Deciphering the Code: A Compilation of PMLA Judgments (2023) and Legal Evolution

Embarking on a journey through the intricate realm of the Prevention of Money Laundering Act (PMLA) takes us into a world where financial regulations, criminal justice, and ethical considerations converge. As we delve into a collection of PMLA judgments, we gain access to a valuable repository of legal wisdom that has profoundly influenced how this crucial legislation is understood and executed. These judgments not only shed light on the complexities of money laundering and its implications but also provide invaluable guidance for legal professionals, researchers, and policymakers striving to find the equilibrium between combating financial crimes and upholding individual liberties. Within this compilation, we set out on an intellectual exploration that traces the ever-evolving landscape of PMLA legal interpretations, offering a comprehensive perspective on its development and significance within the landscape of precedential law in pursuit of justice.

Case Title: Y. Balaji v. Karthik Desari

The court dissected Section 3 of PMLA to formulate the three ‘P’s as follows:

i. Person

a. those who directly or indirectly attempt to indulge

b. those who knowingly assists

c. those who are knowingly a party

d. those who are actually involved

ii. Process or activity, which covers six different activities: (i) concealment; (ii) possession; (iii) acquisition; (iv) use; (v) projecting; or (vi) claiming as untainted property

iii. Product:

Section 3 identifies “proceeds of crime” or the property representing the crime as the product of the process or activity.

The court noted that “in the case of an offence of corruption, the criminal activity and the generation of the proceeds of crime are like Siamese twins.” Therefore, if an intangible property is derived as a result of criminal activity relating to a scheduled offence, it becomes proceeds of crime under Section 2(1)(u).

In the present case, as the FIR was pointing towards people’s involvement in criminal activity relating to scheduled offences as well as generation and laundering of the proceeds of crime within the meaning of Section 3, therefore, the aforesaid allegations of corruption would tantamount to money-laundering.

Case Title: Anoop Bartaria v. ED

The Division bench comprising of Ajay Rastogi and Bela M Trivedi, JJ, dealt with quashing of an ECIR wherein the direct involvement of the petitioners in the activities connected with the proceeds of crime has been alleged. Against the contentions of the petitioners that knowledge of dealing with the proceeds of crime was sine qua non and essential ingredient for the offence of money laundering, the Court that Section 3 of PMLA used the words “directly or indirectly”  attempts to indulge or knowingly assists or knowingly is a party or is 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 shall be guilty of offence of money laundering. Therefore, it would be a folly to hold that the knowledge of the accused that he was dealing with the proceeds of crime, would be a condition precedent or sine qua non required to be shown by the prosecution for lodging the complaint under the said Act.

The court also decided on the issue of nature of offences of Money Laundering viz-a-viz Section 45 (1) and the Explanation to Section 45, and held “there remains no shadow of doubt that all the offences under the PMLA were, are and shall be “cognizable and non-bailable offences” notwithstanding anything to the contrary contained in the Code of Criminal Procedure Code, 1973.”

Case Title: Directorate of Enforcement v. Aditya Tripathi

While setting aside the order of High Court grating bail to the respondent, the Division bench of MR Shah and CT Ravikumar, JJ, observed that even though the investigation qua the predicate offences might be complete but the Court must also notice and appreciate the status of the investigation with respect to the scheduled offences under the PML Act, 2002. Here, same was still being investigated by the Enforcement Directorate.

Investigation for the predicated offences and the investigation by the Enforcement Directorate for the scheduled offences under the PML Act are different and distinct. Merely because, for the predicated offences the chargesheet might have been filed, cannot be a ground to release the accused on bail in connection with the scheduled offences under the PML Act, 2002.

The Court also stressed on the rigors of Section 45 that must be considered by the Court while dealing with the bail applications under PMLA.

Case Title: V Senthil Balaji vs the State represented by Deputy Director and Ors.

The Division Bench of AS Bopanna and MM Sundresh, JJ., reiterated that the PMLA, 2002 is a sui generis legislation and it has its own mechanism in dealing with arrest in the light of its objectives i.e., to prevent money laundering, make adequate recovery and punish the offender. For the same purpose, the statute clearly stipulates comprehensive procedure for summons, searches, and seizures etc., and arrest shall only be made after due compliance of the relevant provisions including Section 19 of the PMLA, 2002. The Court added that Section 19 is in compliance with Article 21 and 22(2) of the Constitution of India and for any non-compliance thereof, the competent Court shall have the power to initiate action under Section 62 of the PMLA, 2002. Therefore, there is absolutely no need to follow and adopt Section 41A of the CrPC, 1973 especially in the teeth of Section 65 of the PMLA, 2002,

The Court noted that the power of arrest under Section 19 of the PMLA, 2002 is meant for investigation alone and it is well open to the authority to file a closure report  under  section 44 before the Special Court after conclusion, if it finds that there are no sufficient materials to proceed further.

The court clarified that though there is no express provision  for authorised officers under the PMLA, 2002 to seek custody, nevertheless since Section 19 (1) of the PMLA, 2002 and Section 167 of the CrPC, 1973, are pari materia and the benefits conferred under Section 167(2) must be afforded to the arrestee, therefore, these sections should be read in  consonance. The words “such custody” occurring in Section 167(2) of the CrPC, 1973 would include not only a police custody but also that of other investigating agencies. While making a remand to of an accused person to an authority under the PMLA, 2002, it is the bounden duty of the Magistrate to see to it that Section 19 of the PMLA, 2002 is duly complied with and any failure would entitle the arrestee to get released. Further, since the custody becomes judicial in nature, any plea of illegal arrest is to be made before such Magistrate. Conclusively, the writ of Habeas Corpus in the present petition was not maintainable.  The Court did observe that where the mandate of Section 167 of the CrPC and Section 19 of the PMLA are totally ignored by a cryptic order, a writ of Habeas Corpus may be entertained, provided a challenge is specifically made.

Finally, in dealing issue of frequency and occurrence of 15 days period of remand to police custody, the Bench dissented with the view taken in CBI v. Anupam J Kulkarni, that police custody shall only be within the first 15 days of remand.  While referring the issue to a larger bench, the Court recorded its own finding that the maximum period of 15 days of police custody is meant to be applied to the entire period of investigation - 60 or 90 days, as a whole.

Case title: KA Rauf Sherif v. Directorate of Enforcement

A Divisional Bench comprising of Justice V Ramasubramanian and Justice Pankaj Mithal, dismissed the transfer petition finding it legally invalid and justifiable grounds to order the transfer. Lack of jurisdiction of a Court to entertain a complaint can be no ground to order the transfer of the case. Such a congenital defect of lack of jurisdiction even if it exists, enures to the benefit of the accused and hence it need not be cured at the instance of the accused to his detriment. Moreover, 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 to take cognizance of a compliant under PMLA should be decided with reference to the place/places where anyone of the activities/processes which constitute the offence under Section 3 took place.

In the present case one of the FIR was registered in Lucknow, therefore, the Special Court, PMLA, Lucknow cannot be said to be lacking in territorial jurisdiction to entertain the complaint. Further, ground that 7 out of 10 accused persons and majority of witnesses are also from Kerala/ South India is also not a valid ground for ordering the transfer of investigation.

Referred: Rana Ayyub v. Directorate of Enforcement

Case Title: Rana Ayyub v. Directorate of Enforcement

A Divisional Bench of Supreme Court comprising of Justice V Ramasubramanian and Justice JB Pardiwala, examined the question of territorial jurisdiction of Special courts constituted under PML Act, 2002. The constitution of Special Courts under the Act are constituted under Section 43(1) whereas clause 2 of Section 43 confers additional jurisdictions upon Special Courts to try any other offence with which the accused may be charged at the same trial.

The Court clarified that Section 44(1) takes note of two different contingencies, namely -

(i) cases where the scheduled offence as well as the offence of money-laundering are committed within the territorial jurisdiction of the same Special Court constituted under Section 43(1); and

(ii) cases where the Court which has taken cognizance of the scheduled offence, is other than the Special Court which has taken cognizance of the complaint of the offence of money laundering.

The Court concluded the petition by observing that the issue of territorial jurisdiction should be raised by the petitioner before the Special Court, since an answer to the same would depend upon evidence as to the places where any one or more of the processes or activities mentioned in Section 3 were carried out.

Case title: Jaya Thakur v. Union of India

A constitutional bench comprising of Justice BR Gavai, Justice Vikram Nath and Justice Sanjay Koral, held that nullification of Mandamus by an enactment would be impermissible legislative exercise. The transgression of constitutional limitations and intrusion into the judicial power by the legislature is violative of the principle of separation of powers, the rule of law and of Article 14 of the Constitution of India.

Earlier in the case titled Common Cause (A Registered Society) v. Union of India & Ors, Court issued a specific mandamus that no further extension shall be granted to the Principal Special Director, Enforcement Directorate, Sanjay Kumar Mishra. Undisputedly, the Union of India as well as Sanjay Kumar Mishra were parties to the said proceedings. Therefore, the act of granting extensions to the tenure of the Sanjay Kumar Mishra for a period of one year each are held to be illegal.

This court cited Madras Bar Association Vs. Union of India and other to observe that even though effect of the judgments of this court can be nullified by a legislative act removing the basis of the judgment however, such a retrospective amendment should be reasonable and not arbitrary and must not be violative of the fundamental rights guaranteed under the Constitution.

Finally, the court allowed Sanjay Kumar Mishra, to continue to hold office only till 31th July, 2023.

Reiterates Medical Council of India vs State of Kerala and other (2019) 13 SCC 185

Case title: M/s Prakash Industries LTD. Vs Union of India & Anr AND Prakash Thermal power LTD vs Union of India & Anr

A single bench of Justice Yashwant Varma, interpreted the expressions ― “as a result of” and “derived or obtained” in Section 2(1)(u) of the PML Act to mean that for a property in order to be recognised even prima facie as being proceeds of crime must necessarily be preceded by criminal activity relating to a scheduled offence. The evidence of criminal activity would be either a First Information Report, a complaint or a chargesheet as envisaged under various statutes. However, in absence thereof it would be wholly impermissible for the ED to itself become the arbiter of whether a scheduled offense stands committed.

Relying on the findings in Vijay Madan Lal Case, the Court reiterated that Enforcement Directorate is empowered under PMLA to try offences related to money laundering arising out of the scheduled offences as mentioned under the PLMA 2002.  However, prosecution under the PMLA would be impermissible to be initiated or continued either on a notional basis or an assumption that a scheduled offence has been committed.

In light of the principles of the case as above, that where a person comes to be finally discharged or acquitted of the scheduled offence or where the case pertaining to the predicate offence comes to be quashed, no offence of money laundering would sustain, this Court quashed the PAO dated November 29, 2018 in ECIR/03/CDZO/2014 as well as the Complaint No.1068 of 2018 instituted in terms of Section 5(5) of the Act.

Case Title: Directorate of Enforcement v. M. Gopal Reddy

A Divisional Bench consisting of Justice MR Shah and Justice CT Ravikumar, overturned the decision of High Court of Telangana which granted anticipatory bail to the Respondent by placing reliance on the decision of Nikesh Tarachand Shah v. Unoin of India. This Court, however, reiterated the decision of Director Enforcement Directorate v. Dr. VC Mohan to rectify the High Court’s decision.

The Court observed that although the application is under Section 438 CrPC, however, once the prayer for anticipatory bail is made in connection with offence under the PML Act, 2002, the underlying principles and rigors of Section 45 of the Act must get triggered.  The Court also took note of the seriousness of the offences in the instant case and quashed the order of High Court in light of P Chidambaram v. Directorate of Enforcement wherein it was observed that economic offences have an impact on the society and the Court must be very slow in exercising the discretion under Section 438 of CrPC.

In the realm of the Prevention of Money Laundering Act, the compilation of judgments stands as a testament to the evolving intricacies of financial law, crime prevention, and the pursuit of justice. Each judgment makes a mark in the ongoing narrative of interpreting and applying the law. As we bring this compilation to a close, we are reminded that the synergy between legal principles, ethical considerations, and practical implementation must harmonize. These judgments illuminate the path forward, offering valuable insights to legal practitioners, scholars, and policymakers as they navigate the complex terrain of financial crimes and safeguard the foundations of a just society.

Vaibhavi Sharma is an Associate Partner and Rishabh Sharma is an Associate at Prosoll Law.