Old Wine in New Bottles? — The Judgment in Vijay Madanlal Choudhary (Part Two)

The previous post in this two-part series considered how the Supreme Court's judgment in Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. [SLP Crl. No. 4364 of 2014; Judgment dated 27.07.2022 ("Vijay Madanlal Choudhary") dealt with the offence of money laundering under the Prevention of Money Laundering Act 2002 ["PMLA"]. This post turns its lens to how the judgment understood the procedural facets of that statute. It first recaps the important holdings of the Court, and then turns to a critique. As a result, this post is longer than the previous one.

The Findings on Searches and Arrest

The challenge to powers of search conferred by the PMLA primarily arose due to amendments made to Section 17 of the Act in 2019, whereby a proviso was removed. This proviso was in the nature of a pre-condition that had to be satisfied before a search action under PMLA could be undertaken, and essentially required that an investigation in respect of the scheduled offence ought to have been started. By removing this anchor of the scheduled offence, it was argued that the entire logic of the PMLA had been turned on its head.

For arrests, the argument was much simpler — Section 19 of the PMLA enabled arrests without securing the minimum safeguards that the ordinary criminal procedure under the Criminal Procedure Code  1973 ["Cr.P.C."] allowed, and thus ought to be struck down. Unlike ordinary law, there was no system in the PMLA for an arrested person to know the case against her since no First Information Report was recorded under the PMLA. If Section 19 had to be saved, then the Court ought to declare that the PMLA equivalent — a document called the Enforcement Case Information report or "ECIR" according to Petitioners — ought to be shared with the arrested person. 

The Court did not find any such problem with either the search or the arrest powers. In case of the former, it upheld the amendment and held that it expressed the legislative policy (not to be questioned) of treating money laundering seriously. It made sense to de-link the PMLA process from the scheduled offence to not leave the former hamstrung in cases where there is somehow a lapse in prosecuting the scheduled offence. If anything, this enabled the Enforcement Directorate to take action and then ask the sleepy police to also take action. In respect of safeguards, and here the analysis dovetails with the Court's observations on the arrest powers, it noted that comparing the PMLA with a penal statute was incorrect since it was a sui generis law. Even though the statute had used the word 'investigation' to describe the process of the Enforcement Directorate, it was more appropriate to read it as 'inquiry' instead given the PMLA had many facets besides investigating commission of crime.

With that context, it was of the view that the PMLA had many safeguards which made any worries about abuse were unfounded: the powers could only be exercised by very senior officers, with a necessary requirement of recording reasons in writing and forwarding them to a separate authority, and by a statutory provision penalising vexatious searches or arrests. In case of arrests, the Court held that an ECIR was not a First Information Report but an internal document; anyway, a statutory requirement under Section 19 to share grounds of arrest fulfilled the need to inform a person about the case against her.

On "Section 50" PMLA Statements

Section 50 PMLA enables Enforcement Directorate officials to record statements on oath from any person. It was subjected to a limited, twinfold challenge. Firstly, that clause must be read down in terms of Article 20(3) of the Constitution of India, and secondly, that statements recorded under Section 50 ought to be hit by the bar under Section 25 of the Indian Evidence Act 1872 ["IEA"] rendering confessions to police officers inadmissible, if sought to be used at a subsequent trial.

Since the PMLA was not seen as a penal statute by the Court, and 'investigations' were 'inquiries', it was only logical for the Court to reject submissions on this front as well. The rejection of the Section 25 IEA submission was resounding, with the Court relying upon a line of precedent stretching all the way back to the mid 1960s, where similar powers for officers of other agencies acting under the Customs Act 1962 and other state laws were upheld. The Court noticed the recent judgment in Tofan Singh [(2021) 4 SCC 1] which had extended such guarantees to the Narcotic Drugs & Psychotropic Substances Act 1985 ["NDPS Act"]. As had been argued earlier on this blog, Tofan Singh carefully tailored its findings on the peculiar statutory scheme of the NDPS Act, and the Court in Vijay Madanlal Choudhary relied on this aspect to distinguish it from the PMLA context.

For Article 20(3) of the Constitution, the Court observed that every person summoned to give statements under Section 50 cannot be a person 'accused of an offence', again relying upon precedent which went back to the 1950s concerning powers to record statements conferred under other laws including the Companies Act 1956, the Customs Act, and the Foreign Exchange Regulation Act 1973 ["FERA"]. However, where persons under arrest were questioned, it acknowledged that the clause may apply, leaving that determination open to the peculiar facts of each case.       

On Bail

In 2018, a different bench of the Supreme Court in Nikesh Tarachand Shah [(2018) 11 SCC 1] struck down Section 45 of the PMLA partially, as it then stood. This clause imposed what are popularly known as the 'twin conditions' of bail — restrictive conditions that are found in some laws which require that before granting bail the prosecutor must be heard and a court should be satisfied that (i) the accused was not guilty of the offence, (ii) the accused is not likely to commit any offence while on bail (see here for more). The reasons behind striking down these parts of Section 45, as it had been explained earlier, was not because the court had any problem with the twin conditions, but only because the manner in which the PMLA applied the conditions was found to be arbitrary — it was based on the kind of scheduled offence allegations involved, and since the legislature had completely eroded any rationality in the scheme of the schedule this made application of Section 45, in turn, arbitrary. 

In 2018, Parliament sought to solve this problem by doing away with this classification based application of Section 45 altogether — now, it would apply to all cases under PMLA. This amendment to the law was challenged as unconstitutional. The Court disagreed. Firstly, it explained how nothing prevented a future legislature from remedying a defect identified in Section 45 by Nikesh Tarachand Shah. Secondly, it held that the manner in which Parliament had chosen to remedy this defect — by abandoning the classification altogether — was not unconstitutional as money laundering is exactly the kind of offence which warrants such restrictive bail conditions. At the same time, the Court noted that the twin conditions would not apply in cases of being granted bail for delays in investigation [Section 167(2) Cr.P.C.] or prosecution [Section 436A Cr.P.C.]  

Critiquing the Findings on Investigative Aspects 

Section 17 — The Tail Wags the Dog

Recall that the very definition of money laundering under the PMLA is intrinsically linked to a scheduled offence. It is that property which is derived or obtained by engaging in acts relating to scheduled offences which become proceeds of crime, which are the heart and soul of the PMLA. Seen from this perspective, a statutory limit on the agency concerned with money laundering to hold its hands till there was at least a suspicion of there having been a scheduled offence makes sense. At the same time, it also makes sense to not ask agencies to wait till that investigation is over to do something. This is the balance that was struck by Section 17, through a proviso which required an investigation into the scheduled offence to have begun before the Enforcement Directorate undertook searches etc.

The Court, in trusting legislative policy, has now approved a state of affairs where the tail shall wag the dog. It is justified, the Court tells us, to allow the Enforcement Directorate to proceed to ensure the system can be cleansed of money laundering. All that is rhetoric, not reasoning. No matter which you look at it, in the current scheme of things where the existence of a scheduled offence is necessary for the PMLA, letting the PMLA process begin even before anyone has alleged the commission of a scheduled offence does not stand to reason. In effect, it makes the judgment of the Directorate also determinative for deciding whether or not a scheduled offence might have been committed, which is nowhere within its mandate. Considering the plethora of scheduled offences that already exist, one can appreciate the perception that this provision allows the Enforcement Directorate to create money laundering allegations where there might not be any, for which police station will disagree with a letter from the 'very senior officers' telling them to register a case for commission of scheduled offences?

We can keep taking turns at it, but a square peg will not fit in a round hole. 

Non-Existent Safeguards?

Vijay Madanlal Choudhary extols the many safeguards present in the scheme of Sections 17 to 19 of the PMLA to consign worries about abuse of powers into the dustbin. The seniority of the empowered official is supposed to allay fears of misuse, as is the existence of a provision punishing vexatious exercise of power. None of this is new: the same logic was offered when coercive powers granted under other socio-economic laws were challenged in the past. What is, nevertheless, worthy of note is the uncritical, almost loving eye, with which the view is re-affirmed by the Court. The Petitioners made submissions about the biased nature of enforcement under the Act, the inherent limits of provisions punishing abuse of power — it would require internal sanction, which rarely comes — and the paltry rate of conviction to suggest that the threat of abuse and misuse was not mitigated by the purported safeguards. The Court did not so much as blink in the face of this criticism, and its suggestion of trusting the officials would certainly leave some corners bemused, as conservative a view as that may be. 

The Sui Generis Argument is Flawed

The idea that the PMLA is not a penal law but a sui generis law is central to much of the Court's reasoning in Vijay Madanlal Choudhary. This is the justification for holding it unnecessary to bring the PMLA at par with other penal statutes in terms of procedural safeguards conferred upon persons who may get entangled in the PMLA process. 

The previous post explored this argument from the perspective of how the civil and criminal machinery within the PMLA operated while comparing it with other laws. It argued, that the PMLA did not allow for its civil process to live independent of its criminal process; indeed, without a prosecution for the offence, the civil action would die a natural death sooner rather than later. So the idea that PMLA also deals with inquiries ending in civil consequences is a half-baked truth at best.

We need to return to that comparative perspective and now look at the PMLA together with the other kinds of socio-economic offences that have been passed over time, to assess the Court's reasoning when it comes to procedural safeguards regarding questioning persons. It is difficult to take stock of all such laws passed at the state and central levels, but it would suffice if we take note of some primary central ones — the Customs Act 1962 (preceded by the Sea Customs Act of 1878), the Companies Acts of 1956 and 2013, the Foreign Exchange Regulation Act 1973 ["FERA"]. Vijay Madanlal Choudhary draws comparisons between the PMLA and these laws, for which the Supreme Court has repelled legal challenges in the past by holding that the questioning of persons under those laws is for an inquiry unlike criminal investigation, to hold that the PMLA ought to be treated similarly. 

This comparison is flawed, because while the Customs Act, or FERA, or even the Companies Act, allow officers to file a civil action for penalties at the end of an inquiry, there is no such option in the PMLA. So, in case of the former, the idea that powers to question people or even arrest them are not necessary linked to a future prosecution has at least some legs to stand on because that outcome is statutorily possible. Of course, this does not address the problem in deciding whether procedural safeguards that are relevant during an inquiry should apply basis how an inquiry ends, and whether Article 20(3) should not apply to questioning and Section 25 IEA should not apply in the cases where the inquiry does result in a criminal prosecution. For the PMLA, there is no such possibility; a standalone civil action cannot last beyond 180 + 365 days. What's more, the PMLA is linked to the fact of a crime, and thus any inquiry where persons accused of that prior offence are called, are already placed very differently from individuals suspected of customs duty evasion. 

The theoretical sophistry that the Court had been able to rely upon in the past with FERA or the Customs Act is simply not available to it when it comes to the PMLA, where without the criminal action nothing survives. Yet, somehow, this distinction has escaped the Court's attention, and it applied judgments decided in context of other laws.

The few grains that the Court does throw towards procedural safeguards, it fails to flesh out. Imagine that earlier judgments on Article 20(3) and statements to officers under socio-economic laws did not clearly say that an arrested person ought to be treated differently. Vijay Madanlal Choudhary does this much, at least, but in a rather half-hearted manner. Secondly, in refusing to share the ECIR with an arrested person, the Court finds that the clause requiring sharing grounds of arrest would do the job. It would have helped if the Court could stress upon the manner of sufficiency required in these grounds if it was treating them as a substitute for being supplied a copy of the ECIR itself. In practice, it is all too common for the agency to simply state that a person is arrested for committing a Section 3 PMLA offence, nothing more and nothing less. By fleshing out the nature of grounds, the Court could have prevented this from continuing. Now, it would fall upon the High Courts to, hopefully, breathe some life into this clause. 

A point, also, about Tofan Singh would be in order. The Court has held that the judgment was unique to the NDPS Act context and could not be extended to the PMLA. This is, undoubtedly, correct. As had been noted at the time, Tofan Singh was unlikely to provide any succour beyond the NDPS Act because of how the Court went about examining the issue then. Still, the manner in which Vijay Madanlal Choudhary suppresses the points of similarity between the NDPS Act and PMLA is rather striking. For instance, it is nowhere mentioned how the NDPS Act also has confiscation mechanisms in place, much like the PMLA.  

Assessing the Revival of Section 45 Twin Conditions

Nikesh Tarachand Shah, much like Tofan Singh, dealt with the form of a problem rather than its substance (both were authored by the same judge, incidentally). Here, that problem was the twin conditions of bail. 

The problem with Section 45, according to Nikesh Tarachand Shah, was that it imposed the restrictive bail conditions by creating an illogical classification between kinds of cases. It accepted that such conditions are legal and necessary where compelling state interests exist, but recognised that not every case of money laundering would be the same, and adopting a monetary threshold to gauge seriousness made sense. This logic of the threshold had been done away with, while at the same time multiplying the total number of scheduled offences manifold. This was a problem because the underlying offences were very different and since money laundering necessarily turned to the scheduled offence, the nature of that offence was not an altogether irrelevant factor for consideration.

Parliament's answer to this in the 2018 amendment was not to repair the classification, but to do away with it altogether. In Vijay Madanlal Choudhary, the Court correctly notes that its earlier judgment had pointed out an error with the form and not substance of the twin conditions, but it failed to identify exactly what that error was while upholding the legislative response to the perceived problem. In concluding that the legislature could remedy defects and restore the twin conditions to PMLA, Vijay Madanlal Choudhary is right. But here, the manner of resolving the defect was to completely undermine the logic of the judgment in Nikesh, which the Court chose not to appreciate. Instead, the Court endorsed, whole-heartedly, the abandoning of a classification-based approach and the application of twin conditions to all PMLA cases. For, we are reminded again, money laundering is a very serious offence. 

There is an obvious problem with that assertion, though, because unlike other crimes, at a basic level money laundering derives its seriousness from the seriousness of the underlying scheduled offence and what kind of proceeds of crime were generated there. Yes, terrorists and drug cartels might engage in money laundering and should not get bail easily is a plausible view, but the law as it works today paints these persons with the same brush as any copyright or trademark violators who may 'derive or obtain' any property by way of their violation. Such petty offences are not rendering the financial foundations and the economic integrity of the country unstable, with all due respect. To contend that these are hypotheticals unworthy of attention because the Enforcement Directorate will not waste time on such cases is not a good enough response, because a court is required to deal with the law and not how an agency may or may not choose to enforce it in its wisdom. 

This is an odious conclusion, no matter which way we look at it.

Conclusions

There are many serious problems in how the Court has justified the refusal to treat the PMLA at par with other penal laws when it comes to procedural safeguards. Vijay Madanlal Choudhary has glossed over distinctions between contexts that are gaping chasms, acting under the illusion that these are minor cracks in the edifice of its immaculate reasoning. The conclusions, at many points, are starkly incorrect on law. 

At the outset of this series, it was observed that Vijay Madanlal Choudhary is a conservative decision, inasmuch as the Supreme Court has simply remained faithful to its inglorious past of taking away all semblance of safeguards to personal liberty and property when it comes to socio-economic offences. Restrictive bail conditions in independent India first came for the essential supplies law before they became famous for anti-terror laws; reverse burdens were held good in 1964 when it came to gold smuggling; the guarantee of Article 20(3) was held inapplicable till customs officials or those from the registrar of companies concluded their inquiry given the theoretical possibility that such inquiries might, till that stage, not end in prosecution. More recently, it was okay for the accused in the 2G Scam and Coal Block cases to be denied a right of appeal.

Over time, not many people have had a problem with this growing body of law developing right under our eyes, because these were confined to specific areas of activity. Even for those with left-leaning inclinations, such laws were in fact lauded because of the detrimental impact that white-collar criminals and smugglers posed to the country. 

What the PMLA does, is that it weaves together all the restrictive, rights-effacing clauses from this illustrious past in one fine blanket, and it then goes a step further. It is not restricted to just the smuggler or hoarder, but to practically anyone. It is not old wine in a new bottle, contrary to what the title might suggest. In its reach and deleterious impact on basic freedoms, the PMLA is truly a sui generis law unlike any other. The judgment in Vijay Madanlal Choudhary was an opportunity to trim it down to size and prevent it from becoming another MISA from the 1970s; instead, the Court has, for now, green-lit that very outcome.         

Of Old Wine in New Bottles — The Judgment in Vijay Madanlal Choudhary (Part One)

After marathon hearings, the Supreme Court finally pronounced its judgment on 27.07.2022 in a batch of over 200 petitions where the legality of various provisions under the Prevention of Money Laundering Act, 2002 ["PMLA"] had been challenged. This judgment — bearing the title Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. [SLP Crl No. 4364 of 2014] for the lead matter — runs into 545 pages, but it is not a difficult read. Not because one is a cynic and the outcome was as expected, but because reading the judgment in Vijay Madanlal Choudhary is like listening to a greatest hits collection of the Supreme Court's past forays into examining the legality of socio-economic offences. 

Which is why, before getting into any analysis of this judgment, it is important that we dispel the thought that the Supreme Court has gone out of its way in this judgment to strike a blow for fundamental freedoms. It was quite the opposite — the Supreme Court merely had to remain on the path that it had chartered for more than half a century to arrive at the verdict in Vijay Madanlal Choudhary, and it happily chose this conservative path rather than adopt a radical departure from the status quo. 

In respect of the analysis itself, there are many ways in which one could go about it. Rather than taking up each issue as done in the judgment, I have divided it into two posts: the first considering the substantive offence, the second the procedural aspects and offering a summing up of the discussion.

Scheduled Offences and the PMLA

A intentionally killed B — that is a shorthand way of describing murder. If you then read A murdered B, you know what it means. Can we do the same for money laundering? A launders property — does that make sense intuitively? Folklore suggests that the idea was always about projecting tainted assets as being untainted. But even at this stage, you are in trouble, because now how does one figure out what are tainted assets? This, in a nutshell, is the peculiarity of the money laundering offence — in India, and many parts of the world, it is tied to the occurrence of prior criminal activity as a result of which some property was either derived or obtained. It is not like murder, cheating, or forgery — it criminalises what comes after.  

This is how the PMLA also operates. Money laundering, as it is understood under Section 3 of the PMLA, is not merely dealing with property, but 'proceeds of crime' which refer to the property one derives or obtains (directly or indirectly) by virtue of a 'scheduled offence'. So, unless an offence is mentioned as part of the Schedule to the PMLA, whatever happens thereafter is not the concern of the PMLA, because any property generated as a result would not be 'proceeds of crime'. 

The Supreme Court in Vijay Madanlal Choudhary has re-emphasised this filial linkage between the idea of money laundering under PMLA and the prior criminal activity that led to generating tainted assets. As a result, where the underlying prosecution goes (either on acquittal or discharge) then the money laundering case would die a natural death. So far so good. In the same breath, though, the Court has also endorsed the claim that money laundering is an independent offence when it comes to construing the guarantee under Article 20(1) of the Constitution against retrospective penalisation or enhanced punishment. The problem with this Janus-faced approach was explained, at length, in the discussion on the Prakash Industries judgment of the Delhi High Court and I won't repeat it here. To wit, both limbs of Article 20(1) are being attracted. 

Firstly, because by applying PMLA prior to 2005, or situations prior to the time when an offence was included in the schedule, means crossing the rubicon and changing the nature of property retrospectively. If the test is that the property derived or obtained from committing a scheduled offence is proceeds of crime, then in these cases at the time when I derived or obtained the property, it could not be proceeds of crime because the PMLA did not exist / offence was not part of the schedule. If I am retaining or using that property after that date, then I have not derived or obtained the property after 2005, thereby eliminating that most critical limb from the money laundering definition.

Secondly, because in effect, money laundering by its very nature is a statutory enhancement of punishment on acts that I did in the past. This is especially so where we consider property crimes — A cheated B and obtained property prior to 2005 and continued to retain that property — allowing PMLA to now operate in such cases practically sanctions this very transaction with a new punishment. By not adding that additional punishment to the offence of cheating itself but instead labelling one segment of that transaction as a new crime under a different statute, Parliament ought not to be able to sidestep a fundamental right.

(There are other issues arising from this 'PMLA is an independent offence' approach on the side of process, which will get taken up in the next post).

The Validity of the Schedule

This was not the only constitutional issue which was canvassed concerning scheduled offences. The very schedule was questioned on grounds of arbitrariness. This argument, in a sense though not so explicitly portrayed in the judgment, actually relies upon that same concept of money laundering as an independent offence. The Court does not shy away from generic remarks about the awfulness of money laundering and how it is the repose of terrorists and financial criminals. These comments, by themselves, clearly expose some kind of independent value judgment that is underlying the idea of money laundering, which finds statutory expression in how the PMLA did not get triggered by all criminal acts, but only those deigned to be included in the Schedule. 

If money laundering has an independent value as a 'wrong' in our system, which the statute chooses to only link to the offences deemed important enough to be part of the schedule, that logic cannot be undermined by simply going ahead and adding every offence in the statute book. To put it another way, if the statutory scheme displays a need for discretion in the kinds of cases associated with money laundering, then a constitutional guarantee against arbitrariness reads a necessary element of rationality in how to exercise that kind of discretion, leaving it open for a court to inquire whether or not that constitutional benchmark is being met. By adding all sorts of offences to the schedule, it was argued that this key component of reasonableness was rendered missing from the schedule as it stood today. 

The Court did not appreciate this aspect of the contention at all. Instead, it chose to simply shut shop and proclaim that any additions / deletions in the PMLA schedule expressed a legislative policy that could not be second-guessed by the Court — a rather frank note of obeisance from a constitutional court. The choice was unfortunate, and it would be surprising if other courts in the future adopt such a posture.  

'Or', 'And'

There is a lot of controversy about the reading of the 'and' in the definition of money laundering as an 'or' by the Supreme Court. Yes, words ought to mean as they should, but in this case at least there was some material led by the government (in the form of reports from the FATF) to suggest that there was an honest error in the statute. Many courts had been accepting this view even in 2013 — something that India had told the FATF  — and the Supreme Court has stamped this view with its approval. As a result, it found nothing wrong with the Explanation as well.

A 'Sui Generis' Statute? The Bridge between Substance and Procedure

Throughout Vijay Madanlal Choudhary, the Court emphasises that the PMLA is a sui generis and multi-faceted law, and not just a penal statute. Sure, it creates offences, but it also carries a large mechanism of civil processes for attachment and confiscation of property, besides casting reporting requirements on persons. The reporting obligations are ultimately linked to helping discover money laundering offences so this does not take us too far, and nor does the court press it into service much. The sui generis logic is largely premised on the existence of the attachment process. 

This reasoning is critical to how it justifies the validity of the various provisions conferring investigative powers upon the state machinery — by diluting the penal elements of the law and re-characterising the substantive nature of the PMLA, the Court is able to justify its procedural scheme which does not confer the same level of protections as other penal statutes. This, according to me, is one of the most important issues which lies at the heart of the judgment and the PMLA in general, which is why it becomes all the more important to subject this reasoning to close scrutiny.

Yes, the PMLA does have a machinery for attachment and confiscation. And, yes, this is not the first statute to provide for it (as the Court points out at the start of its analysis). However, there are differences in the PMLA and other laws on this front. 

Other laws, such as the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (central law), operate only after the criminal action was completed and use a conviction as a trigger for confiscation. Still others, such as the Orissa Special Courts Act, 2006 and Bihar Special Courts Act, 2009 (state laws), or the Fugitive Economic Offenders Act 2018 (central law) trigger attachment on based on some offence but also permit confiscation of that property independent of whatever happens in respect of the trial for that offence. 

The PMLA allows for attachment independent of any money laundering prosecution being filed, but only allows it to last for a maximum of 180 + 365 days in matters where no such prosecution is launched. And, critically, confiscation of attached assets is only permitted upon conviction for the money laundering offence. Therefore, even though civil actions may be initiated independent of criminal proceedings, the structure of the PMLA civil action is such that it must be tied to the criminal proceeding sooner rather than later.

Over the years, these linkages between the criminal prosecutions and the civil action have been watered down in the statute, often as a response to FATF reports. Nevertheless, the umbilical cord has not been cut, and without a criminal prosecution no civil action can sustain itself in the long run. In such a scenario, where the offence of money laundering is at the heart of the law, can it really be said that the PMLA is not a penal statute? 

Conclusion and Next Post

This post primarily covered how Vijay Madanlal Choudhary engaged with the offence of money laundering under the PMLA. It ended with critiquing the Court's conclusion that the PMLA is a sui generis law and not a penal statute, which renders it justifiable for the procedural safeguards  ordinarily guaranteed to defendants under penal laws to not be applicable in the PMLA context. The next post turns to the Supreme Court's engagement with these procedural aspects of the law, which is where the conservatism of the judgment really shines through.

Prakash Industries and Interpreting the PMLA

The Delhi High Court has passed a detailed judgment in the matters of Hi-Tech Mercantile and Prakash Industries [Order dated 19.07.2022 in WP(C) No. 14999 of 2021 ("Prakash Industries"], touching on issues pertaining to the Prevention of Money Laundering Act 2002 [“PMLA”]. Holding in favour of the Petitioners and terminating the PMLA proceedings, the High Court considered four critical issues: (i) the interplay between a scheduled offence and the PMLA proceeding; (ii) the scope of the phrase “proceeds of crime”; (iii) the breadth of attachment powers, and; (iv) the application of Article 20(1) of the Constitution of India to the PMLA context. The first two issues were held in favour of the Petitioner, the third arose due to a purported conflict between earlier orders of courts, and the fourth was decided in favour of the Respondent. 

This post is not seriously concerned with the second issue of whether an allocation of a coal block could be seen as being proceeds of crime for the PMLA. Rather, the focus here is how Prakash Industries engages with the links between PMLA proceedings and the scheduled offence, while also elaborating on the purported conflict on understanding the scope of attachment powers. It is argued here that the Court’s conclusions on the attachment powers issue are ultimately correct. However, in respect of the latter issue,  the Court has created a curious contradiction by concluding that PMLA actions and scheduled offence proceedings are inextricably linked, but Article 20(1) would sever that link. The distinctions drawn are more an exercise in sophistry, looking to the form rather than substance of the matter, and do not do justice to the scope and ambit of the constitutional guarantee of Article 20(1). 

A Quick Background

The PMLA punishes practically anything to do with “proceeds of crime”, and it defines this concept in Section 2(1)(u):

“proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence 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;

Explanation. — For the removal of doubts, it is hereby clarified that “proceeds of crime” include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence

If the PMLA relies on proceeds of crime to come into action, then proceeds of crime in turn rely upon the commission of a scheduled offence, which is defined in Section 2(1)(y) as referred to the offences that are specified in the schedules to the PMLA.

The Axis Bank - Seema Garg Controversy on Understanding "Proceeds of Crime" [Paras 66-81]

If we return to the proceeds of crime definition, it can be separated into three limbs — (i) property that is "derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence" (read with the explanation); (ii) the "value of any such property"; (iii) where "such property is taken or held outside the country" then property "equivalent in value held within the country or abroad".

In Prakash Industries, the Court observed that there appeared to be a conflict in how the second and third limbs of the proceeds of crime definition were being interpreted by courts. It noted the Punjab & Haryana High Court's decision in Seema Garg [Order dated 06.03.2020 in PMLA O&M No. 1 of 2019] as having read the statute in a manner contrary to the Delhi High Court's earlier decision in Axis Bank [Order dated 02.04.2019 in Crl. A. 143/2018].

What had Seema Garg done? It had held that the second limb (value of any such property) bore a live link with the first limb (property derived or obtained from a scheduled offence), to the degree that it must be borne from the first limb. So, if the proceeds of crime generated from committing the scheduled offence are cash, and that cash is invested towards building a house, then that house is the kind of property that the second limb covers. As against this, the third limb could cover any property of the defendant, acquired before or after commission of the offence, which was of equivalent value to proceeds of crime identified by the prosecution. If both the second and third limbs covered any property of equivalent value, this meant that one of the two was redundant, which could not be the correct way to read the statute. 

Axis Bank differed from Seema Garg by rejecting the view that the second limb only covers property that is birthed from the first limb. Instead, it held that both the second and third limbs could cover any property which was of equivalent value. There was no redundancy because the third limb only covered cases where the proceeds of crime were taken out of India, which was beyond the scope of the second limb. Noticing the possible hardship resulting from this reading, the Delhi High Court in Axis Bank had insisted upon requiring the prosecution to give reasons why it was going past the first limb and demonstrate that the proceeds of crime derived or obtained from commission of the scheduled offence were not available.     

In Prakash Industries, the Delhi High Court agreed with its earlier orders in Axis Bank, emphasising that the view taken in Seema Garg would amount to deleting the second limb altogether. Further, it held that such a view would limit the scope of attachment powers in a manner contrary to the legislative intent behind enacting the PMLA, as the statute imagined scenarios where proceeds of crime would be layered by sophisticated means rendering them untraceable for attachment. The Court re-emphasised the safeguard of requiring the prosecution to demonstrate why it had to resort to attach anything other than the proceeds of crime so identified. 

Limiting the second limb of Section 2(1)(u) to only cover property which was birthed from the proceeds of crime generated from the scheduled offence might appear too limited a view of the law considering its intent and the ease with which the proceeds of crime might be layered in the financial system — cash can get invested in a host of financial instruments, held in the names of various persons. Moreover, it is next to impossible to prove the level of causation demanded by Seema Garg where proceeds of crime go into a bank account and merge with existing balances — if INR 5,00,000/- alleged to be proceeds of crime hits an account which already had INR 5,00,000/-, then how do we establish that the watch bought from the bank account was due to the proceeds of crime and not existing balances? Which is why the more relaxed view adopted in Axis Bank is preferable. But, the cost of adopting this view is that it brings with it the very real risks of the Enforcement Directorate simply not making the effort to trace the proceeds of crime and instead attaching legitimate assets causing undue hardship to defendants and innocent third parties. To its credit, the PMLA does provide for an agency in the form of the Adjudicating Authority to exercise oversight over what the Enforcement Directorate does and ensure that this doesn't happen. That this Authority might not be doing its job is, arguably, not a valid reason to erect limits within the statute itself.         

The Scheduled Offence and PMLA: A Peculiar Relationship

It was contended by the Enforcement Directorate in Prakash Industries (as it is contended by this agency in many other cases) that the offence of money laundering is an independent offence and unconnected to the fate of the scheduled offence. Thus, it sought to argue that even if a court discharges / acquits the accused or quashes proceedings relating to the scheduled offence, that would not affect the PMLA proceeding since the latter was an independent offence. This argument is sought to be anchored in Section 44 of the statute which provides that PMLA proceedings are not 'dependent' on the scheduled offence. 

A cursory reading of Section 2(1)(u) and the definition of the money laundering offence would be enough to reject this contention — since proceeds of crime, the beating heart of the PMLA, are expressly linked to a scheduled offence, a finding that there was no scheduled offence would naturally entail that no proceeds of crime were generated, and thus the PMLA cause of action would not lie. A finding to this effect came to be passed recently by the Supreme Court in a peculiar fact context [J. Sekar v. Directorate of Enforcement, Crl. A. No. 738 of 2022 (Order dated 05.05.2022) — not cited in Prakash Industries]. But the language of the High Court in Prakash Industries in rejecting this argument of the Directorate is more expansive and hopefully marks the end to this particular contention being raised [Paras 36-65] (till the day the statute de-links "proceeds of crime" from the scheduled offence altogether).     

While on the one hand the Delhi High Court in Prakash Industries characterised the relationship between the PMLA cause of action and a scheduled offence as 'inextricable', it curiously did not find any problems in viewing these two as stand-alone processes when it came to application of the constitutional guarantee under Article 20(1) against retrospective punishment.  

"Article 20(1):— No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence."

The issues of retrospective penalisation before the High Court in Prakash Industries were straightforward. If the PMLA itself had come into force from 2005, then could it apply to cases emanating from scheduled offences registered prior in time? And, if a specific offence itself came to be added to the schedule on date X, then could a PMLA prosecution lie in respect of the proceeds of crime for cases registered prior to X date notifying the offence as a "scheduled offence"? 

The High Court concluded that allowing a PMLA prosecution to run in both these scenarios would not violate the bar against retrospective penalisation under Article 20(1). This is because the cause of action did not stand completed on the date of the commission of the scheduled offence and generation of any proceeds of crime, since the PMLA went beyond this and punished possession or use of such proceeds at any point of time. Thus, it was more like a situation where some elements for the cause of action were being drawn from a point of time prior to the legislation coming into effect, rather than the entire cause of action having been complete before that date and its character being changed retrospectively. 

Holding that the PMLA proceedings can subsist even in cases where the underlying scheduled offence was either prior in time to the PMLA coming into force, or the offence being incorporated into the schedule, is a conclusion which comes under some difficulty when scrutinised. Especially, if one is of the view — as the Court in Prakash Industries is — that the scheduled offence is inextricably linked to the PMLA cause of action. This is because before the coming into force of the PMLA, or Date X, the property generated by committing the crime could not be proceeds of crime, since the offence was not a scheduled offence. If the Act goes back in time to a point when the scheduled offence did not exist, it means that the properties in question were not proceeds of crime, and therefore it would not attract the terms of Section 3, PMLA. To place this in the language of Article 20(1) which prohibits punishment "for a violation of law in force at the time of the commission of the act charged as an offence", it is clear that the "act charged" in the PMLA context will always have to be read together with the concept of a "scheduled offence" which is what can lead to any proceeds of crime arising in the first place.

The second limb of Article 20(1) is also attracted here, something which the Court did not fully appreciate in Prakash Industries. Giving the PMLA retrospective effect is problematic because it would alter the nature of events completed in the past, rather than simply rely upon an acquired status or characteristic of persons or things to give the law effect. The commission of a scheduled offence which led to generation of some property is an event which, through a separate law, is sought to be saddled with additional liability.  This is unlike, say, the following scenarios:

• A law is passed requiring persons to obtain a license for keeping alcohol at home. D has alcohol at home prior to the law being passed, and refuses to get a license. The law would, rightly, punish D for failing to get a license in respect of this alcohol which she had acquired prior to the law coming into force. The infraction here is the failure to get a license, and it would continue for each day that the person refuses to get a license. 
• Possession of items already criminalised by an existing law is made more severely punishable by a new law. This new law would certainly apply to items possessed at a date that is prior to the law being enforced. However, it could not apply to cases already registered prior to the law coming into force. This scenario is akin to the one before the Supreme Court in Mohan Lal [(2015) 6 SCC 222] which in my view correctly noted that the NDPS Act would cover cases in which possession continued from a time prior to that Act coming into force, but incorrectly applied the Act to that specific case which had been registered prior to the NDPS Act coming into force and thus should have been governed by the Opium Act instead. 

The PMLA might be criminalising possession or use of certain items, but it is not analogous to issues of possessing alcohol without license or drugs after a law criminalises possession. This is because the PMLA relates back to a set of events (commission of scheduled offence) which when they were committed did not attract the additional penalty of inviting criminal proceedings under the PMLA against an individual. It is no better than a law which says that all persons convicted of any offence in the past will now be open to suffering additional prosecutions for having possessed or used property derived as a result of that offence. 

This issue of Article 20(1) would also prevent invoking PMLA for its attachment processes, because just how there is an inextricable link between the scheduled offence and PMLA prosecution, there is such a link between the PMLA prosecution and the attachment process. Unlike, say, the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 1976 ["SAFEMA"] where forfeiture proceedings may use the fact of a prior prosecution but work entirely independent of such a prosecution, the proceedings of attachment and confiscation under the PMLA cannot exist independent of a criminal proceeding under the PMLA. Which is why relying on cases which term forfeiture under these parallel regimes as not being "penalties" for purposes of Article 20(1) — such as Biswanath Bhattacharya [AIR 2014 SC 1003] would be inappropriate for the PMLA context.

Conclusion

In a judgment where the High Court emphasised on the inextricable link between the scheduled offence and the money laundering offence, it has ultimately undone its own finding by enabling retrospective operation of the money laundering offence by, somehow, concluding that this link is perhaps not so inextricable after all. The latter is an erroneous view, which fails to give full import to a constitutional mandate carried in Article 20(1), and may expose countless persons to harassment by re-opening closed transactions on the strength of untested allegations by an agency. Since it has come at a time when the Supreme Court is also poised to deliver a judgment on various aspects of the PMLA, the observations of the Delhi High Court in Prakash Industries may end up having a rather short shelf life. In some respects, such an outcome might not be for the worst. Unless, of course, this judgment presages what is yet to come.

The Most Recent Clarifications to the Supreme Court Bail Guidelines

On July 11, 2022, the most recent clarifications were issued by the Supreme Court in respect of the bail guidelines which it had first issued in October, 2021 [MA No. 1849 of 2021 in SLP (Crl) 5191 of 2021, titled 'Satender Kumar Antil v. CBI' (Order dated 11.07.2022)]. This blog had covered the guidelines in October, and then had taken up the first set of clarifications issued by the Court in December, and readers can turn to those posts to get a sense of the background to the most recent order in this series. To be clear, the guidelines in issue here were limited to the issue of bail in scenarios where persons were not arrested during an investigation. 

This short post will only take up the contributions made by the July 11 order, which are, broadly, of two kinds — a further set of clarifications to the existing guidelines, and fresh directions altogether.

The Fresh Clarifications to the Bail Guidelines

Recall that the guidelines worked with a logic of creating four categories of offences for deciding bails in  cases where persons were not arrested during investigation — Category A dealt with offences punishable with imprisonment up to seven years, Category B with offences punishable with more than seven years or death, Category C dealt with offences under special acts with restrictive bail clauses, and Category D was for economic offences not covered by special acts. 

The most lenient approach was asked of courts in respect of Category A, and in respect of Category B cases, the guidelines demanded a 'case by case' approach. Not much appears to have changed here at least going by Paragraph 63. But, is it really so for Category B cases? Paragraph 63 does reiterate that "these cases will have to be dealt with on a case-to-case basis" which is the same as the earlier orders, but then it goes on to add that this determination is "keeping in view the general principle of law and the provisions, as discussed by us". The discussion referred to here takes place through Paragraphs 19 to 62 and it asks courts to follow an approach where coercive processes are strictly kept as a last resort in the non-arrest cases that the guidelines covers. Potentially then, the July 11 order gives a new lease of life to personal liberty for even Category B cases.

In respect of Categories C and D, the clarifications are much more direct, and very substantial. The earlier orders made it uncertain as to whether the fact that a person was not arrested during investigations under a special act would be entirely immaterial when such a person is ultimately appearing before court for bail after completion of investigation, and bail would be governed strictly by the restrictive bail clause. Now, it appears that the Court has made a clean break from this view: 

"65. We may clarify on one aspect which is on the interpretation of Section 170 of the Code. Our discussion made for the other offences would apply to these cases also. To clarify this position, we may hold that if an accused is already under incarceration, then the same would continue, and therefore, it is needless to say that the provision of the special act would get applied thereafter. It is only in a case where the accused is either not arrested consciously by the prosecution or arrested and enlarged on bail, there is no need for further arrest at the instance of the court. ..." [Emphasis mine]

Thus, even in cases of special acts, the fact that the prosecution has 'consciously' not arrested an accused is significant as it suggests 'no need for further arrest at the instance of the court' upon the start of judicial proceedings. This means that, practically agencies would be barred from invoking the harsh bail clauses at least in such cases, and bail would practically be a matter of asking.

The residuary set of economic offences under Category D was the subject of some criticism on this Blog and elsewhere as it had a breathtakingly wide amplitude. It would appear that the Court has acknowledged its error, noting that "it is not advisable on the part of the court to categorise all the offences into one group and deny bail on that basis". Instead, the Court has turned back the clock, and restored an approach where courts would look at the seriousness of allegations and the gravity of the offence as relevant factors [Paragraph 65].  While this is certainly welcome, one would assume that the same express clarifications rendered in respect of Category C cases — that a conscious decision to not arrest signals no need for further arrest — would also equally apply to Category D cases no matter the seriousness of allegations.              

Breaking New Ground

The first half of the July 11 order is where the Court has broken new ground, as a result of which the guidelines have gone much beyond the initial issue of cases where investigations conclude without arrest. 

Predominantly, this new ground is in respect of the discretion vested in police officers to exercise powers of arrest. Paragraph 23 of the order states that courts will have to be satisfied on compliance with Section 41 of the Criminal Procedure Code which outlines the circumstances in which an arrest can be made, and further that "non-compliance would entitle the accused to a grant of bail" (emphasis mine). Besides Section 41, the Court also turned its focus to the directions given by an earlier judgment [Arnesh Kumar v. State of Bihar, (2014) 8 SCC 273], that ordinarily arrests ought not be made for alleged offences punishable up to seven years imprisonment at the very first instance and instead notices should be sent under Section 41-A of the Cr.P.C. [Paragraphs 24-28]. It has reiterated the importance of these directions,  called upon state governments to facilitate issuance of standing orders for police to secure compliance [Paragraph 29], and also called upon courts to "come down heavily on the officers effecting arrest without due compliance of Section 41 and Section 41A" [Paragraph 30].

With respect to bail jurisdiction itself, there are a few additional contributions made expanding the scope of the guidelines. First, the order notes that delay, where not attributed to the accused, should be a factor in favour of granting bail, and towards this the Court has suggested quick timelines for disposing bail applications [Paragraph 73]. Second, that a magistrate exercising jurisdiction under Section 437, Cr.P.C. is competent to consider bail in respect of offences that are punishable with life imprisonment or death, so long as the offence is one that is triable by a magistrate [Paragraph 55] — suggesting thus that in other cases, magistrates may not be so entitled. Third, simply because Section 439, Cr.P.C. does not explicitly state that young age, sickness, or that the applicant is a woman are factors in favour of granting bail, does not mean that these are not applicable for Section 439 — they are applicable in all cases [Paragraph 58]. Fourth, bail conditions ought not to be mechanically imposed and reasonableness of the bond and surety is something which the court must keep in mind [Paragraph 62].      

Conclusion — Some Old, Some New, Lots Left to Hope

This specific bench of the Supreme Court was first presented with instances of police effecting arrests at the conclusion of an investigation presumably invoking Section 170 of the Cr.P.C. in July 2021, and since then it has made significant efforts to try and curb what it viewed as an approach which unjustly curtailed personal liberty. The guidelines approach was new and one which many, including this Blog, do not agree with. The Court has tried to smooth over some rough edges by melding this new approach with what wa the law for some time, and time will tell if this amalgam bears rich fruit. Aware of the socio-legal realities of the Indian criminal process in which our jails are predominantly occupied by undertrial prisoners, and bail ends up being driven more by considerations of guilt or innocence rather than securing appearance of an offender, the Court has expanded its efforts to also try and push for changing this status quo. All in all, the Court can only be commended for making the effort. 

Of course, we have been here before. Many times in fact. In a setup where decisions of arrest and bail are based on exercise of discretion without much statutory guidance on how actors should go about the task, the Supreme Court and various High Courts have tried to fill the gap by issuing guidance on these matters.  Going by the fact that this issue of better exercise of discretion by police and courts is one that is revisited ever so often, it is reasonable to think this guideline-passing exercise only manages to shift the needle ever so imperceptibly on each occasion. Courts obviously know this, and it is for this reason that in the July 11 order the Supreme Court has, once again, called for some legislative guidance on the matter of bail [Paragraphs 67-73]. Statutory guidance through legislation on the lines of the UK Bail Act (referred to by the Court here) is imperative to assure a measure of consistency across individual cases, which is a hallmark of fairness. 

Seven years ago, such a suggestion came from the legislature itself and it led to the issue going before the Law Commission of India; however, midway through the consultative process, the Commission was told that the government no longer wanted to introduce a bail legislation. This exchange resulted in the deeply problematic 268th Report of the Law Commission in 2017. One can only hope that this latest plea for a new legislation from the Supreme Court does not result in mindlessly bringing to life that carceral zombie which the Law Commission had sought to give birth to. Nothing could be more drastically distant from the values that the Supreme Court's bail guidelines exercise has demonstrated thus far. 

On Section 91 Notices and the Razorpay Furore

Razorpay, a payments platform, got a request under Section 91 of the Criminal Procedure Code 1973 [Cr.P.C.] from Delhi Police asking it to furnish information in connection with an ongoing investigation in connection with the journalist Mohammad Zubair and the fact-checking platform Alt News. From news reports and public statements made by parties concerned, it appears that Razorpay was asked to furnish details of persons who made payments to Alt News through the Razorpay platform. 

Razorpay complied, presumably under legal advice, and has since found itself in the middle of a PR mess, being accused (to put it bluntly) of having ratted out not only its client but also the lakhs of persons who contributed to the journalism of Alt News. 

Perfect time to know a little bit more about Section 91, how it is often used, what might be at stake for the recipient of a notice and the options available to them.

Section 91 — An Information Gathering Tool

There are two main ways in which the police can get information during an inquiry or investigation: when the specifics of useful information (what it is, where it might be etc.) are not known, police usually end up conducting search and seizure operations to get that material; where this detail is known, then this invasive exercise can be spared and a notice be issued to the concerned person. Section 91 Cr.P.C. is how the latter course takes place, allowing the police (or court) to direct persons (other than the person accused of an offence) to furnish any material that is believed to be "necessary or desirable" for purposes of an ongoing investigation, inquiry, trial or other proceeding. So while the law does not allow the police to issue notices to get random things, the bar for issuing notices is set rather low — anything can be 'desirable' for the investigation. 

The low bar of Section 91 means that, in practice, police often use it to get persons to provide material that might even otherwise be available in the public domain. This is often the case for corporations, which are often sent requests for publicly filed records such as their annual returns etc. Nevertheless, a low threshold for the provision still makes sense, because too high a bar may stall the investigation in its initial stages or even compel police to adopt more invasive methods such as searches.

The Stakes

Whenever any person / entity gets a Section 91 request, there are broadly two courses of option to follow: comply, or decide against complying. The former is straightforward — give the information if you have it, and if you do not have it then make it clear. The latter may occur in different ways — by ignoring the request, by writing back saying that I refuse to comply, or by challenging the legality of the request itself before an appropriate court of law.  

In Razorpay's case, it appears that the information sought by the police was required to be maintained by Razorpay in compliance with existing regulations governing payment platforms. They, accordingly, chose to comply with the request. What if they decided not to, by adopting any of the courses mentioned above? It is helpful to note what the consequences are. For starters, non-compliance with Section 91 can invite a criminal prosecution, as the police may conclude that Razorpay was obstructing the investigation. But this is still an event far-off in the future — launching a prosecution takes time after all. The more problematic issues following non-compliance are of a more immediate nature, and with questionable legal basis — the police could have temporarily halted Razorpay's functioning altogether by directing its bankers to freeze accounts.

This is not a hypothetical, but a very real hazard for companies especially in cases where any allegation of financial impropriety over digital payment channels is involved. To just use one example, take a look at what happened with Alibaba Cloud Services in 2021. Someone filed a complaint with the police that there was a scam of around Rs. 1 Crore committed via a website that was hosted on Alibaba cloud servers. The Madhya Pradesh police issued a request to Alibaba for necessary information, which was not adequately responded to. This led to the police writing to Alibaba's bank, directing that a 'freeze' be placed on all transactions. 

The Supreme Court has held that the police do have powers to seize proceeds held in a bank account in the pursuit of an investigation. But only if it is clear that such proceeds are connected to the commission of an offence. There is, thus, no clear power to freeze the bank account in toto at all, and definitely not without making clear the connection that all the money has with the alleged offence. Here, it was not the case that Alibaba had committed the scam, or actively aided it; at all times it was clear that the only link that Alibaba had to this incident was that it hosted the website for some time. So there was a patent illegality in the freezing order to the bank.

Naturally, Alibaba went to court against this patently illegal freezing order. What happened? It did not get any interim relief from the Madhya Pradesh High Court. The observations are noteworthy: 

In the present case, police station-Cyber and High-Tech Crime, Bhopal (M.P.) is investigating Crime No.81/21 under Section 420 of the Indian Penal Code and 66-D of the Information Technology Act. The material available in the case diary shows that the accused persons have duped the complainant and received Rs.97,00,000/- from him in different bank accounts. The said amount has been transferred to Chinese and Pakistani citizens as cryptocurrency. Prime facie, from the evidence collected, it appears that an International Gang is operating to extort money from the people by cheating. The report of Cyber Cell, Bhopal also reveals that a fake web-page was being 2 MCRC-36359-2021 hosted by the accused persons on Alibaba Clouds and the petitioner also provided technical support to the accused persons. There were eleven transactions between the accused persons and the petitioner. As per the facts available in the case diary, during the investigation, when a registered notice was sent to the registered address of the petitioner, it remained unserved which shows that the petitioner is not working from that office.

Since the bank account freeze meant that its business was virtually at a standstill, Alibaba naturally went to the Supreme Court in [SLP (Crl.) 7930 of 2021]. On the third date of hearing (more than two months after the High Court order), it got a stay on the freeze, when the court noted that the only money that Alibaba had actually received was payments made for hosting the website i.e., Rs. 1.5 lakhs. Nevertheless, the petition was disposed only after a few more dates, on 24.01.2022. Again, the conditions on which the bank account was made available again for business are telling:

We need not dwell upon this matter (regarding some details not being furnished to police) in the present proceedings. However, we are inclined to dispose of this petition by continuing the interim relief granted on 22.11.2021 until the disposal of the main proceedings pending in the High Court or until the High Court deems it necessary to alter the same. That, however, will be on condition that the petitioner shall deposit a sum of Rs.1,00,00,000/- (Rupees one crore only), as assured to the Court and recorded in order dated 22.10.2021, within two weeks from today before the High Court in the concerned proceedings. That will remain invested till further orders to be passed by the High Court at the time of disposal of the main proceedings.

Everyone agreed Alibaba did not commit the offence. Everyone agreed that it only received Rs. 1.5 Lakhs in the entire transaction. Yet, the account is made available only upon deposit of Rs.1 Crore, and of course without deciding the legal issue involved. 

Conclusion: Maybe not a matter of Black or White

So, while we can contend that Razorpay could have done things differently here and chosen not to comply or contest the notice, evaluating any choice that is made by them, or any recipient of a notice under Section 91 for that matter, requires some appreciation of the context in which these decisions are being made. Through this post, I offered a glimpse into that context. The signals sent from the legal system, as seen through the story of Alibaba (and, trust me, there are many more examples like that) for other players are that even if you think you have a 'slam dunk' legal argument, and spend a lot of money pursuing it through court, it will take a lot of time and you still, just, may not win.

(Disclaimer: The author had the opportunity to assist the Alibaba legal team during arguments before the Supreme Court)