Monday, January 30, 2023

ED probe should follow registration of FIR: Sr Advocate Niranjan Reddy to SC on PMLA

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Senior Advocate S. Niranjan Reddy has submitted before the Supreme Court that ideally the investigation by the Enforcement Directorate should commence after the registration of the FIR but if necessary, it can proceed prior to it.

The three-Judge Bench comprising Justice A.M. Khanwilkar, Justice Dinesh Maheshwari and Justice C.T. Ravikumar was on Wednesday hearing a batch petitions demanding the interpretation of certain provisions of the Prevention of Money laundering Act, 2002.

Senior Advocate S Niranjan Reddy made submissions, followed by Maneka Guruswamy.

She opened her argument by elucidating, “We are a nation of laws, built on constitutional foundation. This foundation encompasses liberty, which includes fair trial. Can you circumvent the constitutional foundation because the State feels like this is ipso facto, the way to deal with serious crimes?”
The positive and extensive interactions between them, exemplify the fact that issues involved in the matter are of national importance.”
Senior Advocate S. Niranjan Reddy began his submissions by building on the foundational issues he had raised in yesterday’s proceedings.

The primary contentions on Wednesday revolved around the sequence of conducting the investigation and trial as under the PMLA offence, which is necessarily a derivative of the predicate offence.

The Senior Advocate submitted that the scheduled offence and the PMLA can be tried together, though that is a term that is loosely used, given that Section 44(1)(d) provides that the two trials will not be tried jointly, yet they can be tried simultaneously, it was submitted. An illustrative example was proffered by the Counsel, which canvassed that in the instance that the proceeds are hidden away at home by the person concerned and the act of operationalising the PMLA offence, i.e. projecting the tainted 
money as untainted, is done at a later date, then the two offences would be distinct but the proceeds would be from the predicate offence. Therefore, special court as under this Act will have to wait for the trial in the predicate offence to be completed before the money laundering offence can be disposed of.

At this point, Justice Khanwilkar pointed out that in such a situation as proposed by the Counsel, the special court will have to wait a long while; decades in fact, to try and dismiss the money laundering trial, after the Supreme Court finally disposes of the appeal in the predicate offence, offence.

This would be improbable and ED, on receipt of information should inform the appropriate authority so that a FIR may be registered and the ED can proceed with its own investigation, so as to ensure that the sequence is not broken and the special court can thereafter try the offences.

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Justice Khanwilkar also proposed another situation, wherein the person accused is influential or yields power anyhow, rendering the police unwilling to register a FIR and this would restrain the ED and a PMLA offence would not arise. There are several such situations that may arise on the ground that the present Bench cannot reasonably ponder, the Court observed. Therefore, the Court was of the opinion that the ED’s power of investigation or enquiry must be examined first, before the powers of the special court can be considered or else, pertinent problems at the investigation stage will be overlooked.

The Senior Advocate submitted that while tabling the Bill proposing to amend this Act, the Finance Minister in her speech in 2019 stated that several difficulties arose in the interpretation of the original Act which defeated the legislative intent. Therefore, while provisions made that the two offences need not be tried jointly. The Counsel submitted that if the trials go sequentially, the special court will be in… of the whole facts in that instant case so as to comprehensively and compositely try the offences.

Circling back to the issue of investigation, the Court directed that the powers of the ED to investigate should be considered first and also observed that investigation as under this Act is in the form of enquiry and not investigation, per se. Reddy submitted that ideally the ED’s investigation should commence after the registration of the FIR but if necessary, it can proceed prior to it.

Additionally, the Act contemplates investigation by the ED and not merely enquiry, which was also the submission of the Finance Minister in the Parliament, demonstrating legislative intent. The Court observed that compelling the ED to wait for the registration of the FIR would be counterproductive to the scheme of this Act. To illustrate, when a cache of monies has been found and it comes to the notice of the ED, the predicate offence can crop up later, and limiting the ED would be counter-productive. The Sr. Adv. submitted that in such a situation, for the purpose of affecting search and seizure, it would not be necessary for the predicate offence to have been registered but the offence must have been committed, for without it the ED cannot take any action. Although the scope of the Act and particularly the schedule of offences have been enlarged over time, without the existence of the predicate offence the PMLA investigation or trial will lapse. With or without the registration of the FIR in the predicate offence in the first instance, the ED should be able to satisfy the special court at the stage of trial that a predicate offence did in fact exist.

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It was also submitted that there are conflicting opinions taken by the High Courts when comes to dependence or independence of the PMLA charge on its preceding predicate offence. Many High Courts have ruled that the PMLA trial will continue even after an acquittal has been granted in the scheduled offence, unless the ED files a closure report before the competent court. In this context what constitutes as proceeds of crime as under this Act and at what stage they can be discovered and established was also discussed. It was submitted that even if the proceeds of crime are established by the special court, and their projection is made out, a trial for money laundering cannot continue without a scheduled offence having been committed. PMLA trial cannot be hinged as a standalone offence as the Act stands. Therefore, a final decision in the scheduled offence trial would be of assistance, but it was submitted by the Counsel that he does not intend this to be a delaying tactic to be adopted but the Act as it stands now, does not permit for a final judgement in the money laundering trial without the predicate offence
and its proceeds having been established first. However, the Sr. Adv. apprised the Bench of the cases in which the High Courts have taken a contrary view and have held that the PMLA offence can stand alone.
Submissions on retroactive applicability of the PMLA.

The second contention was regarding the retroactive application of the Act. Several amendments to the Act have changed its scope; it was submitted by the Sr. Adv. An offence committed under this Act, wherein the monies have been integrated into the economy prior to the commencement of the amended provisions, it was submitted that they will not take the character of money laundering. As the offence wherefrom the proceeds were derived was not a scheduled offence when the crime was so committed, a retroactive projection of the amended provisions of the PMLA will not give it the character of money laundering. However, it was also submitted that the ED would take a contrary view.

Additionally, the Act prior to the 2013 amendment as it stood, allowed ED to attach property as a civil consequence no matter when the crime was committed. However, the amendment has made it such that a property can only be confiscated after the conviction it the PMLA trial. The Act cannot apply retrospectively and make an act an offence, it was submitted.
Submissions on third party actors.
So far as the issue of third parties is concerned, the Sr. Adv. submitted that with the widening of scope the PMLA, third parties involved in the long chain of events are also roped into the web of money laundering. As under S.3 of this Act, the presumption of usage of proceeds of crime by the accused is in-built into the section. The mens-rea is in-built. Justice Khanwilkar observed that given the provisions of S.3, which postulates that the person has knowingly indulged in or assisted with or otherwise dealt with the proceeds of crime, the burden of proof lays on the accused to prove otherwise owing to the nature of the section.

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The Senior Advocate submitted that in the long chain of events, the person who may have been indirectly involved somehow may have been using the monies as clean, untainted money, which the ED at a later stage considers a projection of tainted money as untainted and thereby charges the person.

Such third party will then be considered to be an offender under S.3 and consequently, the presumption as under S.24 will come into play. This is irrespective of whether or not the accused had any inkling as to the crime contemplated under this Act. The Counsel therefore beseeched the Bench to protect the rights of the third parties and to contain the continuous enlargement of S.3, S.24, S. 2u and set aside them aside on the ground of doctrine of vagueness, wherever necessary. Additionally, so far as concealment is concerned, the Sr. Adv. submitted that it is beyond the scope of the section and must be struck down and substantive change to the Act cannot be brought by way of an explanation. The ingredients of the offence as laid down in PMLA must be committed to constitute an offence under this Act. Mere possession or concealment will not make it an offence of money laundering, it was submitted.
The last issue put forward by the counsel was with regard to Section 2 (1) (u). he contended that the value  that needs to be considered is the acquisition value on the date of offence or post offence. He strongly contended the value of property to be ascertained by the ED, it was submitted that the value as on the date of attachment should be the one that should be considered.
Submissions of Senior Advocate Maneka Guruswamy.

It is not on the best day with my best moment that I need the constitution by my side. It is on my worst day at my worst monet, whether I am innocent or guilty, that the constitution is expected to safeguard my rights to life, liberty and equality.
The question to my lords is, can we have a statute that derogates from the basic principles of the Constitution?”

Senior Advocate Guruswamy began her submissions for the day by apprising the Bench as to the fact that there is no quarrel that the crime of money laundering is grave and must necessarily be tackled with the full might of the State. She contended that we are a country built on a constitutional foundation where every engagement of the State with its citizens is premised on those constitutional grounds, whether in the instance of a serious issue such as money

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laundering which needs tackling; can those constitutional foundations be circumvented because the State is of that opinion? The Counsel submitted to the contrary. With the wide variety of offences that has been imported into the schedule, and the increase in raids conducted, special investigations launched by the ED as admitted by the Finance Ministry, over the last decade, it was submitted that provisions antithetical to constitutional boundaries cannot be followed.

The provisions of PMLA must stand the test of due process under Art. 21 of the Constitution. As it stands now, S.50 and S.44(1)(d) impinges on those due process requirements.

Additionally, so far as S.50 is concerned, wherein the ED has been given the authority to summon the accused and produce documents as they deem necessary, and compel the accused to speak the truth, or the truth as perceived by the ED on the threat of imprisonment for a period up to 2 years as under S.63, is in derogation of the constitutional rights of the  person and the penal procedures as in force in India. To illustrate, when the accused is alone in the room with the ED, the primary benefits that should be conferred on the accused, the Constitution and the Cr. PC are taken away. The accused is compelled to give answers in consonance with truth as is perceived by the ED with the looming threat of imprisonment, should the ED be dissatisfied.

Further, it was submitted by Sr. Adv. Guruswamy, that is unimaginable that the judicial mind will not be swayed by the submission of the ED of all collated materials/ confessions submitted in a sealed document. As to the enigma of the ED Manual, the Sr. Adv. raised the contention that despite the fact that the CBI deals with far graver offences than the ED, its manual is always open to be inspected by the concerned party and the defense lawyer when necessary and yet the ED manual or the ECIR remains concealed to the detriment of the rights of the accused persons who cannot gauge as to what the complaint against them is. The ED Manual is a position of principal that the agency in question has to operate procedurally with the kind of procedural proprietary that is envisaged and that is made available to the accused, their lawyers, in this system which is the adversarial system that we have. What the
enforcement directorate does is shrouded by a cloak of silence. It is the Bermuda triangle of the disappearance of the Constitution values.

Such neglect of Art. 20(3) and Art.21 in the pre-trial stage cannot be ignored. The derogation of the Cr.Pc and Constitution encourages laxity in behavior on part of the ED and the conduct of proceedings by the ED incentivize good officers to entrap the accused and such cannot be allowed. With better compliance with constitutional safeguards and stable functioning of the ED in consonance with procedural laws, the rate of conviction can be increased. To stamp out the scourge of PMLA, constitutional viability and proper functioning of the ED must work in tandem, Senior Advocate Guruswamy submitted as her final remark for the day.

The Court will continue its hearing on Thursday.

Case name: Vijay Madanlal Choudhury vs Union of India

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