Wednesday, February 8, 2023

Senior lawyers question the constitutional validity of Section 45 under PMLA, provision of bail

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The Supreme Court on Thursday continued hearing the arguments on the constitutional validity of Section 45, bail and other aspects under the Prevention of Money Laundering Act (PMLA), 2002.

A Bench comprising Justice A.M. Khanwilkar, Justice Dinesh Maheshwari and Justice C.T. Ravikumar were hearing the submission of senior lawyers regarding the various provisions of PMLA.

Senior Advocate Chaudhri commenced his submissions for the day by reiterating the usual procedure of putting the criminal proceedings into motion, whereby any person so authorized under the Code of Criminal Procedure,1973 can get the gears moving unless a contrary provision for charge-formation, investigation, report filing among others is enacted in any other special statute. In the absence of contradictory or inconsistent provisions in the PMLA, CrPc being the parent statute will operate.

He cited a whole host of judgements in support of his submissions such as Ashok Munilal Jain, Deepak Mahajan, Sunil Gupta, among others to present an overall picture and reiterate the operability of Cr.Pc in the absence of special provisions and to emphasize on the need to follow proper procedure.

“CrPc is pervasive and will always apply” unless the provisions of the Special Statute are inconsistent with the Code.

With that the he concluded his submissions.

Senior Advocate Desai prefaced his arguments for the day by submitting that the PMLA as it stands is a draconian, special legislation which has been enacted to combat the very specific offence of money laundering.  PMLA creates a separate and unique offence which is of Money Laundering. He argued that many ordinary offences as under the Indian Penal Code or other specialized enactments with penal provisions are brought under the PMLA and due to this linking; they are viewed in a different light.

The PMLA was enacted in 2002 to battle the prevalent global phenomenon of money laundering which was indubitably connected with ancillary offences related to drugs, terrorism, trafficking, racketeering and other such scourges that the global community aimed to prevent and cease. He emphasized that the preamble of the legislation highlights that the underlying principle was to deal with the offence of Money Laundering committed through an organised crime syndicate. These proceeds of crime became integrated in the economy of the country. To prevent this flow of illicit money or to cut it off, PMLA was introduced . Therefore, the PMLA even as it stands today should be interpreted in this light, bearing in mind the legislative intentions and objectives.

The PMLA did not originally seek to incorporate the recommendations of the Financial Action Task Force, however it has been adopted by the Directorate of Enforcement in its implementation and execution of PMLA provisions. The three ingredients on which the recommendations of the FATF hinges, are placement, layering and integration. It was submitted that this language has not been included in S.3 of the PMLA. Concealment of money, which doesn’t necessarily include projecting of such tainted money as untainted, should also be incorporated into the definition of proceeds of crime, as the ultimate effect of such concealment is integration of the money, in question, into the economy and this is exactly what the Act originally intended to curb. Every person who was involved in this chain of events that had the ultimate aim of money laundering should be implicated in a charge under PMLA. However, such implication mostly holds for persons involved in organized criminal activity where money laundering is only a part of a much larger set of events.

Attachment of property and concomitant problems.

It was submitted that PMLA can never be a standalone offence and is contingent on the existence of a predicate offence. For both of these offences there are separate personnel authorized to charge, investigate, file reports, arrest the accused and attach his properties. This creates a conflict of powers and jurisdictions between the ED as under this Act and the police officer/s or other specialized personnel under special enactments such as taxing statutes or offences under SEBI Act or NDPS, among others.

Given that money laundering goes hand in hand with other organized crimes under special statues, it was admitted by the Sr. Adv. that there is a need to allow ED to take quick measures by attaching property on the basis of a suspicion so that the trail of money does not disappear. However, owing to the ambiguity in S.3 of the PMLA, ED is at liberty to charge, search and seize properties without a proper FIR in the predicate offence filed by the concerned authority or an independent investigation on the part of the ED, or on the same day. While organized crime must be dealt with a heavy hand, individuals in the business community are the ones charged with an offence under PMLA and unnecessarily harassed and property attached, on the flimsiest of suspicions in lighter predicate offences under the IPC .

It was submitted that this statute must work within the contours of Articles 14 and 21 and property cannot be attached by the ED without proper investigation or the principles of presumption of innocence and human rights are defeated. Given the draconian nature of the statute, the construction must be strict and so is to be laid down by the Court.

Additionally, as the scope of scheduled offences under this Act has been enlarged beyond its original parameters, ex post facto offences cannot be dragged into the schedule under PMLA and reopened.

At the reckoning of the Court, it was submitted by the Sr. Adv. that on exchange of information between the conflicting authorities, jurisdiction to search, attach and arrest is ceded to the appropriate authority, in the predicate offence. Even if ED is the one to receive prior information, it should be duly shared with the police or authorized personnel under the specialized statute so that they take appropriate action and register a FIR which would then allow ED to step in. In the instance that the appropriate authority fails to take necessary action, they must be held accountable, but jurisdiction or powers shouldn’t be assumed by the ED, in the light of law, specifically Art. 21. ED’s authority is limited to S.3 of the PMLA, it was submitted.

In the proceedings for attachment of property, the context of this Act should be borne in mind and individualistic offences outside of the parameters of money laundering shouldn’t be brought into the purview of this Act. When this happens, it creates conflict as to the authority that should attach the property. As under PMLA, the attached property remains confiscated until the end of the trial and this halts all economic activity related to the property, which is permissible in the case of a syndicate but creates real trouble when individuals are roped into a money laundering offence and property is confiscated by the ED without legitimate reason.

Conflicts with jurisdiction.

Owing to the expansion of the schedule of offences under this Act, in the absence of registration of FIR, a specialized body at the administrative level can decide on proper procedure and jurisdiction. It was submitted that for all offences under the Special Statutes, the ED doesn’t have the know-how to form an opinion that there has been money laundering, and in such cases it is best to let the specialized agencies deal with it, it was submitted.

He suggested that if the ED must move in at the first instance to attach property, if it unable to form a charge of money laundering thereunder within 180 days, such property must be released.

Arrest and bail.

Lastly, the Sr. Adv. dealt with the issue of bail. Citing a number of judgments such as Babu Singh, Bafna, Sushila Agarwal among others, it was submitted that it is a well-settled principle of law that granting of bail, though at the discretion of the Court, is a right afforded to the accused and refusal to grant bail as a pre-trial punishment can never be sustained. The only condition to the granting of bail is that the presence of the accused can be ensured at the trial. Barring that, from a constitutional stance, bail can never be denied to punish the accused prior to incarceration.

He submitted that it is an accepted proposition that Section 45(2) under PMLA is unconstitutional.  “does Section 45 subserve the objective of Bail? If it doesn’t it will violate 21 and 14”

The Sr. Advocate will commence with his concluding remarks on 15/02/2022, when the Court will reconvene to hear this matter.

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