The Prevention of Money Laundering Act, 2002 [‘PMLA’] defines the offence of money laundering under Section 3 as a direct or indirect attempt to indulge or knowingly assist or knowingly be a party or be actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property.
Scheduled Offence as a Sine Qua Non
Given the said definition under PMLA, the Hon’ble Supreme Court in the case of Vijay Madanlal Choudhary v. Union of India 2022 SCC OnLine SC 929 had held that the offence of money-laundering is not dependent or linked to the date of commission of scheduled offence. The offence of money-laundering is triggered only when a person indulges in the process or activity connected with such proceeds of crime, thus, it is only when money is generated as a result of the acts that PMLA steps in. As the proceedings under the PMLA are triggered only with respect to proceeds of crime, hence, it is inconsequential if the scheduled offence may be a non-cognizable offence as the person is not prosecuted for the scheduled offence under PMLA but for his criminal activity of money-laundering.
However, the Hon’ble Supreme Court had clarified that in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court owing to an order of discharge, acquittal or because of quashing of the criminal case against him, there can be no action for money-laundering against such a person or person claiming through him in relation to the property linked to the state scheduled offence. Thus, the existence of a scheduled offence is a sine qua non for any initiation of proceedings under the PMLA by the ED.
Although several offences have been provided in the Schedule, but it was only in the case of Pavana Dibbur v. Directorate of Enforcement 2023 SCC OnLine SC 1586 that the Hon’ble Supreme Court adjudicated upon the issue whether Section 120-B (providing punishment of criminal conspiracy) solely was sufficient to merit invocation of proceedings under the PMLA.
The Hon’ble Court analysed the scheme of the Schedule and held that the Legislature intentionally included and excluded certain offences; thus, it cannot be the intention of the Legislature that even when the registered offence is not a scheduled offence, yet, by mere inclusion of Section 120-B it would transform into a scheduled offence laying the foundation for initiation of proceedings under PMLA. Such an interpretation would make every offence which was not included in the Schedule as a scheduled offence by applying Section 120-B. Thus, the Hon’ble Court held that offence under Section 120-B would become a scheduled offence only if the criminal conspiracy to commit any offence already included in the Schedule.
Independent Nature of Proceedings for Offences under PMLA and for Scheduled Offence
Although the initiation of proceedings under the PMLA are dependent upon the existence of a scheduled offence, but execution of such proceedings is absolutely independent of the trial of the scheduled offence. The same can be evinced from the recent case of K.A. Rauf Sherif v. Directorate of Enforcement T.P. (Crl) No. 89/2023 vide Order dt. 10.04.2023 wherein the Hon’ble Supreme Court held that irrespective of where the FIR relating to the scheduled offence was filed and irrespective of which Court took cognizance of the scheduled offence, the question of territorial jurisdiction of a Special Court under the PMLA to take cognizance of a prosecution complaint filed by the Directorate of Enforcement [‘ED’] should be decided with reference to the place where anyone of the activities/ processes which constitute the offence under Section 3 took place.
Section 44(1) Explanation (i) categorically clarifies that the trial of scheduled offence and the offence of money-laundering are independent trial proceedings. The provision states that the jurisdiction of the Special Court while dealing with the offence under PMLA, during investigation, enquiry or trial, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial.
The independence of the trial proceedings were further clarified by the Hon’ble Supreme Court in the case of Rana Ayyub v. Directorate of Enforcement [2023] 4 SCC 357 wherein it was held that Section 44(1) Explanation (i) clarifies that even in the circumstance that the trial of scheduled offence and offence of money-laundering are conducted by the same court, the said proceedings cannot be construed as a joint trial proceeding. Thus, the separation of the judicial proceedings enables the ED to array a person as an accused irrespective of the fact that the said person may be a non-accused or a witness in the scheduled offence proceedings.
Recently, the Hon’ble High Court of Delhi in the case of Sanjay Kansal v. Directorate of Enforcement Bail Appln. No. 1268/2023 vide Order dt. 09.05.2024 agreed with the judgment of the Hon’ble Allahabad High Court in the case of Mohan Lal Rathi v. Union of India through Directorate of Enforcement 2023: AHC-LKO:59826 that the grant of pardon would bring an accused in the category of witness however, the same is subject to certain conditions under Section 306/307 of the Code of Criminal Procedure, 1973 and cannot be considered as absolute absolvement in the predicate offence.
The Hon’ble High Court of Delhi further noted that the evidence sought to be given at the instance of accused in the proceedings of the scheduled offence cannot be used for the purposes of proceedings under the PMLA, hence, his status as an approver lends no impact upon any proceedings under the PMLA.
Subsistence of Attachment of Proceeds of Crime
The proceedings for attachment initiated by the ED under Section 5 and subsequently confirmed by the Ld. Adjudicating Authority under Section 8 of the PMLA are similarly dependent upon the existence of the scheduled offence. Recently in the case of Directorate of Enforcement v. Akhilesh Singh Crl. Rev. P. No. 1199/2023 vide Order dt. 30.04.2024, the Hon’ble High Court of Delhi held that Section 8(6) clearly states that if an accused under the PMLA is discharged/acquitted, the Ld. Special Court u/s 8(6) has no option but to pass an order releasing the properties attached under the PMLA. It was further clarified that mere filing of appeal against acquittal in the scheduled offence would not mean that the persons will continue to suffer the rigors of criminal proceedings or attachment under the PMLA. The Hon’ble Court specified that upon discharge/acquittal from the scheduled offence, the very foundation gets knocked out and the charge of Money Laundering will not survive as there will be no proceeds of crime.
However, several instances continue to arise wherein the bona fide homebuyers or successful resolution applicants under the Insolvency & Bankruptcy Code, 2016, et al., are subjected to protracted proceedings before the Ld. Adjudicating Authority as their properties end up as attachment in relation to proceeds of crime in the ongoing cases. Such attachments are undertaken under the principle of equivalence whereby in the instances wherein the actual proceeds of crime may be beyond the reach of the ED or may have been disposed off, hence, any other property of equivalent value is attached by the ED. It is essential that the principle of equivalence providing such expansive powers to the ED be clarified to the extent that it shall not extend to individuals or commercial entities who have acquired the properties through legitimate means in order to save such parties undue hardship.