Retrospective Application of BNSS and the Supreme Court Order in 1382 Prisons

Since 2013, the Supreme Court has been seized of a public interest litigation concerning prison conditions [W.P. (Civil) 406 / 2013, In Re Inhuman Conditions in 1382 Prisons]. Over the course of a decade, it has passed a slew of orders which, it hopes, would ameliorate prison conditions. A key priority has been to try and decongest prisons, which are notoriously overpopulated.

In this vein and with this intent, on 13.08.2024, the Amicus Curiae assisting the Court had directed the judges to Section 479 of the Bharatiya Nagarik Suraksha Sanhita 2023 [BNSS]. More specifically, the first proviso therein, which stated that first-time offenders would be entitled to release from custody if they had spent up-to one-third of the maximum possible sentence. This clause, the Amicus submitted, "needs to be implemented at the earliest and it will help in addressing over-crowding in prisons."

The Court asked the Union Government to get instructions, and it heard the case next on 23.08.2024. The Union Government Counsel stated that "instructions" had been obtained from the relevant department to the effect that Section 479 of the BNSS "would apply to all undertrials in pending cases irrespective of whether the case was registered against them before 01st July 2024, the date when the newly minted legislation has come into effect." 

This led the Court to observe that:

"... Having regard to the fact that the substituted provision under the BNSS is more beneficial vis-a-vis Section 436A of the Code of Criminal Procedure, 1973, wherein the period undergone by the first time offender was prescribed as up to half of the maximum period of imprisonment specified for such an offence, this Court had called upon the learned Additional Solicitor General to obtain instructions from the Department and submit a clarification regarding application of the said provision to all undertrials across the country. ... 

In that view of the matter, it is deemed appropriate to direct immediate implementation of Section 479 of the BNSS by calling upon Superintendents of Jails across the country wherever accused persons are detained as undertrials, to process their applications to the concerned Courts upon their completion of one-half/one-third, as the case may be, of the period mentioned in sub-section (1) of the said provision, for their release on bail. This step will go a long way in easing overcrowding in jails which is the primary focus of this Court in the present petition." [Emphasis supplied]

Considering how the issue of BNSS provisions applying to pending cases has been vexing many judges, lawyers, and laypersons, the Supreme Court's intervention is an important moment in the brief history of the new law, and one which should be studied carefully. In this post, I will try to explain why I think the order is arguably a misstep, and ought to be clarified by the Court going forward.

Court Fails to Explain its Reasoning

A previous post offered certain thumb rules on how to navigate the retrospective application of BNSS. The one, basic rule, when it came to applying procedural laws it argued, was that procedural laws by default are applicable retrospectively, unless they disturb vested rights of parties to their detriment. When it came to the BNSS, the legislature had decided to carve out a larger category of exceptions through Section 531 (following the formula adopted in 1973), which specified a swathe of situations where BNSS would not apply in existing cases. Nevertheless, these were exceptions, and show that the BNSS is intended to be made applicable even to pending criminal cases, albeit not at a particular stage of a case and gradually. 

It is important to keep this thumb rule in mind when we consider retrospective application of Section 479 BNSS. The Supreme Court correctly noted that this clause closely corresponded to Section 436A of the erstwhile Criminal Procedure Code of 1973. Both speak about a right of default bail conferred to persons in custody for up to one-half of the maximum possible sentence they can serve. But it appears that neither on 13.08.2024 nor on 23.08.2024 was the next, logical question raised i.e., whether Section 436A was an ordinary procedural law or had it conferred vested rights upon persons which could not be disturbed to their detriment? Surprisingly, both the orders did not refer to Section 531 BNSS either, to try and use the statutory formula for applying its provisions retrospectively. 

On 23.08.2024, as extracted above, the Court noted that Section 479 BNSS appeared to be "more beneficial" than its predecessor, Section 436A CrPC. Thus, even though it did not provide any framework to explain its thinking, one would argue that the Court was following the same approach i.e. considering whether or not the new provision is more beneficial to determine whether it can be made retrospectively applicable. What went unsaid is the Court's appreciation that 436A conferred a vested right, which I would argue is the correct appreciation of that clause. Section 436A conferred an enforceable right upon all persons in custody which began to operate from the first moment in time a person was placed in custody. It was Parliament's belated attempt to reconcile lengthy undertrial detention with the letter of Article 21 of the Constitution, two decades after the Supreme Court had paved the way through Hussainara Khatoon and other cases.  

Before we can discuss whether the Court was correct in its fleeting assessment of Section 479 BNSS being more beneficial, it is important to flag the issue which arises because of the Court's refusal to spell out its reasoning. Today, the lack of detail in the order dated 23.08.2024 can lend itself to a school of thought where all provisions of the BNSS are now sought to be tested on the anvil of their supposed beneficial nature before we can decide whether they are retrospectively applicable. That, I would argue, is incorrect, and contrary not only to Section 531 of the BNSS but also Section 6 of the General Clauses Act 1897. The general rule of applying procedural laws retrospectively has not been altered to such a great extent in the BNSS, and courts hopefully will remain cautious going forward.

Section 479 BNSS is not "More Beneficial" than 436A CrPC

Now, returning to whether Section 479 BNSS is "more beneficial" than Section 436A. Is that true? 

Section 436A CrPC provided default bail to persons held in custody under any law except for offences in which death was one of the punishments, where such persons had spent up to one-half of the maximum period of imprisonment. It also provided that a court may order continued detention for longer than this period, upon giving reasons in writing, but no court could permit the detention of persons for longer than the maximum period of imprisonment provided. Delays caused by the accused would be excluded from computing the period of detention.    

Compared to its predecessor, Section 479(1) BNSS expands the category of offences in which the default bail right will not accrue, specifying that even offences punishable with life imprisonment are excluded, and retains the earlier language about allowing courts to permit longer detentions. Section 479(1) retains the one-half formula, but ameliorates it through a proviso which says that a first-time offender can be released after serving up to one-third of the maximum possible sentence. This is what prompted the Court to view the new law as more beneficial than the old one. 

However, to close our review of Section 479 BNSS only after reading Section 479(1) would mean wishing away the fact that this provision contains two more sub-clauses, which find no mention anywhere in either the order dated 13.08.2024 or 23.08.2024. While Section 479(3) pertains to the enforcement of the right, Section 479(2) is integral to the scope of the right conferred by Section 479(1). It carves out an entirely new category of exceptions to create new situations where the right would not accrue to persons, and states that "where an investigation, inquiry or trial in more than one offence or in multiple cases are pending" against a person, that person "shall not be released on bail" by the Court.     

I would argue that Section 479(1) BNSS read with its new proviso is certainly more beneficial than what was earlier provided under Section 436A. Ordinary rules of statutory interpretation would mean that even if the Union of India did not give these so-called instructions, the beneficial aspects of Section 479(1) had to inure to the benefit of all persons in custody retrospectively who met the criteria. One wonders why the Court even bothered with that exercise which was sheer gloss.

However, at the same time, the whole of Section 479 BNSS is undoubtedly not more beneficial than its predecessor. It obviously worsens the position of persons who are in custody as on 01.07.2024 if applied retrospectively. Simple examples will do — X was in custody for more than 15 years in a case under Section 307 IPC; Y has spent 5 years in custody as of 01.07.2024 in a case where the chargesheet invoked more than one offence but the maximum imprisonment in the offences was 10 years; Z has spent 5 years in custody as of 01.07.2024 in two cases, in both of which the offences involve a highest possible sentence of 10 years. All of them were just about to file for default bail. But because of Section 479 BNSS applying retrospectively, none of them would be entitled to do so, since Section 479(1) deprives any person accused in a case of life imprisonment with the benefit, and 479(2) denies this right to any person in case involving more than one offence or against whom multiple cases are pending. 

Conclusion

What has the Supreme Court done with its orders in 1382 Prisons? It has not merely clarified (which is all that it needed to do) that Section 479(1) BNSS with its proviso applies to everyone in custody even prior to 01.07.2024. Instead, it has conferred its blessing on the retrospective application of the entirety of Section 479 BNSS, and in doing so has unequivocally worsened the position of all persons, in a manner entirely contrary to law. That too in a public interest litigation where nobody potentially affected by this retrospective application of the law was being heard.

There is any easy way out. Even though the terms of order dated 23.08.2024 are broadly worded, nothing apart from Section 479(1) and giving the fullest application its beneficial proviso was in the mind of the Court when it passed these orders. The bench could clarify the order to make it clear that nothing ought to be construed as conferring retrospective application to all of Section 479 BNSS. If not, then it would fall upon a different bench to clarify this issue which will surely come up to the Supreme Court sooner rather than later.

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.

Guest Post: A Critical Analysis of GJ Raja v. Tejraj Surana and 143A of the Negotiable Instruments Act

(This is a guest post by Kratika Indurkhya) 

Background

In an era where credit transactions are not only convenient but also the need of the hour, the Supreme Court has given a judgment detrimental to the interests of lending institutions. In July 2019, the Supreme Court gave a decision in G.J. Raja v. Tejraj Surana [2019 SCC OnLine SC 989] holding that Section 143A of the Negotiable Instruments (Amendment) Act, 2018 [‘Amendment Act, 2018’] is only prospectively applicable. The case was lodged in the year 2016 and the Amendment Act came into force on 1st September, 2018. This judgment has not been in vogue, albeit decided recently by the Supreme Court after a lot of skepticism and divergent views of different High Courts of the country on this issue. Section 148 and Section 143A, the only sections of the Amendment Act, 2018 have been dealt quite differently, hence creating an imbroglio situation. Whereas the High Court of Allahabad [Application u/s 482 No. 11055 of 2019, Date of Decision -11.04.2019] held that Section 143A would have a retrospective effect, the High Courts of Punjab & Haryana [2019 SCC OnLine P&H 747], Madras [2019 SCC OnLine Mad 4091] and Bombay [2019 SCC OnLine Bom 436] were at consensus and held that although Section 148A is retrospective, Section 143A will be prospective. It was the Madras High Court judgment which was taken in appeal to the Apex Court, challenging the prospective application of the section. 

Statutory Context and the SC Decision

The case made an attempt to differentiate itself from Surinder Singh Deswal v. Virender Gandhi [(2019) 11 SCC 341], which dealt with the same question about retrospective effect with respect to Section 148 of the Amendment Act, 2018. Section 148 states that ‘in an appeal by the drawer against conviction under section 138, the Appellate Court may order the appellant to deposit such sum which shall be a minimum of twenty per cent of the fine or compensation awarded by the Trial Court’. 

Prior to the 2018 amendment, the imposition and consequential recovery of fine or compensation either through the modality of Section 421 or Section 357 of CrPC could arise only after the person was found guilty of an offence. This position of law was sought to be changed by introducing Section 143A. Section 143A states that ‘if the Trial Court is trying an offence under Section 138 of the Negotiable Instrument Act, 1881, interim compensation, not exceeding 20% of the cheque amount may be given’. Further, the interim compensation can be recovered by mode of recovery mentioned under Sections 421 or 357 of Code of Criminal Procedure, 1973 [‘CrPC’]. 

The Supreme Court in the case at hand held that since fine and compensation under Section 421 and Section 357 of the CrPC 1973, respectively, are for post-conviction, and the compensation in the present case is interim compensation, they create a new obligation and hence would be prospective. Precisely, the Supreme Court decided that since Section 143A not only changes the procedure but also creates new rights and liabilities, it shall be construed to be prospective in operation. While differentiating from Section 148 of the Amendment Act, 2018 it held that since Section 148 was to be applied post-conviction, it "depends upon the existing machinery and principles already in existence and does not create any fresh disability of the nature similar to that created by Section 143A of the Act."

Analysis

The Supreme Court has held that since under Section 148 a convict goes to appeal and is not merely an accused, Section 421 and 357 of CrPC 1973, i.e., the existing legal machinery is enough and no new liability would be created. Further, it held that since Section 143A is for the trial stage, there is no applicability of Section 421 and 357 and hence the said section exposes the accused to a new obligation. 

In my opinion, there are two major problems with this differentiation which requires us to revisit the CrPC. Under the head of ‘warrant of levy of fine’, Section 421 states that "the Court passing the sentence may take action for the recovery of the fine …" [emphasis supplied]. This means that the section is limited to the Court passing the sentence and does not apply to the Appellate Court. The same reason flows for Section 357 which states that "When a Court imposes a sentence of fine or a sentence … the Court may, when passing judgment" [emphasis supplied]. Hence it is incorrect to consider Sections 421 and 357 as being applicable at the appellate level. 

Further, the only reason given for the retrospective application of amended Section 148 was a purposive interpretation of the clause. Towards this, the Statement of Objects and Reasons was read within the section, which says: 

"[B]ecause of delay tactics of unscrupulous drawers of dishonoured cheques... compromise the sanctity of cheque transactions. With a view to address the issue of undue delay in final resolution of cheque dishonour cases so as to provide relief to payees of dishonoured cheques and to discourage frivolous and unnecessary litigation which would save time and money." 

As relied upon in case at hand, in Vatika Township Pvt Ltd [2014 SCC OnLine SC 712], it was held that “of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation.” Since the reason for holding Section 143A prospective was that it creates a substantive and not a purely procedural right, the Court ought to have at least considered the Objects and Reasons which confirms that the legislative intent was to render Section 143A retrospectively applicable.

Lastly, in overlooking and blurring of the differentiation between civil and criminal remedies is where I argue that the Court has gravely erred. It is undoubted that Section 138 states the offence for which the punishment is given in Section 142 of the Negotiable Instrument Act, 1881, but the point to be considered here is that Section 143A (which again is for offences committed given under Section 138) provides for a civil remedy. On this issue, the Supreme Court in R. Vijayan v. Baby and Anr [(2012) 1 SCC 260 ] observed that :

“Though a complaint under section 138 of the Act is in regard to criminal liability for the offence of dishonouring the cheque and not for the recovery of the cheque amount, (which strictly speaking, has to be enforced by a civil suit), in practice once the criminal complaint is lodged under section 138 of the Act….It provides a single forum and single proceeding, for enforcement of criminal liability (for dishonouring the cheque) and for enforcement of the civil liability (for realization of the cheque amount) thereby obviating the need for the creditor to move two different fora for relief.”

This excerpt clears that the obligation is of civil nature and not criminal as the interim compensation, which is deducted from the final cheque amount to be recovered which is a civil obligation. 

But why does this distinction between civil and criminal matter here? It is because Article 20(1) of the Indian Constitution only prohibits the retrospective imposition of criminal liability and not civil. In my opinion, interim compensation is a civil remedy as it is neither an ‘offence’ nor a ‘penalty’ which is a prerequisite to fall under the criminal legal system and to be barred from retrospective application. 

The expression ‘offence’ is not defined anywhere in the Constitution. Article 367 of the Constitution says that unless the context otherwise provides for words which are not defined in the Constitution, the meaning assigned in the General Clauses Act, 1897 may be given. Under Section 3 (38) of the General Clauses Act, the term means "an act or omission punishable any law for the time being in force." Further, when a statute imposes a civil obligation, the failure to discharge it is not an offence unless the statute expressly makes it so. Hence, in Hathising Mfg Co. v. Union of India [(1960) 3 SCR 528] it was held that the insertion of Sec. 25FFF(1) in the Industrial Disputes Act, 1947, with retrospective effect, does not constitute a violation of Article 20(1) because the failure to pay the compensation required to be paid by the section is not made an offence though the money may be recovered by a coercive process, and the person may be imprisoned for failure to pay, under the revenue law for coercive recovery of the amount. Even Section 143A of the Amendment Act, 2018 does not make the failure to pay this interim compensation an offence. Moreover, its clause (5) is restricted to equating the modality of recovery of compensation with that of fine and does not intend to replace the civil remedy with criminal. Further, ‘fine’ means ‘to sentence a person convicted of an offence to pay a penalty in money’, and hence cannot be equated with interim compensation as the latter is awarded during the pendency of the proceedings and not when one is convicted.

It must also be noted that in Depot Manager, A.P.S.R.T.Corpn v. Mohd. Yusuf Miya [AIR 1997 SC 2232] it was held that, “offence generally implies infringement of public duty, as distinguished from mere private rights.” Even though dishonour of cheque is a criminal liability (public wrong), interim compensation is a percentage of the cheque amount to be recovered which is strictly a private right. 

Article 20(1) avails only against punishment for an act which is treated as an offence, which when done is not an offence. As per the case of Jawala Ram v. State of Pepsu [AIR 1962 SC 1246], unless there is a law forbidding the doing or the omission to do something, no question of ‘punishment’ comes. Hence in this case, although the mode of recovery is ‘coercive’, non-payment of the interim compensation is still not an offence and being a civil remedy, can be retrospective. Hence, the first condition of interim compensation being an offence is not attracted. 

Although there is no argument of greater amount being imposed post the Amendment Act, 2018, the author would like to clarify that interim compensation does not fall under the definition of ‘penalty’ as required in the second part of Article 20(1). In Sova Ray v. Gostha Gopal Dey [(1988) 2 SCC 134], the expression ‘penalty’ was held to mean ‘an elastic term with many different shades of meaning but it always involves an idea of punishment.’ Further, in Shiv Dutt Rai Fateh Chand [(1983) 3 SCC 529], the Apex Court held that this expression is used in the narrow sense as meaning a payment which has to be made or a deprivation of liberty which has to be suffered as a consequence of a finding that the person accused of a crime is guilty of the charge. Since interim compensation does not involve the idea of ‘punishment’ as it is awarded during the pendency of the proceedings, it does not fall under this definition. Hence, the latter part of Article 20(1) is not attracted as well. Even if there was any enhancement of the amount, in Mukandi Ram v. Executive Engineer [1956 SCC OnLine Pepsu 3], it was held that since the levy of an enhanced rate for unauthorised use of water created only a civil liability, a criminal prosecution for such unauthorised use is not barred under Article 20(1). 

In conclusion, missing this question and the differentiation between criminal and civil remedies has led to an erroneous judgment by the Supreme Court and a grave injustice to creditors. Additionally, this judgment, while realising that Section 143A is a procedural law affecting the substantive rights of an individual, completely ignored the intention of the legislature and thus failed to spot that the true purpose was to save creditors and lending institutions from pending litigation as part of unscrupulous activities of debtors. Rather than a judgment which protects the lending institution and others, we have a judgment which does not help status quo. 

More Confusion on Section 138?

The Government chose not to renew the Land Ordinance after the constitutional limit lapsed. The Constitutional limit spoken about is found in Article 123(2), specifying that an ordinance remains valid only for 6 weeks after the "reassembly" of the legislature. In the case of the Land Ordinance, the ordinance was passed before the Monsoon Session. Parliament "reassembled" on 21.07.2015 for the session, and six weeks lapsed on 31.08.2015. 

What went under the radar was another ordinance having the same time limit - the Negotiable Instruments (Amendment) Ordinance 2015 [available here]. Parliamentary Affairs Minister Mr. Naidu admitted that both the Land Ordinance and the Negotiable Instruments Ordinance would lapse on 31.08.2015. The Government has not re-promulgated either of the two. Now, the fallout of the failure to re-promulgate the Land Ordinance has been widely reported, but what about the Negotiable Instruments Ordinance? The Ordinance brought a pivotal change in the law on jurisdiction, which had been dramatically altered by the Supreme Court through its decision in Dasrath Rupsingh Rathod. This ever-changing position of law has been the subject of previous posts on this blog, accessible here, and here.

The most recent development on the Negotiable Instruments Jurisdiction Merry-Go-Round [for it is nothing less than a circus] is brilliant. What are its ramifications? Now that the Ordinance lapsed, we don't have the amended section 142 on the statute books. Which means Dasrath and the position of jurisdiction it offered becomes good law again. Which means that, again, there must be a transfer of all those cases that are currently pending before courts and have not yet reached the stage of cross-examination under Section 145(2) on the lines of jurisdiction as laid down by the three judges in Dasrath.

How's that for confusion.