It has been nearly six months since a Three Justices' Bench of the Supreme Court delivered judgments in a batch of petitions raising various challenges to the validity of the Prevention of Money Laundering Act, 2002 [PMLA]. Vijay Madanlal Choudhary—taking the name of the lead petition—generated a lot of controversy and commentary at the time with this Blog taking the view that the Bench had arrived at the legally incorrect conclusion on too many of the issues placed before it.
While a review to the judgment has been filed and is pending, Vijay Madanlal Choudhary is good law as on date. So, given the importance of the case and its impact on the field, it would be useful to take stock of its impact in the last six months at the level of High Courts. Two particular areas have emerged as sites of intense activity thus far: the relationship between the underlying Scheduled offence and the money laundering prosecution, and bail for money laundering offences. Finally, I also comment on areas of PMLA that have arguably seen too little activity post the judgment and how this is a problem.
Scheduled Offences, Proceeds of Crime, and Money Laundering
A quick recap — the PMLA is a parasitic law, insofar as the definition of money laundering is pegged to the existence of 'Proceeds of Crime', which in turn rely upon the commission of 'Scheduled Offences' at an earlier point in time. If there are no Scheduled Offences [offences from a gamut of laws that are specified in the Schedule to PMLA, hence the term 'Scheduled' offence], there can be no Proceeds of Crime, and thus no 'money' to launder in the first place. Thus, there is an inextricable link between the predicate crime and the money laundering offence.
The government had argued against this view in Vijay Madanlal Choudhary to try and separate the two sets of proceedings to sustain PMLA prosecutions in cases where persons were acquitted or discharged in the predicate offence. This argument was rejected, unequivocally, and the Supreme Court held that where a prosecution under the Scheduled Offence had failed, then the logical next step was for the PMLA case to also fall by the wayside. If anything, Vijay Madanlal Choudhary deepened the links by holding that the Proceeds of Crime must be 'generated' or 'derived' from criminal activity relating to the commission of a Scheduled Offence, and not merely be an unrelated consequence.
This relationship has been explored in a number of cases since Vijay Madanlal Choudhary before different High Courts as well as the Supreme Court itself. The straightforward application has been closing PMLA cases when the predicate offence prosecution ended in an acquittal [Parvathi Kollur (Crl Appeal No. 1254 of 2022, Decided on 16.08.2022)]. Another has been the view that trial courts ought to await conclusion of the trial in the Scheduled Offence before passing any judgment in the PMLA case [Jagathi Publications]
But what happens if the scheduled offence prosecution fails not due to an acquittal or discharge on merits, but because of compromise, or if the agency closes the investigation for lack of evidence, or if some procedural breach such as failure to obtain sanction had occurred? These scenarios have emerged before different courts over the past six months, with the Enforcement Directorate taking the view that only if the predicate offence was closed on merits would the subsequent PMLA case have to be closed as well — something that the Telangana High Court had endorsed two years before Vijay Madanlal Choudhary [Ishoo Narang, Crl. P. 3966 / 2020, Decided on 22.12.2020].
Two High Courts have rejected this contention. The Delhi High Court in Harish Fabiani [WP (Crl.) 408 / 2022, Decided on 26.09.2022] was dealing with a case where the predicate offence was quashed by a High Court on grounds of the FIR being lodged in a manner contrary to Section 156(3) of the Criminal Procedure Code, 1973 [Cr.P.C.], and prayers to quash the PMLA proceedings launched as a consequence of that underlying case. It agreed to do so, concluding that whatever be the reason, the fact remains that when the underlying prosecution is closed then there is no Scheduled Offence alive in the eyes of the law for there to be Proceeds of Crime. In the Calcutta High Court, a petition to close PMLA proceedings was filed after the underlying prosecution was closed based on a compromise between the banks and accused [Nik Nish, CRR 2752 / 2018, Decided on 28.11.2022] — it agreed with the Delhi High Court, and allowed the petition.
Separately, it was argued before the Madras High Court that a person not named in the prosecution for the Scheduled Offence could not be independently prosecuted in the PMLA case. This view was rejected, as the court was of the view that persons not involved in the commission of the Scheduled Offence could certainly be involved in subsequent stages of committing money laundering. As of now, though, the order has been stayed by the Supreme Court which is seized of a challenge to the same.
Two different arguments are also being tested on the ground. First, it is being argued that the deep link drawn between commission of Scheduled Offences and generation of Proceeds of Crime requires the courts to reconsider whether all kinds of Scheduled Offences can in fact lead to such a generation of any property. The Madras High Court is considering the issue in context of PMLA proceedings being launched where a public servant was prosecuted for possessing disproportionate assets, and has granted a stay. Second, both the Delhi High Court and Madras High Court are considering whether PMLA prosecutions launched where the underlying offence is that of possessing disproportionate assets violates fundamental rights against double jeopardy [Article 20(2)] and the retrospective enhancement of punishment [Article 20(1)].
Bail, The Revival of Twin Conditions, and the Shadow of Antil
One of the most critiqued conclusions in Vijay Madanlal Choudhary was its finding that the revival of the harsh legal regime governing bail was legal [having been struck down in Nikesh Tarachand Shah, (2018) 11 SCC 1], and that this applied to even anticipatory bail besides regular bail. This naturally makes bail a much tougher proposition than a situation where these harsh conditions do not exist, and one reaction on part of applicants has been to stress upon medical grounds and limit arguments on merits, with the Delhi High Court agreeing that 'sick or infirm' persons are statutorily outside the scope of the harsh conditions.
Another approach has been to insist upon a stricter scrutiny of the prosecution case, especially testing the links between the scheduled offence, generation of proceeds of crime, and engaging with such proceeds of crime in one of the kinds of activities specified under the PMLA. This approach shines through in how the Bombay High Court [Anil Vasantrao Deshmukh, Bail Appln. No. 1021 / 2022, Decided on 04.10.2022] as well as the Delhi High Court [Sanjay Pandey, Bail Appln. No. 2409 / 2022, Decided on 08.12.2022] have been considering bail applications.
A unique problem arose in the aftermath of Vijay Madanlal Choudhary and bail in PMLA cases. While the judgment was reserved, a different bench of the Supreme Court passed its orders in Satender Kumar Antil on 11.07.2022 where it recommended that for persons who had been prosecuted without arrest during the investigation phase, bail ought to ordinarily be an inflexible rule and the harsh conditions in laws such as the PMLA should not stand in the way of this outcome. Naturally, Vijay Madanlal Choudhary failed to say anything on the matter. This led to applicants arguing that the sphere of influence held by Satender Kumar Antil remained untrammelled, and the Enforcement Directorate opposing this view. So far, only the Delhi High Court appears to have considered the issue and delivered a clear finding, holding that the harsh set of conditions for bail under PMLA would only apply to persons arrested during investigation [Rana Kapoor, Bail Appln. No. 559 / 2022, Decided on 25.11.2022].
Missing in Action — Stricter Scrutiny of the Attachment Process
Vijay Madanlal Choudhary stressed upon the importance of having a statutory mechanism to redress any grievances regarding illegal exercise of the power to attach properties pending a prosecution for money laundering offences. This mechanism is the Adjudicating Authority, which is required to independently assess the validity of any seizures, attachments, or freezing orders (of bank accounts) that are undertaken by the Enforcement Directorate. So far, there has been little movement in the High Courts taking a closer look at the process by which the Adjudicating Authority functions which is surprising considering a bulk of the effort in PMLA cases is on property attachment and convictions are rare and belated.
A sharp look at the attachment process would suggest many of its areas are ripe for examination by a High Court on the grounds of these proceedings unconstitutionally violating the right to a fair hearing and the right to life. For instance, despite the stakes involved, no witnesses are put through cross-examination to test the sufficiency of findings and the Adjudicating Authority operates primarily on the sufficiency of material supplied by the agency. Further, there is no consideration of leaving out some monies from the net of provisional attachment to ensure that a person who is still presumed innocent pending a prosecution is left without a means to survive or contest litigation.
Conclusions: No Certainty in Sight
In the eight years leading up to the mammoth judgment in Vijay Madanlal Choudhary, the Supreme Court added more and more cases to the pending batch of matters, with the idea that it would settle issues once-and-for-all through a comprehensive review of the PMLA. This was in spite of the fact that some of the issues that it decided to take up were indirectly pending consideration before a larger Bench of Justices.
If Vijay Madanlal Choudhary left people unsure of just how successful the Court had been in this effort, the subsequent months have removed most of these doubts confirming that there is no certainty on almost all the issues that the Court decided. Perhaps the biggest reason for this uncertainty is the fact that less than a month after the decision, the Supreme Court cryptically agreed that "at least two" of the conclusions in the judgment merited review. However, to blame the pending review for the uncertainty would be cutting too much slack for the startling lack of reasoning on display throughout the judgment. On each of the issues, the Court failed to adequately offer any reasons before merely declaring its conclusions on the matters, giving us the present scenario of having little or no help in resolving issues that are arising in the penumbras of these declarations drafted in unclear prose. In some ways this is a very similar experience to the aftermath of the Constitution Bench decision in Lalita Kumari where the Court did not explain much while declaring the law in unclear terms.
The Supreme Court could take up the review petitions for hearing soon in a bid to try and steer the ship, but a band-aid exercise of that nature is unlikely to prove sufficient enough to cover all the gaping chasms left behind by Vijay Madanlal Choudhary and its countless leaps of logic. Without knowing it, the same cycle is upon us again — different High Courts arriving at different conclusions on how to interpret the PMLA. One wonders whether the Supreme Court will adopt the same approach as it did in Vijay Madanlal Choudhary and keep things in limbo this time around, or address problems as they reach its doors.
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