PMLA can apply even if scheduled offence was committed before law came into force: Delhi High Court

The Delhi High Court recently ruled that the Prevention of Money Laundering Act (PMLA) can be invoked even if the scheduled offence occurred before the law came into force, provided the accused continued to possess or use the proceeds of crime after the Act became operational [Directorate of Enforcement v. Ms Mahanivesh Oils and Foods Pvt Ltd].

A Bench of Justices C Hari Shankar and Om Prakash Shukla overturned a single-judge’s order which had held the opposite view.

The Court observed that the offence under the PMLA is not confined to the initial act of acquiring illicit funds. Instead, it includes several continuing activities connected with such proceeds - including possession, acquisition, or use of the property derived from them. 

As long as a person continues to possess or enjoy property that represents the proceeds of crime, the process of money laundering continues, the Bench said.

“The result is that, on the date when the PMLA came into force, i.e., 1 July 2005, the respondent was committing the offence of money laundering as the respondent was in possession of, and was using, the subject property, which constitutes ‘proceeds of crime’ within the meaning of Section 2(u) of the PMLA."

The case arose from allegations that funds linked to a cheating and conspiracy case involving the National Agricultural Cooperative Marketing Federation of India were routed through companies and used in 2005 to purchase a residential property in Vasant Vihar. The Enforcement Directorate (ED) provisionally attached the property in 2014, alleging it represented proceeds of crime.

The single-judge quashed the attachment, holding that since the alleged money laundering and purchase of the property took place before PMLA came into force, the proceedings under this law could not be initiated. 

However, the Division Bench disagreed and set aside the single-judge’s ruling. 

It found that the single-judge's ruling treats the money earned from the commission of the scheduled offence alone to be the “proceeds of crime”.

"This is contrary to the definition of “proceeds of crime” in Section 2(1)(u) of the PMLA, which includes, within the definition property purchased, directly or indirectly, from the said proceeds as well."

It further held,

"Thirdly, the impugned judgment overlooks the significance of the word “includes” in Section 3(1). The acts to which the clause alludes thereafter are, thereby, included within the definition of money laundering by legislative fiat. These include mere possession, and mere use, and militate against the finding, in para 33 of the impugned judgment, that the offence of money laundering is complete once the proceeds are crime are “integrated” into the financial system."

It also clarified that its interpretation does not amount to giving PMLA retrospective effect. The Court reasoned that while the scheduled offence may have occurred earlier, the continued possession of the proceeds of crime after the law came into force constitutes an activity covered by the PMLA.

"If the person continues to remain in possession of, or continues to use, the proceeds of crime, which would include properties directly or indirectly obtained received from proceeds of crime, he would certainly be guilty of the offence of money laundering immediately on the PMLA coming into force. This is in tune with the intent and purpose of the PMLA as a statute which is intended at curbing serious economic offences, which tarnish the fiscal fabric of the country."

Special Counsel Zoheb Hossain and Anupam Sharma, Panel Counsel Vivek Gurnani and Advocates Satyam, Riya Sachdev and Pranjal Tripathi appeared for the ED. 

Mahanivesh Oils and Foods was represented through Senior Advocate Parag Tripathi, as well as Advocates DS Kohli, Rini Mehra, Yash Kadyan and Mannat Kohli.

[Read Judgment]