Acquittal on Discharge in Predicate Offence, Twin Conditions for Bail Upheld: The Supreme Court's PMLA Judgment Explained

· ED can go beyond PMLA Schedule

In a judgment which is bound to have significant political implications, the Supreme Court on Wednesday upheld the validity of the provisions of the Prevention of Money Laundering Act (PMLA).

The judgment was pronounced by a Bench of Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar in a batch of 241 petitions challenging the validity of the law.

The PMLA is a special law enacted by Parliament to counter money laundering and the larger impact it has on the economy and sovereignty of the country.

The judgment is riddled with legalese. This piece attempts to explain what exactly the Court has held.

Use or possession of proceeds of crime will amount to money laundering (Section 3)

The definition of money laundering is provided under Section 3 of PMLA.

It states that whosoever 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 the offence of money laundering

The argument by the petitioner was that only if the proceeds of the crime are projected or claimed as untainted property can the offence of money laundering be attracted.

The Court however, said that the expression “and” occurring in Section 3 has to be construed as “or”, to give full effect to the said provision so as to include “every” process or activity indulged in.

This would mean that mere concealment or possession or acquisition or use of proceeds of crime will amount to money laundering. This would be so even if such proceeds are not are claimed or projected as untainted money.

Projecting a property as untainted property would constitute money laundering on its own being an independent process or activity, the Court said.

Registration of FIR in predicate offence necessary

A predicate offence is a crime which is a component of larger crime. An offence like money laundering begins with an offence under the Indian Penal Code, which is considered the predicate offence.

Such an offence is investigated by the police and tried in criminal courts, unlike money laundering, which is probed by the Enforcement Directorate and tried before special PMLA courts.

The Supreme Court in today’s judgment held that a person cannot be proceeded against under the PMLA unless a first information report (FIR) has been registered in respect of the predicate offence and/or a case is awaiting trial before a competent forum.

Acquittal on discharge in predicate offence

Pertinently, the Court held that acquittal or discharge in the predicate offence or quashing of such offence will lead to acquittal or discharge in the offence of money laundering as well.

“If a person is finally discharged and acquitted of the scheduled offence or criminal case against him is quashed by a court of competent jurisdiction, there can be no offence of money laundering against him or anyone claiming such property being linked to the stated scheduled offence to him,” the judgment held.

Twin conditions for bail upheld (Section 45)

Securing bail in PMLA offences would continue to remain difficult, after the Court upheld the twin conditions laid down by Section 45 of the Act for securing bail. Section 45 lays down that where the public prosecutor opposes the bail application of an accused, a court can grant bail only if it is satisfied that there are reasonable grounds for believing that the accused is not guilty of such offence and that he is not likely to commit any offence while on bail.

“The provision in the form of Section 45 of the 2002 Act, as applicable post amendment of 2018, is reasonable and has direct nexus with the purposes and objects sought to be achieved by the 2002 Act and does not suffer from the vice of arbitrariness or unreasonableness," the judgment said.

In this regard, the Court held that its earlier judgment in Nikesh Tarachand Shah declaring the twin conditions in Section 45(1) of the 2002 Act (as it stood at the relevant time) as unconstitutional, in no way obliterated the provision from the statute book.

"It was open to the Parliament to cure the defect noted by this Court so as to revive the same provision in the existing form," the judgment stated.

The Court said that it cannot agree with the observations in Nikesh Tarachand Shah in view of the Constitution Bench decision in Kartar Singh as well as the serious threat posed to the country by money laundering activities.

Statements made by accused to ED are admissible (Section 50)

Statements made by an accused person to an investigating agency are not usually admissible as evidence in court, since it is presumed that the same could have been made due to coercion and fear.

This principle finds recognition in Article 20(3) of the Constitution, which says that no person accused of any offence shall be compelled to be a witness against himself.

However, the Court in this case held that statements made by the accused to ED officials are not hit by Article 20(3). In this regard, the Court held that Section 50 of PMLA is in the nature of inquiry and ED officials are not police officers.

"Section 50 is in nature of inquiry and is not investigation and the authorities are not police officers. The punishment of fine or arrest for giving false information cannot be construed as a compulsion to give statement. The statements are not hit by Article 20," the Court said.

On inclusion of predicate offences under the PMLA Schedule

The Court held inclusion or exclusion of any particular offence in the Schedule to the PMLA is a matter of legislative policy, and the nature or class of any predicate offence has no bearing on the validity of the Schedule.

This would mean that a wide range of predicate offences could be made part of PMLA net.

On the Enforcement Case Information Report

One of the main arguments by the petitioners was that a copy of the Enforcement Case Information Report (ECIR) under the PMLA, which they claimed is akin to an FIR, is not provided to the accused. Due to this, the accused remains in the dark about the exact allegations against him, it was contended.

However, the Court held that in view of the special mechanism envisaged under the PMLA, the ECIR could not be equated with an FIR under the Code of Criminal Procedure (CrPC).

The Court emphasised that the ECIR is an internal document of the ED, and the fact that the FIR in respect of scheduled documents has not been recorded does not come in the way of authorities referred to in Section 48 commencing inquiry or initiating civil action of provisional attachment of property.

Further, it was stated that supply of a copy of the ECIR to the person concerned is not mandatory in every case.

"It is enough, if ED at the time of arrest, discloses the grounds of such arrest," the judgment said.

This was, however, caveated by saying that when the arrested person is produced before the special court, it would be open to the court to look into the relevant records presented by the authorised representative of the ED for answering the issue of need for continued detention.