Debriefed: Can a political party be made an accused in a money laundering case?

During one of the hearings of the bail plea filed by Delhi Deputy Chief Minister Manish Sisodia in the Delhi Excise Policy case, the investigating agencies told the Supreme Court that they were contemplating roping in the Aam Aadmi Party (AAP) as an accused.

Additional Solicitor General (ASG) SV Raju revealed the same to a Bench of Justices Sanjiv Khanna and SVN Bhatti when they asked him to clarify whether the charges in the cases filed against Sisodia by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) would be different if the AAP were to be made an accused. 

According to Raju, the same would be done by invoking Section 70 of the Prevention of Money Laundering Act (PMLA) - a provision used for investigating companies under India’s anti-money laundering law.

While Sisodia has been denied bail by the Supreme Court, a pertinent question remains: can a political party be made an accused in a money laundering case?

To get a clearer picture, it is essential to first look at the meaning of each entity relevant to the case, besides the legal provisions that may come into play.

Laws governing formation of a political party

Any association or body of individual citizens of India can register itself as a political party, provided it follows the guidelines prescribed under Article 324 of the Constitution and Section 29A of the Representation of the People Act (RPA), 1951. 

Article 324 of the Constitution confers powers of superintendence, direction and control of elections to the Election Commission, whereas Section 29A of the RPA governs the registration of associations and bodies as political parties with the Election Commission.  

“Any association or body of individual citizens of India calling itself a political party and intending to avail itself of the provisions of this Part shall make an application to the Election Commission for its registration as a political party...” states Section 29A.

The 2019 amended guidelines for a political party’s registration lay down a procedure for a prospective political party to fill up a form, furnishing details such as the name, objectives and details of its organisational structure, office bearers, party funds etc.

While the guidelines don’t prescribe a minimum composition of members to be eligible, at least 100 members are required to furnish individual affidavits swearing that they are registered electors and not members of any other political party registered with the Election Commission.

Section 70 of PMLA

In simpler words, the provision stipulates that when an offence of money laundering is committed by a company, each individual who at the time of crime was in charge or responsible, being a part of the entity conducting business, “shall be deemed guilty of the contravention and shall be liable to be proceeded against and punished accordingly”.

However, a person won’t be prosecuted if they can prove that the contravention took place without their knowledge or that they had exercised all due diligence to prevent such contravention.

Section 70(2) of the PMLA says that if a company is found to be in violation of the anti-money laundering law and if it is proved that such a contravention took place with the “consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or other officer of any company,” such individuals would be deemed guilty and face punishment. 

Explanation 2 of the same provision underscores that a company “may be prosecuted, notwithstanding whether the prosecution or conviction of any legal juridical person shall be contingent on the prosecution or conviction of any individual”.

Meaning thereby, a company is a separate entity independent from its members or those who operate it, and can be prosecuted.

AAP members and the Delhi Excise Policy case

Coming to the allegations against Sisodia and others, on August 17, 2022, the CBI registered a case over alleged irregularities pertaining to the Delhi Excise Policy for 2021-22. The case was registered after Delhi Lieutenant Governor VK Saxena made a complaint on July 20, 2022. 

The ED then swung into action and registered a case on the money laundering aspect against the accused persons on August 22, 2022.

A criminal conspiracy was alleged on the part of Sisodia and others including unidentified and unnamed persons/entities during the stage of the policy’s formulation.

The allegations are that Delhi government officials had connived to grant liquor licenses to certain traders in exchange for bribes. The accused officials are alleged to have tweaked the excise policy to benefit certain liquor sellers.

The conspiracy reportedly stemmed from some of the loopholes “intentionally” left or created in the policy. These were allegedly meant to be exploited later, in terms of favouring some licensees and conspirators post the tender process.

Apart from Sisodia, other individuals associated with the AAP are accused. While the party’s former communications officer Vijay Nair has been accused by the probe agencies of having orchestrated the “entire scam”, Sanjay Singh was arrested after the ED alleged that a transaction of ₹2 crore connected to the case took place at his house.

All three are currently in judicial custody. 

Can a political party be equated with a company?

In legal parlance, a company is a business entity registered under the Companies Act, 2013. A company is also referred to as an “artificial person”. 

On March 29, 2000, the Supreme Court of India in Shiromani Gurudwara Prabandhak Committee v. Shri Som Nath Dass & Ors underlined,

“The very constitution of State, municipal corporation, company etc., are all creations of the law and these Juristic Persons arose out of necessities in the human development. In other words, they were dressed in a cloak to be recognised in law to be a legal unit.”

On the other hand, a political party, that too a ruling party in a state, has governance and administration cut out as its primary functions.

It is also understood that a company is aimed at achieving profit, unlike a political party, which distinguishes itself with the duties of leadership, policy-making and upholding democratic values.

However, Senior Advocate Sidharth Luthra feels that a political party can be called a body of persons for the purposes of the PMLA. Luthra, who has represented many politicians in cases, says,

“I believe a political party can be said to be a body of persons covered under Section 70 (PMLA)."

Luthra's argument is based on the law settled by the Supreme Court in Dayle De Souza v. Government of India and ors. 

In that case, the apex court held that a company, being a juristic person, cannot be imprisoned, but it can be subjected to a fine, which in itself was a punishment. 

“Every punishment has adverse consequences, and, therefore, prosecution of the company is mandatory. The exception would possibly be when the company itself has ceased to exist or cannot be prosecuted due to a statutory bar,” the Court said.

However, Senior Advocate RS Cheema, who has represented the CBI as a special prosecutor in the coal scam cases, underlined that political parties are not covered under Section 70 of PMLA. He highlighted that a political party is not clearly defined either in the Constitution or by the Election Commission of India.  

“A political party is not a clearly determinate group of persons. A political party may at its own freedom have different organisations from propaganda to manifesto committee to a central committee, to a presidium,” he explained.

Cheema further noted that one has to show actual participation in the offence of certain individuals - the mens rea - and said that Section 70 was “specifically and exclusively” dealing with companies. 

“Companies are determinate bodies because their framework is actually laid down in the Act,” he added.

Has any political party been made an accused under PMLA before?

No. Although several NGOs and other organisations have come under the ED scanner, no political party has ever been brought under the ambit of India’s anti-money laundering law.

It will be interesting to see now if the investigation agencies invoke Section 70 of PMLA and apply it to a political party and attribute the offence of money laundering to it.