Sealing the Conundrum; Is Money-Laundering a standalone offense under PMLA?

Money laundering is an expression signifying a category of crime that relates to untruthful projecting of illegal money as legal. Money laundering is ushered through the means of criminal activity. Money laundering as defined in the Prevention of Money Laundering Act, 2002 (PMLA or Act) is the conversion of proceeds of crime into legitimate money through predicate offense.

Predicate offenses are the offenses that are prerequisites for the offense of money laundering and are enshrined under the list of scheduled offenses in the Act itself. Proceeds of crime mean property derived through those predicate offenses. Predicate offenses give rise to proceeds of crimes and consequently the offense of money laundering. These predicate offenses are also known as 'scheduled offenses' have been ingrained in the scheduled list of offenses of PMLA in the schedule 'A'-'C'. There has been a debate as to whether the contemplation under the said PMLA gives rise to the conviction that money laundering is a standalone offense or predicate offenses enshrined in the schedule of the said Act are a prerequisite for its becoming. In other words, whether the offense of money laundering is dependent upon predicate or scheduled offenses or not?

Section 3 of PMLA reads as “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.” Section 2 (1) (u) reads as thus, “proceeds of crime” is defined to mean “any property derived or obtained directly or indirectly, by any person as a result of criminal activity relating to a scheduled offense or the value of any such property”. A bare perusal of the said sections construes that scheduled offense and registration thereof before a competent forum is mandated by the harmonious construction of section 3 and section 2 (1) (u) of the said Act. But section 44 (1) (d) of PMLA dilutes this construction by using ambiguous expression as, a Special Court while trying the scheduled offense or the offense of money-laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) as it applies to a trial before a Court of Session. The expression 'or' makes the whole point of debate revert back to the immediate question as to whether money laundering is a standalone offense.

It has been a point of conflict between various High Courts. In K. Sowbhagya v. Union of India (2016). It was held by Karnataka High Court that money laundering under PMLA is a standalone offense. It relied on the expression ‘proceeds of crime’ enshrined under section 2 (1) (u) of the said Act. It held that the expression ‘proceeds of crime’ includes property of all kinds.

In Janata Jha v. Asst. Director, Directorate of Enforcement (2013), the accused was acquitted of the predicate offense. It was contended from his side that continuing prosecution under PMLA would amount to double jeopardy. It was held by the Orissa High Court that it would not amount to double jeopardy as normal principles of criminal law do not apply to proceedings under PMLA. It also contended that under section 24, there is a reverse burden of proof which is the opposite compared to the Indian Penal Code.

But in M/s Mahanivesh Oils & Foods Pvt. Ltd. v. Directorate of Enforcement (2016), while the Enforcement Directorate (ED) contended that PMLA is independent of the scheduled crime giving rise to proceeds of crime, the Delhi High Court rejected the same. The Delhi High Court held that by harmonious construction between section 5(1) and section (2) (1) (u) of the Act, only that property is to be considered as 'proceeds of crime' which is derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offense. The occurrence of a scheduled offense is an indispensable condition for giving rise to any proceeds of crime and where the scheduled offense itself is negated, the proceedings under the Act will come to an end.

However, the ED has maintained the stance that the offense of money laundering is standalone. After the amendment of 2019 through the Finance Act, money laundering has been made a standalone offense through legislation. Senior Advocate Kabil Sibal vehemently argued in the Supreme Court in the hearing of Vijay Madanlal Choudhary & Others v. Union Of India & Others on Jan 2022 against this amendment. He argues in this case, before the judge that, "by virtue of the amendment in the Finance Act 2019 money laundering has been made a cognizable offense, but whether it is cognizable or non-cognizable it has to follow procedures of the criminal code". The Hon’ble bench in this case concurred stating that, "The essence of this offense is predicate offense and until predicate offense is registered, there cannot be PMLA. There cannot be an offense till it is preparatory”. While, a special leave petition was still in the stage of proceedings at that time, the final judgment on 25 July 2022 in the above case entertained a plethora of petitions and cleared the air about the persisting question.

In the final arguments, counsel Mr. S. Niranjan Reddy while putting up the question of whether money laundering is a standalone offense or not illustrated the point of conflicting convictions between various High Courts of the country on the question. While considering this question, the three-judges bench in its final judgment of the amalgamation of a cohort of petitions under the Madanlal case concluded the conundrum in the following manner:

1. Para 30 of the judgment, clarified that 'proceeds of crime' enshrined in section 2 (1) (u) of the Act indicated any property derived directly or indirectly as a result of criminal activity concerning the 'scheduled offense';

2. Para 31of the judgment, emphasized that a strict construction of the expression 'proceeds of crime' is to interpreted. All the properties recovered during the investigation cannot be considered 'proceeds of crime'. The judgment further stated that the property under 'proceeds of crime' related to the scheduled offense must have been obtained by the person as a result of criminal activity relating to the concerned scheduled offense;

3. Para 33, lays down that to proceed under the PMLA the authorities ought to register a complaint about the concerned scheduled offense before a competent forum;

4. Para 43 of the said judgment also clarifies further that the process or activity related to ‘proceeds of crime’ can be indulged only after the concerned property is derived through criminal activity (scheduled offense). In other words, scheduled offenses are sine qua non for expression ‘proceeds of crime’ under section (2) (1) (u) of PMLA; and

5. Lastly, in the conclusion para v. (d) of the said judgment, the Hon'ble three-judges bench of the Supreme Court of India held that the offense of money laundering under section 3 of PMLA is dependent on scheduled offense and illegal property gained therefrom.

While upholding the stringent measures of the special Act pertaining to twin conditions of bails, power of arrests, seizures, the validity of confession, opposition of bail, etc., by citing that PMLA does not suffer from the vice of arbitrariness, the Indian Supreme Court has made the said Act rigid and pro-executive in nature. But on the other hand, the relief of dependency of money laundering upon predicate offenses under scheduled offenses provides a ray of hope. The relief can be once and for all, if one manages to prove one's innocence in the scheduled offense and consequently in this way, a person can get absolved from the offense under the PMLA as well. Nevertheless, the three-judge bench in the Madanlal case has sealed the conundrum of the question of money laundering under PMLA being a standalone offense in the negative.

The author, Kaif Hasan, is a fourth year student at the Faculty of Law, Aligarh Muslim University, Aligarh.