Issues under Prevention of Money Laundering Act, 2002
In India, the specific legislation dealing with money laundering is the Prevention of Money-Laundering Act, 2002 ('PMLA'). The law was enacted to combat money laundering in India and has three main objectives:
To prevent and control money laundering;
To provide for confiscation and seizure of property obtained from laundered money; and
To deal with any other issue connected with money-laundering in India.
Apart from the provisions of PMLA, there are other specialized provisions such as RBI/SEBI/IRDA anti money laundering regulations. Many of these authorities are bound to provide suspicious transaction reports, which are in-turn analysed by Financial Intelligence Units established by the Central Government.
The offence of 'Money Laundering' is defined under Section 3 of the PMLA, which, for ease of understanding, can be deconstructed as :
directly or indirectly,
attempts to indulge, or
knowingly assists, or
knowingly is party, or
is actually involved in any process, or
with the Proceeds of Crime, including its :
Acquisition or use; and
Projecting or Claiming it as Untainted Property
shall be guilty of offence of Money-Laundering.
It is clear that the section is most widely worded and almost any kind of dealing with the proceeds/fruits of crime, is brought within the purview of the section and made culpable.
An understanding of the phrase 'Proceeds of Crime' is crucial to the understanding of the crime of Money Laundering. The offence of money laundering as defined u/s 3 and punished u/s 4 is attracted only when the laundered property falls within the definition of 'proceeds of crime'.
Proceeds of Crime is defined u/s 2 (u) which provides that 'proceeds of crime' means and includes :
Any property derived or obtained
Directly or indirectly
By any person
as a result of criminal activity
relating to a 'scheduled offense'; or
the value of any such property
or where such property is taken or held outside the country
then the property equivalent in value held within the country or abroad
The scope of section was further expanded by the Finance Act 2015 and Finance Act 2018 to include within its ambit not only the specific property (which is the subject matter of money laundering) or its value, but also the property-equivalent in value held within the country (in a situation where property which is the 'proceed of crime' is taken or held outside the country). Such properties are also included within the definition of 'proceeds of crime'. (1)
Scheduled Offence as mentioned in the definition of proceeds of crime are the offences mentioned in Part A of the Schedule or the offences mentioned in Part B of the Schedule if the total value involved in such offences is more than one crore rupees or the offences in Part C of the Schedule.
Issue 1: Whether Section 2 (1) (u) is invalid as far as it provides for the attachment of property of a person who has no knowledge or nexus with such criminal activity allegedly committed by others.
The court in B. Rama Raju (2) inter alia considered Whether property owned by or in possession of a person, other than a person charged of having committed a scheduled offence is liable to attachment and confiscation proceedings under Chapter-III and if so whether Section 2(1)(u) which defines "proceeds of crime" broadly, is invalid?
It was held that object of Act is to prevent money laundering and connected activities and confiscation of “proceeds of crime” and preventing legitimizing of money earned through illegal and criminal activities by investments in moveable and immovable properties often involving layering of money generated through illegal activities. Therefore, the Act defines expression "proceeds of crime" expansively to sub-serve broad objectives of Act. Thus property owned or in possession of a person, other than a person charged of having committed scheduled offence was equally liable to attachment and confiscation proceedings under Chapter III.
The Act provides for attachment of any property being any proceeds of crime even before any findings or judgment by the judiciary of occurrence of any scheduled offence and the property or proceeds of crime being generated out of such offence.
Any person is in possession of any Proceeds of Crime; and such Proceeds of crime are likely to be :
dealt with in any manner
which may result in frustrating any proceedings relating to confiscation of such proceeds of crime .
If the aforesaid conditions are satisfied, the authority may by order in writing, provisionally attach such property for a period not exceeding 180 days from the date of order.
Under normal circumstances, presence of a complaint/police report against the accused for the predicate/scheduled offence, whether in India or abroad, is a necessary precondition for provisional attachment of property. This is, however, not an absolute pre-condition and in cases where immediate attachment is needed and non-attachment is likely to frustrate the proceedings, the Director or the Dy.Director, for reasons to be recorded in writing, may nevertheless go ahead with provisional attachment even with there being no prosecution qua the scheduled offence against the accused.
It may be noted that there is no provision for a prior notice of a provisional attachment and the same can come like a total bolt from the blue.
The First Proviso to Section 5 of the Act provides that an order for attachment, in relation to a scheduled offence, can be made only after a charge sheet has been forwarded to a Magistrate under section 1733 of the Code of Criminal Procedure, 1973, or a complaint has been filed by a person, authorized to investigate the offence mentioned in the Schedule, before a magistrate or Court for taking cognizance of the scheduled offence, as the case may be, the Act also empowers the authority to attach property/ proceeds of crime, even before submission of the police charge sheet under section 173 of the Code of Criminal Procedure, if there has been reason to believe that if the property is not attached, it is likely to obstruct any proceeding under the Act. The reason to believe must be based on some material or tangible information that aid in formation of such belief, else the whole process is liable to be negated.
Issue 2: Whether provisional attachment of properties by officer concerned without filing chargesheet under Section 173 of Code is valid
The above principle was acknowledged by Delhi High Court and held that there is no fetter on the officer concerned in exercising his powers of provisional attachment qua such persons, prior to the filing of a charge sheet with a competent court qua scheduled offences under section 173 of the Cr.P.C., as long as he has reasons to believe, on the basis of material in his possession, that if the property, which is involved in money laundering, is not attached immediately, the non-attachment could lead to frustration of proceedings under the Act.(3)
Issue 3: Whether, petitioner could be proceeded under Section 5 of 2002 Act, for an offence alleged to have been committed by him prior to Amendment of 2009, on which Schedule appended to PML Act had been amended
It was held by Andhra Pradesh High Court that amending Act had been brought into force with effect from 1st June, 2009 and therefore after that date, any property obtained, by any person, as a result of criminal activity, under Sections 120-B and 420 Indian Penal Code, could be dealt with under Section 5 of 2002 Act by passing a provisional attachment order . Since, a charge was laid against petitioner by C.B.C.I.D., on file of Additional Chief Metropolitan Magistrate alleging him to have committed offences punishable under Section 120-B r/w Section 420 Indian Penal Code, on 22nd November 2009. Therefore, after that date, proceeds of crime punishable under provisions of IPC, in hands of petitioner, could be subjected to action under Section 5 of 2002 Act. Moreover, provisional attachment order was passed subsequent to 22nd November, 2009 - Therefore, action initiated under Section 5 of 2002 Act against petitioner could not be faulted. (4)
Issue 4: Whether such action to proceeded against the petitioner under 2002 Act, for an offence alleged to have been committed prior to Amendment of 2009 is violative of Article 20 (1). Whether Section 5 is invalid for retrospective penalization?
Article 20 of the Constitution enacts an injunction only in respect of ex post facto laws resulting in conviction for offences or imposition of penalties greater than which might have been inflicted under the law enforceable at the time of commission of the offence. No provision of the Constitution has been brought to our notice which prohibits a legislative measure which targets for attachment and confiscation proceeds of crime. On the text and authority of our Constitution while it may perhaps gainfully be contended that conviction for the offence of money-laundering cannot be recorded if the said offence is committed prior to the enforcement of Section 3 of the Act, such a contention cannot be advanced to target proceedings for attachment and confiscation, as these fall outside the pale of the prohibitions of the Constitution, in particular Article 20(1).(5)
What is prohibited under Article 20 is only conviction or sentence under an 'ex post facto' law and not the trial thereof. Such trial under a procedure different from what obtained at the time of the commission of the offence or by a Court different from that which had competence at the time cannot 'ipso facto' be held to be unconstitutional. A person accused of the commission of an offence has no fundamental right to trial by a particular Court or by a particular procedure, except in so far as any constitutional objection by way of discrimination or the violation of any other fundamental right may be involved. (6)
Considering the aforesaid principle Andhra Pradesh High Court held that Article 20 prohibits only conviction or sentence under an "ex post facto" law and not the trial thereof and such trial cannot "ipso facto" be held to be unconstitutional. In view of this undisputed principle, the resistance offered by the petitioners to the impugned orders, is totally misconceived and unacceptable. The present one is not the stage for securing protection under Article 20 of our Constitution. (7)
Contrary view was however taken by Karnataka High Court wherein the court held that all the offences committed by the writ petitioner were earlier to the insertion of the provision in the schedule of PMLA. They cannot be tried and punished for the offences under the PMLA when offenses were not inserted in the schedule of offences. This would deny the petitioner the protection provided under Article 20 (1) of Constitution. Consequently the order of attachment was liable to be set aside. (8)
Similarly while considering the question that the Act has retrospective effect, Delhi High Court, held that Act is a penal statute and, therefore, can have no retrospective or retroactive operation. Discussing Article 20(1) the court further held that no proceedings under the Act can be initiated or sustained in respect of an offence, which has been committed prior to the Act coming into force. However, the subject matter of the Act is not a scheduled offence but the offence of money-laundering. Strictly speaking, it cannot be contended that the Act has a retrospective operation because it now enacts that laundering of proceeds of crime committed earlier as an offence. In The Queen v. The Inhabitants of St. Mary, White chapel (1848) 12 QB 120, the Court pointed out that "The Statute which in its direct operation of prospective cannot be properly be called a retrospective statute because a part of the requisites for that action is drawn from the time antecedent to its passing". Thus, with effect from 1st June, 2009 laundering proceeds of crime under Section 420 of the IPC is enacted as an offence of money-laundering punishable under Section 4 of the Act. It is important to note that the punishment under Section 4 of the Act is not for commission of a scheduled offence but for laundering proceeds of a scheduled crime. The fact that the scheduled crime may have been committed prior to the Act coming into force would not render the Act a retrospective statute as only the offence of money-laundering committed after the enforcement of the Act can be proceeded against under the Act. (9)
Issue 5: Whether shifting/imposition of the burden of proof, by Section 24 is arbitrary and invalid
Section 24 enacts that the burden of proving that proceeds of crime are untainted property is on the person accused of having committed the offence Under Section 3. Any property constitutes proceeds of crime is presumed to be true and the burden is upon the accused to prove to the contrary. Section 24 applies only to the trial of an offence Under Section 3. In proceedings under Section 8(1) the Defendant is not an accused. However the Adjudicating Authority is construing the provisions of Section 24 as applicable to proceedings Under Section 8(1) as well. On such construction whether Section 24 is illegal, unreasonable and offends Article 14.
The court held that In response to a notice issued under Section 8(1) and qua the legislative prescription in Section 24 of the Act the person accused of having committed the offence under Section 3 must show with supporting evidence and material that he has the requisite means by way of income, earning or assets, out of which or by means of which he has acquired the property alleged to be proceeds of crime. Only on such showing would the accused be able to rebut the statutorily enjoined presumption that the alleged proceeds of crime are untainted property. This being the purpose, we are not satisfied that the provisions of Section 24 are arbitrary or unconstitutional. Section 24 is not confined to the trial of an offence under Section 3 but operates to attachment and confiscation proceedings under Chapter-III, as well. The legislative prescription that the burden of proof inheres on a person accused of having committed the offence under Section 3 is only to confine the inherence of the expressed burden to an accused. Where the property is in the ownership, control or possession of a person not accused of having committed an offence under Section 3 and where such property/proceeds of crime is part of inter-connected transactions involved in money-laundering, then and in such an event the presumption enjoined in Section 23 comes into operation and not the inherence of burden of proof under Section 24. This is the view the true and fair construction of the provisions of Section 24. Clearly, therefore a person other than one accused of having committed the offence under Section 3 is not imposed the burden of proof enjoined by Section 24. On a person accused of an offence under Section 3 however, the burden applies, also for attachment and confiscation proceedings. (10)
Similarly following the decision in Rama Raju case, Karnataka High Court held that under the Amendment Act of 2013, there is an initial presumption that the alleged proceeds of crime on the basis of which an offence under Section 3 of the Act is alleged, are involved in money laundering. In a proceeding under Section 8(1) of the Act, the defendant is not an accused. It is now possible for the Adjudicating Authority in construing the provisions of Section 24 as applicable to proceedings under Section 8(1) as well. This places a person being proceeded against under Section 8(1) at some disadvantage. This construction, by virtue of the impugned amendment, cannot be held to be violative of Article 14 of the Constitution of India, merely on the ground that it may cause hardship on account of such proceedings being initiated. (11)
Issue 6: Whether Section 45 violative of Article 14 and 21
Prior to 2018 amendment, the Supreme Court considered whether Section 45 is violative of Article 14 and 21 as the twin conditions that needed to be satisfied under said Section were that there were reasonable grounds for believing that, accused was not guilty of "such offence" and that he was not likely to commit any offence while on bail. Expression "such offence" would be relatable only to an offence in Part A of Schedule. Thus, in an application made for bail, where offence of money laundering was involved, if Section 45 was to be applied, Court must be satisfied that, there were reasonable grounds for believing that, he was not guilty of the offence under Part A of Schedule, which was not offence of money laundering, but which was a completely different offence.
Supreme Court held that twin conditions laid down in Section 45 would have no nexus whatsoever with a bail application which concerned itself with offence of money laundering, for if Section 45 was to apply, Court did not apply its mind to whether person prosecuted was guilty of offence of money laundering, but instead applied its mind to whether such person is guilty of scheduled or predicate offence. Bail would be denied on grounds germane to scheduled or predicate offence, whereas person prosecuted would ultimately be punished for a completely different offence-namely, money laundering. This, again, was laying down of a condition which had no nexus with the offence of money laundering at all, and a person who might prove that there were reasonable grounds for believing that, he was not guilty of offence of money laundering might yet be denied bail, because he was unable to prove that, there were reasonable grounds for believing that he was not guilty of scheduled or predicate offence. This would again lead to a manifestly arbitrary, discriminatory and unjust result which would invalidate Section. (12)
Issue 7: Whether summons issued twice under the Act is violative of Article 20 (2)
Madras High Court while deciding the issue held that in terms of Article 20(2) of the Constitution of India no person shall be prosecuted and punished for the same offence more than once. As a matter of fact, Article 20(2) of the Constitution of India takes within its umbrage the plea of 'Autrefois Convict' or the plea of 'Double Jeopardy'. However, there should be not only a prosecution but also punishment in the initial stage in order to operate as a fetter to the second prosecution and punishment for the same offence, in the considered opinion of this Court. Also that, the adjudication proceedings initiated against the Petitioners under the Prevention of Money-Laundering Act by requiring them to appear on the specified dates through summons cannot attract the ambit of Article 20(2) of the Constitution viz., the plea of 'Double Jeopardy' since the object of this Prevention of Money-Laundering Act is to ascertain the trail of Evil act of money laundering. To put it succinctly, the initiation of proceedings like issuance of summons etc. in Prevention of Money-Laundering Act are self-contained, in-built and independent procedure mainly to prevent the act of money-laundering and connected activities. Furthermore, the Respondent has issued only summons dated 10.04.2013 to the Petitioners and the issuance of summons cannot be categorized as an act of prosecuting the Petitioners twice. As such, the plea of 'double jeopardy' taken on behalf of the Petitioners was not acceded to by the Court. (13)
 Bhattacharya, Anirban. “All You Need To Know About The Law Relating To Money-Laundering In India.” mondaq.com.http://www.mondaq.com/india/x/589978/Money+Laundering/All+You+Need+To+Know+About+The+Law+Relating+To+MoneyLaundering+In+India (accessed October 14, 2019).
 B. Rama Raju vs Union of India108SCL491(AP) at Para 49.
 Gautam Khaitan vs Union of India 2015CriLJ2112
 V. Suryanarayhana Prabhakara Gupta and Anr. vs. Union of India (UOI) (Andhra Pradesh High Court) MANU/AP/0518/2011
 Rama Raju, Supra note 1, at para 53.
 The Queen v. St. Mary Whitechapel', (1848) 116 ER 811 at p. 814 (G)
 Suryanarayhana, Supra note 2, at para 25
 M/s. Obulapuram Mining Company Pvt. Ltd. Vs Joint Director, Directorate of Enforcement ILR 2017 KAR 1846 at para 11,12.
 Mahanivesh Oils and Foods Pvt. Ltd. vs. Directorate of Enforcement 2016(2)JCC1067 Para 29
 Rama Raju, Supra at Note 1, at para 126, 127.
 K. Sowbaghya vs Union of India 2016(338)ELT65(Kar.) at Para
 Nikesh Tarachand Shah vs. Union of India AIR2017SC5500 at para 28.
 M. Shobana vs. The Assistant Director, Directorate of Enforcement Government of India at para 56,57,58
Year V, B.A.LL.B.,
Govindrao Wanjari College of Law
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