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Arguments on offence being cognisable or not are redundant under Section 19 of PMLA: Solicitor General

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Solicitor General Tushar Mehta on Wednesday told the Supreme Court that whether the offence was cognisable or non-cognisable, the arguments were redundant in view of Section 19 of the Prevention of Money Laundering Act (PMLA). 

Section 19 is (Power to arrest). (1) If the Director, Deputy Director, Assistant Director, or any other officer authorised in this behalf by the Central Government by general or special order, has on the basis of material in his possession, reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under this Act, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.

(2) The Director, Deputy Director, Assistant Director or any other officer shall, immediately after arrest of such person under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such order and material for such period, as may be prescribed.

(3) Every person arrested under sub-section (1) shall within twenty-four hours, be taken to a Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction: Provided that the period of twenty-four hours shall exclude the time necessary for the journey from the place of arrest to the Magistrate’s Court

The Supreme Court three-judge headed by Justice AM Khanwilkar is hearing challenges to various provisions of the Prevention of Money Laundering Act, 2002. Solicitor General (SG) Tushar Mehta today submitted arguments on behalf of the Union government in defense of the Act.

He said, there are two concepts-

a) CRPC itself is a generic law governing procedure. Applicable only in absence of a Special Act

b) The Special Act provides for a separate mechanism, different from CRPC.

c) Special law says the issues it deals with have to be governed by the special law. If nothing special, then it can be governed by CrPC.

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Example- Section 167, CrPC, which talks about Procedure when investigation cannot be completed in 24 hours may apply, as nothing contrary exists in PMLA.

Legislature itself makes it clear as evident in Section 4 of CRPC, which itself excludes the application of CRPC on special acts. Same reiterated in PMLA in Section 65.

Khanwilkar- Section 4 (2) of CrPC speaks for itself, even without express provision.

Gautam Pundu vs Directorate of Enforcement- Section 45 PMLA refers to special court and has to be given restricted meaning…

This compartmentalisation of cognisable or non-cognisable is not reasonable in view of the peculiar scheme.

The SGI gave a background brief on how the word “cognizable” came into the act and was deleted. The intention of legislature was to have a special team of officers keeping in mind the peculiar offence involved. Police officer was not supposed to arrest. But it is being misused today.

Every offence is cognisable under the PMLA- this was the mischief that was remedied by deleting the word cognisable.

SGI’s Submission is that the word “cognizable” is redundant.

Khanwilkar- Offence is cognisable, but not cognisable under CrPC scheme. Not cognisable qua local police.

Money Laundering offences are taking place in and outside India. It is taking place over electronic medium. The nature and potential of accused to remove the traces is very high. Therefore, the legis has provided for a special act to deal with it.

The person is informed if his rights are affected or if attachment takes place.

It may not be out of place to mention that Rajbhushan Dixit supra is a co-accused in what is known as Sterling Biotech scam where the main accused Sandesara Brothers and their family members are absconding and their extradition proceedings are going on. The rough and ready estimate shows a scam of Rs 14,000 crore. The following facts would show how this ground of the offence being “cognisable” and “non cognisable” and the applicability of entire section 12 was misused by abuse of process of law. 64. It is submitted that after the writ petitions pending before the High Court of Delhi in which interim orders were granted, were transferred by the Hon’ble Supreme Court to itself, the accused started filing Article 32 petitions raising the same grounds. It is submitted that after issuing notice in some matters, orders of ‘no coercive steps’ were passed in numerous petitions. It may be noted that various high profile accused in cases involving Sterling Biotech, Bhushan Steel etc. availed such orders which were passed ex parte. 

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In Union of India vs Sapna Jain, vide order dated May 29, 2019, an appeal from an interim order of the Bombay High Court granting “no coercive steps,” held that the said approach of mechanically passing such orders is wrong and approved the approach of the Telangana High Court, wherein the judges had held that facts need to be necessarily seen before granting interim relief.

In the meantime, the petition on behalf of Nitin Sadesara and others [Sterling Biotech Group] [petition titled as Diptiben & Ors vs Union of India] was listed before this Court along with other two high profile matters. This Court, passed the same order in the nature of ‘no coercive steps’ dated 02.07.2019.

SGI- DK Basu guidelines for arrest will apply. 167 will apply. Whatever is not contrary to PMLA will apply. Once a person is in custody under order of competent court he cannot say that it is illegal custody.

In the Directorate of Enforcement vs Karti P. Chidambaram, this court directed, “Having heard learned Counsel for the appearing parties, we think it appropriate to transfer W.P.(Crl) No 363 of 2018 along with Crl MA No 2151 of 2018 filed in the said writ petition and pending before the High Court of Delhi, to this Court.

“We are directing so, as there are conflicting views of various High Courts.”

Then, several petitions came to be filed on the same line and started getting tagged with these transfer orders where there were no “coercive step” was taken.

In a case, the Telangana High Court said that merely because virus is challenged does not mean granting interim protection. I pointed it out to the Supreme Court that such orders cannot be passed. The Merit is to be examined.

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This order enabled the promoters of Sterling Biotech to scuttle the investigation pending against them and further granted them protection despite being absconders from the law and escaping the country. The petitioners [Sandesaras] suppressed the crucial fact that non-bailable warrants are issued against them and the proceedings under the Fugitive Offenders Act are over and the judgment of the competent special court for declaring as “fugitive offenders” is reserved to be pronounced on 03.07.2019. Shockingly, on the very next day on which this Hon’ble Court passed the order quoted above, the counsel for the petitioner-fugitives appeared before the special court, relied upon the aforesaid order passed by this Hon’ble Court and successfully thwarted the pronouncement of the order of the special court under the Fugitive Offenders Act.

Whether the arresting authority was required to follow the procedure laid down in 155 (1) of the code becomes redundant. Section 155 falls under chapter XII of the Code which pertains to information given to the police and their power to investigate. Section 154 deals with information in Cognizable offence. Police are required to register the offence when information relating to cognizable offence is given orally or in writing.

Section 155 of the Code deals with non-cognisable offence. Whenever information regarding non-cognizable offence is given, the police officer cannot investigate the same without the order of the magistrate. If the offence is non-cognizable, even the authorities udner PMLA cannot investigate

It is argued that, even if the offences under PML Act are held to be cognizable, then, in view of the decision of the Apex Court in the case of Lalita Kumari v. Government of Uttar Pradesh, (2014) 2 SCC 1, whenever information related to cognizable offence is given, the Police is bound to register the offence and follow the procedure laid down in the said Chapter. Under the scheme of the PMLA, the recording of ECIR is the start of the investigative process under the PMLA. It may be noted that although there is no specific provision under which the ECIR is recorded, the said recording is not to be equated with the registration of FIR. ECIR is a term given for the purpose of administrative convenience for identification of each case and does not have any statutory sanction as in the case of FIR. 71. It must be noted that Chapter XII of the Cr.P.C., pertains to the “information given to the Police and their powers to investigate”. As per Section 155(1) of the Cr.P.C., whenever the information as to non-cognizable offence is given, a Police Officer cannot investigate into the same without the order of the Magistrate, having power to try such case or commit such case for trial. It has been urged that if the offence under the PMLA is non-cognizable, then, the authorities under the PMLA could not have carried out investigation and arrest any person without the order of the Magistrate. It is stated that the said provisions in the Cr.P.C. are clearly made to be applicable to the Police Officers, when they receive any information relating to cognizable and non-cognizable offences as is evident from the title of Chapter XII which states “Police and Their Powers to Investigate”. Chapter XII of CrPC concerns the restrictions on the powers of Police and the manner of investigation in respect of the information received by them about commission of cognizable or non-cognizable offence and, depending thereon, arrest of the concerned accused.

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Therefore, PMLA contains several provisions relating to arrest, then, the PMLA being a complete Code in itself and also being a special law enacted with a particular object, in view of Section 5 of the Code, the provisions of PMLA will prevail and will have an over-riding effect on the provisions of the code. The provisions of Code will apply only when they are not inconsistent with the Act. The definition of the term ‘investigation’ as given in Section 2(na) of the PMLA includes all the proceedings under the Act conducted by the Director by an Authority Authorised by the Central Government under this Act for the collection of evidence. Thus, investigation under this Act does not given any role to the Police. Therefore, there is no scope for importing the provisions of the Code which apply to the police officers.

Section 19 of the PMLA exclusively and specifically deals with the power to arrest of the authorized officer for the offences punishable under PMLA. Therefore when there are specific provisions dealing with the offences and powers to arrest under PMLA then the provisions of the code do not have any application. Section 19 of the PMLA does not contemnplate registration of FIR or information relating to cognizable offence or of obtaining the permission of magistrate before taking cognizance or before making arrest of the accused in respect of any offence under the act. The only condition laid down is the reasonable belief of the authority. If Chapter XII of the Code is applied, it would render Section 19 of the Act nugatory. This cannot be the intention of the legislature.

The courts should always ensure that the provisions enacted by the legislature are not rendered nugatory. This is also not challenged in the petition. Therefore it cannot be accepted that the officer authorized under the PMLA ought to follow the procedure under chapter XII of PMLA.

Authority competent to arrest

If I am right that it is a cognizable offence, and petitioner is right that everything under CrPC applies, then Section 41 applies. It cannot co-exist with Section 19. Our threshold is much higher. We cannot arrest on mere suspicion. We must have material in our possession and recorded reasons in writing and served upon.

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