India: Analysis Of The Apex Court's Decision On PMLA Act In 2023

LOOKING BACK AT 2023

THE SUPREME COURT ON THE PREVENTION OF MONEY LAUNDERING ACT (PMLA)

INTRODUCTION

In 2022, the Supreme Court had upheld the constitutional validity of several provisions of the Prevention of Money Laundering Act, 2002 (PMLA), pertaining to powers of the Directorate of Enforcement (ED) in relation to arrest and seizure, presumption of innocence, and stringent bail conditions in Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929.

Recently, nearing the close of 2023, the Supreme Court bench hearing the batch of petitions seeking reconsideration of the judgement stood dissolved, which means that the Vijay Madanlal position remains in effect as we have entered 2024.

We take a look at the major judgements of the Supreme Court from 2023 in order to understand how the Court has interpreted the contours and scope of the powers of the ED, and has attempted to strike a balance with the fundamental rights of the accused.

1. Pankaj Bansal v. Union of India, 2023 SCC OnLine SC 1244

The ED is required to inform the accused of the grounds of arrest by providing the same in a written format.

The Supreme Court bench comprising Justices A.S. Bopanna and Sanjay Kumar delivered this judgement in favour of the accused who were challenging the order of the Punjab and Haryana High Court. The accused were challenging their arrest since they neither received a copy of the ECIR (Enforcement Case Information Report) nor were they provided with any written information regarding the grounds on which they were arrested.

The High Court did not allow the challenge to the illegal nature of the arrest, and did not accept the prayer to quash/set aside the arrest orders, arrest memos and the consequential proceedings, including the orders of remand to custody of ED and further to judicial custody.

The Supreme Court held that the arrest by the ED was illegal since the grounds of arrest were not properly communicated to the Petitioners. The Court clearly underlined and bolstered the requirements under Section 19(1) of the PMLA (providing for power to arrest) finding that it is mandatory for the ED to inform the arrested persons of the grounds of their arrest in a written format.

The Court further observed that any non-adherence with the safeguards under Section 19 of PMLA would result in vitiating the arrest. These safeguards include: (1) providing the accused persons with the grounds of arrest in a written format, (2) refusal to cooperate in the investigation cannot always lead to any presumption guilt of the accused, and (3) the investigating and prosecuting agency cannot use its arresting powers maliciously or with mala fides.

Although Vijay Madanlal held that the supply of ECIR is not mandatory in the event that grounds of arrest were communicated, the mode or manner of informing these grounds was not interpreted. The Court acknowledged the need to inform the grounds of arrest through a written format in all cases especially in order to avoid conflicts regarding the validity of the arrests.

In regard to the second requirement that non-cooperation during investigation cannot be a ground for arrest, the Court noted that the refusal of the accused person to incriminate themselves by providing "truthful" answers does not as such amount to uncooperative behavior, especially at the summons stage. The ED should not arrest someone on the premise that the investigation and summoning of the concerned person is only for the purpose of "admissions of guilt". The powers of the ED under Section 19(1) must be seen in consonance with Article 22 of the Constitution which safeguard several rights of the accused.

Lastly, the Court came down heavily on the ED and its approach while attempting to arrest the accused in this case, and noted that the agency has to be transparent in its functioning and has to conform to the standards of utmost fairness and impartiality, without being vindictive (political or otherwise) while arresting individuals.

It is pertinent to mention that some of these requirements were diluted by the Supreme Court subsequently in Ram Kishor Arora v. Directorate of Enforcement, 2023 SCC Online SC 1682, where a different bench of the Supreme Court held that the directions in Pankaj Bansal (supra.) cannot be applied retrospectively, and that the ED only has an obligation to inform the grounds of arrest to the accused orally at the time of arrest, while the written format can be provided within 24 hours.

2. V. Senthil Balaji v. State, 2023 SCC OnLine SC 934

Any form of violation of Section 19 of PMLA will vitiate arrest and it is the duty of the magistrate to ensure compliance with the mandatory requirements of Section 19

The mandate and requirements under Section 19 of PMLA were also discussed by the Supreme Court in its judgement delivered by Justices A. S. Bopanna and M. M. Sundresh in the Cash for Job Scam Case wherein the ED was held to be entitled to take the Petitioner into custody.

The Court focused on the distinct role played by the Magistrate during remand of an accused under the PMLA and observed that not only is the Magistrate bound to ensure the compliance of the mandatory requirements under Section 19, but the Magistrate shall also satisfy himself as to the order that has been passed by the authority under Section 19(1) of the PMLA. The Court made it clear that failure of compliance would entitle the accused to be released forthright unconditionally.

The Court also assigned power to the Magistrate to initiate action under Section 62 of the PMLA (providing for punishment for vexatious search) in case any non-compliance of the mandatory provisions of Section 19 ensues.

Although it was observed that Section 41-A of the Code of Criminal Procedure, 1973 (CrPC) (providing for notice of appearance before police officer) has got no application to an arrest made under the PMLA, the Court ultimately laid down that all arrests conducted in non-compliance of the aforementioned mandate of Section 19 PMLA, including not providing the arrestee with the grounds of arrest, shall be deemed to be illegal and the accused shall be liable to be released from custody.

3. Rana Ayyub v. Directorate of Enforcement, (2023) 4 SCC 457

On the question of territorial jurisdiction, trial of the scheduled offences under PMLA should follow the trial of the offence of money-laundering and not vice versa

The Petitioner herein approached the Supreme Court challenging an order of summons issued by the Special Court, CBI, Ghaziabad on a complaint lodged by Respondent under Sections 45 read with 44 of PMLA. Section 44 of PMLA provides that any offence punishable under the Act shall be triable only by the Special Court constituted for the area in which the offence has been committed. The contention of the Petitioner on Section 44 was that as per Vijay Madanlal (supra.), it is only the Special Court in Maharashtra, where the Petitioner has a bank account, which could have cognizance over the complaint, and not the Special Court, Ghaziabad, where admittedly no offence of money laundering took place.

The bench of Justices V. Ramasubramanian and J. B. Pardiwala observed that the PMLA provides for a two-pronged approach, where proceeds of crime can be dealt in one way, and the person guilty of the offence of money laundering in another way.

The Court further noted that while a Special Court is constituted under Section 43(1) of PMLA, primarily for the purpose of trial of an offence punishable under Section 4 of PMLA, an additional jurisdiction is conferred under Section 43(2) where the Special Court may charge and try the Accused of any other offences.

Section 44 of PMLA, which provides for the territorial jurisdiction of the Special Court, takes into account two different contingencies: (i) where both the schedule offence as well as the offence of money-laundering are committed within the territorial jurisdiction of the same Special Court [Section 44(1)(a)]; and (ii) 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 [Section 44(1)(c)].

The Court observed that clause (a) of sub-section (1) of Section 44 outlines the most essential rule of territorial jurisdiction that the Special Court which is constituted under Section 43(1) has the power to initiate trial for the scheduled offences connected to it.

A combined reading of the CrPC along with the provisions of PMLA would result in ensuring that the specific mandate of clauses (a) and (c) of sub-section (1) of Section 44 is followed. As such, it is the Special Court constituted under PMLA that would have jurisdiction to try even the scheduled offences. Even if any other court takes cognizance of the scheduled offences, that court shall commit the same, on an application by the authority concerned, to the Special Court which has taken cognizance of the offence of money-laundering.

The Court also clarified the scope of territorial jurisdiction in respect of the commission of the offence and held that the areas in which: (a) the place of acquisition of the proceeds of crime is located, or (b) the place of keeping it in possession is located, or (c) the place in which it is concealed is located, or (e) the place in which it is used is located, will all constitute areas where the offence has been committed.

4. KA Rauf Sherif v. Directorate of Enforcement, (2023) 6 SCC 92

The lack of jurisdiction of a court to entertain a complaint can be no ground to order its transfer

This case emerged out of a Petition filed by the General Secretary of the Campus Front of India, which is the student wing of the banned political organization Popular Front of India, seeking transfer of the case against him from Lucknow, Uttar Pradesh to Ernakulam, Kerala. It was the Petitioner's case that since the alleged criminal activities as presented by the Prosecution have been conducted in Kerala, all the proceedings pending before the Special Court, Lucknow are without jurisdiction.

The bench of Justices V. Ramasubramanian and Pankaj Mithal relied upon the judgement delivered in Rana Ayyub v. Directorate of Enforcement, (2023) 4 SCC 357, which held that the ED can assume jurisdiction not only over the place of incident of the scheduled offence, but over any place where any of the acts considered offences under PMLA took place as well. Therefore, the Court observed that the court in Lucknow, Uttar Pradesh does not, as such, lack jurisdiction since the ED has been able to successfully show that various money transactions took place in Uttar Pradesh as well.

The Court also rejected the Petitioner's argument that the exercise of power under Section 167(2) of CrPC (which provides for the power of a Magistrate without jurisdiction to supervise detention) by the Special Court in Kerala made the complaint in Lucknow untenable, as Section 167(2) clearly mentioned that an order under it has to be necessarily passed by the Magistrate to whom the accused person is forwarded, even if he has no jurisdiction to try the case.

The other argument from the Petitioner related to the fact that majority of the witnesses, including the Petitioner, hail from Kerala and therefore it would be convenient to transfer the case to Kerala. However, this was also similarly rejected. These observations resulted in dismissal of the plea of the Petitioner seeking a transfer.

5. Directorate of Enforcement v. Aditya Tripathi, 2023 SCC Online SC 619

Accused is not entitled to bail in relation to offences of money laundering merely because chargesheet has been filed in predicate offence

A Supreme Court bench comprising Justices MR Shah and CT Ravikumar delivered this judgement in light of the ED preferring appeals against the judgement of the Telangana High Court wherein it allowed the petition and granted bail.

The Supreme Court noted that while granting bail to the Respondents, the Telangana High Court did not consider that: (a) the enquiry/investigation by the ED is ongoing, and (b) the allegations appear to be serious in nature, in light of the rigours under Section 45 PMLA (providing that PMLA offences will be non-bailable). The High Court erroneously noted that since the chargesheet has been filed against the Respondent, the investigation stands completed in the predicate offence, without noting that the ED is still in the process of conducting investigation qua the scheduled offences under the PMLA. Considering that the nature of these two investigations are distinct and different, merely because the chargesheet has been filed with respect to the predicate offence, is not a ground to release the accused in connection with the scheduled offences under the PMLA.

The lack of acknowledgement regarding the ongoing nature of the investigation conducted by ED, coupled with the failure to apply the rigour of Section 45 PMLA in light of the seriousness of the allegations led to the Supreme Court allowing the appeals and setting aside the orders granting bail while remitting the matter back to the High Court for fresh consideration.

CONCLUSION

The recent judgements delivered by the Supreme Court highlight a trend where the Court, noting the gravity and seriousness of the offences related to money laundering, have interpreted the scope of the exercise of power by the ED in order to ensure that investigation in relation to the matters is not hampered while at the same time, the rights of the accused are also balanced.

The on-ground implications of these judgements and the consequent repercussions highlight the complexities of interpreting a law which is still developing. While the mandatory direction to provide the written ground of arrest at the time of arrest is a positive development, the possibility of having to defend multiple proceedings (separately for attachment and trial) across different locations could still be a challenge.

However, the approach taken by the Supreme Court can be seen as a welcome step for striving to find an equilibrium between the seriousness of financial crimes and rights of the accused when extensive powers have been granted to an investigating and prosecuting agency under a special legislation.

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