2022 (7) TMI 1316 - SC - Money Laundering

Constitutional validity and interpretation of certain provisions of the Prevention of Money-Laundering Act, 2002 - procedure followed by the Enforcement Directorate (ED) while inquiring into/investigating offences under the PMLA - effect of amendment in Section 45 of the 2002 by NIKESH TARACHAND SHAH VERSUS UNION OF INDIA AND ANR. 2017 (11) TMI 1336 - SUPREME COURT reviving the effect of twin conditions specified in Section 45 to offences under the 2002 Act - initiation of penal proceedings against an individual, without informing him of the charges - based on ECIR, the ED can summon accused persons and seek details of financial transactions or not - proceeds of crime-an untainted property? - Explanation added to Section 44(1)(d) of the PMLA by way of Finance (No. 2) Act, 2019, which posits that a trial under the PMLA can proceed independent of the trial of scheduled offence - investigation outside the purview of Section 154 or 155 of the Cr.P.C. - constitutionality of Section 50 of the PMLA, which pertains to recording of statement of a person summoned during the course of an investigation - Sections 161 and 162 of the Act, concerning inadmissible evidence in the trial of an offence, unless it is used only for the purpose of contradiction as stipulated in Section 145 of the 1872 Act - constitutional validity of vires of Section 50 of the PMLA regarding whether a police officer is in a position to compel a person to render a confession giving incriminating statement against himself under threat of legal sanction and arrest? - procedure established by law has to be in the form of a statute or delegated legislation and pass the muster of the constitutional protections, violative of Article 21 of the Constitution of India or not - non-supplying of the ECIR to the accused is in gross violation of Article 21 of the Constitution or not - onerous bail conditions under Section 45 of the Act - burden of proof under Section 24 of the PMLA - constitutionality of Sections 17 and 18 concerning absence of safeguards in lieu of searches and seizures - section 5(1) concerning attachment independent of the existence of a predicate offence - reversal of presumption of innocence at the stage of bail as an accused by Section 45(1) of the PMLA - correctness of maximum punishment of seven (7) years under PMLA, it was argued that it is disproportionate when comparing the same to other offences under the IPC which are far more serious in nature and are punishable with death - Explanation to Section 44 is contrary to Section 3 read with Section 2(1)(u) - whether money-laundering is a standalone offence or dependent on the scheduled offence? - Explanation to Section 44(1)(d) requiring the two trials to be conducted before the Special Court, but as separate trials - adjudicatory paralysis in the Appellate Tribunal - constitutional validity of Section 50(3) and Section 63(2)(a) and (c) of the PMLA, insofar as they relate to the accused persons, are ultra vires being violative of Articles 20(3) and 21 of the Constitution of India - proceedings under Section 50 is clearly a part of investigation for the collection of evidence or not - whether prosecution for money-laundering is permissible if the commission of scheduled offence and proceeds of crime takes place prior to the PMLA coming into force? - essential ingredient of knowledge of the person for taking an action and exposing himself to criminal liability - impact of insertion of Clause (ii) of the Explanation to Section 3 vide the 2019 amendment with regard to continuing offence - constitutional validity of Section 44(1)(a) of the PMLA, having nexus of the said Section with the object of the PMLA or not - interpretation of Section 3, post addition of the Explanation vide the 2019 amendment - true meaning of the words take possession of property under Section 8(4) should be constructive possession instead of physical possession since it is highly prejudicial for the accused during the pendency of the trial?. HELD THAT - The conclusion on seminal points in issue have been arrived in the following terms - (i) The question as to whether some of the amendments to the Prevention of Money-laundering Act, 2002 could not have been enacted by the Parliament by way of a Finance Act has not been examined in this judgment. The same is left open for being examined along with or after the decision of the Larger Bench (seven Judges) of this Court in the case of ROJER MATHEW VERSUS SOUTH INDIAN BANK LTD. OTHERS 2019 (11) TMI 716 - SUPREME COURT . (ii) The expression proceedings occurring in Clause (na) of Section 2(1) of the 2002 Act is contextual and is required to be given expansive meaning to include inquiry procedure followed by the Authorities of ED, the Adjudicating Authority, and the Special Court. (iii) The expression investigation in Clause (na) of Section 2(1) of the 2002 Act does not limit itself to the matter of investigation concerning the offence under the Act and is interchangeable with the function of inquiry to be undertaken by the Authorities under the Act. (iv) The Explanation inserted to Clause (u) of Section 2(1) of the 2002 Act does not travel beyond the main provision predicating tracking and reaching upto the property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence. (v) (a) Section 3 of the 2002 Act has a wider reach and captures every process and activity, direct or indirect, in dealing with the proceeds of crime and is not limited to the happening of the final act of integration of tainted property in the formal economy. The Explanation inserted to Section 3 by way of amendment of 2019 does not expand the purport of Section 3 but is only clarificatory in nature. It clarifies the word and preceding the expression projecting or claiming as or ; and being a clarificatory amendment, it would make no difference even if it is introduced by way of Finance Act or otherwise. (b) Independent of the above, we are clearly of the view that the expression and occurring in Section 3 has to be construed as or , to give full play to the said provision so as to include every process or activity indulged into by anyone. Projecting or claiming the property as untainted property would constitute an offence of money-laundering on its own, being an independent process or activity. (c) The interpretation suggested by the petitioners, that only upon projecting or claiming the property in question as untainted property that the offence of Section 3 would be complete, stands rejected. (d) The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property, which constitutes the offence of money-laundering. The Authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or any one claiming such property being the property linked to stated scheduled offence through him. (vi) Section 5 of the 2002 Act is constitutionally valid. It provides for a balancing arrangement to secure the interests of the person as also ensures that the proceeds of crime remain available to be dealt with in the manner provided by the 2002 Act. The procedural safeguards as delineated by us hereinabove are effective measures to protect the interests of person concerned. (vii) The challenge to the validity of sub-section (4) of Section 8 of the 2002 Act is also rejected subject to Section 8 being invoked and operated in accordance with the meaning assigned to it hereinabove. (viii) The challenge to deletion of proviso to sub-section (1) of Section 17 of the 2002 Act stands rejected. There are stringent safeguards provided in Section 17 and Rules framed thereunder. Moreover, the pre-condition in the proviso to Rule 3(2) of the 2005 Rules cannot be read into Section 17 after its amendment. The Central Government may take necessary corrective steps to obviate confusion caused in that regard. (ix) The challenge to deletion of proviso to sub-section (1) of Section 18 of the 2002 Act also stands rejected. There are similar safeguards provided in Section 18. We hold that the amended provision does not suffer from the vice of arbitrariness. (x) The challenge to the constitutional validity of Section 19 of the 2002 Act is also rejected. There are stringent safeguards provided in Section 19. The provision does not suffer from the vice of arbitrariness. (xi) Section 24 of the 2002 Act has reasonable nexus with the purposes and objects sought to be achieved by the 2002 Act and cannot be regarded as manifestly arbitrary or unconstitutional. (xii) (a) The proviso in Clause (a) of sub-section (1) of Section 44 of the 2002 Act is to be regarded as directory in nature and this provision is also read down to mean that the Special Court may exercise judicial discretion on case-to-case basis. (b) We do not find merit in the challenge to Section 44 being arbitrary or unconstitutional. However, the eventualities referred to in this section shall be dealt with by the Court concerned and by the Authority concerned in accordance with the interpretation given in this judgment. (xiii) (a) The reasons which weighed with this Court in Nikesh Tarachand Shah, for 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; and 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. (b) We are unable to agree with the observations in Nikesh Tarachand Shah, distinguishing the enunciation of the Constitution Bench decision in KARTAR SINGH VERSUS STATE OF PUNJAB 1994 (3) TMI 379 - SUPREME COURT ; and other observations suggestive of doubting the perception of Parliament in regard to the seriousness of the offence of money-laundering, including about it posing serious threat to the sovereignty and integrity of the country. (c) 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. (d) As regards the prayer for grant of bail, irrespective of the nature of proceedings, including those under Section 438 of the 1973 Code or even upon invoking the jurisdiction of Constitutional Courts, the underlying principles and rigours of Section 45 may apply. (xiv) The beneficial provision of Section 436A of the 1973 Code could be invoked by the accused arrested for offence punishable under the 2002 Act. (xv) (a) The process envisaged by Section 50 of the 2002 Act is in the nature of an inquiry against the proceeds of crime and is not investigation in strict sense of the term for initiating prosecution; and the Authorities under the 2002 Act (referred to in Section 48), are not police officers as such. (b) The statements recorded by the Authorities under the 2002 Act are not hit by Article 20(3) or Article 21 of the Constitution of India. (xvi) Section 63 of the 2002 Act providing for punishment regarding false information or failure to give information does not suffer from any vice of arbitrariness. (xvii) The inclusion or exclusion of any particular offence in the Schedule to the 2002 Act is a matter of legislative policy; and the nature or class of any predicate offence has no bearing on the validity of the Schedule or any prescription thereunder. (xviii) (a) In view of special mechanism envisaged by the 2002 Act, ECIR cannot be equated with an FIR under the 1973 Code. ECIR is an internal document of the ED and the fact that FIR in respect of scheduled offence has not been recorded does not come in the way of the Authorities referred to in Section 48 to commence inquiry/investigation for initiating civil action of provisional attachment of property being proceeds of crime. (b) Supply of a copy of ECIR in every case to the person concerned is not mandatory, it is enough if ED at the time of arrest, discloses the grounds of such arrest. (c) However, when the arrested person is produced before the Special Court, it is open to the Special Court to look into the relevant records presented by the authorised representative of ED for answering the issue of need for his/her continued detention in connection with the offence of money-laundering. (xix) Even when ED manual is not to be published being an internal departmental document issued for the guidance of the Authorities (ED officials), the department ought to explore the desirability of placing information on its website which may broadly outline the scope of the authority of the functionaries under the Act and measures to be adopted by them as also the options/remedies available to the person concerned before the Authority and before the Special Court. (xx) The petitioners are justified in expressing serious concern bordering on causing injustice owing to the vacancies in the Appellate Tribunal. We deem it necessary to impress upon the executive to take corrective measures in this regard expeditiously. (xxi) The argument about proportionality of punishment with reference to the nature of scheduled offence is wholly unfounded and stands rejected.

Summary

Issues Involved:
1. Jurisdiction and powers of authorities under the Act.
2. Reciprocal arrangements for assistance and procedure for attachment and confiscation of property.
3. Miscellaneous and incidental matters including rule-making power.
4. Validity of amendments to the Act.
5. Definition and scope of "money-laundering" and "proceeds of crime."
6. Provisional attachment of property.
7. Search and seizure provisions.
8. Arrest provisions.
9. Burden of proof.
10. Functioning of Special Courts and trial procedures.
11. Bail conditions under the Act.
12. Summons, production of documents, and giving evidence.
13. Penalties for false information or failure to give information.
14. Validity and interpretation of the Schedule of the Act.
15. Registration and furnishing of ECIR.
16. Publication and usage of ED Manual.
17. Functioning and vacancies in the Appellate Tribunal.
18. Proportionality of punishment under Section 4.

Detailed Analysis:

1. Jurisdiction and Powers of Authorities:
The authorities under the Act are empowered with significant jurisdiction and powers, including the ability to conduct inquiries, attach properties, and prosecute individuals involved in money-laundering activities. These powers are detailed in various chapters of the Act, including Chapter VIII, which outlines the authorities' jurisdiction and powers.

2. Reciprocal Arrangements and Procedure for Attachment and Confiscation:
Chapter IX of the Act deals with reciprocal arrangements for assistance in certain matters and procedures for attachment and confiscation of property. This includes international cooperation and coordination to combat money-laundering.

3. Miscellaneous and Incidental Matters:
Chapter X addresses miscellaneous and incidental matters, including the Central Government's rule-making power under Section 73. The rules cover various aspects such as the manner of forwarding orders of provisional attachment, receipt and management of confiscated properties, and maintenance of records.

4. Validity of Amendments:
The petitioners challenged the amendments brought by the Parliament through the Finance Bill/Money Bill. However, this ground of challenge was not examined in the present proceedings as it is pending before a Larger Bench of the Court.

5. Definition and Scope of "Money-Laundering" and "Proceeds of Crime":
The definition of "money-laundering" under Section 3 and "proceeds of crime" under Section 2(1)(u) were extensively discussed. The court clarified that the offence of money-laundering captures every process and activity connected with the proceeds of crime, not limited to the final act of integration of tainted property into the formal economy.

6. Provisional Attachment of Property:
Section 5 of the Act, which deals with the provisional attachment of property, was upheld as constitutionally valid. The court noted the procedural safeguards provided to protect the interests of the person concerned.

7. Search and Seizure Provisions:
Sections 17 and 18, which deal with search and seizure, were challenged but upheld by the court. The amendments to these sections, including the deletion of certain provisos, were found to have reasonable nexus with the objectives of the Act.

8. Arrest Provisions:
Section 19, which deals with the power to arrest, was also upheld. The court noted the stringent safeguards provided to ensure fairness and accountability in the exercise of this power.

9. Burden of Proof:
Section 24, which shifts the burden of proof to the accused in money-laundering cases, was upheld. The court found this provision to have reasonable nexus with the objectives of the Act and not arbitrary or unconstitutional.

10. Functioning of Special Courts and Trial Procedures:
Sections 43 and 44, which deal with the establishment and functioning of Special Courts, were discussed. The court upheld these provisions, noting that they ensure the effective prosecution of money-laundering offences.

11. Bail Conditions under the Act:
Section 45, which imposes stringent conditions for granting bail, was upheld. The court found that the twin conditions for bail are reasonable and have a direct nexus with the objectives of the Act.

12. Summons, Production of Documents, and Giving Evidence:
Section 50, which empowers authorities to summon individuals, require the production of documents, and give evidence, was upheld. The court noted that this process is in the nature of an inquiry and not an investigation for prosecution.

13. Penalties for False Information or Failure to Give Information:
Section 63, which provides penalties for giving false information or failing to provide information, was upheld. The court found this provision to be reasonable and necessary for the effective implementation of the Act.

14. Validity and Interpretation of the Schedule of the Act:
The Schedule, which lists the scheduled offences, was upheld. The court noted that the inclusion or exclusion of offences is a matter of legislative policy and has no bearing on the validity of the Schedule.

15. Registration and Furnishing of ECIR:
The court clarified that the Enforcement Case Information Report (ECIR) is an internal document and not equivalent to an FIR. The non-supply of ECIR to the accused does not violate constitutional rights as long as the grounds of arrest are disclosed.

16. Publication and Usage of ED Manual:
The court noted that the ED Manual is an internal document for departmental use and not required to be published. However, it suggested that the department explore the feasibility of placing relevant information on its website.

17. Functioning and Vacancies in the Appellate Tribunal:
The court expressed concern over the vacancies in the Appellate Tribunal and urged the executive to take corrective measures to ensure its proper functioning.

18. Proportionality of Punishment under Section 4:
The challenge to the proportionality of punishment under Section 4 was rejected. The court found that the punishment prescribed is reasonable and has a direct nexus with the objectives of the Act.

Conclusion:
The court upheld the validity and interpretation of the various provisions of the Prevention of Money-laundering Act, 2002, and provided clarifications on the procedural and substantive aspects of the Act. The court emphasized the importance of the Act in combating the menace of money-laundering and ensuring the integrity of the financial system.