Tuesday, January 31, 2023

Attachment of property under PMLA without charge sheet reserved for exceptional circumstances: SG Tushar Mehta to Supreme Court

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Solicitor General Tushar Mehta on Thursday made submission before the Supreme Court on the provisions of the Prevention of Money Laundering Act (PMLA).

Appearing on behalf of the Union Government, the SG began his submissions by building on the essence and purpose of the PMLA and its legislative evolution to keep pace with the global necessity to curb the menace of money laundering, as had been canvassed yesterday.

A Bench comprising Justice A.M. Khanwilkar, Justice Dinesh Maheshwari and Justice C.T. Ravikumar resumed hearing on PMLA provisions today.

He began his arguments with respect to the validity of the act with three preliminary submissions: 

a) “Your lordship may not consider some provisions which are impugned in isolation; the entire scheme has to be seen.
b) Consider the Legislative intent as reflected from the factors which is not only punishment but prevention and giving in the deterrent effect 
c) The entire argument on behalf of the petitioner was based upon the false premise that every law which is penal in nature has to be complied or governed with the IPC which is a fallacious misconception, legislature is competent to enact a law particularly for a particular offence and provide for a mechanism to deal with that offence which must be constitutionally complied with. It need not be CRPC complied, there can be a separate scheme.”

The SGI, at the very outset, delved into the definitions of fundamental ingredients that constitute an offence under this Act and the provisions and procedures established therein, to give effect to those constituent elements.

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The SGI submitted that in keeping with international regulations and Conventions to which India is a signatory, the definitions and provisions in this Act are widely worded. To illustrate, the payment system and operator through which the money is channeled, includes all other routes, and not merely the banking system as it originally stood enacted. Similarly, Section 2u is widely worded to include any activity related to criminal activity and not limited to a scheduled offence. That is owing to the fact that the objective of this Act includes prevention of money laundering and not merely its detection, investigation and punishment.

As regards the attachment provisions, under Section 5, the SGI submitted that there exist necessary safeguards in the Act, the primary ones being that the investigating authority, the ED herein, must record its reasons and satisfaction as to the purpose of the attachment of the property and such information should necessarily be sent to the Adjudicating Authority. 

Additionally, only two categories of Directors of the ED can exercise attachment powers as under Section 5, Director and not any other officer below the rank of Deputy Director.

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Further, the person must have knowingly possessed, concealed or dealt with the proceeds of crime, and the property can be attached only for a period of 180 days, on the basis of a complaint made or an FIR registered in the predicate offence. However, the SGI pointed out that it was not always the ground reality, and if the situation was such that without immediate attachment, the proceedings relating to confiscation of proceeds of crime, as provided for in this Act were frustrated, the ED has to proceed without the pre-condition of a charge sheet or complaint. In this Section, the provisions of CrPC were specifically deviated from, owing to the nature of the offence of money laundering. 

The attachment proceeding, the SGI submitted, was based on the material in the possession of the person so suspected and contemporaneous record-keeping was provided for, so that the ED may record its satisfaction thereto and not tamper with the reasons provided, thereafter. 

The reasons so recorded by the ED must be sent, in a sealed envelope to the Adjudicating Authority, which is an independent body, so that information contained therein is not leaked, so as to defeat the purpose of this Act. The confiscation of the property will not interfere with its enjoyment by residents or tenants or other such people entitled to its enjoyment. While not in alignment with the CrPC, the SGI submitted that the entire architecture of this Act is different and its provisions are in compliance with necessary international standards.

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The Court pointed out that as under Section 5(1), the proviso states that an attachment cannot be made unless it is in relation to the proceeds of the predicate offence and report is sent to the Magistrate as under Section 173 of the CrPC and that the second proviso renders the first, useless, as it only requires the recording of reason as to why the Section 173 procedure could not be followed and why the property must be attached.

SGI Further argued on the Section 66 (2) and submitted that “suppose the director receives an intimation that proceeds of crime are lying, there is no FIR in context of subsection 2 if the director or other authority specified under subsection 1 is of the opinion on the basis of the information or the material in his position, that the provisions of any other law that the time being imposed are in contravene, then the director or other authorities shall share the information with the concerned agency. If you do not wait till the charge sheet is filed, you record reasons a) By the person is in position b) how the proceeds of crime is to be concealed c) why should you not wait till the charge sheet is filed or complained is filed. 

Justice Khanwilkar: That is fine but subsection 1 clause b the same thought is reflected there. 

SGI Mehta: My lord before amendment FIR Was necessary but after amendment it is not necessary that is what I am submitting my lord. Charge use in nature of an allegation my lord.

Justice Khanwilkar: No, no, that is not Charge; Charge understood under CRPC differently.

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Justice Maheshwari: Then the expression has been accused off. Charged means it is beyond accusation. After accusation, there is something further that’s why he is being charged.

SGI Mehta: This validity of this provisions earlier and there was a change made in 2009, the 1st part remains as it is and the 2nd part inserted is the time my lord.    

Justice Khanwilkar: One of the arguments regarding that was there was no question until formal FIR is registered regarding Predicate offence. 

SGI Mehta: My lord therefore before the discharge as a separate.

The SGI submitted that the exercising of the powers of attachment, without a charge sheet or complaint, is reserved for exceptional circumstances and not routinely. The 2009 amendment increased the period of attachment to 180 days and the 2013 provided for the ensuing of attachment procedure as it becomes necessary. 

The Court disagreed with the previous submission, and observed that there can be no proceeds of crime that could lead to attachment of property, without a predicate offence being registered. The fact that a separate remedy for having an attachment vacated u/s 166(2), does not eliminate the need for registration of the predicate offence or a complaint being filed before the Magistrate. If the ED receives information about unaccounted or tainted money, it should approach the appropriate authority and press for the registration of the predicate offence. 

The SGI, however, pointed out the mischief in this provision, in the case that the police or other such concerned authority, out of lethargy or fear of the accused’s influence, fails to register the FIR, the ED cannot allow the proceeds to vanish. The burden on the ED is heavy and it follow directions as set down in this Act, at the pain of prosecution u/s 63.

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The Court, once again, pointed out that the discovery of unaccounted money, or even tainted money will not suffice without the existence of proceeds of crime from a predicate offence. In the case that the concerned authority fails to take any action, the ED must make a complaint before the Magistrate. The identification of crime at this stage is not necessary, but the existence of a crime and its proceeds is important. The ED must, therefore record its satisfaction about the money being related to proceeds and extend such information to the concerned authority, at the risk of prosecution without so doing.

The SGI submitted that attachment u/s 5 is merely provisional and the reasons recorded are to be duly sent to the Adjudicating Authority. The purpose for the confidentiality is due to the nature of the offence, so that such information may be contained. 

As the PMLA is a separate scheme in and of itself, the Cr.PC provisions cannot be followed unless it is consistent herewith and the PMLA provisions take precedence, was the submission of the SGI

Section 12- Prevention of money laundering.
As for S. 12, the aim of this Act is to prevent money laundering. This is in keeping with the provisions of the Vienna and Palermo Conventions and the regulations made by the FATF, which necessarily includes prevention, regulation and investigation of money laundering. 

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The SGI submitted that so far as suspicious activity is concerned, it depends on the region, the industry, the nature of the predicate offence, the propensity of money laundering in a particular industry, the economic necessity among several other factors. The Reporting Entities, primarily the banks, have guidelines as to the detection of suspicious transactions, its monitoring, forwarding of information to the ED. This is done in accordance with the regulations set out by the RBI, that monitors this whole thing, and of other regulatory bodies. Therefore, the Act and its Rules, have safeguards and measures for every contingency. 
Lastly, as for Chapter 9, it is in keeping with the reciprocal arrangement for assistance, which is a legal obligation on every FATF member country.

Projection is not a necessary aspect of transnational money laundering and possession, usage or concealment will be enough to bring the activity within the purview of this Act. 

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According to the FATF report of 2010, the money laundering regime in India is contained under two Acts-NDPS and PMLA, which is a wider enactment to encapsulate all probable means of money laundering.

Thus, in compliance with the international standards, the PMLA is broad and all-encompassing and it has reached this present stage through a slew of legislative amendments, submitted the SGI.

The matter will be taken up next on March 1.

Case name: Vijay Madanlal Choudhury vs Union of India

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