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We saw how just recently on October 27, 2021, the Supreme Court commenced hearing on the batch of petitions that were concerned with the interpretation of the Prevention of Money Laundering Act (PMLA). Kapil Sibal who is an eminent and senior lawyer of Supreme Court and also the former Union Law Minister as also former President of Supreme Court Bar Association and also former Additional Solicitor General of India very rightly articulated on PMLA interpretation that, “The whole Act is an attempt to aggrandize the power of the State.” This happens at the cost of the citizens who are exposed to the wide discretionary power of the State making them extremely vulnerable to being harassed, humiliated and harangued. The Apex Court will certainly go into the nitty-gritty of it and see how this Act can easily become a potent weapon to harass innocent citizens who will find it difficult to defend themselves in such cases.

To start with, as mentioned in the website “Livelaw.in”, senior advocate Kapil Sibal enumerated the broad propositions most meticulously for consideration by the Bench of Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar of Apex Court. They are as follows: -

1. How can there be a penal statute in the absence of procedure on how to commence investigation?

To this, Kapil Sibal submitted quite suavely, sagaciously and softly that, “Your Lordships are supposed to presume as a matter of law that the Cr.P.C. is a procedure established under the law for the purpose of life and liberty. It is the procedure established by law for the purpose of Article 21. It prescribes two methods of investigation – cognizable and non-cognizable offences. In case of non-cognizable offences, the procedure applied in Section 155 and for the cognizable, the procedure applied is Section 154. Under the PMLA, there is no such procedure. You have neither an FIR nor a 155 procedure. So how can you have a penal statute in the absence of a procedure as to how you commence the investigation?”

This begs the inevitable questions: How can all this be taken for granted that under the PMLA we see no such procedure as unlike we see in Cr PC and other laws? How can none other than a penal statute be enacted in the absence of such procedure as we see in Cr PC and so also in other laws? This is the moot point that Apex Court must consider in detail.

While continuing in the same vein, Kapil Sibal then goes on to add very rightly in the next para that, “The PMLA has an internal manual where they record an ECIR-Enforcement Case Information Report. That is something which is kept by the ED to themselves and not revealed to anybody. There is a matter before the Delhi High Court where the ED says that I am not obliged to reveal the ECIR to the prospective accused. In other words, I can be prosecuted without an FIR, without a magisterial oversight, without telling him anything, only pursuant to an ECIR which I shall keep in my office. In some cases, we have had orders for giving us the copy of the ECIR and what we find is that the ECIR is nothing but an FIR though they do not call it that.”

2. Not generating 'proceeds of crime', but legitimising them is an offence under the PMLA; Something beyond the FIR under the predicate offence needs to be established for the ED to take cognisance

Broadly speaking, what Kapil Sibal then submits is that, “The third broad proposition that we are going to advance is that PMLA deals with proceeds of crime pursuant to an act of criminality. So there must be a predicate offence – If there is an act of corruption, then the money which is taken in respect of corruption are the proceeds of crime. But generating proceeds of crime is not an offence under the PMLA, the offence is by attempting to or by legitimising them and showing them as legitimate money. If I indulge in an act of corruption and keep the money at my home, it is not an offence under the PMLA. But the moment I invest it in property and show it in my income tax returns, it amounts to money laundering. Your Lordships will have to decide at what stage this Act can come in. At what stage can the officer under PMLA take cognisance? The money is tainted but you show it as untainted and the act of showing it as untainted is money laundering. The ED must have some evidence to show that tainted money has been converted into untainted money. Without that I cannot be prosecuted. So how do they register an ECIR without that evidence? What is that stage they can prosecute me?” Absolutely right. These key questions must be answered rightly.

As we see, Justice AM Khanwilkar then observed that, “So legitmising tainted money is like destroying evidence of crime committed. That is what has been made an offence here.” To this, Kapil Sibal responded saying that, “It is an act of destruction by changing the character of the proceeds of crime.”

While elaborating further, Sibal retorted that, “Suppose I get money to cheat somebody or kill somebody and I keep that money and I am caught, then I will be prosecuted for cheating or murder but I will not be prosecuted under PMLA. If I convert it into jewellery and show it in my tax returns as jewellery and that link is established, then I will be prosecuted under PMLA. Something beyond the FIR under the predicate offence needs to be established for the ED to commence!”

Furthermore, Sibal then said that, “And that information must be given to me that now you are showing this as untainted money. Otherwise, how will I go to the court in anticipatory bail? That information needs to be given to me in the form of an FIR or under 155 for my right to defend myself. Otherwise it is a violation of Article 21. There is no procedure for knowledge, no procedure for explanation under the Act. The moment there is a predicate offence, they register an ECIR. It is not the same thing! I can understand if there is a show cause notice. Under the GST, there is the same problem. Under Customs Act, it is different. But under the Customs Act, I am importing goods which are prohibited, say gold, and I get caught. I am aware why I am being prosecuted. But none of this happens under PMLA.”

Truth be told, Justice Khanwilkar then noted that, “If you are informed about the source and contents of the information which has come to the knowledge of the official, there is possibility that by the time you make explanation and consideration takes place, the proceeds will be altered in different form and different places.”

Sibal replied saying that, “That is the same for cheating, that is the same for criminal breach of trust. Once I convert it from tainted to untainted, it is part of the mainstream, it is property, it is jewellery, it is bank account. It will never go away. I know the value of it. And there is also a provision for them to seize my bank account or my house or any other property of that much value.”

3. Whole investigation transferred from predicate offence to PMLA by virtue of section 50

Sibal then submitted that, “Under the predicate offence, they just register an FIR and they never investigate. The FIR just lies over there. Say 420, they register it. Then an ECIR is registered. And then the local police does not investigate the FIR under 420. Because the ED officer has the power to investigate me and record my statement which is admissible in evidence under section 50 of the PMLA, then for the predicate offence also they go to the court and say 'you made that statement under PMLA' and then that statement is admitted in evidence there also. So the whole investigation is transferred from the predicate offence to the PMLA because they have that power under section 50. Both are then tried simultaneously. Is that reasonable?”

Justice Khanwilkar then noted , “That procedure may be doubtful. Every offence is to be tried on its own under the relevant norms and procedure.”

4. Genesis of PMLA was to check illicit drug trafficking the proceeds of which funded terrorism

While brilliantly dwelling on the genesis of the PMLA, Kapil Sibal then points out that, “The entire PMLA was structured because of illicit drug trafficking and that money was used for terrorist activities. There was a United Nations Convention against Illicit Trafficking in Narcotic Drugs way back in 1998. In Mexico and Afghanistan, poppy seeds and cannabis were grown. This money then feeds terrorism. That is why a global action programme was adopted by the UN General Assembly and a special resolution was passed to countering the problem together in 1998. This is the genesis of the 2002 PMLA Act. The leitmotif of the global community was growing of poppy seeds, raising money through drugs, legitimising it through banking channels, using it in terrorism.”

While ably dwelling on the prevailing unpalatable ground reality, Kapil Sibal then also added succinctly that, “But now what has happened is that we have started applying it to ordinary crimes. For example, 420 has now become a part of PMLA. It has nothing to do with this design-to use proceeds of crimes for the purposes of countering an activity of this nature. It was never meant for ordinary IPC offences. 420 is a compoundable offence under IPC but the moment PMLA comes in, I will not get bail. Is it consistent with Article 14? Is it not arbitrary? It was supposed to be in respect of heinous crimes. Suppose there is a gangster cartel which deals with only illicit stuff then maybe but not 420. It is there for 329 also. Just look at the kind of offences.”

In response, Justice Khanwilkar observed that, “Your argument is that the Act should be confined to drug cases and extended to corruption? Then the schedule should only contain NDPS Act and Corruption Act if we go by your argument.”

To this, Sibal then rightly cautioned while adding that, “I am not questioning the plenary power of the Parliament. I am only questioning it on the touchstone of (Article) 21. The consequences are horrendous for the individual.” What Sibal has said is certainly worth brooding over! Sibal's fears cannot be discarded as just being “exaggerated”!

5. Later amendments to PMLA moved in a money bill

It would be instructive to mention here that Sibal then added that, “All of these later amendments are now moved under the Finance Act. One of the issues that will have to be decided is that they cannot be moved in a money bill. We have a dissent by Justice D.Y. Chandrachud in the Aadhaar matter and the matter is now referred to 7 judges. Your Lordships may request the Chief Justice to actually first decide that and then take this up.”

6. The moment ECIR is registered, all money and properties are attached.

Quite forthrightly, Sibal argued that, “The moment a predicate offence is registered, the same moment all money and all properties are attached. My business is stopped completely. I may be running corporations, selling properties, selling assets, doing many things all that is stopped.” Justice Khanwilkar retorted by asking that, “The attachment is only corresponding to the proceeds of crime?”

In reply, Sibal said gently that, “They attach all assets. There is a provision for an order after 180 days, which is not to sell my assets but to make the attachment permanent. Even if the final order is in my favour, by that time my business is destroyed.”

7. Interpretation of Section 50 of the Act

Of course, Sibal while interpreting Section 50 holds that, “Section 50 proceeds on the assumption that every proceeding before an officer, director, joint director, additional director, deputy director shall be deemed to be a judicial proceeding. If it is an investigation, it can't be deemed to be a judicial proceeding as a matter of law. And if it is not a judicial proceeding, I should not be compelled to answer as I am the accused”.

Interestingly enough, Sibal then continues saying rightly that, “Connected to that, the statement made by the accused is protected under section 25 of the Evidence Act. Under section 50, there is no such procedure. They just summon me. I should know if I am being summoned as an accused or witness. And if there is an FIR I will know that I am an accused! But here I don't know! They do this in all cases. They summon me, take my statement and then arrest me!”

Sibal then hastens to add that, “Section 50 Sub-section (1) says that the Director shall for the purpose of section 13 have the same powers as a civil court trying a suit under CPC for the purpose of summons, production of document or giving evidence. Section 13 talks of reporting authority. Who are the reporting authority? Banks, financial institutions and intermediaries. The idea being that for the purposes of finding out whether this money is being used as untainted money, we can call upon these banks or other reporting authorities to tell us what has happened. Sub-section (2) says that director additional director etc shall have the power to summon any person whether to give evidence or produce any record during any investigation or proceedings under this Act. Sub-section (3) says that any person summoned shall be bound to attend in person or through authorised agent and bound to state the truth. Now, while Sub-section (2) says 'investigation or proceeding under the Act', the word 'investigation' is not used in sub-section (3). Sub-section (4) says that every proceeding under (2) and (3) will be a judicial proceeding. Now proceedings under (2) include an 'investigation' but investigation cannot be a judicial proceeding. So how am I bound to tell the truth?”


Adding more to it, Sibal then also notably added that, “So how are these proceedings the statements being recorded under 50? I am being investigated but if I don't tell the truth then under 193 and 228 of the IPC, I can be prosecuted. These provisions are entirely unconstitutional.”

8. No control of jurisdictional magistrate

On this, Sibal submitted that, “The Enforcement Directorate is located in Delhi. Under the Cr.P.C., based on the situs of the offence, it is the police station in that area which has jurisdiction and it is for the magistrate of that area to take control. Under PMLA, there is no such procedure. But here, suppose an offence is committed in Maharashtra, then ED has jurisdiction. Under the Code of Criminal Procedure, for that predicate offence, it is a police station which will have jurisdiction. But here the ED has jurisdiction for the Union of India. Under the Act, they have territorial classification of offences but their argument is that this classification of areas is only for convenience. As an individual, some magistrate must have control over me! That cannot be left to the whims and fancies of the PMLA authorities.”

9. Interpretation of section 65 for applicability of provisions of CrPC consistent with PMLA

Here Sibal submitted that, “The PMLA in section 65 also says that CrPC shall apply so long as it is not inconsistent with the provisions of PMLA. This is interesting because there is no inconsistency. The PMLA does not say that the FIR shall not be registered or that 155 cannot apply. There are provisions of the Act which talks of summon, search and seizure. Now these are somewhat inconsistent with the CrPC procedure. So to that extent, PMLA will prevail, but for the other provisions, they are all consistent with the PMLA!”

10. Amendment deems offence to be continuing offence enabling cognisance under PMLA for past acts

For the uninitiated, Sibal then says that, “By virtue of an amendment to section 3, they have provided by law that this will be deemed to be a continuing offence. The offence stands committed when I project tainted property as untainted property. How can that be a continuing offence? Through that process, they seek to take jurisdiction for crimes committed in the past. So for an act of conspiracy or 420, which was not money laundering earlier, they seek to take cognizance now.”

Quite sagaciously, Sibal then further waxed eloquent adding that, “The PMLA Act as framed, unless you can sever certain portions, is unconstitutional. Your Lordships will have to apply the doctrine of severability.” To this, Justice Khanwilkar observed that it is depending on the scheduled entries, the particular offences included in the schedule, that the bench will consider what are the other issues which arise.

Sibal: Whole Act Is An Attempt To Aggrandise Power Of The State

Having discussed all the key points, Sibal then took the Bench through the Schedule. Sibal said that, “120B 'criminal conspiracy' is an entry! This can be applied for any offence. You take 120B and you bring it under PMLA?” Justice Khanwilkar said that Section 120B of the IPC cannot be standalone and that it has to be with some other offence.

To this, Sibal added that, “I may not be directly responsible for anything but you will apply 120B and then PMLA will apply to me. These are extremely draconian provisions. Whether 120B should be there at all is the question. Because what is the threshold for 120B? Merely an allegation”. Justice Khanwilkar observed, “Only yesterday we came across one case where the findings recorded by the High Court was that he was not part of the fraud committed. But the conspiracy theory would extend on fraud for both. They said a PMLA case would be applicable to that person.”

Sibal then very rightly submitted that, “So if you want to have 120B in PMLA, then the threshold standards must be higher for applying it, higher judicial standards.” Sibal also rightly argued that, “Murder is one entry! It is an isolated act! How can it come under PMLA? Why should it come under PMLA? You have attempted to commit culpable homicide. How is that PMLA? Voluntary causing hurt to extort property?”

One cannot but ask candidly : Will it not become an instrument of oppression in the hands of such authorities who enjoy misusing their powers? Will corrupt authorities not exploit it to extract money from rich? Justice Maheshwari noted that, “On the face of it, connecting money with murder may be doubtful. But there will be cases of contract killing?” To this, Sibal replied that, “Even if it is contract killing, it should not come under PMLA. Only if it is a gangsters activity with prior intent is it covered.” Justice Khanwilkar asked: “You mean organised crime syndicate.” Sibal replied in the affirmative.

Most significantly, Kapil Sibal rightly submitted that, “There is no rationale as to when money laundering will apply and when it will not apply. That is the discussion of the officer. If it is some big fish then money-laundering comes in under 120B also! That is why the genesis of this Act becomes very important.” Kapil Sibal has minced just no words to point out how this Act can be blatantly misused. What the Apex Court will finally rule on this yet remains to be seen. We have to keep our fingers crossed till then on this but the extremely commendable points raised by Sibal cannot be casually taken! Even Supreme Court will examine carefully what all Kapil Sibal has argued so rightly, rationally and robustly!


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