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TMI Blog2022 (9) TMI 1625X X X X Extracts X X X X X X X X Extracts X X X X ..... law laid down by the Apex Court and would become an abuse of the process of law, resulting in miscarriage of justice. The complaint registered against the petitioners by the Directorate of Enforcement, Bengaluru Zone, Bengaluru and the proceedings against the petitioners pending before the III Additional District and Sessions Judge, D.K., Mangaluru in Spl.C. No. 74/2018, stand quashed - Criminal Petition is allowed. - THE HON'BLE MR JUSTICE M.NAGAPRASANNA For the Appellant : Vishal Pratap Singh, Advocate For the Respondent : M. Unnikrishnan, Advocate ORDER MAHESHAN NAGAPRASANNA, J. 1. The petitioners are before this Court calling in question registration of Enforcement Case Information Report (hereinafter referred to as 'ECIR' for short) ECIR No. 70/BGZO/2009-10 for offences punishable under Sections 3 and 4 of Prevention of Money Laundering Act, 2002 (hereinafter referred to as 'PML Act' for short) in Special Case No. 74/2018. 2. Heard Sri Vishal Pratap Singh, learned counsel appearing for the petitioners and Sri Unnikrishnan, representing the Enforcement Directorate. 3. Brief facts that leads the petitioners to this Court in the subject petition, as borne ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of VIJAY MADANLAL CHOUDHARY (supra). This Court in Crl.P. No. 9490/2021 and connected matter disposed on 24.08.2022, has considered the judgment in the case of VIJAY MADANLAL CHOUDHARY (supra) and has held as follows: 12. The issue now boils down to a legal jugglery as to whether accused 1 and 2 having been acquitted of the offences alleged under the IPC-predicate offence, the offence alleged i.e., scheduled offence under the Act can continue. The judgment relied on by the learned counsel appearing for the respondent in the case of DYANI ANTONY PAUL no doubt held the field and further proceedings could not have been interjected or interfered at this stage, as interpretation of proceeds of crime as given in DYANI ANTONY PAUL notwithstanding any order of any Court in the predicate offences, the scheduled offences under the Act can be permitted to continue, as proceeds of crime, if it is linked to the criminal activity, that would be enough circumstance to continue the proceedings. But, the subsequent judgment, rendered by the Apex Court on 27-07-2022 in VIJAY MADANLAL CHOUDHARY (supra), is what settles this issue. The Apex Court in the judgment (supra) specifically interpreti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, the provision as it stood prior to amendment vide Finance (No. 2) Act, 2019 remained as it is. Upon breaking-up of this provision, it would clearly indicate that - it is an offence of money-laundering, in the event of direct or indirect attempt to indulge or knowingly assist or being knowingly party or being actually involved in any process or activity connected with the proceeds of crime. The latter part of the provision is only an elaboration of the different process or activity connected with the proceeds of crime, such as its concealment, possession, acquisition, use, or projecting it as untainted property or claiming it to be as untainted property. This position stands clarified by way of Explanation inserted in 2019. If the argument of the petitioners is to be accepted, that projecting or claiming the property as untainted property is the quintessential ingredient of the offence of money-laundering, that would whittle down the sweep of Section 3. Whereas, the expression including is a pointer to the preceding part of the section which refers to the essential ingredient of process or activity connected with the proceeds of crime. The Explanation inserted by way of ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision does not cover the sole knowing acquisition, possession and use of criminal proceeds The amended section 3 of the PMLA now reads. 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. While the current formulation specifically refers to concealment, possession, acquisition and use, it does not do away with the condition that the proceeds of crime need to be projected or claimed as untainted property . The working of the ML offence is thus not fully in line with the Vienna and Palermo Conventions but case law provided by India appears to mitigate the concerns regarding the possible limiting effect of the conditional element in the ML offence. On that basis, it can be concluded that the scope of these technical deficiencies is relatively minor. It is not expected that there will be any impact on the effectiveness of India's AML regime. The deficiency is mostly addressed. (Emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ably responded and elucidated by India to the international body by referring to the jurisprudence as evolved in India to interpret the word and as or in the context of the legislative intent - to reckon any (every) process or activity connected with the proceeds of crime constituting offence of money-laundering. To buttress the stand taken by India before the FATF, reliance has been justly placed on reported decisions of this Court amongst other Sanjay Dutt, which had occasion to deal with the expression arms and ammunition occurring in Section 5 of the TADA Act. The Court noted that if it is to be read conjunctively because of word and , the object of prohibiting unauthorised possession of the forbidden arms and ammunition would be easily frustrated by the simple device of one person carrying the forbidden arms and his accomplice carrying its ammunition so that neither is covered under Section 5 when any one of them carrying more would be so liable. The principle underlying this analysis by the Constitution Bench must apply proprio vigore to the interpretation of Section 3 of the 2002 Act. To the same end, this Court in the case of Ishwar Singh Bindra v. The State of U.P., Join ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity can be in any form - be it one of concealment, possession, acquisition, use of proceeds of crime as much as projecting it as untainted property or claiming it to be so. Thus, involvement in any one of such process or activity connected with the proceeds of crime would constitute offence of money-laundering. This offence otherwise has nothing to do with the criminal activity relating to a scheduled offence - except the proceeds of crime derived or obtained as a result of that crime. 270. Needless to mention that such process or activity can be indulged in only after the property is derived or obtained as a result of criminal activity (a scheduled offence). It would be an offence of money-laundering to indulge in or to assist or being party to the process or activity connected with the proceeds of crime; and such process or activity in a given fact situation may be a continuing offence, irrespective of the date and time of commission of the scheduled offence. In other words, the criminal activity may have been committed before the same had been notified as scheduled offence for the purpose of the 2002 Act, but if a person has indulged in or continues to indulge directly or indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various arguments advanced. Thus, in the conspectus of things it must follow that the interpretation put forth by the respondent will further the purposes and objectives behind the 2002 Act and also adequately address the recommendations and doubts of the international body whilst keeping in mind the constitutional limits. It would, therefore, be just to sustain the argument that the amendment by way of the Explanation has been brought about only to clarify the already present words, any and including which manifests the true meaning of the definition and clarifies the mist around its true nature. 274. We may profitably advert to the judgment in Seaford Court Estates ltd, which states: The question for decision in this case is whether we are at liberty to extend the ordinary meaning of burden so as to include a contingent burden of the kind I have described. Now this court has already held that this sub-section is to be liberally construed so as to give effect to the governing principles embodied in the legislation (Winchester Court Ld. v. Miller); and I think we should do the same. Whenever a statute comes up for consideration it must be remembered that it is not within human ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e remedied, the objects and purposes of the legislation. Similarly, reference has been made to Hardev Motor Transport v. State of M.P and Martin Lottery Agencies Limited, which states that the role of an Explanation in the Schedule of the Act cannot defeat the main provision of the Act. Even otherwise, an Explanation cannot enlarge the scope and effect of a provision. Reference is also made to S. Sundaram Pillai v. V.R. Pattabiraman, which reads thus: 50. In Bihta Cooperative Development Cane Marketing Union Ltd. v. Bank of Bihar this Court observed thus: The Explanation must be read so as to harmonise with and clear up any ambiguity in the main section. It should not be so construed as to widen the ambit of the section. ********* 53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is- (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere possession of money/property out of proceeds of crime were to be punishable then: The Committee finds that sub-clauses (a) and (c) viewed in the context of the provisions contained in clause 23 of the Bill may lead to harassment of innocent persons who bona fide and unknowingly deal with the persons who have committed the offence of money laundering and enter into transactions with them. Such persons purchasing property born out of proceeds of crime without having any inkling whatsoever about that are liable to be prosecuted if the sub-Clauses (a) (c) remain in the Bill in the existing form. The fact of the matter is that these sub-clauses do not provide any protection or defence to this category of persons. (Emphasis supplied) 279. Accordingly, the phrase and projecting it as untainted property was added the initial definition in the 2002 Act. However, it can also be inferred from here that since the initial strokes of drafting the Act, the intention was always to have a preventive Act and not simply a money-laundering (penal) Act. Today, if one dives deep into the financial systems, anywhere in the world, it is seen that once a financial mastermind can integrate the illegitim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive 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 amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass 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 des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the appellants has contended that the issue as involved in this matter is no more res integra, particularly for the view taken by a 3-Judge Bench of this Court in the case of Vijay Madanlal Choudhary Ors. vs. Union Of India Ors. decided on 27.07.2022 where, the consequence of failure of prosecution for the scheduled offence has been clearly provided in the following terms: 187. .......(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 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etain this Court for long or delve deep into the matter in the light of the judgment of the Apex Court (supra). The solitary circumstance which would enure to the benefit of the accused in both these cases is acquittal of accused 1 and 2 in Criminal Appeal No. 414 of 2016 and the said acquittal becoming final and all the allegations of offences under the Act being linked to the offence under the IPC against accused 1 and 2. Therefore, if the proceedings under the PML Act are permitted to be continued in the teeth of the undisputed facts and the judgments of the Apex Court (supra), it would become an abuse of the process of the law and would result in miscarriage of justice. In the light of the judgment of the Apex Court in the case of VIJAY MADANLAL CHOUDHARY (supra) and that of this Court as afore-extracted, the issue in the case at hand need not detain this Court or delve into the matter. In the teeth of the facts narrated hereinabove, permitting further proceedings to continue would run foul of the law laid down by the Apex Court and would become an abuse of the process of law, resulting in miscarriage of justice. 10. For the aforesaid reasons, following: ORDER i. Criminal Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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