Sehgal is the founding partner of “Kred Jure”, a law firm based out of Delhi. He has an experience of 15 years in criminal litigation.

Shailesh Poddar

IMG-20200408-WA0016

Shailesh Poddar is an advocate practising before courts in Delhi with a special interest in criminal law.

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