The Prevention of Money Laundering Act (hereinafter PMLA) is a special legislation enacted by the Parliament of India in the year 2002 for three avowed purposes:
i. “Prevention and control of Money Laundering;
ii. Confiscation and seizure of property obtained from laundered money; and
iii. Any issue connected with money laundering in India”
The Statement of Objects and Reasons of the PMLA further elucidates upon its necessity: to protect the financial system, integrity and sovereignty of the country.
However, since its promulgation, the Act has been subject of much controversy pertaining to the requirement of “scheduled offences” for prosecution under the Act. Various High Courts have given different ratios as to this aspect, however, the Supreme Court has yet to finally decide this vexed question. This article will provide an understanding of the legislative framework of the PMLA followed by the disputed question of the need of scheduled offences for prosecution under the Act. Contrary views of several High Courts shall also be explained and a conclusion shall be provided with the author’s opinion as to the correct approach.
Relevent Definitions in the PMLA
Before understanding the issue raised by the article, it is important to note certain quintessential definitions of the Act. Section 2(u) defines “proceeds of crime” to mean property which has been derived by a person by committing an offence mentioned in the Schedule of the PMLA. Section 2(y) then defines “scheduled offence” to mean offences laid under Part A of the Schedule or offences provided under Part B of the Schedule where the total value of the offence exceeds one crore rupees or offences provided in Part C of the Schedule.
Section 3 then defines the offence of “money laundering” as attempting to indulge or assisting in any activity which is connected with proceeds of crime. This was also held to include its concealment, possession, acquisition or use and even showing it as an untainted property. Section 4 punishes the offence of money laundering with rigorous imprisonment not less than 3 years, but which may extend to seven years with fine. Therefore, a bare perusal of the definition of “money laundering” under Section 3 shows that it has some connection with “proceeds of crime” defined under Section 2(u), which in turn is property derived or obtained as a result of criminal activity relating to “scheduled offences”.
From a conjoint reading of the provisions, it can be reasonably inferred that commission of a “scheduled offence” is a pre-requisite for prosecution for money laundering under the PMLA. Thus, if a person has to be prosecuted for an offence under Section 3, a necessary requirement is that he must also have committed a scheduled offence. However, this aspect has seen much judicial scrutiny and High Courts have provided contrary interpretations.
Analyzing Decisions taken by the High Courts: The Correct Approach?
The question whether prosecution under Section 3 of the PMLA would fail if the accused has already been discharged of the “scheduled offences” came up before the Allahabad High Court in Sushil Kumar Katiyar v. Union of India where the Hon’ble High Court answered this question in the positive. The Enforcement Directorate had initiated proceedings against the Petitioner under Sections 3 and 4 of the PMLA, though he had been discharged from the scheduled offences. Quashing the proceedings, the Court held that no offence under Section 3 was made out in view of the fact that the Petitioner had been discharged from the scheduled offences.
The Delhi High Court in Rajeev Chanana v. Deputy Director, Directorate of Enforcement went to the extent of holding that after a person is acquitted “from a scheduled offence, trial for offence under Section 3 of the PMLA will not survive”. The Court further noted that “it was hard to imagine as to how a trial for an offence under Section 3 could continue where the fundamental basis that is the commission of a schedule offence, was itself disproved”. The Court also held that after acquittal from the scheduled offence, the attachment of the property under section 5 of the Act will also come to an end.
Per contra, as recently as in 2020, the Karnataka High Court took a different view in Mr. Dyani Antony Paul v. Union of Indiaand held that offence of money laundering under Section 3 was an independent offence and a reference to a criminal activity relating to a scheduled offence has a “wider connotation and it may extend to a person, who is connected with criminal activity relating to the scheduled offence but is not the offender”. The Court went on to hold that even if a person is booked for a scheduled offence and is later acquitted, still proceedings under the PMLA can continue against such a person. Thus, it was not at all necessary that a person could be prosecuted under the PMLA only in the event that such person committed a scheduled offence. Thus, “prosecution could be independently initiated only for the offence of money laundering as defined under Section 3”.
Similarly, the Madras High Court in VGN Developers Pvt. Ltd. v. Deputy Director, Directorate of Enforcement observed that the object, rationale and scope of the PMLA, being a special statute, was distinct from the one enshrined under the Indian Penal Code. “A complaint may emanate from a registration of a case involving scheduled offence but the fate of the investigation in the scheduled offence cannot have bearing on the proceedings initiated under the PMLA”. It was further observed that Section 2(u) of the Act merely pertained to a criminal activity relating to a scheduled offence whereas Section 3 dealt with the offence on money laundering. “Once the Enforcement Directorate is of the view that a person is involved in any process of activity connected with the “proceeds of crime”, which in the Court’s opinion was a wide definition, “then it gets the power to investigate further”. The Court finally concluded that both the investigations, under the PMLA and for the Scheduled Offence, can go on simultaneously without being mixed. The Gujarat High Court’s verdict in Bhanuben v. State of Gujarat is based on a similar reasoning.
With the prior positions of the various Hon’ble High Courts in mind, the author respectfully disagrees with the position taken by the Karnataka High Court and Madras High Court. It is argued that the word “relatable to” in Section 2(u) implies that “proceeds of crime” must have a direct nexus with the scheduled offence. Furthermore, Oxford Dictionary defines “money laundering” to mean crime of moving money that has been obtained illegally into foreign bank accounts or legal businesses. Taking this definition further, logically, laundering would only arise when a person is attempting to hide money which has been obtained through illegal acts. It is thus argued that without an illegal act as the source of the money, the question of its laundering would never arise. The author therefore believes Hon’ble High Courts of Madras and Karnataka have extended the net of the PMLA wider than which was intended by the Parliament.
However, it can be seen that there is a conflict of opinions given out by various High Courts pertaining to the requirement of scheduled offences for prosecution under the PMLA. There is, therefore, an urgent need for the Apex Court to clarify the position to ensure that the objective and spirit of the PMLA is protected and upheld.
Pushkar Deo is a third year student at UPES, Dehradun.