Date and Time: Saturday 27 April 2024 7:21:00 PM IST

Job Number: 222981281

Documents (18)

1. 1.1 Introduction
Client/Matter: -None-
2. 1.2 History of money laundering
Client/Matter: -None-
3. 1.3 Justification for anti-money laundering legislation
Client/Matter: -None-
4. 1.4 Global initiatives to tackle money laundering
Client/Matter: -None-
5. 1.5 How is money actually laundered?
Client/Matter: -None-
6. 1.6 Money Laundering Debate in the Indian Context
Client/Matter: -None-
7. 1.7 Prevention of Money Laundering Act, 2002
Client/Matter: -None-
8. 2.1 Introduction
Client/Matter: -None-
9. 2.2 Offence of Money Laundering under the Conventions of the United Nations
Client/Matter: -None-
10. 2.3 Offence of Money Laundering in India
Client/Matter: -None-
11. 3.1 Introduction
Client/Matter: -None-
12. 3.2 Proceedings before the Adjudicating Authority
Client/Matter: -None-
13. 3.3 Adjudicating Authority
Client/Matter: -None-
14. 3.4 Appellate Tribunal
Client/Matter: -None-
15. 3.5 The Prevention of Money Laundering (Appeal) Rules, 2005
Client/Matter: -None-
16. 3.6 High Court
Client/Matter: -None-
17. 3.7 Whether a Single Member of the Adjudicating Authority can hear and/or decide the issues under Section
8 PMLA?
Client/Matter: -None-
18. 4.1 Introduction
Client/Matter: -None-

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 1.1 Introduction
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

1.1 Introduction
On the fateful day of 13 December 2001, five heavily-armed terrorists in a white Fiat car entered the Parliament of
India using a fake Home Ministry and Parliament identity sticker and opened fire. Their motive was to attack the
greatest symbol of India’s democracy, to kill as many lawmakers as they could and to take the rest as hostages.
This event shook the entire nation. Investigative agencies went into fanatical search to get to the perpetrators of this
heinous crime. The search of the police ended with the arrest of terrorist Afzal Guru and his accomplices. Police are
said to have recovered a million Indian rupees from his possession, which were given to him by the slain terrorists
for helping them plan the attack. Investigative authorities claimed that the money reached India from across the
border through various channels. Another dreadful episode that happened in the same year and barely a few
months before the Parliament attack was the attack on the World Trade Centre in the United States on 9
September 2001 (famously known as 9/11 attacks). Terrorists had managed to hijack four planes flying over the
United States and successfully crashed them into the World Trade Centre and the Pentagon, claiming thousands of
innocent lives. These two horrific events provoked a huge campaign for stricter laws to deal with terrorism and
money laundering not just in India and the US but across the world.1 Post these attacks, other members of the
international community also took aggressive steps to combat terror financing and consequently introduced stricter
anti-money laundering laws.

The UK introduced the Proceeds of Crime Act, 2002 (‘POCA’) which sought to seize proceeds of crime from
offences,, including offences relating to terrorism. Some of the steps taken by the UN and international bodies in
direct response to the attacks were: (i) Implementing the International Convention for the Suppression of the
Financing of Terrorism on 10 April 2002,2 (ii) The UN adopting the United Nations Security Council Resolution 1373
on 28 September 2001, requiring all its member countries to take actions to combat terrorism by allowing it to
freeze funds or assets of terrorists or terrorists organization, or of any entity who finance terrorist activities.3 (iii) The
World Bank and IMF Boards of Executive Directors adopting action plans to counter money laundering activities
and terrorist financing, and (iv) The European Parliament issuing Directives on 4 December 2001 amending Council
Directive 91/308/EEC to prevent the use of the financial system for the purpose of money laundering.4 The US
came out with several enactments to further strengthen its anti-terrorism and anti-money laundering laws. The
Indian Parliament enacted the Prevention of Terrorism Act, 2002 and the Prevention of Money Laundering Act,
2002. The justification for a robust legal framework to counter money-laundering which was, historically; to curtail
illegal drug trade money would now become an international tool kit to identify and capture fund flow from terror
activities.

The basic meaning of the phrase “money-laundering” means washing off dirty money to make it look like clean
money. It is a process through which criminals create money trails to transform the illicit and illegitimate income
acquired from a criminal activity into seemingly legitimate income. The laundered income which appears to be
legitimate is then used by these criminals to lead a normal life in society without any fear of detection of the
underlying criminal activity.

The impetus to curb the flow of money available to terrorists and illegal drug traders pushed the need to bring in
suitable laws to deal with the menace of money-laundering. However, the legal framework which emerged across
civilised nations was not limited to just tracing and capturing money used for terrorism and narcotics. These laws
 Page 2 of 3
1.1 Introduction

undertook to uncover and capture proceeds generated from almost every criminal activity. As one commentator
observes:

“… the pursuit of the “proceeds of crime” has been elevated to the status of a Crusade Country after country has
criminalised some concept of “money laundering. And many law enforcement agencies now host special units for pursuing,
not malefactors, but bank accounts, investment portfolios, houses and cars.”5

The legal framework to counter money laundering typically vests investigation authorities with ample power and
discretion to attach assets while certain provisions tend to invert the presumption of innocence and reverse the
burden of proof. On a mere statement made by an informant about possessions or mere use of proceeds of crime,
authorities may freeze banks accounts, seize goods and attach properties of persons who may not have been
involved in any criminal activity but have transacted with a person who has dealt “directly or indirectly” with an
alleged criminal. There is a reversal of the burden of proof and the accused or the third party whose assets are
attached is left to defend and justify that his assets were not involved in money-laundering. These laws around the
world now not only affect terrorists or drug mafias but can impact the daily lives of regular people such as a car
dealer, a jewellery trader, bankers, housewives and general public who may unintentionally and even unknowingly,6
get entangled in investigations relating to money laundering. As Lord Walker, Judge of the Supreme Court of UK,
while substantially reducing the amount imposed on the accused in a confiscation order (under the POCA 2002)
observed: “Parliament has framed the statute in broad terms with a certain amount of what Lord Wilberforce (in a
tax case) called ‘overkill’”.7 Similarly Nariman J. in a landmark judgement of the Supreme Court of India while
dealing with a provision which sought to invert the presumption of innocence under the PMLA observed, “...we must
be doubly sure that such provision furthers a compelling State interest for tackling serious crime”.8 It is, therefore;
not surprising that there is now growing critical judicial and academic clamour to implement such laws with care and
temper their severity where their use leads to disproportionate penalties and sanctions.9

1 See, A Brief History of Money Laundering, published on 30 September 2017 at https://evercompliant.com/brief-history-

money-laundering (last accessed in September 2020).
2 See, UN General Assembly, International Convention for the Suppression of the Financing of Terrorism, (December
1999, No. 38349, available at: https://www.refworld. org/docid/ 3dda0b 867.html (last accessed in September, 2020).
The date of publication is 9 December 1999, whereas the date of ‘entry into force’ is 10 April 2002. This Convention has
been signed by 132 countries and ratified by 112 countries.
3 See, Paul Allan Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism Second
Edition and Supplement on Special Recommendation IX Reference Guide to Anti-Money Laundering. Laundering (‘Paul
Allan Schott, Reference Guide to AML’). This Report can be accessed here at: https://openknowledge.worldbank.
org/bitstream/handle/ 10986/6977/ 350520 Referenc1Money01OFFICIAL0USE1.pdf?is Allowed=y &sequence=1 (last
accessed in September, 2020).
4 The Council Directive 91/308/EEC of 10 June 1991 on Prevention of the Use of the Financial System for the Purpose of
Money Laundering can be accessed here at https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:31991L0308&from=EN (last accessed in September, 2020). The latest consolidated
version of the Directives can be accessed here at https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:01991L0308-20011228 &from=EN. The amending directives can be accessed at
https://eur-lex.europa.eu/ legal-content/EN/TXT/PDF/?uri=CELEX:32001L0097 &from=EN (last accessed in
September, 2020). Please note, that these directives are no longer in force as provided at https://eur-
lex.europa.eu/legal-content/EN/TXT/?uri=celex:31991L0308 (last accessed in September, 2020).
5 See RT Naylor, “Wash-out: A critique of follow-the-money methods in crime control policy”, Crime, Law and Social
Change, 1999, vol32, pp1-58.
6 See the UK’s Proceeds of Crime Act, 2002 where a mere “suspicion” may be enough to invite the sanctions of the law.
For a detailed analysis of mens rea required for the offence of money-laundering, please see Chapter 2.
7 See R v Waya, (2012) UKSC 51(The Supreme Court of UK).
8 See Nikesh Tarachand Shah v UOI, AIR 2017 SC 500 : (2018) 11 SCC 1 : 2017 SC 1279 : (2018) 2 RCR (Cr) 232,
decided on 23 November 2017.
9 See Rachel Ratliff, “Third-Party Money Laundering: Problems of Proof and Prosecutorial Discretion”, [7 Stan. L. & Pol’y
Rev. 173]; David Fried, “Rationalizing Criminal Forfeiture”, Journal Of Law and Criminology, Vol. 79, No. 2, 1988;
Steven Kessler, Civil And Criminal Forfeiture: Federal and State Practice, Clark, Boardman and Callaghan, New York:
1994; and Leonard Levy, A License to Steal: the Forfeiture of Property, University of North Carolina Press, Chapel Hill:
 Page 3 of 3
1.1 Introduction

1996. Also see, R v Waya, (2012) UKSC 51 (where a confiscation order was modified by the Supreme Court of UK
because it was disproportionate to the gain made by the accused from the proceeds of crime).

End of Document
 1.2 History of money laundering
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

1.2 History of money laundering

The concept of money laundering is not new and its origin dates back to around 2000 BCE.10 It is also believed that
Jews “laundered” their assets during the Nazi regime to the banks in Switzerland for their safe protection.11 In the
more modern times, the problems of money laundering surfaced in the US during the prohibition era,12 as
bootleggers made huge sums of money from the illegal sale of alcohol. Some even suggest that the term “money
laundering” was coined during the period when gangsters like Al Capone, to conceal their illegal profits made from
bootlegging, started a legitimate business of “Laundromats” (the business of laundry) that allowed them to mix the
illicit proceeds with legitimate income to make it appear as untainted. The word “Laundromats” is believed to have
led to the term “money-laundering”.

After the US authorities got to Al Capone and arrested him on the charges of tax evasion, other gangsters of that
period like Meyer Lansky13 discovered more novel methods to conceal their illicit wealth from the authorities to
prevent prosecutions. Lansky parked his illegitimate monies in the offshore accounts and then availed fresh loans
from those banks, giving it a color of legitimacy.14 He also took advantage of the reluctant attitude of the bankers to
provide loans to the garment industry and given the demand of quick capital, he offered to lend it to clothing
manufacturers as “loans” and when the said “loan” was unpaid or not returned, the same was converted to the
ownership and profits, which could then be disclosed to the authorities.15 This made his “dirty” money legitimate and
he was now successful in confusing the authorities as he could only be held for “illegal gambling”.

The phrase “money-laundering” as we now use it was first used in 1973 in print by Britain’s Guardian newspaper
during the Watergate scandal.16 In the legal context, the phrase “money-laundering” was used in 1982 by the
Supreme Court of the US in the case of US v $4,255,625.39.17

The US, in the 1980s witnessed an epidemic rise of the narco-terrorism.18 With the growth of narcotics trade,
authorities witnessed an unparalleled accumulation of wealth with traffickers that allowed them to amass immense
power and control in the politics of their countries.19 By resorting to money laundering, the traffickers were using this
wealth to lead a luxurious lifestyle by investing in legitimate cash-producing businesses or buying luxurious
properties such as expensive cars, houses, work of art and jewellery. This money was also used by traffickers to
further their criminal activities and create havoc in society.

To bring these traffickers to book and check their rising powers, the US decided to implement laws preventing
money-laundering. Thus, the US became the first country to adopt the Money Laundering Control Act, 1986
declaring the offence of money laundering as a federal crime punishable with fines and imprisonment up to 20
years. The scope of the Act was limited to criminalising money laundering only when committed with respect to drug
trafficking and related activities.20 Before, passing of the Money Laundering Act, 1986, the US already had the Bank
Secrecy Act, 1970 (BSA) (also known as the Financial Record keeping of Currency and Foreign Transactions Act of
1970) in place. It was the first crucial money-laundering legislation implemented by the US to deter its citizens from
using the offshore banks for parking their illegitimate monies to evade the authorities.21 This legislation also
required the banks to “provide an audit trail for law enforcement by establishing regulatory reporting and
recordkeeping requirements to help identify the source, volume and movement of currency and monetary
instruments into or out of the US or deposited in financial institutions”.22
 Page 2 of 3
1.2 History of money laundering

After the terrorist attacks on 11 September 2001, US took immediate steps to pass the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (‘USA PATRIOT
Act’).23 The USA PATRIOT Act significantly amended the BSA.24

Title III of the USA-PATRIOT Act viz. “The International Money Laundering Abatement and Anti-Terrorist Financing
Act of 2001” deals with money laundering and terrorist financing.25

10 See, Tommy Seah, The Compliance Officer’s Handbook on Anti-Money Laundering 101, Published by CFE- In-
Practice. The author in ‘A brief history of money laundering’ has stated “No one can be really sure when money
laundering first began. However, we can be confident that it has been going on for several thousand years. In “Lords of
the Rim” Sterling Seagrave explains how, in China, merchants some 2000 years before Christ would hide their wealth
from rulers who would simply take it off them and banish them. In addition to hiding it, they would move it and invest it
in businesses in remote provinces or even outside China. In this way, the offshore industry was born, and - depending
on your point of view - so was tax evasion. And so were the principles of money laundering – to hide, move and invest
wealth to which someone else has a claim.” This can be accessed here at http://finance.
proedgeglobal.com/files/aml.pdf (last accessed in September, 2020).
11 See, Swiss Bank Helped Launder Nazi Gold, Documents Show, published on 13 January 1997, From Times Wire
Services (New York Times) (can be accessed at https://www.latimes.com/archives/la-xpm-1997-01-13-mn-18207-
story.html#:&:text=Many%20Jews%20 put%20their%20money,because% 20of%20banking%20secrecy%20laws (last
accessed in September, 2020).
12 Prohibition in the US was a nationwide constitutional ban on the production, importation, transportation, and sale of
alcoholic beverages from 1920 to 1933. See, https://en.
wikipedia.org/wiki/Prohibition_in_the_United_States#:&:text=Prohibition%20in%20the%20United%20States%20was%2
0a%20nationwide%20constitutional%20ban,beverages%20during%20the%2019th%20century (last accessed in
September, 2020).
13 Lansky admittedly made a fortune from bootlegging and is famously called a prophet that enlightened mobsters to the
gospel of hiding ill-gotten gains and saved them from cops hunting down their money trails:—
“Bankers back then were reluctant to lend money to the garment industry, which were mostly struggling immigrant
shops. The industry did not work on pre-orders so they needed quick capital to make products for sale. Lansky saw a
money laundering opportunity in the bankers’ mistrust of foreigners and the industry’s need for constant short-term
loans. Lansky took his illicit cash and lent it to the clothing manufactures. And when the inevitable came—the inability to
pay back the loan on time—instead of breaking legs, Lansky made them an offer they could not refuse: to turn over a
portion of ownership and profits.”
See Paul Camacho, “Meyer Lansky: The Godfather of money laundering” in ACAMS TODAY Magazine for Money
Laundering Professionals, December 2015 – February 2016, vol 15, edn 1, available at
https://www.linkedin.com/pulse/meyer-lansky-godfather-money-laundering-paul-camacho/ (last accessed in September,
2020).
14 See, https://av.sc.com/corp-en/content/docs/SCB_Fighting_Financial_ Crime_Deep_dive_ What_is_
money_laundering_August_2017.pdf (last accessed in September, 2020).
15 See Paul Camacho, “Meyer Lansky: The Godfather of money laundering”, in ACAMS TODAY Magazine for Money
Laundering Professionals, December 2015 – February 2016, vol 15, edn 1, available at
(https://www.linkedin.com/pulse/meyer-lansky-godfather-money-laundering-paul-camacho/ (last accessed in
September, 2020).
16 “The Start of the Watergate Flood”, The Guardian, London, 19 April 1973: “Suitcases stuffed with 200,000 dollars of
Republican campaign funds; money being ‘laundered’ in Mexico.”.
17 US v $4,255,625.39, (1982) 551 F Supp 314. In this case, the court directed the state to confiscate over USD 4 million
in cash currency along with the balance available in the bank account in Miami, on the ground that there was a
“substantial connection” between the money and narcotic terrorism. See, https://law.justia.com/ cases/federal/district-
courts/ FSupp/551/314/2366254/ (last accessed in September, 2020). The case reached the US Court of Appeals for
the 11th Circuit and has been reported as 762 F.2d 895 (11th Cir. 1985). See,
https://law.justia.com/cases/federal/appellate-courts/F2/762/895/ 406576/ (last accessed in September, 2020).
 Page 3 of 3
1.2 History of money laundering

18 Narco-terrorism is a term coined by former President Fernando Belaúnde Terry of Peru in 1983 when describing
terrorist-type attacks against his nation’s anti-narcotics police. See, https://en.wikipedia.org/ wiki/Narcoterrorism (last
accessed in September, 2020).
19 In 2009, Guzmán Loera “El Chapo”, one of the most notorious drug traffickers entered the Forbes list of the world’s
richest men at number 701, with an estimated worth of USD 1 billion. He has reportedly made USD 14 billion
throughout his career available at https://www.forbes.com/lists/2009/10/ billionaires-2009-richest-people_Joaquin-
Guzman-Loera_FS0Y.html (last accessed in September, 2020).
20 Codified at Title 18 of the US Code.
21 See, Unlock Your Guide to AML, U.S. Anti-Money Laundering Requirements, frequently Asked Questions, Seventh
Edition. It can be accessed at, https://www.protiviti. com/sites/ default/files/ united_states/insights/guide-to-us-aml-
requirements-7thedition_ protiviti.pdf] (last accessed in September, 2020).
22 See, Unlock Your Guide to AML, U.S. Anti-Money Laundering Requirements, frequently Asked Questions, Seventh
Edition. It can be accessed at, https://www.protiviti.com/sites/ default/files/ united_states/insights/guide-to-us-aml-
requirements-7thedition_protiviti.pdf. (last accessed in September, 2020).
23 The USA PATRIOT Act was signed into law by President George W Bush on 26 October 2001.
24 See, Unlock Your Guide to AML, U.S. Anti-Money Laundering Requirements, frequently Asked Questions, Seventh
Edition. It can be accessed at, https://www.protiviti.com/sites/ default/files/united _states/insights/guide-to-us-aml-
requirements-7thedition_protiviti.pdf. (last accessed in September, 2020).
25 See, Unlock Your Guide to AML, U.S. Anti-Money Laundering Requirements, frequently Asked Questions, Seventh
Edition. It can be accessed at, https://www.protiviti.com/sites/default/files/united_ states/insights/guide-to-us-aml-
requirements-7thedition _protiviti.pdf (last accessed in September, 2020). It has been stated that “Title III made
significant changes to money laundering regulations, imposed enhanced requirements for AML Programs, and
significantly expanded the scope of coverage to NBFIs. It requires financial institutions to establish AML Programs that
include policies, procedures and controls; designation of a compliance officer; training; independent testing; and
ongoing risk-based monitoring of customer activity and information with updates as necessary. It also requires, among
other things, that certain financial institutions establish customer identification procedures for new accounts, as well as
Enhanced Due Diligence (‘EDD’) for the correspondent, private banking accounts maintained by non-US persons and
senior foreign political figures also referred to as PEPs.”

End of Document
 1.3 Justification for anti-money laundering legislation
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

1.3 Justification for anti-money laundering legislation

The following are a few major justifications canvassed for anti money laundering legislation:
1.3.1 Boosts criminal activities like illegal drug trade and terrorism

Money-laundering helps criminals conceal their illicit wealth from the authorities and accumulate the same to their
benefit. This excessive amassing of unaccounted wealth empowers the criminals with more weaponry, arms and
resources at their disposal. With the laundered money, these criminal organisations can make appropriate
investments which can be later used to further their illegal act. Their organisations work as companies with
thousands of people employed by them. Some of the people offering professional services to these organisations
take money in the legitimate form to avoid detection from the authorities. In India, we have seen the catastrophic
impact of terrorism in society and it would not be a misnomer to say that money laundering plays a large role in
helping terrorism. Profits generated by some organised criminal activities, such as drug trafficking or terrorism
cause a serious threat to public safety and create an environment of fear amongst people. This further has
dwindling effects on the economy as well as it scares away potential investors from across the globe and prevents
the proper utilisation of the nation’s resources. However, the threat of terrorism and drug trade has ushered in two
specific Acts which provide excessive powers and discretion to the investigating agencies to curb such offences.

Both the Prevention of Terrorism Act, 2002 (‘POTA’) and the Narcotic Drugs and Psychotropic Substances Act,
1985 (‘NDPS Act’) already provide for specific provisions dealing with attachment and forfeiture of proceeds of
crime generated from terrorism and drug trade. The justification for such wide powers and discretion vested with
investigation authorities in anti-money laundering legislations which would apply to almost all proceeds generated
from every major and minor offence may, therefore; be perceived as “overkill” without suitable safeguards. Any
legislation which can entangle innocent recipients of monies who are not involved in terrorism or drugs trade has to
be implemented in a manner which is “fair” and not excessive. In Waya’s case26 the Supreme Court of UK thus
observed:

“The Proceeds of Crime Act 1995 (‘the 1995 Act’) was an amending statute, but its effects were far-reaching and, with
hindsight after the enactment of HRA [Human Rights Act] a few years later, problematic. The 1995 Act removed from the
Crown Court almost all discretion as to the making or quantum of a confiscation order, if it was applied for by the
prosecution and the statutory requirements were satisfied. That remains the position under POCA. The Crown Court no
longer has any power to use its discretion so as to mould the confiscation order to fit the facts and the justice of the case,
even though a confiscation order may arise in every kind of crime from which the defendant has benefited, however briefly.
The Crown Court has encountered many difficulties in applying POCA’s strict regime. Many of the complexities and
difficulties of confiscation cases, arising from the extremely involved statutory language, would undoubtedly be avoided if a
measure of discretion were restored, but whether to restore it, and if so in which form, is a matter for Parliament and not for
the courts.”

1.3.2 Creates unequal divide in the society

The extreme amassment of wealth by the launderers gives undue advantage to criminals over others who have
worked hard and followed the law to earn their livelihood, which creates an unequal divide in the society, thus
 Page 2 of 3
1.3 Justification for anti-money laundering legislation

affecting the economic stability of the country. This does not inspire confidence in society as the society sees the
criminal flourishing and profiting from its criminal activities. It makes crime appear lucrative and an easy option for
the youth to earn money and lead a good life without the fear of justice and law. This, therefore; creates grave law
and order problems in society and hence should be tackled with utmost sincerity and urgency. Money-laundering
also gives criminals immense power and position in society allowing them to avail undue benefits from the illegally
acquired proceeds of crime. It could be argued that the problem of allowing any criminal to benefit from proceeds of
crime can suitably be dealt with specific legislation allowing the court to take away the benefit that has accrued to
the accused post-conviction from the wealth generated out of the crime.

To some extent, the Criminal Law Amendment Ordinance, 1944 provides for preventing the disposal of money or
other property procured by means of certain offences that, on the conclusion of the case (and in the event of the
conviction of the accused), is available for immediate restoration to the Government. Expanding the scope of this
section and making suitable changes could avoid the problem of criminals benefiting from wealth generated from a
crime.27
1.3.3 Deteriorates the nation’s economic and overall growth

Money-laundering deprives the economy of huge sums of monies as the same is generally either trapped in bank
accounts in offshore banks or utilised by the criminals to buy goods of high value like gold, precious stones or
artwork, depriving the economy and its citizen of availing the benefits of the money which ideally should have been
circulated in the economy. The illicit proceeds accumulated by criminals belong to the economy of the nation but
because of money-laundering, the governments fail to achieve the said purpose. It leaves the countries and
authorities helpless without any proper remedies to tackle the unaccounted outflow of the wealth into the pockets of
the criminals. Money laundering has also been recognised to be a major reason as to why the majority of the
developing countries are not able to take full advantage of its human and physical resources.28 However, one could
argue that the problem of siphoned off money parked in offshore bank accounts can be better dealt with by a
stricter tax recovery legislation and international treaties among nations to share details of bank accounts and
information about ultimate beneficiaries who stash money in such bank accounts.

In India, the Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 201529 is one such
legislation which seeks to provide a framework to prosecute and recover from persons who have parked wealth
offshore and have avoided paying taxes on such wealth. Another comprehensive legislation which restricts the
outflow of money is the Foreign Exchange Management Act, 1999 which provides for prosecution of offenders who
transfer funds out of India in violation of the foreign exchange regulations. Therefore, to what extent will a money-
laundering legislation help in clawing back diversion of monies to a tax haven is debatable. Moreover, a money
launderer’s ultimate goal in many cases would be to convert black money into white by integrating it back in the
economy. One commentator has, therefore; observed:

“If the objective is to prevent recidivism, there is actually a case for leaving the criminal in possession of those assets, to
encourage a shift from illegal to legal activity. And if the objective is not to address this or that malefactor, but to attach the
criminal marketplace as a whole, the correct policy might be to actively encourage the movement of criminal assets into the
legal economy. These kinds of transfers represent a process of legitimisation, not merely laundering. They simultaneously
reduce the assets of the underworld economy, while raising those available to the legal one.”30

1.3.4 Breeds Corruption

Money-laundering also breeds malpractices like corruption amongst the politicians and government officials.
Corruption undermines the public trust in the integrity of the government and nation at large. It makes the system
hollow leading to a complete failure of the nation and brings imbalance in the morale of the society. In India,
corruption is one of the biggest contributors to the problem of “black money”, which has assumed gigantic
proportions, in all forms. Black money is a term used for unaccounted money. In India, it is estimated that black
money is more or less equal to the circulation of white money. In India, the establishment of the Central Bureau of
Investigation to investigate major corruption offences and the enactment of the Prevention of Corruption Act seek to
curb the malaise of corruption. Money-laundering is a consequence of corruption and, therefore; enforcement of the
Prevention of Corruption Act needs to be strengthened to curb this offence. It is questionable to what extent anti-
money laundering legislation may have a roll in curbing corruption. And, just like the NDPS Act and the POTA, the
Prevention of Corruption Act, 1988 could also provide for forfeiture and confiscation of wealth generated from
corruption. In any event, the Criminal Law Amendment Ordinance, 1944 provides for preventing the disposal of
 Page 3 of 3
1.3 Justification for anti-money laundering legislation

money or other property procured pursuant to an offence under the Prevention of Corruption Act, 1988 which at
best may be further strengthened to capture proceeds generated from corruption.31
1.3.5 Creates unfair competition

Money-laundering also creates unfair competition in the market, as the person who has laundered money at his
disposal can compete with unfair terms to outperform its competitor. In this event, a criminal may have a dominant
position in the market and can create a monopolistic market, which can then be later on used to further launder his
dirty money.

The abovementioned consequences are interlinked to each other and are extremely damaging to the country’s
overall growth. However, one country alone cannot fight the evil of money laundering. The most creative part of
money-laundering is that it is done across borders with various banks and jurisdictions involved to create multiple
audits to avoid detection.

26 R v Waya, supra footnote 7.

27 In Nevada Properties Private Limited through its Director Ltd v State of Maharashtra, AIR 2019 SC 4554 : 2019 SCC
Online SC 1247 : (2020) Cr LJ 308 : 2019 (12) SCALE 826 decided on 24.09.2019 Court explained the ambit of the
ordinance as follows:
“Before we proceed further, we would like to refer to the Criminal Law Amendment Ordinance, 1944 (No. XXXVIII of
1944) which was promulgated in exercise of powers conferred Under Section 72 of the Ninth Schedule of the
Government of India Act, 1935 to prevent disposal or concealment of property procured by means of offences specified
in its Schedule, which include offences punishable Under Sections 406, 408, 409, 411 and 414 of the Indian Penal
Code in respect of Government property, property of local authority or a Corporation established by or under a Central,
Provincial or State Act, etc., and an offence punishable under the Prevention of Corruption Act, 1988, an insertion
made by the Prevention of Corruption Act, 1988. It sets out the procedure when the Central/State Government has a
reason to believe that a person has committed any scheduled offence, whether or not the Court has taken cognisance
of the said offence, by attachment of money or other property which the Central/State Government believes that the
person has procured by means of the scheduled offence, and if such money or property cannot for any reason be
attached, any other property of the said person of value as nearly as may be equivalent to that of the aforesaid money
or property. This enactment mandates application of provisions of Order XXVII of the Code of Civil Procedure, 1908
with a provision for filing an application before the District Judge who is entitled to pass an ad interim attachment order
after following the prescribed procedure including examination and investigation of objections to attachment of the
property. The District Judge can pass an order either making the interim attachment absolute or varying it by releasing
the property or portion thereof or withdrawing the order on satisfaction of certain conditions. Other Sections contained
in the Ordinance provide for attachment of property of mala fide transferees, execution of orders of attachment, security
in lieu of attachment, administration of attached property, duration of attachment, appeals, power of Criminal Court to
evaluate property procured by scheduled offences and disposal of attached property upon termination of criminal
proceedings. Section 14 bars legal proceedings in other Courts in respect of the property attached under the
Ordinance. The Ordinance is a permanent Ordinance which was promulgated during the Second World War. It was
adopted by the Presidential Adaptation of Laws Order, 1950 issued under the powers conferred by Clause (2) of Article
372 of the Constitution, thus, making it effective in the territory of India and, therefore, continues to remain in force.”
28 The Paul Allan Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism Second
Edition and Supplement on Special Recommendation IX Reference Guide to Anti-Money Laundering can be accessed
here: http://documents1. worldbank.org/curated/en/558401468134391014/pdf/350520Referenc1Money 01OFFI
CIAL0USE1.pdf (last accessed in September, 2020).
29 Act No 22 of 2015.
30 See RT Naylor, “Wash-out: A critique of follow-the-money methods in crime control policy”, Crime, Law & Social
Change, 1999, vol 32, pp 1-58.
31 See section 1.3.2 of this Chapter.

End of Document
 1.4 Global initiatives to tackle money laundering
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

1.4 Global initiatives to tackle money laundering

The globalisation of financial institutions has also immensely helped criminals to freely move their illicit proceeds
from one jurisdiction to another without any fear of detection.32 In addition to globalisation, many countries have
stringent banking secrecy laws which are thoroughly abused by criminals to park their proceeds in such countries.
Instances have also shown that some small countries like the Cayman Islands and Mauritius survive on their
banking industry and thus passed laws to subtly help people launder their money.

After reeling under the problem of money-laundering and unable to tackle it all by themselves with the help of
domestic legislations, a number of countries realised that a more comprehensive law with an international approach
to tackle money-laundering was needed. Thus, the international community under the aegis of the UN acted on
many fronts and was instrumental in setting up a regime to counter money-laundering activities. Various countries
also entered into various inter-governmental agreements to counter money laundering at the regional level. Some
of the important initiatives of the international community are discussed below.33
1.4.1 Vienna Convention, 1988

Soon after the US implemented laws to counter money-laundering, the UN through the United Nations Drug Control
Programme (‘UNDCP’)34initiated an international dialogue amongst member countries to combat the menace. This
led to the implementation of the United Nations Vienna Convention against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances (‘Vienna Convention’) in 1988, which came into force on 11 November 1990.35

The Vienna Convention became the first agreement to notify laundering of the “proceeds of crime” as an
international crime.36 This Convention improved on both the Single Convention on Narcotics Drugs, 196137 and the
Convention on Psychotropic Substances of 1971.38

The Convention in its Preamble notes, “...illicit traffic generates large financial profits and wealth enabling
transnational criminal organizations to penetrate, contaminate and corrupt the structures of government, legitimate
commercial and financial business, and society at all its levels” and affirms that:

“the parties to the convention are determined to deprive persons engaged in illicit traffic of the proceeds of their criminal
activities and thereby eliminate their main incentive for so doing.”39

This convention also stipulates the definition of proceeds,40 property,41 and spelt out the offence of money-
laundering,42 and creates offences and provides for specific punishments for the offence committed43 and
procedures for the confiscation of the proceeds of crime.44 The UN for the first time, through this Convention,
created an obligation amongst the member countries to make available the bank, financial or commercial records
for seizure.45 It further suggested that the parties cannot refuse to such seizures on the ground of banking secrecy
laws of the member country. This Convention also laid the stepping stone for mutual legal assistance between the
member countries for better tackling of the crime.46

The Vienna Convention, acted as the backbone to the global regime for developing laws against money-laundering,
even though it only focused on narcotics trade as the predicate offence.47
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1.4 Global initiatives to tackle money laundering

1.4.2 Palermo Convention, 2000

Keeping in mind the inadequacies of the Vienna Convention, 1988 in fighting against the sophisticated technology
and methods employed by the criminals, the UN General Assembly adopted the Convention Against Transnational
Organised Crime (‘Palermo Convention’)48 and widened the range of predicate offences to include all serious
crimes, as defined in Article 2 and the offences established in accordance with the Articles 5, 8 and 23 of the
Convention.49 In addition to widening the range of the predicate offences, this Convention also adopted measures
to combat money-laundering, with the similar approach previously adopted by the Financial Action Task Force
(‘FATF’) in its Forty Recommendations on Money-laundering.

The Convention also contains a wide range of provisions to curb organised crimes broadly contained in three main
protocols, namely, the Protocol to Prevent, Suppress and Punish Trafficking in Persons, especially Women and
Children; the Protocol against the Smuggling of Migrants by Land, Sea and Air; and the Protocol Against Illegal
Manufacturing of and Trafficking in Fire Arms, their Parts and Components and Ammunition.

The Palermo Convention also obligated the member countries to “institute a comprehensive domestic regulatory
and supervisory regime for banks and non-bank financial institutions...” in order “...to deter and detect all forms of
money laundering...” by including customer identification, record-keeping and reporting of suspicious transactions.50
This Convention further requested the ratifying members to encourage international cooperation and exchange of
information amongst administrative, regulatory, law enforcement and other authorities, both domestically and
internationally and to consider the establishment of a financial intelligence unit to collect, analyse and disseminate
information.51 This Convention came into force on 29 September 2003 where 147 countries had signed the
Convention and 82 countries had ratified it.52
1.4.3 The United Nations Convention against Corruption (UNCAC) of 2004

Since the issue of corruption and its aftermath was not fully addressed in the Palermo Convention of 2000, the UN
adopted a Convention against Corruption (‘UNCAC’) in 2004.53 This Convention became the first binding
multilateral treaty to address the problem of corruption on a global basis and discussed the preventive measures to
restrict the laundering of proceeds acquired from corruption. Interestingly, it also discussed the aspect of Asset
Recovery as a fundamental principle, where it provided for a mechanism of asset recovery and the return of such
assets to the countries of its origin.54 Despite this, the Convention did not bring any make notable changes and was
criticised for being a mere replication of the guidelines already provided in the Palermo Convention, 2000.
1.4.4 Global Programme Against Money Laundering, Proceeds of Crime and the Financing of Terrorism

As a part of the implementation mechanisms, the United Nations Office on Drug and Crime (‘UNODC’)55 launched a
United Nations Global Programme Against Money Laundering, Proceeds of Crime and the Financing of Terrorism
(‘GPML’) in 1997, as a research and assistance project to enhance the efforts of the international community to
counter the money laundering activities by aiding the nations with technical expertise, training and advice to
member countries upon request.56

After the 9/11 World Trade Centre bombings in 2001, UNODC has widened the scope of GPML to make it more
inclusive and address the issue of terrorism financing, as well. In 2003, GPML also completed a model Counter
Terrorism Financing (‘CTF’) for common law countries along with the Global Computer-based Training (‘CBT’)
initiative.57 GPML has been successful in running the Anti-Money Laundering International Database (‘AMLID’) on
the International Money Laundering Information Network (‘IMoLIN’). The programmes by GPML are effectively
carried out with full cooperation with other international, regional and national organisations, such as FATF,
Regional Styled FATFs, Interpol, and the Organization of American States (‘OAS/CICAD’).
1.4.5 Financial Action Task Force (FATF)

The Financial Action Task Force (‘FATF’); an inter-governmental policy-making body convened in the year 198958
was established by the heads of States of seven major industrialized countries,59 and the President of the European
Community under French Presidency. It is by far the most effective global policy of the UN towards developing and
promoting an international response to combat money-laundering,60 and financing of terrorism.61

After a year of establishment, the FATF in April 1990 issued a comprehensive Report with Forty Recommendations
(famously known as “The Forty Recommendations”) that were widely accepted and recognised as the international
standards and guidelines for countries to combat money -laundering and counter financing of terrorism. The
Recommendations were categorised into four parts, viz. General Framework of the Recommendations;62
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1.4 Global initiatives to tackle money laundering

Improvement of national legal systems to combat money laundering;63 Enhancement of the role of the financial
system;64 and Strengthening of International Cooperation.65 In order to keep a check on the ever changing patterns
of the financial crimes, the Recommendations were duly revised in 1996,66 2001,67 2003 and 2012.68

In October 2004 the FATF published an additional Report with Nine Special Recommendations, further
strengthening the agreed international standards for combating money laundering and terrorist financing.69 The
Forty + Nine Recommendations are non-binding guidelines to counter money laundering and terrorism activities.
The adoption of the FATF Recommendations by a country is recognised by the FATF as a criterion for meeting
international standards.

The basic functions of the FATF are to set out international standards to combat money laundering; assess and
monitor compliance with the FATF standards; conduct typologies studies of money-laundering and terrorist
financing methods, trends and techniques; and respond to new and emerging threats, such as proliferation
financing.70

To ensure full compliances of the Recommendations by the member countries, FATF has adopted certain
measures, such as, Monitoring Members Progress, Reporting on Money Laundering Trends and Techniques,
NCCT List and Methodology for AML/CFT Assessments, which are discussed below.
(a) Monitoring Members Progress

This method is a two-stage process, the Self Assessments and Mutual Evaluations. In the Self Assessments stage,
the member country is required to respond to a standard questionnaire with respect to the implementation of the
Recommendations on an annual basis. In the Mutual Evaluation stage, the performance of each member country is
evaluated and assessed by the experts of other member countries. These assessments help the FATF to keep a
track on the proper compliance of the recommendations by its members.
(b) Publishing Trends and Typology Reports on Money Laundering

The FATF with a view to assist and update its member countries with new trends and techniques adopted by the
criminals, and for other development in this area, publishes annual reports on developments in money laundering
through its Typologies Report.71 These Reports are then used by the countries as guidelines to frame policies and
rules in accordance with the updated trend.
(c) The NCCT List

This method of assessment, allows FATF to promote the adoption of its Recommendations to all countries across
the world, not limiting itself to member countries. Under this method, FATF uses a process which identifies
jurisdictions which fails to cooperate in due compliance of the “Forty + Nine Recommendations” as Non-
Cooperative Countries and Territories (NCCT’s) and place them on a publicly available list.

These jurisdictions are usually identified through the mutual evaluation process undertaken by member countries
wherein their compliance with various parameters is designated as partially compliant (PC) or non-compliant (NC).
A jurisdiction may also be identified if it does not allow the mutual evaluation results to be published regularly or is
nominated by a member on the basis of specific terror financing, proliferation financing or money laundering threats.

The FATF or FATF Style Regional Body (FSRB) thereafter advises the jurisdiction on strategic deficiencies and
effectiveness of measures during an Observation Period so as to allow it sufficient time to make progress on
identified issues. In extreme cases, the FATF places these jurisdictions under an “increased monitoring” list (often
colloquially referred to as the “grey list”). A jurisdiction placed under the ‘grey list’ must commit to swift time-bound
remedial measures on deficiencies identified by the FATF.

Recently, Pakistan has been retained on the “grey list” in view of its failure to block banking/financial access to
UNSC designated terror groups such as the Al-Qaeda, Jaish-e-Mohammed and Lashkar-e-Taiba. Failure to adhere
to the deadlines set by the FATF could see Pakistan moving into the “high risk” category specifically designated for
more worrisome jurisdictions.72

Those jurisdictions having severe deficiencies are identified as “high risk” by the FATF. In fact, counter-measures
are actively applied by the FATF and other member countries to insulate the international financial system from the
money-laundering/terror financing risks emerging from such jurisdictions. This notorious list is termed as the “black
list” in common parlance. Currently, only Iran and North Korea appear on the black list published by the FATF.73
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1.4 Global initiatives to tackle money laundering

(d) Methodology for AML/CFT Assessments

In 2002, FATF adopted an Assessment Methodology which comprises of 200 essential criteria on which the
member countries are assessed for due implementation of the anti-money laundering and counter terrorist financing
regimes. From a legal and institutional framework, the methodology also consists of evaluating the existence of
Financial Intelligence Units (FIUs). The methodology consists of two different criteria for assessment, one is the
essential one which has to be mandatorily followed and the other is an ‘additional element’ which is non-binding on
the member countries.74 Pursuant to the 2003 revision in the Forty Recommendations of FATF, the Assessment
Methodology was also revised in 2004.

In order to bring uniformity in assessing the country’s performance and cooperation towards countering money
laundering laws and CFT, the same Assessment Methodology has been adopted by the IMF and World Bank as
well.
1.4.6 FATF-Style Regional Bodies (‘FSRBs’)

One of the successful products of FATF is FATF-Style Regional Bodies (‘FSRBs’), which play a very pivotal role in
combating money-laundering within their respective regions. The FSRBs function at the regional level in the same
way FATF functions at an international level. The primary goal of FSRBs like FATF is to combat money-laundering
and counter-terrorism financing in their respective regions. They encourage their member countries to adopt the
“Forty + Nine Recommendations” of FATF and administer mutual evaluations of the members which help in
identifying the loopholes in anti-money laundering laws of the member countries.75 The FSRBs, as recognised by
FATF;76 are Asia / Pacific Group on Money Laundering (APG);77 Caribbean Financial Action Task Force (CFATF);78
Council of Europe – MONEYVAL;79 Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG);80
Latin America Anti-Money Laundering Group (GAFILAT) (formerly known as Financial Action Task Force on Money
Laundering in South America (GAFISUD)).81 The three other FSRB’s, which are under consideration by the FATF;
are The Middle East and North Africa (MENA);82 Central and Western Africa (GIABA); and Eurasia.

Currently, the membership of FATF comprises of 31 countries and 2 regional organisations.83 Further, over 180
jurisdictions have joined the FATF or the FATF–style regional body with a motive to implement the “Forty + Nine
Recommendations” in their countries and to get their anti-money laundering and CFT systems assessed. The
decision making body of FATF i.e. the FATF Plenary meets three times every year.
1.4.7 Egmont Group

Another important recommendation propounded by the FATF is that every country should establish a Financial
Intelligence Unit (FIU) that will serve as a database for collection and analysis of Suspicious Transaction Reporting
(STR). FIUs play a very crucial role in AML programmes as they provide for an exchange of information between
financial institutions and law enforcement of different jurisdictions.

However, to expand the scope of exchange of financial intelligence amongst each other, FIU of one country need to
work in systematic coordination of the other. To serve the objective to provide support to each member, FIUs
started to collectively work together. This group of FIUs is called the Egmont Group.84

All the decisions of the Egmont Group are made by the heads of FIUs, who meet once in a year in a Plenary
Session and thrice in working group sessions. Currently, the Egmont Group is a united body of 165 FIUs.85 The
FATF recognising the role of the Egmont Group in providing mutual assistance to member countries has now
granted it the status of an Observer. Due to the success of Egmont Group, an Egmont Committee was also
established.86
1.4.8 Basel Declarations

The Banks realised that as financial institutions they play a pivotal role in knowingly or unknowingly assisting
criminals with money-laundering. It was seen that despite the efforts being undertaken by the regulatory and judicial
agencies at the national level, money laundering activities were active and carried out with, perhaps unwitting
assistance by banks. Therefore, the Governors of Central Banks of 10 countries in 1998 decided to form the Basel
Committee on Banking Supervision (‘Basel Committee’).87 The Committee formulated broad supervisory standards
and guidelines on a wide range of bank supervisory issues, three of which concern with the issues of money-
laundering. These declarations, though non-binding, were issued with the intention that the same can be adopted
by the appropriate authorities of each country, which will further take the necessary steps to implement them.
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1.4 Global initiatives to tackle money laundering

The primary function of the Basel Committee is, “...to maintain the overall financial stability and soundness of banks
rather than to ensure that the individual transactions conducted by bank customers are legitimate”.88
1.4.9 Interpol

Interpol, another international institution, is actively involved in anti-money laundering activities. In 1994, Interpol
held Money Laundering Working Group meeting at the OECD headquarters in Paris with the assistance of the
FATF, and in 1995, the General Assembly of Interpol had approved model legislation on money laundering.
1.4.10 The Organisation for Economic Corporation and Development (‘OECD’)

Organisation for Economic Corporation and Development (‘OECD’) is an inter- governmental economic
organisation with 36 member countries, which was founded in 1961 to promote economic progress and world trade
and in the general social well-being of the people.
1.4.11 Wolfsberg Initiative

To establish a common global standard for private banking operations, a number of banks in the year 2000
voluntarily agreed at Wolfsberg, Switzerland to set up a Group. This initiative is called, Wolfsberg Initiative.89 The
Wolfsberg Group sets out 4 basic principles with an intention to create a harmony of industry standards in the
banking sector, viz. Anti-Money Laundering Principles for Private Banking; Statement on the Suppression of the
Financing of Terrorism; Anti-Money Laundering Principles for Correspondent Banking; and Monitoring Screening
and Searching.

The Wolfsberg Initiative was established to bring the leaders of the private banking sector to cooperate with each
other to counter money laundering.
1.4.12 Commonwealth Secretariat

The Commonwealth Secretariat is an intergovernmental voluntary organization, that supports its member countries
to achieve the Commonwealth’s aims of development, democracy and peace.90 In order to achieve development,
democracy and peace, the Secretariat provides the member countries with assistance to implement the
Recommendations of the FATF.91

The Commonwealth Secretariat plays a pivotal role in ensuring the implementation of the Recommendations of the
FATF. It is also the observer with the FATF, CFATF, APG and ESAAMLG.92
1.4.13 Organization of American States–CICAD

The Organization of American States (OAS) comprises of 34 countries93 of the American continent.94 The efforts of
OAS include the creation of the Inter-American Drug Abuse Control Commission95 (known by its Spanish Language
acronym ‘CICAD’), which has been beneficial in developing comprehensive regional strategies and model
regulations to combat drug trafficking arms trafficking and money-laundering activities.96
1.4.14 Initiatives by the World Bank and the International Monetary Fund

These two international financial institutions of the UN are also actively participating in developing robust policies to
combat money-laundering in the world. The World Bank has introduced a Global Dialogue Series aimed at bringing
together, by videoconferencing, leading experts and senior government officials responsible for formulating public
policies to combat money-laundering for a mutual constructive exchange of ideas and information.

The World Bank along with the International Monetary Fund (IMF) had also produced the “Reference Guide to
Money Laundering and Combating the Financing of Terrorism” to offer this as a “tool for countries to establish and
improve their legal and institutional frameworks and their preventive measures according to the new international
standards and best practices”.97 Both these institutions work in harmony and with each other to enhance the
efficiency of developing methods, tactics and policies to counter money laundering.

From a bare reading of the roles of the international institutions mentioned above, it is clear that the building blocks
of money-laundering are universal and constitute concealment of wealth, transferring it and then eventually
investing it someplace to disguise its origin from the state. Jeffrey Robinson,98 in his book “The Laundrymen”99
provides a good conceptual understanding of the term money-laundering by noting:
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1.4 Global initiatives to tackle money laundering

“Money laundering is called what it is because that perfectly describes what takes place—illegal, or dirty, money is put
through a cycle of transactions, or washed, so that it comes out the other end as legal or clean money. In other words, the
source of illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds
can eventually be made to appear as legitimate income [...]”.

32 See, http://www.imolin.org/imolin/gpml.html (last accessed in September, 2020).

33 For a detailed study on the steps taken by the international community in developing regime for anti-money laundering
(AML) and combating the financing of terrorism (CFT) purposes, see, Paul Allan Schott, Reference Guide to Anti-
Money Laundering and Combating the Financing of Terrorism Second Edition and Supplement on Special
Recommendation IX Reference Guide to Anti-Money Laundering, which can be accessed here at
https://openknowledge.worldbank.org/bitstream/handle/ 10986/6977/ 350520 Referenc1
Money01OFFICIAL0USE1.pdf?isAllowed=y&sequence=1 (last accessed in September,, 2020).
34 UNDCP was renamed as the Office of Drug Control and Crime Prevention (ODCCP) in 1997; and ODCCP was
subsequently renamed as Office of Drugs and Crime (ODC) in 2002. Also see, Paul Allan Schott, Reference Guide to
Anti-Money Laundering and Combating the Financing of Terrorism Second Edition and Supplement on Special
Recommendation IX Reference Guide to Anti-Money Laundering (can be accessed at
https://openknowledge.worldbank.org/bitstream/handle/10986/6977/ 350520Referenc1
Money01OFFICIAL0USE1.pdf?isAllowed=y&sequence=1) last accessed in September.
35 See, Paul Allan Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism Second
Edition and Supplement on Special Recommendation IX Reference Guide to Anti-Money Laundering. The Report (page
41) suggests that “The Vienna Convention, which was named for the city in which it was signed, deals primarily with
provisions to fight the illicit drug trade and related law enforcement issue ....Although it does not use the term money
laundering, the convention defines the concept and calls upon countries to criminalize the activity”. Currently 171
countries are party to this Convention out of which 168 countries have implemented it. India acceded to the Vienna
Convention on 27 March 1990.
36 Article 3(1)(b) provides for the punishment for Money-laundering.
37 This is an international treaty to prohibit production and supply of specific drugs and of drugs with similar effects except
under license for specific purposes, such as medical treatment and research. India acceded to the Single Convention
on Narcotics Drugs, 1961 on 13 December 1964.
38 India acceded to the Convention on Psychotropic Substances, 1971 on 23 April 1975.
39 See https://www.unodc.org/pdf/convention_1988_en.pdf (last accessed in August, 2020).
40 Article 1 (p) of the Vienna Convention defines “proceeds” as “any property derived from or obtained, directly or
indirectly, through the commission of an offence established in accordance with article 3, paragraph 1.”
Article 3 provides for the offences and sanctions and paragraph (1) (a) of Article 3 calls the member states to take
necessary measures to establish as criminal offences under its domestic law, when committed intentionally, (i) the
production, manufacture, extraction; preparation, offering, offering for sale, distribution, sale, delivery on any terms
whatsoever, brokerage, dispatch, dispatch in transit, transport, importation or exportation of any narcotic drug or any
psychotropic substance contrary to the provisions of the 1961 Convention, the 1961 Convention as amended or the
1971 Convention; (ii) The cultivation of opium poppy, coca bush or cannabis plant for the purpose of the production of
narcotic drugs contrary to the provisions of the 1961 Convention and the 1961 Convention as amended; (iii) The
possession or purchase of any narcotic drug or psychotropic substance for the purpose of any of the activities
enumerated in (i) above; (iv) The manufacture, transport or distribution of equipment, materials or of substances listed
in Table I and Table II, knowing that they are to be used in or for the illicit cultivation, production or manufacture of
narcotic drugs or psychotropic substances; (v) The organization, management or financing of any of the offences
enumerated in (i), (ii), (iii) or (iv) above.
41 Article 1(q) of the Vienna Convention defines “property” as, “assets of every kind, whether corporeal or incorporeal,
movable or immovable, tangible or intangible, and legal documents or instruments evidencing title to, or interest in,
such assets”.
42 Article 3(1)(b) of the Vienna Convention provides that:
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1.4 Global initiatives to tackle money laundering

(i) The conversion or transfer of property, knowing that such property is derived from any offence or offences
established in accordance with subparagraph a) of this paragraph, or from an act of participation in such offence or
offences, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is
involved in the commission of such an offence or offences to evade the legal consequences of his actions; (ii) The
concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership
of property, knowing that such property is derived from an offence or offences established in accordance with
subparagraph a) of this paragraph or from an act of participation in such an offence or offences.
43 Article 3(4)(a) of the Vienna Convention provides that: “each Party shall make the commission of the offences
established in accordance with paragraph 1 of this article liable to sanctions which take into account the grave nature of
these offences, such as imprisonment or other forms of deprivation of liberty, pecuniary sanctions and confiscation.”
This clause further requires the members to provide, in addition to conviction or punishment, for an offence established
under Article 3(1), measures such as treatment, education, aftercare, rehabilitation or social reintegration of the
offender. clause (c) of Article 3(4) states that: “notwithstanding the preceding subparagraphs, in appropriate cases of a
minor nature, the Parties may provide, as alternatives to conviction or punishment measures such as education,
rehabilitation or social reintegration, as well as, when the offender is a drug abuser, treatment and aftercare.”
Sub-clause (d) further provides that the members may provide, “…either as an alternative to conviction or punishment
or in addition to conviction or punishment of an offence established in accordance with paragraph 2 of this article,
measures for the treatment, education, aftercare, rehabilitation or social reintegration of the offender”.
44 Article 5 of the Vienna Convention provides for Confiscation. The article requires the member states to adopt such
measures as may be necessary to enable confiscation of the proceeds derived from offences established in
accordance with Article 3 (1), or property the value of which corresponds to that of such proceeds. This article also
provides for the confiscation of Narcotic drugs and psychotropic substances, materials and equipment, used or
intended to use in any manner in offences established in accordance with Article 3(1).
45 Article 5(3) of the Vienna Convention states that:
“In order to carry out the measures referred to in this article, each Party shall empower its courts or other competent
authorities to order that bank, financial or commercial records be made available or be seized. A Party shall not decline
to act under the provisions of this paragraph on the ground of bank secrecy.”
46 Article 7 of the Vienna Convention deals with Mutual Legal Assistance and clause (1) states,
“The Parties shall afford one another, pursuant to this article, the widest measure of mutual legal assistance in
investigations, prosecutions and judicial proceedings in relation to criminal offences established in accordance with
article 3, paragraph 1.”
47 A “predicate offence” is an offence whose proceeds may become the subject of any of the money-laundering offences
established under the Convention:
“Several states already have laws on money-laundering in place, but there are many variations in the definition of
predicate offences. Some states limit the predicate offences to drug trafficking and a few other crimes. Whereas other
states have an exhaustive list of predicate offences set forth in their legislation. Still, these states define predicate
offences generically as including all crimes, or all serious crimes, or all crimes subject to a defined penalty threshold,”
available at https://www.unodc.org/ documents/human-trafficking/ Toolkit-files/08-58296_tool_3-5.pdf (last accessed in
September, 2020).
48 Adopted on 12–15 December 2000. This Convention is named after the city in which it was signed. India signed this
Convention on 12 December 2002 and ratified it on 5 May 2011.
49 Article 6(2)(b) of the Palermo Convention. Article 6 provides with Criminalisation of the laundering of proceeds of crime.
Article 6(2)(b) states that:
“(b) Each State Party shall include as predicate offences all serious crime as defined in article 2 of this Convention and
the offences established in accordance with articles 5, 8 and 23 of this Convention. In the case of States Parties whose
legislation sets out a list of specific predicate offences, they shall, at a minimum, include in such list a comprehensive
range of offences associated with organized criminal groups.”
50 Article 7(1)(a) of the Palermo Convention. Article 7 deals with the Measures to combat money-laundering. Article
7(1)(a) states that:
“Each State Party:(a) Shall institute a comprehensive domestic regulatory and supervisory regime for banks and non-
bank financial institutions and, where appropriate, other bodies particularly susceptible to money-laundering, within its
 Page 8 of 10
1.4 Global initiatives to tackle money laundering

competence, in order to deter and detect all forms of money-laundering, which regime shall emphasize requirements
for customer identification, record-keeping and the reporting of suspicious transactions.”
51 Article 7(1)(b) of the Palermo Convention provides that:
“Each State Party:(b) Shall, without prejudice to articles 18 and 27 of this Convention, ensure that administrative,
regulatory, law enforcement and other authorities dedicated to combating money-laundering (including, where
appropriate under domestic law, judicial authorities) have the ability to cooperate and exchange information at the
national and international levels within the conditions prescribed by its domestic law and, to that end, shall consider the
establishment of a financial intelligence unit to serve as a national centre for the collection, analysis and dissemination
of information regarding potential money-laundering.”
52 See, Paul Allan Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism Second
Edition and Supplement on Special Recommendation IX Reference Guide to Anti-Money Laundering (can be accessed
at https://openknowledge. world bank.org/bitstream/ handle/10986/6977/350520Referenc1Money01OFFICIAL0
USE1.pdf? isAllowed=y&sequence=1) (last accessed in September, 2020).
53 Signed by 96 countries at a high-level political conference on 9-13 December 2004 in Merida, Mexico. India signed this
Convention on 9 December 2005 and ratified it on 9 May 2011.
54 Chapter V of the United Nations Convention Against Corruption, 2004.
55 Comprises the United Nations International Drug Control Programme (UNDCP) and the Centre for International Crime
Prevention (CICP). Each organisation is located in the Vienna International Centre in Austria.
56 See, https://www.unodc.org/pdf/gpml.pdf (last accessed in September, 2020).
57 See, Yee-Kuang Heng and Ken McDonagh, The other War on Terror revealed: global governmentality and the
Financial Action Task Force’s campaign against terrorist financing, Cambridge University Press, 01 July 2008, Volume
34, Issue 3, July 2008, pp.553-573. It can be accessed at https://www.cambridge.org/core/journals/review-of-
international-studies/ article/ other-war-on-terror-revealed-global-governmentality-and-the-financial-action-task-forces-
campaign-against-terrorist-financing/ 7D6749134 C0FF979813CBA143EBDAFCE. (last accessed in September, 2020).
58 Convened in 1989 in Paris.
59 Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
60 About FATF, and Terrorist Financing available at http://www.fatf-gafi.org/ (last accessed in September, 2020).
61 FATF expanded its mission to include terrorism financing in October 2001 after the attacks on the World Trade Centre.
62 Recommendations 1 - 3.
63 Recommendations 4 - 8, includes the definition of a criminal offence of money-laundering and provisional measures
and confiscation.
64 Recommendations 9 - 29, includes scope which also extends to non-banking financial institutions, Customer
Identification and record-keeping rules, increased diligence of financial institutions, Measures to Cope with the Problem
of Countries with No or Insufficient Anti-Money Laundering Measures, Other Measures to Avoid Currency Laundering
and Implementation, and Role of Regulatory and other Administrative Authorities.
65 Recommendations 30 - 40, includes Administrative Cooperation and Cooperation Between Legal Authorities. Also see,
Veng Mei Leong, A. (2007), “Chasing dirty money: domestic and international measures against money laundering”,
Journal of Money Laundering Control, Vol. 10 No. 2, pp. 140-156. This paper can be accessed at
https://doi.org/10.1108/ 136852007 10746857 (last accessed in September, 2020).
66 In the 1996 Report, the FATF not only recommended that “money laundering crimes be extended beyond the predicate
offence of drug trafficking” to incorporate “laundering by criminal organisations whose activities go well beyond drug
trafficking.”
67 In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF. In
October 2001 the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing.
68 The revised recommendations also addressed areas such as corruption and tax crimes.
69 The Recommendations of the FATF now are famously known as ‘Forty + Nine Recommendations’.
70 As per the Manual Report available at: http://www.fatf-gafi.org/media/fatf/documents/ brochures annual
reports/Introduction%20to%20the%20FATF.pdf (last accessed in September, 2020).
71 Methods and Trends available at http://www.fatf-gafi.org/publications/ method sandtrends/ documents/
fatfterroristfinancingtypologiesreport.html (last accessed in September, 2020).
72 See “Pakistan retained on grey list of FATF”, 21 February 2020 available at https://www.thehindu.com/
news/international/pakistan-retained-on-grey-list-of-fatf/article30880 521.ece (last accessed in September, 2020).
 Page 9 of 10
1.4 Global initiatives to tackle money laundering

73 Data as on 21 February 2020.

74 See, Paul Allan Schott, Reference Guide to AML, supra, footnote 3.
75 See, Paul Allan Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism Second
Edition and Supplement on Special Recommendation IX Reference Guide to Anti-Money Laundering (can be accessed
at https://openknow ledge. worldbank.org/bitstream/handle/ 10986/6977/350520Referenc1Money01OFFI CIAL0USE1.
pdf?isAllowed=y&sequence=1) (last accessed in September, 2020).
76 As discussed in the Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism Second
Edition and Supplement on Special Recommendation IX Reference Guide to Anti-Money Laundering.
77 Members of APG: Australia, Bangladesh, Brunei Darussalam, Cambodia, Chinese Taipei, Cook Islands, Fiji, Hong
Kong-China, India, Indonesia, Japan, Macau-China, Malaysia, Marshall Islands, Mongolia, Nepal, New Zealand, Niue,
Pakistan, Republic of Korea, Palau, Philippines, Samoa, Singapore, Sri Lanka, Thailand, United States and Vanuatu.

Observer jurisdictions: Canada, France, Lao People’s Democratic Republic, Papua New Guinea, Republic of Kiribati,
Republic of the Maldives, Republic of Nauru, Tonga, Union of Myanmar, United Kingdom and Vietnam.

Observer organizations: Asian Development Bank (ADB), Asia Pacific Economic Cooperation (APEC), Association of
South East Asian Nations (ASEAN), Caribbean
Financial Action Task Force (CFATF), Commonwealth Secretariat, Egmont Group, FATF, International Monetary Fund
(IMF), INTERPOL, Offshore Group of Banking Supervisors (OGBS), Pacific Financial Technical Assistance Centre
(PFTAC), Pacific Islands Forum Secretariat (PIFS), The World Bank, World Customs Organization (WCO) and United
Nations (UN) International Drug Control Programme (UNDCP) and United Nations Office on Drugs and Crime (ODC).
78 Members of CFATF: Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, British Virgin
Islands, Cayman Islands, Costa Rica, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana,
Haiti. Honduras, Jamaica, Montserrat, Netherland Antilles, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St.
Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands and Venezuela. Co-operating
and Supporting Nations: Canada, France, Mexico, Netherlands, Spain, the United Kingdom and the United States.
Observers are: Asia/Pacific Group Secretariat, Caribbean Customs and Law Enforcement Council (CCLEC), Caribbean
Development Bank (CDB), CARICOM, Commonwealth Secretariat, European Commission, FATF Secretariat, UN
Global Programme on Money Laundering (GPML), Inter-American Development Bank (IADB), Interpol, Offshore Group
of Banking Supervisors (OGBS), The Organization of American States (OAS) established. The Inter-American Drug
Abuse Control Commission (OAS/CICAD) and United Nations Office on Drugs and Crime (UNODC).
79 Members of Council of Europe: Albania, Andorra, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia,
Cyprus, Czech Republic, Estonia, Georgia, Hungary, Latvia, Liechtenstein, Lithuania, Malta, Moldova, Poland,
Romania, Russian Federation, San Marino, Serbia and Montenegro, Slovakia, Slovenia, “Former Yugoslav Republic of
Macedonia” also called North Macedonia and Ukraine.
Observer jurisdictions: Canada, Holy See, Japan, Mexico, the United States.

Observers: Commission of the European Communities, Commonwealth Secretariat, European Bank for Reconstruction
and Development (EBRD), FATF (Secretariat and Member Countries), International Monetary Fund (IMF), Interpol,
Offshore Group of Banking Supervisors (OGBS), Secretariat General of the Council of the European Union, United
Nations Crime Prevention and Criminal Justice Division, United Nations Office on Drugs and Crime (UNODC), World
Bank and World Customs Organisation (WCO).
80 Members of ESAAMLG: Botswana, Kenya, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa,
Swaziland, Tanzania, Uganda.
Members who have not signed the ESAAMLG MOU: Lesotho, Zambia, and Zimbabwe.

Observers: Commonwealth Secretariat, FATF Secretariat, the UN Global Programme Against Money Laundering,
Interpol, The World Customs Organization (WCO), African Development Bank (ADB), SADC Secretariat, the COMESA
Secretariat, EAC Secretariat, East African Development Bank, Eastern and Southern Africa Development Bank, the
United Kingdom, the United States, the IMF and World Bank.
81 Members: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Perú and Uruguay.
Observers: France, IDB, World Bank, Egmont, Germany, IMF, the United Nations, Mexico, Portugal, Spain, and the
United States.
82 Preparatory meetings involved representations from the following countries: Algeria, Bahrain, Egypt, Jordan, Kuwait,
Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates and Yemen.
83 The 31 member countries and territories: Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong-China, Iceland, Ireland, Italy, Japan, Luxemburg, Mexico, Kingdom of the
 Page 10 of 10
1.4 Global initiatives to tackle money laundering

Netherlands, New Zealand, Norway, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey,
the United Kingdom, and the United States.
The two regional organizations are the European Commission and the Gulf Co-operation Council.
84 At Egmont- Arenberg Palace in Brussels.
85 As provided at https://egmontgroup.org/en/content/about (last accessed in September, 2020).
86 Established in 2002 at its Plenary in Monet Carlo.
87 Issued in Basel, Switzerland in December 1988.
88 Preamble of the Committee.
89 Voluntary initiative of 11 major banks drawn from Germany, France, Netherlands, Switzerland, Spain, the UK and the
USA.
90 See, https://thecommonwealth.org/about-us/secretariat (last accessed in September, 2020).
91 Paul Allan Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism Second
Edition and Supplement on Special Recommendation IX Reference Guide to Anti-Money Laundering, can be accessed
here at https://openknowledge. world bank.org/bitstream/ handle/10986/6977/350520Referenc1Money01 OFFICIAL
0USE1. pdf? isAllowed=y&sequence=1. (last accessed in September, 2020).
92 See, the Reference Guide on Anti-Money Laundering by the World Bank.
93 OAS nations: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador,
Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the United States, Uruguay, Venezuela,
Barbados, Trinidad and Tobago, Jamaica, Grenada, Suriname, Dominica, Saint Lucia, Antigua and Barbuda, Saint
Vincent and the Grenadines, The Bahamas, St. Kitts and Nevis, Canada, Belize and Guyana.
94 See, The Directory of Member States at http://www.cicad.oas.org/main/aboutcicad/ dirmemberstates_ing.asp (last
accessed in September, 2020)
95 It was created in 1986 to counter the growing problems of drug trafficking.
96 See, http://www.cicad.oas.org/Main/Template.asp?File=/Main/AboutCICAD/about_eng.asp ((last accessed in
September, 2020).
97 Paul Allan Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism Second
Edition and Supplement on Special Recommendation IX Reference Guide to Anti-Money Laundering, can be accessed
here at https://openk
nowledge.worldbank.org/bitstream/handle/10986/6977/350520Referenc1Money01OFFICIAL0USE1.pdf?isAllowed=y&s
equence=1 (last accessed in September, 2020).
98 Investigative Financial Crime Journalist, also described as the “world’s leading financial crime author” by the British
Bankers’ Association.
99 Pocket Books, London, New York, 1996.

End of Document
 1.5 How is money actually laundered?
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

1.5 How is money actually laundered?

The definitions of money-laundering may be simple, but the methods in which it is done are complex. It occurs
when criminal deposits illicit funds and creates a trail through a series of transactions to hide the underlying crime
from where those funds were originated. After concealing the source of the money, it is then used as untainted
money.100 The dynamic process of money laundering usually involves a single scheme which is comprised of the
three stages, viz. Placement, Layering and Integration. These three stages or categories can, however be “over –
generalized” by the criminals.101“While it is difficult to generalize the types of schemes used by criminal
organizations and individuals to launder their funds, there are strong patterns.”102
1.5.1 Placement

Placement is the first stage in the complex series of money-laundering and involves physically placing or depositing
the funds into the financial system. This stage is achieved by splitting larger sums of money into smaller sums and
then introducing the smaller sums into the stream of commerce.103 Under this process, a criminal achieves dual
results, firstly, removal of the illegal money from the origin thus making its source obscure and secondly, introducing
the illegal money in the financial system. This stage, even though appears to be fairly simple, is the most tricky and
risky one, as it involves placing the physical cash in the financial system.104 Banks and law enforcement agencies
should focus on this stage as a preventive measure to avoid money-laundering as a whole.
1.5.2 Layering

Layering is the second and the most crucial stage of the laundering process as it requires the illicit proceeds to go
through a number of financial institutions across the globe to dilute its illegitimacy. The farther the proceeds will go
from the source, the difficult it will get for the authorities to track the origin. The main aim of this stage is to distance
the illicit proceeds from its origin in order to conceal the underlying criminal activity involved.105 After this stage, it
gets difficult for the investigating agencies to track the illicit proceeds as it changes its form, from tangible to
intangible, to one currency to the other or in the form of some assets106 in some foreign jurisdiction. Once the
money is integrated into the system, the criminal can then camouflage it as an untainted money. This makes it
extremely difficult for the authorities to trace the source of such “untainted” money.
1.5.3 Integration

Integration is the third and the final stage in the process of money-laundering and occurs after the funds have been
converted into legitimate funds.107 This is the stage where the proceeds of crime after being converted as legitimate
funds are integrated into the economy and merged with legitimate money. After this stage, it becomes almost
impossible for the investigation agencies to track down the proceeds, as it has already acquired the legitimate form.

Criminals make dirty money from the criminal activities and then launder it through the above three-stage process
to make that dirty money look clean and legitimate. The above three steps need not necessarily follow each other.
Integration may follow the placement stage like seen in the cases of casinos where illegitimate money is placed with
legitimate money even before placement.

The process of money-laundering allows large sums of proceeds acquired from the criminal activities to move
without the fear of retribution by the wrongdoer. The movement of the laundered sums is also not confined to one
 Page 2 of 2
1.5 How is money actually laundered?

jurisdiction, and it travels across the globe in order to make the origins of the same obscure and unknown.
Criminals ensure that the trail is complex and multiple to avoid detection, if the trail is unearthed by investigative
agencies, it could potentially lead back to the source or origin of the illicit money and finally to the main offender.

100 See, Kathleen A Lacey, Barbara Crutchfield George, Crackdown on Money Laundering: A comparative analysis of the
feasibility and effectiveness of domestic and multilateral policy reforms, 2003, vol 23 No 2, p 263.
101 See, Daniel Mulligan, “Know Your Customer Regulations and the International Banking System: Towards a General
Self-Regulatory Regime”, Fordham International Law Journal, 1999 vol 22 No 5,pp 2324, 2330.
102 See, Timothy H Ehrlich, “To Regulate or Not? Managing the Risks of E-Money and Its Potential Application in Money
Laundering Schemes”, Harvard Journal of Law & Technology, Summer 1998, vol 11 No 3.
103 See, Timothy H Ehrlich, “To Regulate or Not? Managing the Risks of E-Money and Its Potential Application in Money
Laundering Schemes”, Harvard Journal of Law & Technology, Summer 1998, vol 11 No 3.
104 Supra footnote 100.
105 See, Hitesh Patel and Bharat S. Thakkar (August 22nd 2012). Money Laundering Among Globalized World,
Globalization, Hector Cuadra-Montiel, IntechOpen, DOI: 10.5772/ 49946.
106 Forms of bonds, gold, cars, houses, diamonds, or even loan payments.
107 Supra footnote 101.

End of Document
 1.6 Money Laundering Debate in the Indian Context
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

1.6 Money Laundering Debate in the Indian Context

Much before the implementation of Prevention of Money Laundering Act, 2002, India had several legislations in
place to keep a check on activities which concealed assets from the state. Legislations such as Smugglers and
Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976108 provided for forfeiture of the illegally acquired
property of the smugglers and foreign exchange manipulators. The Indian Government had also enacted the
Benami Transactions (Prohibition) Act, 1988 that allowed the authorities to acquire properties declared to be
benami.109 In addition, the Benami Act also provided for punishment with an imprisonment for a term extending to
three years or with fine or with both.110

In 1987 itself, India introduced the NDPS Act,111 which also provided for forfeiture of illegally acquired property. The
NDPS Act further prohibited the conversion or transfer of property derived from an offence committed under the Act
or any corresponding law of any other country for the purpose of concealing or disguising the illicit origin of the
property or assisting any person in the commission of such offence or to evade its consequences; concealing or
disguising the true nature, source, location, or disposition of any property knowing that such property is derived
from an offence committed under the Act or under any corresponding law of any other country; and knowingly
acquiring, possessing or using any property derived from an offence committed under the Act or any corresponding
law of the country.112

In addition to these special legislations, the Criminal Law Amendment Ordinance, 1944 has a specific provision
which allows a person to approach a District Judge to seek attachment of money or property of the person who has
committed a scheduled offence, which is believed to have been procured by means of the offence, or if such
property cannot for any reason be attached or other property of the person of value as nearly as may be equivalent
to that of the said money or other property.113

A chapter titled as “Reciprocal Arrangements for Assistance in certain Matters and Procedure for Attachment and
Forfeiture of Property” was introduced in the Code of Criminal Procedure, 1973,114 that comprises of provisions,115
for providing assistance in securing the transfer of persons, assistance in relation to orders of attachment or
forfeiture of property, identifying unlawfully acquired property, seizure or attachment of forfeiture of property,
management of properties seized or forfeited, forfeiture of an illegally acquired property, the imposition of fines in
lieu of forfeiture etc. Under this Chapter, the legislature has also provided for assistance to a Contracting State, i.e.
any country or place outside India in respect of which arrangements have been made by the Central Government
with the Governments of such country through a treaty or otherwise.

108 Act No 13 of 1976.

109 Section 5 of the Benami Transactions (Prohibition) Act, 1988.
110 The Benami Act of 1988 was amended in 2016 and now is referred as The Benami Transactions (Prohibition)
Amendment Act, 2016. The Benami Transactions (Prohibition) Amendment Act, 2016, introduced various changes to
the original law, including the increase of the term of the imprisonment from 3 years to 7 years.
 Page 2 of 2
1.6 Money Laundering Debate in the Indian Context

111 As amended by Act No. 2 of 1989.

112 Section 8A of the NDPS Act, 1985 introduced vide Amendment Act No. 9 of 2001. Also see, the Mutual Evaluation
Report Executive Summary 25 June 2010, Anti-Money Laundering and Combating the Financing of Terrorism (INDIA)
available at http://www.fatf-gafi.org/ media/fatf/ documents/reports/ mer/MER%20India%20ES.pdf (last accessed in
September, 2020).
113 See paragraph 1.3.2.
114 Vide Code of Criminal Procedure (Amendment) Act, 1993.
115 Sections 105A to 105L of Code of Criminal Procedure, 1973.

End of Document
 1.7 Prevention of Money Laundering Act, 2002
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

CHAPTER 1 INTRODUCTION TO MONEY LAUNDERING

1.7 Prevention of Money Laundering Act, 2002

The General Assembly of the United Nations adopted the Political Declaration and Global Programme of Action
annexed to the Resolution S-17/2116 at its 17th Special Session on 23 February 1990.117 Further, Political
Declaration adopted by the Special Session of the United Nations General Assembly held on 8–10 June 1998118
called upon the member states to adopt the national money-laundering legislation and programme.119

Pursuant to its commitment to the international community to address the issue money laundering through a
legislation, India introduced the Bill namely, “The Prevention of Money-Laundering Bill in 1998 (‘PML Bill, 1998’)”.120
The Lok Sabha referred the PML Bill, 1998 to the Standing Committee of Finance.121 The Standing Committee
submitted its Report on the PML Bill, 1998122 to the LokSabha with certain recommendations. After taking note of
the recommendations of the Standing Committee and making requisite changes to the PML Bill, 1998, the Lok
Sabha sent it to the Rajya Sabha. The Rajya Sabha again referred the Bill to the Select Committee, which gave an
unanimous report on 20 July 2000. It was only in 2002 that the Bill was passed by both the Houses of the
Parliament. The PML Bill, 1998 eventually received the assent of the President on 17 January 2003 and was
passed as The Prevention of Money Laundering Act, 2002 (PMLA) (which came into force on 1 July 2005).123

The Preamble of the Prevention of Money Laundering Act, 2002 sets out the object of the Act as:

“An Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-
laundering and to punish those who commit the offence of money laundering ...”

Since the Act came on force on 1 July 2005, it has been substantially amended by 11 Amending Acts, namely,

(i) The Prevention of Money Laundering (Amendment) Act, 2005 (20 of 2005)124
(ii) The Prevention of Money Laundering (Amendment) Act, 2009 (21 of 2009)125
(iii) The Prevention of Money Laundering (Amendment) Act, 2012 (2 of 2013)126
(iv) The Finance Act, 2015 (20 of 2015)127
(v) The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of
2015)128
(vi) The Finance Act, 2016 (28 of 2016)129
(vii) The Finance Act, 2018 (13 of 2018)130
(viii) The Prevention of Corruption (Amendment) Act, 2018 (16 of 2018)131
(ix) The Finance Act, 2019 (7 of 2019)132
(x) The Aadhaar and Other Laws (Amendment) Act, 2019 (14 of 2019)133
(xi) The Finance (No2) Act, 2019 (23 of 2019)134
 Page 2 of 6
1.7 Prevention of Money Laundering Act, 2002

A bare perusal of the above-mentioned amendments reveal a very interesting trend, i.e. before 2015 the Act was
amended by way of Ordinary Bills,135 and 2015 onwards, the amendments have been introduced by way of Finance
Acts as Money Bills.

A petition challenging the amendments made in the year 2015, 2016 and 2018, by way of money bills, was filed by
a Parliamentarian, Mr Jairam Ramesh before the Delhi High Court.136 It was argued that these amendments are
unconstitutional as these amendments cannot be incorporated by way of a Money Bill. He argued that a Money Bill
can be introduced only in the Lok Sabha, and the Rajya Sabha cannot amend or reject it, hence, the provisions of a
Money Bill must be perceived very strictly and carefully and only if a bill falls strictly under the definition of a Money
Bill as prescribed in the Constitution of India, can it be passed as a Money Bill. If the provisions of the bill fall
outside the strict definition of Money Bill, the said bill cannot be passed as a Money Bill. It was also argued by the
petitioner that whether the decision of the Speaker on whether a Bill is a Money Bill or not, is justiciable137 and
therefore the court can and should in the facts of the present case declare the amendments as unconstitutional
because in pith and essence these amendments to the PMLA ought to have introduced as an Ordinary Bill and not
as a Money Bill.

The Delhi High Court dismissed the petition on the ground of delays and latches as he could not explain the delay
in challenging the amendments in the year 2015, 2016 and 2018. The Court also observed that the petitioner has
no locus to prefer the present writ petition as he was not aggrieved by any of those challenged amendments.
Impugning the decision of the Delhi High Court, Mr Ramesh approached the Supreme Court where the Supreme
Court issued notice to the petition and the matter at present is pending.138

The question which remains unanswered is whether the amendments to the PMLA can be brought in by way of a
Money Bill.

Article 107 of the Constitution of India provides for the procedure of passing the Ordinary Bills, whereas the
procedure of passing the Money Bills is provided under Article 109. Both the Houses of the Parliament play a vital
role in the passage of an Ordinary Bill. Deviating from the important role which it assigns to the Rajya Sabha in the
passage of legislation, the Constitution carves out a limited role for the Rajya Sabha in the passage of Money
Bills.139 The Lok Sabha has the discretion to either accept them or reject all or any of the recommendations made
by the Rajya Sabha.140

An important judgment to consider as to what qualifies as a Money Bill is the decision of the Supreme Court in
Justice KS Puttuswamy (supra), where the majority bench (4:1) upheld the constitutional validity of the Aadhaar
(Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (Aadhaar Act).141 One of the
grounds of challenge to the Aadhaar Act was that the government cannot pass it as a Money Bill by taking recourse
of Article 110. The arguments led by the Union of India with respect to this issue was two-fold, firstly that the
Aadhaar Act in “pith and substance” is a Money Bill and secondly, although the Act has other ancillary provisions,
its main objective (as provided under Section 7) is the delivery of subsidies, benefits and services flowing out of the
Consolidated Fund of India and that the other provisions are related to the main purpose of the Act which was
giving subsidies and benefits which falls under Article 110(1) of the Constitution of India.

The majority (three judges) held that the Act was competently passed by the Parliament even though it was passed
as a Money Bill.142 Bhushan, J. delivered a separate judgment where he partially concurred with the majority. In his
judgment it was held that the Aadhaar Act can be passed as a Money Bill, but the decision of the Speaker declaring
a Bill as a Money Bill would come under the purview of judicial review.

Chandrachud J, however, gave a dissenting opinion and declared the Aadhaar Act as unconstitutional for failing to
meet the necessary requirements to have been certified as a Money Bill under Article 110(1) of the Constitution of
India. Chandrachud J, while dismissing the idea of passing the Aadhaar Act as a Money Bill held:

“117. The Rajya Sabha has an important role in the making of laws. Superseding the authority of the Rajya Sabha is in
conflict with the constitutional scheme and the legitimacy of democratic institutions. It constitutes a fraud on the
Constitution. Passing of a Bill as a Money Bill, when it does not qualify for it, damages the delicate balance of bicameralism
which is a part of the basic structure of the Constitution. The ruling party in power may not command a majority in the Rajya
Sabha. But the legislative role of that legislative body cannot be obviated by legislating a Bill which is not a Money Bill as a
Money Bill. That would constitute a subterfuge, something which a constitutional court cannot countenance. Differences in
a democratic polity have to be resolved by dialogue and accommodation. Differences with another constitutional institution
cannot be resolved by the simple expedient of ignoring it. It may be politically expedient to do so. But it is constitutionally
impermissible. This debasement of a democratic institution cannot be allowed to pass. Institutions are crucial to democracy.
 Page 3 of 6
1.7 Prevention of Money Laundering Act, 2002

Debasing them can only cause a peril to democratic structures. The Act thus fails to qualify as a Money Bill under Article
110 of the Constitution. Since the Act was passed as a Money Bill, even though it does not qualify to be so, the passage of
the Act is an illegality. The Aadhaar Act is in violation of Article 110 and therefore is liable to be declared unconstitutional.”

Chandrachud J, rejected arguments of the Union of India mainly on two grounds:

“(i)The doctrine of ‘pith and substance’ is applied to determine the legislative competence of a legislature to enact a law is
challenged, i.e. to ascertain whether an enactment which is challenged falls within an entry in one of the three Lists in the
Seventh Schedule over which the legislature has competence under Article 246 of the Constitution. Therefore, in the
present case the doctrine of “pith and substance” cannot be applied to sustain the argument that the Aadhaar Act is a
Money Bill. Whether a Bill is validly passed as a Money Bill has nothing to do with the legislative competence of the
legislature under Article 246 of the Constitution. For a Bill to qualify as a Money Bill it has to be tested within the boundaries
of Article 110.

(ii)The provisions of the Aadhaar Act do not charge any expenditure to the Consolidated Fund. It simply allows for making
Aadhaar mandatory for availing of subsidies, benefits or services the expenditure incurred on which is charged to the
Consolidated Fund.”

Chandrachud J, thus; observed:

“116. Introducing the Aadhaar Act as a Money Bill has bypassed the constitutional authority of the Rajya Sabha. The
passage of the Aadhaar Act as a Money Bill is an abuse of the constitutional process. It deprived the Rajya Sabha from
altering the provisions of the Bill by carrying out amendments. On the touchstone of the provisions of Article 110, the Bill
could not have been certified as a Money Bill. [...]”

The crux of the dissent of Chandrachud J, on the issue of whether a Bill can be a Money Bill is that for a bill to
qualify as a Money Bill one has to be within the contours of Article 110 of the Constitution of India. In fact, the
majority decision in the Aadhaar judgment had also held that the Aadhaar Act is a Money Bill because it deals with
the expenditure incurred in respect of such a subsidy, benefit or service would be from the Consolidated Fund of
India, which is a part of Article 110.

In view of the Aadhaar judgment, could the amendments to the PMLA be introduced as Money Bills, requires a look
at Article 110 of the Constitution of India. It reads as under:

“(1) For the purposes of this Chapter, a Bill shall be deemed to be a Money Bill if it contains only provisions dealing with all
or any of the following matters, namely:—
(a) the imposition, abolition, remission, alteration or regulation of any tax;

(b) the regulation of the borrowing of money or the giving of any guarantee by the Government of India, or the
amendment of the law with respect to any financial obligations undertaken or to be undertaken by the
Government of India;
(c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys into or the
withdrawal of moneys from any such Fund;

(d) the appropriation of moneys out of the Consolidated Fund of India;

(e) the declaring of any expenditure to be expenditure charged on the Consolidated Fund of India or the increasing of
the amount of any such expenditure;

(f) the receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or
issue of such money or the audit of the accounts of the Union or of a State; or

(g) any matter incidental to any of the matters specified in sub-clauses (a) to (f).

(2) A Bill shall not be deemed to be a Money Bill by reasonably that it provides for the imposition of fines or other pecuniary
penalties, or for the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for
the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes.

(3) If any question arises whether a Bill is a Money Bill or not, the decision of the Speaker of the House of the People
thereon shall be final.
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1.7 Prevention of Money Laundering Act, 2002

(4) There shall be endorsed on every Money Bill when it is transmitted to the Council of States under article 109, and when
it is presented to the President for assent under Article 111, the certificate of the Speaker of the House of the People signed
by him that it is a Money Bill.”

Article 110(1) of the Constitution defines a Money Bill. A bare reading of the provision reflects that for a Bill to be a
Money Bill, it must mandatorily contain “only provisions” dealing with every or any one of the matters set out in sub-
clauses (a) to (g) of clause 1 of Article 110. Interpreting this Article in the Aadhaar judgment, Chandrachud J, in his
dissent has observed:

“95. [...] The expression “if it contains only provisions dealing with all or any of the following matters, namely...” is crucial.
The expression “if” indicates a condition and it is only upon the condition being fulfilled that the deeming fiction of a Bill
being a Money Bill for the purposes of the Chapter will arise. Secondly, to be a Money Bill, the Bill should have only those
provisions which are referable to clauses (a) to (g). The condition is much more stringent than stipulating that the Bill should
incorporate any of the matters spelt out in clauses (a) to (g). The words “only provisions” means that besides the matters in
sub clauses (a) to (g), the Bill shall not include anything else. Otherwise, the expression “only” will have no meaning. The
word “only” cannot be treated to be otiose or redundant. Thirdly, the two expressions “if it contains only provisions” and
“namely” indicate that sub-clauses (a) to (g) are exhaustive of what a Money Bill may contain. The contents of a Money Bill
have to be confined to all or any of the matters specified in sub-clauses (a) to (g). Fourthly, sub-clause (g) covers any
matter incidental to sub-clauses (a) to (f). A matter is incidental when it is ancillary to what is already specified. Sub-clause
(g) is not a residuary entry which covers all other matters other than those specified in sub-clauses (a) to (f). If sub-clause
(g) were read as a catch-all residuary provision, it would defeat the purpose of defining a class of Bills as Money Bills. What
is incidental under sub-clause (g) is that which is ancillary to a matter which is already specified in sub-clauses (a) to (f).
The test is not whether it is incidental to the content of a Bill but whether it is incidental to any of the matters specifically
enumerated in sub-clauses (a) to (f). The Attorney General would request the court to read the word “only” before “if” and
not where it occurs. If the submission were to be accepted, it would lead to the consequence that the Bill would be a Money
Bill if it contained provisions dealing with clause (a) to (g), even if it contained other provisions not relatable to these
clauses. We cannot rewrite the Constitution, particularly where it is contrary to both text, context and intent.”

The amendments sought to be introduced to the PMLA by way of a Finance Act (Money Bill) are certainly not
confined to all or any of the matters specified in clauses (a) to (g) of Article 110 of the Constitution. For example, the
Finance (No.2) Act, 2019 (23 of 2019) has amended the definition of the proceeds of crime by introducing an
explanation to Section 2(1)(u) of the PMLA. This amendment which the Finance Act has sought to introduce has a
substantial impact on what constitutes the offence of money laundering.143 This amendment brought in by way of an
explanation completely ignores the concerns of the Select Committee144 that the person using or possessing tainted
money should also be “projecting it as untainted money” for such a person to attract the rigors of the PMLA. Such a
serious change to the definition of the proceeds of crime, and eventually a change to the definition of the offence of
money laundering, is not relatable to clauses (a) to (g) of Article 110 of the Constitution.

The Rajya Sabha has played a pivotal role in shaping up the law of PMLA, as we know it today. The debates by the
members of the Rajya Sabha along with the reports prepared by the Committees can be given credit to bring some
balance and fairness to a statute which vests enormous powers with its investigating authorities. Thus, the debates
in both houses of the Parliament have been proven to be beneficial for the overall development of the statute.
However, since now the amendments are being brought by way of the Finance Acts (as Money Bills), the
recommendations of the Rajya Sabha, if any, can be chosen not to be accepted by the Lok Sabha.

Even though the initial Act was passed in consonance with the Political Declaration which primarily aimed at
tackling the issue of money laundering from drug trafficking and related criminal activities, the Act which was
passed by the Indian Parliament ultimately tried to curb offences that were much broader than drug trafficking. As
discussed in Chapter 2 the Act now covers proceeds generated from almost every major and minor offence. The
Act does not differentiate between a drug trafficker or a terrorist and a person accused of an offence under the
Biological Diversity Act, 2002 or Copyright Act, 1957. Any third person dealing with an alleged terrorist is treated in
a similar fashion as that of a person dealing with someone who has committed an offence under the Copyright Act,
1957. The copious amount of discretion vested with an investigation officer makes this Act vulnerable to criticism
and scrutiny. The purpose of this book is not to just state the provisions and the case law that has emerged in
relation to the Act but to critically examine the provisions and various amendments which have progressively
broadened the scope and the ambit of this legislation.
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1.7 Prevention of Money Laundering Act, 2002

116 See, https://digitallibrary.un.org/record/87622?ln=en#record-files-collapse-header (last accessed in September, 2020).

117 Assembled at the 17th Special Session of the General Assembly to consider the question of international co-operation
against illicit production, supply, demand, trafficking and distribution of narcotic drugs and psychotropic substances and
noting that the large financial profits derived from illicit drug trafficking and related criminal activities enable
transnational criminal organizations to penetrate, contaminate and corrupt the structure of Governments, legitimate
commercial activities and society at all levels, thereby vitiating economic and social development, distorting the process
of law and undermining the foundations of States.
118 https://www.unodc.org/documents/commissions/CND/Political_Declaration/Politica l_Decl aration_1 998/1998-Political-
Declaration_A-RES-S-20-2.pdf_(last accessed in September, 2020).
119 Article 15 of the Declaration –”Undertake to make special efforts against the laundering of money linked to drug
trafficking and, in that context, emphasize the importance of strengthening international, regional and sub-regional
cooperation, and recommend that States that have not yet done so adopt by the year 2003 national money laundering
legislation and programmes in accordance with relevant provisions of the United Nations Convention against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances of 1988, as well as the measures for countering money-
laundering, adopted at the present session”.
120 The Prevention of Money Laundering Bill, 1998 was introduced in the Lok Sabha of the Parliament on 4 August 1998.
121 The Committee comprised of 10 members and held six meetings before handing it back to the Lok Sabha.
122 The Report by the Standing Committee was submitted to the Lok Sabha on 4 March 1999.
123 The Statement of Objects and Reasons (SOR) of the PMLA noted that there was an urgent need for a comprehensive
legislation to prevent money-laundering and connected activities, confiscation of proceeds of crime and setting up of
agencies and mechanisms for coordinating measures to combat money-laundering. The SOR also acknowledged the
initiatives taken by the international community to counter the threat posed by money-laundering to financial systems as
well as to the territorial integrity and sovereignty of nations. This included the United Nations’ Convention against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances, to which India is a party. The said Convention calls for the
prevention of laundering of the proceeds of drug crime and other connected activities and confiscation of proceeds
derived from such offences.
124 w.e.f. 01-07-2005.
125 w.e.f. 01-06-2009.
126 w.e.f. 15-02-2013.
127 w.e.f. 14-05-2015.
128 w.e.f. 01-07-2015. The Amendment sought to insert clause (4) in Part C of the Schedule to the PMLA:
“(4) The offence of wilful attempt to evade any tax, penalty or interest referred to in section 51 of the Black Money
(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.” to the Schedule, in Part C, after entry (3),
certain offences relating to the offences against property under Chapter XVII of the Indian Penal Code (45 of 1860) ...”
129 w.e.f. 01-06-2016.
130 w.e.f. 19-04-2018.
131 w.e.f. 26-07-2018. The Amendment sought to substitute Paragraph 8 of Part A of the Schedule to the PMLA with a new
paragraph.
132 w.e.f. 20-03-2019.
133 w.e.f. 25-07-2019. The Act sought to insert Section 11A and brought amendments to Section 12 and 73 of the PMLA.
134 w.e.f. 01-08-2019.
135 An Ordinary Bill is defined under Article 107 of the Constitution of India as a Bill which has to be passed by both the
Houses of the Parliament for it to become an Act.
136 Jairam Ramesh v UOI, (2019) 366 ELT 238 [LNIND 2019 DEL 664] (Del), decided on date 28 February 2019 (High
Court of Delhi).
137 See, para 405 in Justice KS Puttaswamy (Retd) v UOI (Aadhaar Judgment), (2019) 1 SCC 1 : 2018(9) SCJ 224 : 2018
(12) SCALE 1 [LNIND 2018 SC 535], decided on date 26 September 2018 (Supreme Court, 5 judges bench).
138 The Supreme Court issued a notice on 2 July 2019 in Special Leave to Appeal (C) No(s) 13103 of 2019 and has sought
response of the Centre government on the aid issue. The matter is sub-judice.
139 See, Justice KS Puttaswamy (Retd), supra, footnote 137, where the Supreme Court (in para 58) has observed, “58
Ordinary bills can be passed only when they are agreed to by both Houses. Amendments suggested by one House
have to be agreed upon by both the Houses for the bill to be passed. Both Houses of Parliament have a vital role
 Page 6 of 6
1.7 Prevention of Money Laundering Act, 2002

assigned by the Constitution in the passage of ordinary bills. Deviating from the important role which it assigns to the
Rajya Sabha in the passage of legislation, the Constitution carves out a limited role for the Rajya Sabha in the passage
of Money Bills.”
140 Article 109(2) of the Constitution of India. Also see, Justice KS Puttaswamy, supra, footnote 137, where in Para 56 it
was observed that: “...Article 110(4) provides that when a ‘Money Bill’ is transmitted from the Lower House to the Upper
House, it must be endorsed with a certificate by the Speaker of the Lower House that it is a Money Bill. From the date
of the receipt of the Money Bill, the Rajya Sabha is bound to return the Bill to the Lok Sabha, within a period of fourteen
days, with its recommendations. The Lok Sabha has the discretion to “either accept or reject all or any of the
recommendations” made by the Rajya Sabha.”
141 While the Act was held to be constitutional, several sections of the Act were struck down as unconstitutional.
142 Sikri J speaking for the majority in reference to the issue of money bill held that:

Insofar as Section 7 is concerned, it makes receipt of subsidy, benefit or service subject to establishing identity by the
process of authentication under Aadhaar or furnish proof of

Aadhaar etc. It is also very clearly declared in this provision that the expenditure incurred in respect of such a subsidy,
benefit or service would be from the Consolidated Fund of India. It is also accepted by the petitioners that Section 7 is
the main provision of the Act. In fact, introduction to the Act as well as Statement of Objects and Reasons very
categorically record that the main purpose of Aadhaar Act is to ensure that such subsidies, benefits and services reach
those categories of persons, for whom they are actually meant.
143 See, para 2.3.1.7 of Chapter 2 where this explanation has been described in detail.
144 See, para 2.3.1.6 of Chapter 2 where the Report of the Select Committee has been discussed.

End of Document
 2.1 Introduction
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 2 OFFENCE OF MONEY LAUNDERING IN INDIA

CHAPTER 2 OFFENCE OF MONEY LAUNDERING IN INDIA

2.1 Introduction
The scourge of money laundering has grown exponentially in the past few decades. After surfacing into the modern
world around 1920s, the graph of money laundering has shown a considerable rise during the 1980s primarily due
to the increase in massive illegal drug trade. Money laundering today has taken in its refuge a large variety of
crimes, ranging from bootlegging to drug trafficking to terrorism to high value economic offences. As discussed
earlier, money laundering is performed with the ill-gotten money acquired by committing a substantive offence,
often referred to as the predicate or scheduled offences.1 For example, if A dishonestly takes loan from a bank by
making false representations and with the intention to never return the loan, then A has committed the offence of
cheating under section 420 IPC. This constitutes the predicate offence. The offence of money laundering is
committed when A transfers money taken from the bank (‘proceeds of crime’) to a third party and projects the
transaction between A and third party as a genuine transaction. The third party may further transfer the funds to a
different entity and this constitutes what is termed as layering. If the third party B knowingly and intentionally deals
with the money which was dishonestly acquired by A, then B has committed the offence of money laundering. This
shows that it is not necessary that the person who launders the money is the same person who has committed the
predicate offence.2 However, what is necessary is the commission of a predicate offence, which is a sine qua non
to the offence of money laundering.3 If in the first place A had never dishonestly taken money from the bank then
there cannot be any money laundering.4 Also an innocent person who receives the funds from A in connection with
a bona fide transaction cannot be held to have committed an offence. It is only when B knowingly and with requisite
intention to layer and conceal the money acquired by A deals with it, can B commit money laundering. B has to
project the property constituting the proceeds of crime as untainted property in order to commit the offence of
money laundering.5

International and domestic political will to introduce anti money laundering legislation was to curb grievous offences,
such as, illegal drug trade, terrorism, trafficking of people and other very serious offences. The focus of the
governments of the world has shifted drastically from curbing the crime to curbing the profits and illicit funds
generated from the crime, with the justification that removing the profit and income generated from the criminal
activities is removing the motive to commit crimes.6 In 2009,7 a large number of offences were incorporated as
Scheduled offences.8 The rationale behind including almost any offence, whether minor or major as a scheduled
offence; under the PMLA is not clear. The conventional argument justifying incorporation of so many offences as
scheduled offence is that “money laundering poses a serious threat to the financial system of India”.9 The purpose
of anti money laundering legislation was to curb the growth of certain grave and serious offences in a society. For
example, seizing of the proceeds generated from the illegal drug trade would result in stifling the drug mafia.
Similarly, seizing assets generated by terrorism will help to eliminate the financial resources that terrorists have and
bring about eradication of terrorism. The primary purpose of anti money laundering initiative is to curb the growth of
offenders by taking away their economic resource. The threat to “financial system” of a country may be better
addressed by implementing a stronger tax collection and compliance legislative framework. The argument that “the
Parliamentary legislation qua money laundering is an attempt by Parliament to get back money which has been
siphoned off from the economy”10 may be misplaced. Even, siphoned off, money takes form of assets which directly
or indirectly circulates within the economy. For example, if A transferred proceeds of crime to B and B bought a car
with those proceeds then the fact that a car was bought contributes to economic activity and, therefore; there is no
“siphoning off from the economy”. There may be tax evasion when money is siphoned off and is converted to “black
money”. However, the growth of black money in the economy has to be controlled through effective tax legislation
 Page 2 of 4
2.1 Introduction

and cannot be the primary goal of anti money laundering legislation.11 Anti money laundering legislations around
the world vest investigating authorities with vast powers and discretion to seize and attach assets and therefore
increasing the scope of PMLA to cover almost any offence may be counter-productive to the “financial system of
India” where businesses are at the mercy of vast discretionary powers vested with investigative agencies. It is,
therefore; not surprising that recent press release by Ministry of Finance indicates that the government is working to
decriminalize the PMLA.12

1 Section 2(1)(y) sets out the definition of Scheduled offence. The offences mentioned in Part A, B and C of the Schedule
constitutes the predicate offences under the PMLA. The term “predicate offence” was first defined in context of anti-
money laundering legislation in Article 2(h) of United Nations Conventions Against Corruption (UNCAC) as, “any
offence as a result of which proceeds have been generated that may become the subject of an offence as defined in
article 23 of this Convention;”. As the predicate offences in the context of the PMLA are mentioned in a Schedule to the
Act, therefore; the term predicate offence and scheduled offence are used interchangeably.
2 In J Sekar v UOI, (2018) 145 SCL 637 (Delhi) : (2018) Cr LJ 1720 : 2018 DHC 401 : (2018) 2 RCR (Cr) 586, the Delhi
High Court observed that:
“...that person who is in possession of proceeds of crime need not be the person who is being tried for the scheduled
offences or even PMLA offences. Or he may be a person accused of a PMLA offence as described under Section 3
PMLA” (Para 50). The order passed by the Delhi High Court in J Sekar has been stayed by the Supreme Court in SLP
(C) No. 012865 of 2018.
Also see, the case of Anand Chauhan v Directorate of Enforcement decided on 10 April, 2017 (Bail Application No.
2241 of 2016) where the Delhi High Court observed that:

“... The proceeds of crime may be acquired by another person who commits one of the scheduled offences, and the
person charged with money laundering may have only, directly or indirectly, assisted or knowingly become a party, or
may be actually involved in the process or activity of, inter alia, concealing, possessing, acquiring or using and
projecting or claiming the said proceeds of crime as untainted property. The purpose of scheduling the offences under
the PMLA appears to be to enlist the various crimes through which the proceeds of crime may be generated. Thus, the
submission of the petitioner that he cannot be charged under the PMLA, does not appear to have any merit”. (Para 28).
Also see, Amit Banerjee v Manoj Kumar, C.R.M. No. 1209 of 2016, decided on 10 March, 2016 [Calcutta High Court
(Appellate Side)], where the court rejected the contention that the petitioner must be prosecuted in respect of a
scheduled offence or must be in physical possession of proceeds of crime so as to be liable under Section 3 of the said
Act. It held that the any real and tangible nexus of a person in dealing with proceeds of crime with the requisite
knowledge and mens rea would be sufficient to attract the aforesaid penal provision.
3 The plain reading of Section 3 makes it clear that the offence of money laundering is contingent upon the commission
of a scheduled offence, as it states that an offence of money laundering occurs when a person carries out any activity
connected with the proceeds of crime, which is defined in section 2(1)(u) as “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”. The commission of a scheduled offence is sine qua non for the offence of money laundering. However, the
Orissa High Court in Janata Jha v Asst Director, Directorate of Enforcement, 2014 (3) RCR (Cr) 827, rejected the plea
of the petitioner to quash the money laundering case on the ground that the petitioner was acquitted from the charge of
the scheduled offence as it would amount to double jeopardy. The court observed that the nature of proceedings under
the PMLA 2002 is different than other penal statutes, in asmuch as the burden to prove that the proceeds are untainted
is on the accused and held that “... even if the petitioner no. 2 has been acquitted of the charges framed against him in
the sessions trial, a proceeding under the PMLA 2002 cannot amount to double jeopardy, where the procedure and
nature of proof are totally different from a criminal proceeding under the Indian Penal Code.” Similarly, the Karnataka
High Court in K Sowbhagya v UOI, Writ Petition No. 14649 of 2014, decided on date 28 January 2016 (Karnataka High
Court) observed that if a person against whom a scheduled offence is not alleged can be prosecuted for the offence of
money laundering. It was held that money laundering is a stand-alone offence, provided that the definition of “proceeds
of crime” is extended to property used in the commission of an offence under the Act or any of the Scheduled offences,
as described in the Explanation appended to section 2(1)(v) of the PMLA. Thus, money laundering can also be treated
as a “stand-alone” offence, dehors, a scheduled offence, if circumstances warrant. Concurring with the above view, the
Sikkim High Court in Usha Agarwal v UOI, 2018 Cr LJ 691 : 2017 Sikkim HC 047, held that, “As already reflected in the
foregoing discussions the offence under the Act is also a standalone offence. In other words, a person need not
necessarily be booked of a scheduled offence, but if he is booked and subsequently acquitted, he can still be
prosecuted for an offence under the Act. Under Section 5 and Section 8 of the Act, proceedings can be against persons
who are accused of a scheduled offence or against persons who are accused of having committed an offence of
money-laundering or persons who are found to be in possession of the “proceeds of crime”. It is not necessary that a
 Page 3 of 4
2.1 Introduction

person has to be prosecuted for an offence under the Act only if he has committed a scheduled offence. The
prosecution can be independent only for the offence of money-laundering as defined in Section 3 and Section 2(p)
which provides that “money-laundering” has the meaning assigned to it in Section 3.” Similarly, in A K Samsuddin v
UOI, (2017) 1 RCR (Cr) 439 : ILR 2016 4 Ker 312, the court held that, “...though the commission of a scheduled offence
is a fundamental pre-condition for initiating proceedings under the Act, the offence of money laundering is independent
of the scheduled offences...”. The Madras High Court in Soodamani Doari v Joint Director, W.P. 8383-84 of 2013
(Madras High Court) decided on 04 October 2018, observed that the proceedings under PMLA are independent of the
proceedings under the scheduled offence. It was held that “...adjudication, prosecution, trial under PMLA is
independent of scheduled offence. This is also clear in view of Section 24 of the PMLA, 2002, which deals with burden
of proof as it clearly stated that the burden of proof relating to proceeds of crime involved in money laundering is on the
accused whereas the burden of proof in the scheduled offences is on the prosecution. Therefore, though the ECIR may
have been registered following a scheduled offence, the property in possession of the person, against whom
allegations are made, is found to be involved in money laundering, then he can be punished independently of the
scheduled offence. Therefore, mere stay of the predicate offence is not a ground for preventing the Directorate of
Enforcement from proceeding under the PMLA, 2002.” In contradiction with the above line of decisions, the Delhi High
Court in Mahanivesh Oils & Foods Pvt Ltd v Directorate of Enforcement, AIR 2016 Del 54 : (2016) 228 DLT 142 :
(2016) 2 RCR (Cr) 611, has rightly held that the PMLA is not independent of the principal crime, i.e. the scheduled
offence, as there is an inextricable link between the PMLA and the occurrence of crime. The court further held that “the
offence of money-laundering relates to the proceeds of crime, the genesis of which is a scheduled offence. In the
aforesaid circumstances, before initiation of any proceeding under Section 5 of the Act, it would be necessary for the
concerned authorities to identify the scheduled crime.” In the UK, the POCA reflects that the commission of criminal
conduct is mandatory to commit an offence of money laundering. However, there is a difference between the POCA
and the PMLA when defining “criminal property”. Criminal property is defined under section 340(3) of the POCA as
constituting a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether
directly or indirectly), and the alleged offender knows or suspects that it constitutes or represents such a benefit.
However, under the PMLA, “criminal property” is the property which is criminal at the time of the commission of an act
of laundering. There is no doubt that money laundering is an independent offence but one which cannot exist if there is
no “proceeds of crime”. However, in both cases, it is clear that if in the first place there is no criminal activity then any
proceeds generated from such activity cannot be proceeds of crime and, therefore; there can be no money laundering.
The Order has been stayed by the Delhi High Court Division Bench in LPA 144/2016. The Delhi High Court in Rajeev
Chanana v Deputy Director Directorate of Enforcement, in Crl. Misc. Case No. 5508 of 2014 decided on date 09 April
2015 has held that “It necessarily follows that the attachment of a property is liable to be vacated if the existence of a
scheduled offence is negated. Clearly, attachment of proceeds of crime cannot continue if the alleged scheduled
offence is not established after trial. Given the scheme of the PMLA, attachment of property (proceeds of crime) must
be lifted if it is found that the scheduled offence, on the basis of which attachment was effected, does not exist. In
absence of a scheduled offence, the question of existence of any proceeds thereof, do not arise. An appeal against this
Order was filed before the Division Bench of Delhi High Court in LPA 144/2016 wherein the Court remanded the matter
to the PMLA Appellate Tribunal.

The decision of the Delhi High Court (Single Bench) in Rajeev Chanana was impugned before the Division Bench of the
same High Court in LPA No. 11 of 2015. The Division Bench disposed off the appeal and sent the matter to the
Adjudicating Tribunal, PMLA. Relying on the decision of the Single Bench in Rajeev Chanana, the Allahabad High
Court in Sushil Kumar Katiyar v UOI, arising from Case No. 1914 of 2015 (decided on date 10 May 2016), held, “... the
petitioner has been able to make out a good case for quashing of the summoning order for the simple reason that from
the allegations made in the complaint, no offence under section 3 of the Money-Laundering Act is made out against the
petitioner in view of the fact that the petitioner has been discharged from the scheduled offences and except the
present complaint in which the impugned summoning order has been passed, no case is pending against him. The
learned Sessions Judge while passing the impugned summoning order has not taken into account this fact that the
petitioner has already been discharged of all the scheduled offences. The properties which were allegedly acquired by
the petitioner during crime period, were also not acquired during the offence period, except the one of which sufficient
explanation has been given by the petitioner. There was, thus, no sufficient ground to have summoned the petitioner for
facing trial under section 3 of the Prevention of Money-Laundering Act. It is a settled law that summoning of a person to
face trial in respect of an offence, is a serious matter and the court should examine in detail and record a finding that a
person, prima facie, is guilty of an offence. A serious responsibility rests upon the courts before passing of the
summoning order and the court must be satisfied that there is sufficient material to proceed against the accused
person. In the present case, the opposite parties concealed the material fact in the complaint that the petitioner had
already been discharged from the scheduled offence and no trial was pending against him. The impugned summoning
order was passed by the learned Sessions Judge assuming that the trial in respect of the schedule offence was
pending against him while as a matter of fact, no such trial was pending on the date when the complaint was filed and
the summoning order was passed. The impugned summoning order therefore suffers from manifest error of law and is
liable to be quashed.” The appeal in Sushil Katiyar is pending before the Supreme Court in SLP (Crl) (Diary) No 22529
of 2018. The matter was tagged along with the batch matters titled under B. Rama Raju v UOI. Also see, Obulapuram
Mining Company Private Limited v Joint Director, Directorate of Enforcement, (2017) SCC Online (Kar) 2304, the
 Page 4 of 4
2.1 Introduction

Karnataka High Court observed that, “an ECIR can, only, be registered once there has been a conviction and a judicial
conclusion has been arrived at as to the quantum of proceeds of that crime. It is only upon a conviction by a trial court
in the predicate offence the accused could be investigated upon accordingly.” The appeal in Oblapuram Mining Co. is
pending before the Supreme Court in SLP (Crl) no 4466 of 2017. See, Udayan Tandon, “Is Money Laundering an
independent Offence”—Centre for Criminal Law Studies, National Law University, Jodhpur. The decision in Mahanivesh
Oils, however; has been stayed by the Delhi High Court (Division Bench) by order dated 30 November 2016 in LPA
144/2016. The matter is still pending adjudication before the Delhi High Court.
The decision of the Allahabad High Court in Sushil Kumar Katiyar was challenged before the Supreme Court in SLP
(Crl.) Diary No(s).22529/2018. The Supreme Court vide Order dated 08 May 2019 issued notice and tagged it along
with the pending matter of B Rama Raju v UOI, (SLP (Crl.) No. Crl. M.P. No.18478/2015 and SLP(Crl.) No. Crl. M.P.
No.18015/2015). The matter is at present pending before the Supreme Court.
The decision in Oblapuram Mining Co. is also pending before the Supreme Court in SLP (Diary) NO. 16563-2017.
4 The Financial Action Task Force (FATF), [an inter-governmental body to which India became a member in 2010]; in the
latest Mutual Evaluation Report (MER) of India suggested that India should amend its laws to make offences of money
laundering as standalone offence and not dependent on any predicate or scheduled offence. The Indian government
shared its apprehensions with FATF in treating the offence of money laundering as an independent offence.
5 See, the discussions on the explanation added by the Amendment (Finance No. 2) Act, 2019, which replaces the word
“and” with “or” for projecting the untainted money. Whether this now means that even use or possession of proceeds of
crime would be sufficient to constitute an offence of money laundering is discussed in this chapter.
6 See, R.T. Naylor, Wash-out: A critique of follow-the-money methods in crime control policy – Crime Law & Social
Change : An Interdisciplinary Journal, vol 32, 1999, pp 1-57.
7 Vide Prevention of Money Laundering Amendment Act, 2009 (21 of 2009) dated 6 March 2009, (w.e.f. 1-6-2009).
8 Initially the PMLA covered 42 offences as scheduled offences. This significantly increases to 137 offences since June
2009.
9 See the Statement of Objects and Reasons of the PMLA. The Statement of Objects mentions various international
initiatives taken by the United Nations to curb money laundering. However, as discussed in Chapter 1 each of such
initiative was taken to curb certain grave and serious offences like illegal drug trade, trafficking of people etc. None of
the international initiatives contemplates that almost every kind of scheduled offence should attract and be covered
under anti money laundering legislation.
10 See, Nikesh Tarachand Shah v UOI, (2018) 11 SCC 1 : AIR 2017 SC 5500 : (2018) 2 RCR (Cr) 232 : 2017 SC 1279,
the Supreme Court notes the submission of the UOI:
“...learned Attorney General Shri K.K. Venugopal impressed upon us the fact that the Parliamentary legislation qua
money laundering is an attempt by Parliament to get back money which has been siphoned off from the economy ...
(Para 6).”
11 See, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The primary
purpose of the Act is to make provisions to deal with the problem of the Black money that is undisclosed foreign income
and assets, the procedure for dealing with such income and assets and to provide for imposition of tax on any
undisclosed foreign income and asset held outside India and for matters connected therewith or incidental thereto.
12 See, https://www.livemint.com/politics/policy/government-to-de-criminalise-income-tax-act-anti-money- laundering- law-
fm-nirmala-sitharaman-11579494234803.html (last accessed in September, 2020) https://www.republicworld.com/india-
news/economy/nirmala- sitharaman-centre-to-de-criminalise-income-tax-act-pmla.html (last accessed in September,
2020).

End of Document
 2.2 Offence of Money Laundering under the Conventions of the United
Nations
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 2 OFFENCE OF MONEY LAUNDERING IN INDIA

CHAPTER 2 OFFENCE OF MONEY LAUNDERING IN INDIA

2.2 Offence of Money Laundering under the Conventions of the United

Nations
Two of the most significant works carried out by the United Nations with respect to money laundering were seen in
1988 with the Vienna Convention, which was followed by the Palermo TOC Convention.13

The US became the first country to criminalise money laundering in 1986 with the implementation of the Money
Laundering Control Act, 1986. The United Nations soon joined in with Vienna Convention and Palermo TOC
Convention, pronouncing money laundering as a criminal offence, punishable with imprisonment and imposition of
fine.14 While the Vienna Convention made money laundering an offence with respect to the offence of drug
trafficking and its illicit use, the Palermo Convention widened the range of predicated offences to include all other
serious organized crimes. The basic rudiments of the offence of money laundering, however; were similar in both
the Conventions.

The offence of money laundering, under both Vienna and Palermo Conventions, was described as an act of
conversion or transfer of the proceeds knowing that such property is the proceeds of crime, “for the purpose of
concealing or disguising the illicit origin of the property” or of “helping any person who has been involved in the
commission of the predicate offence to evade the legal consequences of his or her actions”.15 The Conventions also
included the act of acquisition, possession or use of property, by a person knowing, at the time of receipt, that such
property was derived from a predicate offence as the offence of money laundering.16 In addition to this, even the
acts of participation, association or conspiracy to commit, attempts to commit and aiding, abetting facilitating and
counselling of the offence of money laundering were also included as offences under the given Conventions.

Thus, the Conventions clearly spelt out the external element (actus reus) and mental element (mens rea) for the
offence of money laundering. The actus reus ranges from the acts of conversion and transfer to concealment and
disguise, as well as, acquisition, possession or use of the property derived from the offence(s) specified in the
Conventions for “the purpose of concealing” the “illicit origin of property”; whereas the element of mens rea
specifies that an act must be committed ‘intentionally’ and with the knowledge that the property used was derived
from the offence(s) specified in the conventions.

The Conventions have avoided offering a straitjacket formula to test the presence of requisite mens rea (knowledge
and intent) of the offender while committing the offence of money laundering, and have left the discretion on the
member countries to infer the mens rea from the factual circumstances of each case.17 The Conventions, therefore;
require that the offence of money laundering can only be declared a criminal offence when “committed
intentionally”. It also specifies that the acquisition or possession or use of the property should be known to be
proceeds of crime “at the time of receipt” of such property by the accused. The Conventions seem to indicate that
an offence of money laundering is made out when a person who is involved in the commission of the predicate
offence converts or transfers the proceeds of crime for the purpose of concealing or disguising the illicit origin of the
property. The Conventions also state that any person whether or not involved in the commission of the predicate
offence, can be held guilty for the offence of money laundering, if that person conceals or disguises that illicit origin
 Page 2 of 2
2.2 Offence of Money Laundering under the Conventions of the United Nations

of the proceeds of crime or seeks to help any person who is involved in the commission of the predicate offence to
evade his/her actions.

It is interesting to note that the Conventions not only require the accused person to have knowledge of the offence
but in addition also states that the person should have “intentionally” committed the offence of money laundering.

13 India took accession to the Vienna Convention on 27 March 1990 and became a signatory to the Palermo Convention
on 12 December 2002.
14 Article 3 of the Vienna Convention (Offences and Sanctions under Vienna Convention) and Article 6 of the Palermo
TOC Convention (Criminalization of the laundering of proceeds of crime) criminalises the offence of money laundering.
15 Article 3(b) of the Vienna Convention and Article 6(a) of the Palermo Convention.
16 Article 3(c) of the Vienna Convention and Article 6(b) of the Palermo Convention.
17 Article 3(3) of the Vienna Convention and Article 6(f) of the Palermo Convention.

End of Document
 2.3 Offence of Money Laundering in India
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 2 OFFENCE OF MONEY LAUNDERING IN INDIA

CHAPTER 2 OFFENCE OF MONEY LAUNDERING IN INDIA

2.3 Offence of Money Laundering in India

Section 3 of the PMLA declares money laundering as an offence in India. The NDPS Act was the first legislation in
India that had criminalised the offence of laundering proceeds of crime resulting from offences under the statute, i.e.
only with respect to the drug-related offences.18
2.3.1 Section 3 of the PMLA

Section 3 has been amended a number of times over the years. The section now reads as follows—

“3. Offence of money-laundering.—Whosoever, directly or indirectly attempts to indulge or knowingly assists or

knowingly is a party or is actually involved in any process or activity connected [with]19 [proceeds of crime including its
concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of [the]
offence of money-laundering.”

20[Explanation.—For the removal of doubts, it is hereby clarified that,—

(i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly
attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the
following processes or activities connected with proceeds of crime, namely:—
(a) concealment; or

(b) possession; or

(c) acquisition; or

(d) use; or

(e) projecting as untainted property; or

(f) claiming as untainted property,

in any manner whatsoever;

(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a
person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or
use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.”

This provision endorses the act of money laundering as an offence and provides for a punishment in section 4.

The following phrases and/or terms are the main ingredients of section 3:
2.3.1.1 “whosoever directly or indirectly”

The phrase “whosoever directly or indirectly” would ordinarily mean that any person who is “directly” or “indirectly”
connected with the proceeds of crime. The person here would include a juristic as well a natural person. This,
therefore; has a very wide connotation and would include all types of persons, as long as they are connected with
 Page 2 of 27
2.3 Offence of Money Laundering in India

any activity related to the proceeds of crime. It is clear that as per this phrase, the culpability under this section is
not dependent on the degree of involvement of a person connected with the proceeds of crime. Even if a person is
not directly involved with the activity of proceeds of crime, such a person can still be held guilty under this provision
for indirect involvement.

Section 3 takes within its sweep any person who has assisted or in any manner been involved in any process or
activity with proceeds of crime.21 The Supreme Court in Nikesh Tarachand Shah v UOI,22 has observed that, “Under
section 3 of the Act, the kind of persons responsible for money laundering is extremely wide. Words such as
‘whosoever’, ‘directly or indirectly’ and ‘attempts to indulge’ would show [that] all persons who are even remotely
involved in this offence are sought to be roped in.”

Even at the time of introduction of the Prevention of Money Laundering Bill in the Rajya Sabha, the issue of wide
import of section 3 was debated and discussed. The Select Committee of the Rajya Sabha in its report dated 1999
noted that the import of section 3 is wide enough to include innocent persons who unknowingly deal or enter into
transactions with persons who have committed the offence of money laundering.23

The Amendment of 2019,24 further broadened the scope of the provision by adding phrases such as, “a person shall
be guilty of offence of money-laundering if such person is found to have directly or indirectly...” and “…in any
manner whatsoever...”.

The concept of the broadened scope of the “persons” that can be held guilty for the offence of money laundering for
their direct or indirect involvement with any activity connected with the proceeds “in any manner whatsoever” is very
peculiar to the Indian anti-money laundering regime. Neither the Vienna Convention nor the Palermo TOC
Convention that form the premise of section 3 of the PMLA, have used the phraseology “in any manner whatsoever”
or “whosoever directly or indirectly”.25
2.3.1.2 “attempts to indulge”

The expression “attempt to indulge” has not been defined in the PMLA. The Supreme Court in State of Maharashtra
v Mohd Yakub s/o Abdul Hamid,26 has stated that:

“13. Well then, what is an “attempt”?...In sum, a person commits the offence of “attempt to commit a particular offence”
when (i) he intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit
the offence, does an act towards its commission; such an act need not be the penultimate act towards the commission of
that offence but must be an act during the course of committing that offence.”

Following the above observation made by the Supreme Court, the Gujarat High Court in Jafar Mohammed
Hasanfatta v Deputy Director,27 held that the phrase: “… ‘attempt to indulge’ would necessarily require not only a
positive “intention” to commit the offence, but also preparation for the same coupled with doing of an act towards
commission of such offence with such intention to commit the offence.”

Any activity related to money laundering can only constitute a crime if it is done with the necessary ingredient of
mens rea. There seems to be a drafting error because the word “knowingly” should appear immediately after the
term “whosoever”. This would have ensured that the offence of money laundering cannot be committed without the
person knowing that he is dealing with the proceeds of crime.28

An “attempt to indulge” under section 3 of the PMLA would, therefore; mean an act done by the offender with the
intention to commit the offence of money laundering and the said act had been committed with full preparations to
commit the offence. The only difference between an attempt and the final commission of the offence is that an
attempt is not a penultimate act but a step towards the commission of offence.
2.3.1.3 “knowingly”

Our criminal jurisprudence is premised on the Latin maxim, “Actus non facit reum nisi mens sit rea”, which literally
translates to “an act does not make a person guilty unless (their) mind is also guilty”. As Justice Jackson of the US
Supreme Court explained, “The contention that an injury can amount to a crime only when inflicted by intention is
no provincial or transient notion. It is as universal and persistent in mature systems of law as belief in freedom of
human will and a consequent ability and duty of the normal individual to choose between good and evil.”29 This
means that to hold a person culpable, both the guilty mind (mens rea) and guilty action (actus reus) must be
present. The basic reasoning behind making mens rea central to the criminal liability is that every person has the
mental capacity to choose between right and wrong.30
 Page 3 of 27
2.3 Offence of Money Laundering in India

The term mens rea has, however; not been explicitly used in the Indian Penal Code but has been used in different
suggestive manner, such as “voluntarily”, “wilfully”, “deliberately”, “deliberate intention”, “with the purpose of”, and
“knowingly”. To constitute a crime, it is imperative that the mental condition of the offender must be blame worthy in
mind at the time of the commission of offence.31

Whether the doctrine of mens rea will be applicable and to what extent, depends on the language of the statute and
the intention of the legislature as gathered from the statute.32 In India, majority of the crimes under the Indian Penal
Code contain the mandatory requirement of guilty intention before declaring a person an accused. However, in
some very serious offences such as the offence of waging war against the Government of India, sedition,
kidnapping, bigamy and counterfeiting of coins, the Indian Penal Code has intentionally omitted the requirement of
a guilty mind.

It is noteworthy that the classical view that “no mens rea no crime” has long been eroded. Several laws in India and
abroad, especially regarding economic crimes and departmental penalties; have created severe punishments even
where the offences have been defined to exclude mens rea.33

It appears that in relation to section 3 of the PMLA, the legislature intends to limit the scope of mens rea to mere
knowledge. The term “knowingly” used in section 3 provides for a much lower mental element which is less onerous
to prove than intention. Knowledge of an offence cannot be equated with the intention to commit the offence, as the
person who has the knowledge of an offence may not necessarily have an intention to commit an offence.34 It has,
therefore; rightly been held that: “...knowledge is the foundation of intent...”35 “but [t]here may be circumstances in
which the evidence of knowledge is clear, yet the further step of finding the required intent cannot be taken.”36 The
absence of intention and finding of just “knowledge” was explained as inadequate in fastening criminal liability on
persons accused of aiding and abetting sale of goods to customers to be used for an illegal purpose. Thus, in
United States v Falcone,37 the court held that businessmen were not guilty of aiding and abetting or conspiring with
criminals notwithstanding the fact that they sold huge quantities of sugar to bootleggers with the knowledge that the
sold goods would ultimately be used for illegal purpose. Judge Learned Hand, the Second Circuit held that the
supplier’s knowledge of the intended illegal use of the goods was not enough:

“It is not enough that he does not forego a normally lawful activity, of the fruits of which he knows that others will make an
unlawful use; he must in some sense promote their venture himself, make it his own, have a stake in its outcome...We may
agree that morally the defendants at bar should have refused to sell to illicit distillers; but, both morally and legally, to do so
was toto coelo from joining [with] them in running the stills.”38

There is little justification in not having the term “intentionally committed” in section 3 of the PMLA. The mental
element to commit an offence of money laundering under section 3 of the PMLA is much lower than that required by
the Vienna Convention and Palermo TOC Convention39 which use the term “intentionally committed”.

There is a difference between “knowledge” or “knowingly” indulging in money laundering and mere “suspicion”.40 A
person's mere “suspicion” that money came from an illegal source will not be enough to attribute “knowledge” for a
conviction for money laundering.41 Neither would constructive knowledge suffice to bring forth a conviction. In cases
where the accused has engaged in the scheduled offence himself or admits informing a third party that he is dealing
with proceeds of crime, the proof of knowledge would be straightforward. However, in cases where the third party
who has dealt with proceeds of crime and contests that they were not aware that the proceeds they were given was
generated from a criminal activity may make determination of knowledge challenging. Knowledge, however; may
include “wilful blindness”, although the PMLA does not define knowledge. As Rachel Ratliff explains in the context
of American Anti-money laundering statutes:42

“Wilful blindness has been defined in several ways. For example, it has been defined as “where it can almost be said that
the defendant actually knew. He suspected the fact; he realized its probability; but he refrained from obtaining the final
confirmation because he wanted … to be able to deny knowledge.” The Model Penal Code describes it as “an awareness
of a high probability of the existence of a fact and an absence of an actual belief that the fact does not exist.”

The seminal case defining wilful blindness is United States v Charles Demore Jewell.43 In Jewell, a stranger asked
the defendant to drive a car across the Mexican border for $100. Border police discovered 110 pounds of marijuana
in a secret compartment of the trunk of the car. The defendant said that he had checked the car for illegal
substances before driving across the border, but had ignored a hole in the trunk when he saw it. The court, in
upholding the jury’s conviction, stated that a defendant can “know” something without being absolutely certain of it,
 Page 4 of 27
2.3 Offence of Money Laundering in India

“that a reasonable man should have inspected the car and would have discovered what was hidden inside.”44
Furthermore “...the required state of mind differs from positive knowledge only so far as necessary to encompass a
calculated effort to avoid the sanctions of the statute while violating its substance.”45 The court held that wilful
blindness and actual knowledge are equally culpable under criminal law.

The absence of the term “intentionally committed” and the use of the word “knowingly” in section 3 of the PMLA
makes the statute vague, in particular while fastening criminal liability on a third party who would not have been
involved in the scheduled offence but has become a party to any of the transactions in relation to the proceeds of
crime. Let’s take the example of a flashy businessman (‘X’) who media has reported to be involved in defaulting on
bank loan payments. X is also being investigated by CBI for bank fraud. X now goes to a jewellery shop to buy a
gold bracelet. Should the shopkeeper (‘Y’) who knows that X is being investigated for a bank fraud refrain from
selling the gold bracelet to X? What if Y knows that X may have committed an offence but is not aware that the
money X is using to pay for the gold bracelet is derived from that offence? Would that be sufficient to constitute
knowledge? If X has provided his PAN number and has paid for the jewellery with his credit card then should Y be
culpable even if he knows that X is involved in a major bank fraud case which has been widely reported? Neither
the PMLA nor the legislative history seeks to provide any guidance to the above questions. The Senate Report of
United States of America discussed the use of the term “knowledge” in section 1956 of the US Code, in Title 18
called ‘Laundering of Monetary Instruments’, relating to money laundering offence and sought to provide some
guidance:

“By way of guidance, the Senate Report gives the following examples: Thus, a currency exchanger who participates in a
transaction with a known drug dealer involving hundreds of thousands of dollars in cash and accepts a commission far
above the market rate, could not escape conviction, from the first tier of the offense, simply by claiming that he did not know
for sure that the currency involved in the transaction was derived from crime. On the other hand, an automobile car dealer
who sells a car at market rates to a person whom he merely suspects of involvement with crime, cannot be convicted of this
offense in the absence of a showing that he knew something more about the transaction or the circumstances surrounding
it.”

This guidance is not without problems. As G Richard Strafer states:46

“The examples provided in the Senate Report underscore the statute’s vagueness. If the automobile dealer in the second
example sells a vehicle at the market rate to the known drug dealer in the first example (rather than merely the suspected
drug dealer in the second example), has he then violated section 1956? If the currency exchanger in the first example
accepts only a reasonable commission, is he no longer guilty? What if the currency exchanger accepts a huge commission,
but merely suspects the individual he is dealing with is a drug dealer; does the size of the commission plus suspicion satisfy
the government’s burden of proof? Neither the language of section 1956 nor its legislative history provides answers to
these simple variations on the hypotheticals advanced in the Senate Report.”

Unlike section 1956 of the US Code, the PMLA does not state that the person should have “knowledge” of some
unlawful activity.47 In our view, given the absence of the words “intentionally committed”, the term “knowingly”
should be applied strictly and a person should have specific knowledge that the proceeds of crime that are being
dealt with have been derived from the specific scheduled offence. Absence of such specific knowledge should
negate criminal liability being fastened on a person for money laundering.

Interestingly, under the UK legislation POCA, mens rea includes “knowledge” or “suspicion” that a certain property
or benefit has been derived from an offence. In, R v Da Silva,48 the Court of Appeal stated that the legislature has
deliberately used ‘suspicion’ which, “in this context, is that the defendant must think that there is a possibility, which
is more than fanciful, that the relevant facts exist”. A vague feeling of unease would not suffice. But the statute does
not require the suspicion to be “clear” or “firmly grounded and targeted on specific facts, or based upon “reasonable
grounds”. While in the UK, POCA allows a much lower level of mens rea, it provides various safeguards to a third
party who deals with proceeds of crime. For example, section 329(2)(c) of POCA exempts a person who acquires
or possesses criminal property after payment of adequate consideration from the offence of money laundering.
Notably, if a third party acquires the criminal property for adequate consideration, then that would not amount to
money laundering49 even if he knew that the property was proceeds of crime. The POCA also imposes a duty to
disclose50 on anyone who has the knowledge or has any reasonable suspicion, which he came across during the
course of normal business, that another is involved in money laundering. A third party who makes requisite
disclosure is then protected from being accused of money laundering. These provisions, therefore; makes the
knowledge or suspicion regarding money laundering by another an offence, unless disclosed in the manner
provided under the Act. However, under the PMLA there is no concept of disclosure protection.
 Page 5 of 27
2.3 Offence of Money Laundering in India

2.3.1.4 “proceeds of crime”

The most important definition in the entire Act is the definition of the term “proceeds of crime”. If there is no
“proceeds of crime”, then there can be no offence of money laundering.51 The expression, “proceeds of crime” is
defined in section 2(1)(u) of the PMLA as under:

“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 52[or where such property is taken or held outside the country, then the property
equivalent in value held within the country] 53[or abroad];

54[“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;”]”

It forms the heart of the offence of money laundering under section 3 of the Act.55 Proceeds of crime, is an
indispensable element of the offence of money laundering, a core constituent of the offence.56 The proceeds of
crime for the purposes of this Act do not emanate from any or every crime, but are the “result of criminal activity”
relating to a “scheduled offence”.57 The expression “scheduled offence” is defined under section 2(1)(y) of the
PMLA.

According to the definition of the proceeds of crime, it can be categorised into following types:

(a) property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a
scheduled offence; or,
(b) the value of any such property that is derived or obtained, directly or indirectly, by any person as a result of
criminal activity relating to a scheduled offence;
(c) where such property is taken or held outside the country, then the property equivalent in value held within
the country or abroad.58

The PMLA further defines the term “property” in section 2(1)(v) as under:

“any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible
and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located;

[Explanation.—For the removal of doubts, it is hereby clarified that the term “property” includes property of any kind used in
the commission of an offence under this Act or any of the scheduled offences;]”

The Explanation to the phrases “proceeds of crime” and “property” seek to expand the ambit of what constitutes
“proceeds of crime”. The definition of proceeds of crime contemplates that the property has to be “obtained” as a
“result of the criminal activity”. Therefore, it has rightly been held that the enactment restricts it to the “result of
criminal activity” relating to a “scheduled offence”.59 The explanation to the term “proceeds of crime” inserted in
2019 seeks to catch “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.” The explanation to the term “property” includes property “used in the commission of an offence.” The
policy of the law is to identify and attach the proceeds generated out of the criminal activity which has been
laundered and shown as untainted money.60 It is the fruits of the poisonous tree which needs to be segregated from
those which are not poisonous. Also, the proceeds of crime should have been generated from the scheduled
offence and not from any other offence.61 Therefore, if X has cheated on a bank, then the proceeds of crime is the
money that the bank gave X as a loan which X has siphoned off and is projecting as untainted money. If X made a
false loan application and tried to cheat a bank and the bank eventually refused to grant X a loan, then X may be
liable for attempting to cheat a bank but cannot be prosecuted for money laundering. This is because no loan was
granted to X and, therefore; there was no generation of proceeds of crime. If one goes by the two explanations
appended to the definition of the term “property” then even the money X spent while making the loan application
would constitute “proceeds of crime”. It would be bizarre the money if invested by X, when it opened a bank account
with the concerned bank is treated as proceeds of crime notwithstanding the money invested by X is not the loan
monies but X’s genuine savings and is sought to be attached because of the reason that X opened the bank
account and invested monies in that account so that it could eventually cheat the bank by attempting to take a loan
from that bank. The explanations to “proceeds of crime” and “property”, therefore, have ushered in unreasonable
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and unsustainable attachments causing harassment and monumental litigation. One of the many such examples is
the case of Jharkhand Ispat Pvt Ltd v The Joint Directorate of Enforcement, Ranchi.62 In this case, certain
promoters and directors of the accused company were convicted of sections 420 and 120B of the IPC for procuring
a coal block allocation from the Union of India by making false declarations and presentations. It was undisputed
that the coal block allotted was never operationalised and no coal mining was ever carried out. The coal block
allocation was eventually cancelled pursuant to a judgement of Supreme Court wherein it was held that the coal
block was allotted illegally and arbitrarily. The ED proceeded to attach the share application money which the
accused company had received from its shareholders. The ED argued that the share application money was the
benefit derived by the accused company because of the coal block allocation which increased the company’s net
worth.63 None of the shareholders who had invested share application monies in the company had any grievance
about their investment. Therefore, it was not a case where the shareholders had alleged that they were victims of
any cheating or any criminal activity. Given this, it is peculiar as to why the ED attached the value equivalent to the
Share Application Money received by the accused company. No coal was mined, hence, no proceeds of crime was
generated. The Appellate Tribunal, therefore; set aside the attachment. The criminal activity in this case was the
scheduled offence committed by the Company in procuring a coal block from the central government. There was
neither any allegation nor any case of cheating any shareholders and, therefore; there was no generation of
proceeds of crime. The scheduled offence was cheating the Government into procuring a coal block. The coal block
did not generate any proceeds as it was never mined. Had the shareholders alleged that they were cheated into
investing in the company, then one could argue that the share application money received from the company was
laundered and invested in assets. However, this not being the case, it was unreasonable to attach the share
application money received by the company.64

Similarly in Himachal Emta Power Limited (HEPL) v UOI,65 HEPL had challenged the provisional attachment order
on the ground that certain funds were attached on the ground that those were used for the commissioning of the
scheduled offence and not “derived or obtained” as a result of criminal activity. The Delhi High Court upheld the
argument of HEPL and quashed the impugned PAO. It held that “The said assumption that any amount used in
commission of a scheduled offence would fall within the expression ‘proceeds of crime’ as defined under section
2(1)(u) of the PML is fundamentally flawed. In the present case, the allegation against HEPL is that it had obtained
allocation of coal block on the basis of misrepresentation. However, it is not disputed that mining of the coal from
the block had not commenced, therefore, HEPL did not derive or obtain any benefit from the coal block.”66 The court
further held that, “... in order to pass an order of provisional attachment, it was necessary for the ED to have
reasons to believe that the property sought to be attached was ‘derived or obtained’ from any scheduled crime.”67

The judicial trend as witnessed in Himachal Emta’s case to differentiate between property being used to commit an
offence and the property derived as a result of the offence has been witnessed in other common law countries too.
In R v Ahmed,68 two appellants were sole Directors and shareholders of a buffer company and were alleged to have
been involved in a “carousel fraud” of criminally misusing the collection of VAT to extract money from the revenue
authorities. The court held their benefit could not include value of goods bought and sold for spinning the carousel.
That was not property obtained in connection with criminal conduct. If the appellants have obtained the goods by
theft/fraud and had sold them, the resulting sale price would be a benefit. In this case, the offence was committing
fraud towards the public revenue (fraudulently reclaimed VAT from HMRC). The loophole was that under the VAT
rules, the exporting company was eligible to obtain a refund from HM Revenue & Customs of the VAT it had paid on
the purchase of goods which it exported. The selling of the goods was a mechanism by which the fraud was
committed, and the necessary costs involved in selling were the cost of committing the offence and the same did
not constitute money laundering. Similarly, in R v James,69 the court held that the phrase “in connection with” must
be construed with the word “benefit”. The court held that benefit does not take into account the costs incurred in
committing the offence as the robber’s benefit is what he steals and not the cost of undertaking the robbery.

The PMLA allows attachment of property of an equivalent value in cases where the actual proceeds are no longer
available or untraceable.70

In The Deputy Director Directorate v Axis Bank,71 (Axis Bank case), the court stated:

“The inclusive definition of “proceeds of crime” respecting property of the second above-mentioned nature, i.e. “the value of
any such property”—gives rise (as it has done so in these five appeals) to potential multi-layered conflicts between the
person suspected of money-laundering (the accused), a third party (with whom such accused may have entered into some
transaction vis-a-vis the property in question) and the enforcement authority (the State). Since the second of the above
species of “proceeds of crime” uses the expression “such property”, the qualifying word being “such”, it is vivid that the
“property” referred to here is equivalent to the one indicated by the first kind. The only difference is that it is not the same
property as of the first kind, it having been picked up from among other properties of the accused, the intent of the
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legislature being that it must be of the same “value” as the former. The third kind does use the qualifying words “equivalent
in value”. Though these words are not used in the second category, it is clear that the said kind also has to be understood
in the same sense.” (Para 109)

Therefore,

“if the enforcement authority under PMLA has not been able to trace the ‘tainted property’ which was acquired or obtained
by criminal activity relating to the scheduled offence for money-laundering, it can legitimately proceed to attach some other
property of the accused, by tapping the second (or third) above-mentioned kind provided that it is of value near or
equivalent to the proceeds of crime. But, for this to be a fair exercise, the empowered enforcement officer must assess
(even if tentatively), and re-evaluate, as the investigation into the case progresses, the quantum of ‘proceeds of crime’
derived or obtained from the criminal activity so that proceeds or other assets of equivalent value of the offender of money-
laundering (or his abettor) are subjected to attachment to such extent, the eventual order of confiscation being always
restricted to take over by the Government of illicit gains of crime, the burden of proving facts to the contrary being on the
person who so contends.” (Para 110)

The court, therefore; clearly states that under the second and third limb of the definition of “proceeds of crime” the
enforcement authority can proceed to attach any equivalent assets of the offender (or his abettor). This reasoning
may not be borne out from a bare reading of the definition of proceeds of crime. There is a subtle but an important
distinction between the second and the third limb. The second limb refers to “or the value of any such property”.
While the third limb is broader and refers to where such property is taken or held outside the country, then the
“property equivalent in value held within the country”.72 Therefore, the second limb catches properties which
represent the proceeds of crime obtained as a result of criminal activity even if they are different from the form they
were in when the proceeds were generated. For example, if the criminal activity is stealing of gold from a safe then
the proceeds of crime obtained as a result of criminal activity is the stolen gold. If this gold is laundered and used to
buy a car then the car is the “value of any such property”. If the gold was not used to buy the car and the car was
bought by different earnings of the accused then the car cannot be termed “value of any such property” as “such
property” is the gold being the proceeds of crime obtained from the criminal activity. However, the third limb is
broader and only gets invoked when “such property” is “taken or held outside the country”. In such a case, the third
limb allows attaching the “property equivalent in value held within the country or abroad”. Therefore, if the accused
had taken the gold out of the country then the car could be attached notwithstanding it was bought from other
sources of income of the accused because the car constitutes “property equivalent in value” held within the country
of the accused. The court in the above case of Axis Bank brushed aside the fact that the second limb does not use
the term “property equivalent in value” by stating that, “Though these words are not used in the second category, it
is clear that the said kind also has to be understood in the same sense”.

It is, therefore; not surprising that the division bench of Punjab and Haryana High Court in Seema Garg v Deputy
Director, Directorate of Enforcement (supra), rejected the interpretation adopted in the Axis Bank case. The court
explained:

“The moot question arises that whether property of equivalent value may be attached where property derived or obtained
from scheduled offence is not held or taken outside India. If any property is permitted or held liable to be attached
irrespective of its date of purchase, it would amount to declaring second and third limb of definition of “proceeds of crime”
one and same. As pointed out by counsel for Appellants, the third limb of definition clause was inserted by Act 20 of 2015.
The aforesaid 3rd limb has been further amended w.e.f. 19.04.2018 enlarging the scope. The question arises that if
phrases “value of such property” and “property equivalent in value held within the country or abroad” are of same
connotation and carry same meaning, there was no need to insert third limb in the definition of “proceeds of crime”. The
amendment made by legislature cannot be meaningless or without reasons. Use of different words and insertion of third
limb in the definition cannot be ignored or interpreted casually. Every word chosen by legislature deserves to be given full
meaning and effect. Accordingly, words “value of such property” and “property equivalent in value held within the country or
abroad” cannot be given same meaning and effect. Had there been intention of legislature to include any property in the
hands of any person within the ambit of proceeds of crime, there was no need to make three limbs of definition of proceeds
of crime. It was very easy and convenient to declare that any property in the hands of a person who has directly or indirectly
at any point of time had obtained or derived property from scheduled offence. There was even no need to declare property
derived or obtained from scheduled offence as proceeds of crime.”73

The interpretation contained in the Axis Bank case may also be contrary to section 8(5) and 8(6) of the PMLA.
Section 8(5) allows “such property involved in the money-laundering or which has been used in the commission of
the offence of money-laundering shall stand confiscated to the Central Government”. A property bought by the
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accused from his other legitimate sources may not necessarily be involved in money laundering. The car in the
above example which was not bought from the stolen gold cannot be termed as “such property involved in money
laundering”. Similarly, section 8(6) also states that if “the property is not involved in money-laundering” such
property shall be released. The broad interpretation to the term “value of any such property” can give rise to
unreasonable and wanton attachments is evident from the facts of the Axis Bank case. In this case, the court was
deciding five separate appeals by the Enforcement Directorate challenging the Appellate Tribunal’s order setting
aside the various attachment orders confirmed by the Adjudicating Authority. The facts of all these five appeals
were different but the court clubbed all these appeals and heard them together as the question of law in all these
appeals was similar. Primarily in all these appeals the attached properties were admittedly not acquired from the
proceeds of crime which was generated from the criminal activity but was being sought to be attached because they
were assets of equivalent value in the hands of the alleged offender. Further, the properties sought to be attached
were mortgaged to banks and, therefore; the banks wanted the attachments vacated in order to sell the properties
and realise their debt which was due and payable by the borrower. The issue arose whether the attachment over
the properties could impede the bank’s security interest over the asset and impede the bank from selling the assets
to realise its dues. In the first appeal, an Audi Car of the alleged offender was hypothecated to the bank. The bank
had provided a loan to the accused to buy the Audi Car in the year 2014. In 2016, the Government of India had
announced the demonetisation policy pursuant to which Rs. 500 and Rs. 1000 currency notes ceased to be legal
tender. A window was provided to any person who had Rs. 500 and Rs. 1000 currency notes to deposit such notes
in the bank and exchange for new notes. The Enforcement Directorate alleged that the evidence collected had
shown that a criminal conspiracy was hatched pursuant to which certain individuals including the owner of the car
and certain employees of the Axis Bank were intercepted indulging in acts to convert unaccounted demonetised
currency by depositing the same in above mentioned fictitious companies of the owner of the car, for consideration,
so as to project the same as untainted money. It was also alleged that two bank officials had actively participated in
the said transactions leading to the demonetised currency being channelized into the fictitious accounts, they
having taken illegal gratification, in the form of cash or gold, from Rajeev Singh Kushwaha (the owner of the car).
The accounts of the above-mentioned four fictitious companies saw demonetised currency being deposited to the
tune of Rs. 39.26 crores during the period 10 November 2016 to 21 November 2016. Certain recoveries, including
gold and proceeds of the above-said crimes, were attached. The ED could not trace the entire amount of the
proceeds of crime obtained from the criminal activity in the hands of the offender and, therefore; sought to attach
the car as equivalent assets at the hands of the offender. The Adjudicating Authority confirmed the attachment. The
Appellate Tribunal rightly set aside the attachment because first, the loan to purchase the car was provided by the
Axis Bank in 2014 which predated the alleged commission of the offence which occurred subsequent to November
2018. Therefore, the proceeds generated from the criminal activity was subsequent to the date when the car was
purchased and therefore, the proceeds could not have been used to buy the car. Secondly, the bank had entered
into a bona fide transaction with the owner of the car and had financed its purchase. The car was hypothecated to
the bank. The purpose of the PMLA obviously cannot be to whittle away legitimate rights of the bank over an asset
hypothecated to a bank. The whole banking system would be in chaos if a bank’s security interest over an asset is
disturbed because the borrower has indulged in money laundering and the laundered money cannot be traced and
therefore assets mortgage or hypothecated to a bank is attached to satisfy the rigours of the PMLA.
Notwithstanding such clear facts, the High Court set aside the Tribunal’s order and remanded the matter back to the
Tribunal for reconsideration. The High Court reasoned that:

“…the Audi car was acquired by a transaction which has no direct connection with the case of money-laundering. However,
there is no clarity as to the value of proceeds of crime which are to be confiscated as against value of the attached property
as indeed the extent of the debt yet to be recovered by the secured creditor.” (Para 173)

This reasoning is fragile. First, the only query that needs to be determined is, what was the bank’s due which it
sought to recover from the sale of the car. The car had already been sold and monies were already deposited with
the court.74 Therefore, the only query that the court should have gone into was whether the amount deposited with
the court (proceeds from the sale of the car) could satisfy the dues of the bank. If there was any excess after paying
off the bank then the excess portion could possibly be attached assuming the interpretation given to the term “value
of such property” to mean “equivalent value” by the court is sustainable. However, there was no reason to remand
the entire matter and not release the bank’s dues which were deposited in court. The fact that the Bank financed
the car was not disputed by either of the parties, neither the amount owed to the bank was ever a matter of dispute.
The Bank had to fight for its legitimate secured dues before the Adjudicating Authority, Appellate Tribunal and then
at the High Court.75 The question remains as to who would compensate the bank for loss of interest it suffered
because of the wrongful attachment which delayed the realisation of the dues from the sale of the car. Obviously,
the borrower is liable for all interest till the bank realises all its dues but should ED not compensate the parties if
eventually an attachment is found to be illegal? The Appellate Tribunal’s various decisions protecting the banks
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from PMLA attachments over assets mortgaged to the banks as security came as a beacon of light amidst the
chaos created by mindless attachments.76

Facts of the second appeal in the above case which was clubbed with the first appeal is also emblematic of the
severe problems of unreasonable attachments based on peculiar interpretation of the provisions is affecting the
rights of secured lenders and third parties. The State Bank of India (‘SBI’) had been approached by the accused for
sanction of a term loan. SBI granted a term loan aggregating Rs. 5.63 crores which was disbursed during the year
2007 for purchase of certain diagnostic machinery for running a hospital. At the time of sanction, and disbursal of
the loan, title deeds of immovable properties were tendered by the borrowers and guarantors and the properties
were accordingly subjected to mortgage/hypothecation. The loan was not repaid and the account was classified as
“non-performing asset” (NPA) w.e.f. 30 April 2009. The bank lodged a complaint with Central Bureau of
Investigation (‘CBI’). The investigation into the complaint culminated in charge-sheet being presented which alleged
that accused had siphoned off the money received from SBI. Against the above backdrop, information was
conveyed to the ED which registered a case under the PMLA. On the basis of reasons for belief recorded in writing,
the enforcement officer found it to be a case of money-laundering and attached the properties which were subjected
to mortgage with SBI. The complainant SBI who had lodged the complaint with CBI ended up having its own
secured assets attached. The attachment orders were confirmed by the Adjudicating Authority. The Appellate
Tribunal on appeal by the bank not surprisingly set aside the attachments. The Tribunal held that that neither the
bank nor its employees had anything to do with the offence of money- laundering. The loan disbursed was “public
money” and that the bank was entitled to recover by sale of the mortgage properties. The High Court set aside the
Appellate Tribunal’s order and remanded the matter back to the Tribunal for fresh consideration. The High Court
reasoned:

“Though there is no such element of complicity on part of any of the officials of the respondent banks in the case relating to
fictitious hospital equipment (second appeal) or the one involving consortium of banks (fifth appeal), scrutiny respecting
legitimacy and bona fide of the claim on the touchstone, inter alia, of the subsisting value of the secured interest and
chronology of events leading to attachment would be necessary.”77

(Para 173)

The SBI, which should have swiftly been able to sell its mortgaged assets and recover money, now found itself
shackled by attachments made under the PMLA. Secured Lending is the edifice on which our entire banking
economy in based. One fails to understand that how restraining a bank from dealing with secured assets so that
public money cannot be recovered in anyway furthers the objectives of the PMLA. The High Court sets out certain
guiding principles as conclusions. One of them is as follows:

“(xv) If the bona fide third party claimant (as aforesaid) is a “secured creditor”, pursuing enforcement of “security interest” in
the property (secured asset) sought to be attached, it being an alternative attachable property (or deemed tainted property),
it having acquired such interest from person(s) accused of (or charged with) the offence of money-laundering (or his
abettor), or from any other person through such transaction (or inter-connected transactions) as involve(s) criminal activity
relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for
enforcement of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA
shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such
part of the value of the property as is in excess of the claim of the said third party.”78

The court seems to indicate that as far as the assets of the borrower which have not been obtained from the
proceeds generated from the criminal activity “being an alternative attachable property (or deemed tainted
property)”, the third party who has legitimate security over the assets of the borrower now should have, “initiated
action in accordance with law for enforcement on such interest prior to the order of attachment under PMLA” for
such third party’s charge to have priority over the attachment by PMLA. Why should the bank have initiated any
action for its encumbrance to have priority remains unreasoned? This deeming of properties as tainted over which
there are encumbrances much before any attachment under PMLA is unsustainable. Such a deeming fiction will
have a disastrous effect on third party rights. A bank’s right over an asset would be subject to whether or not the
borrower indulges in money laundering at some point in future after that borrower has dealt with the bank and has
created an encumbrance, is unfathomable.

In cases where the properties have not been acquired from the proceeds generated out of the criminal activity but
were acquired “at a time around or after the commission of the proscribed criminal activity”, the court is of the view
that “in order to establish a legitimate claim for its release from attachment it [third party/bank] must additionally
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prove that it had taken ‘due diligence’ (e.g. taking reasonable precautions and after due inquiry) to ensure that it
was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest.”
Obviously it goes without saying that the bank’s taking of security has to be for a legitimate bona fide transaction.
However, what “due diligence” can a bank be expected to do in a case where admittedly the properties have not
been bought by proceeds generated from a criminal activity. It is ED’s own case that an ECIR which is equivalent to
an FIR for an IPC offence is not a public document but a confidential one. Even the accused is not provided a copy
of the ECIR after its registration. Given this there is no way for a bank to know unless a Provisional Attachment
Order has been issued whether the borrower’s assets are subject to any investigation under the PMLA. In Dr V M
Ganesan’s case, the High Court of Madras explained the grievance faced by the financial institutions:79

“For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first Writ Petition and
which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by
them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is
obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial
institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would
expect every Financial Institution to check up whether the contribution made by the Borrowers towards their share of the
sale consideration was lawfully earned or represent the proceeds of crime. Today, if the Adjudicating Authority confirms the
provisional order of attachment and the property vests with the Central Government, LIC Housing Finance Limited will also
have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in.
This cannot be purport of the Act.”

A bizarre case arose when twelve banks80 who had financed the now defunct Kingfisher Airlines rushed to the
Appellate Tribunal after finding that the Adjudicating Authority had confirmed the attachments made by the ED over
assets of the borrower which should be made available to the banks as they are secured creditors. The Tribunal in
an interim order dated 10 October 2018 noted:81 “…It is also not in dispute that the borrowers have committed
default in returning the secured amount. The banks are admittedly the secured creditors and no criminal proceeding
under the schedule offence and PML Act, 2002 are pending against them. Rather ED has admitted that they are
victim parties and are entitled to receive their money back and actually banks should wait till the trial is over or the
Special Court would pass the orders in this regard.” The Tribunal then rightly proceeded to observe that, “The
Respondent No. 1 [ED] is not having any lien over the said properties as the Appellant banks are now the Legal
transferee of said properties. The Respondent No. 1 may not retain the said property till the trial is over. They have
no legal title and the property is to be returned to the persons lawfully entitled to recover the debts as they are the
victim.” Till date the matter is pending before the Tribunal for final hearing and the Banks have been unable to
realise their dues.

The only query that the Adjudicating Authority should be concerned with while considering the rights of a third party
in any case is whether the interest of the third party over the asset which is being sought to be attached has been
created pursuant to a bona fide transaction for consideration. There is no reason why the age old and time tested
common law rules of tracing should be given a go-by in the context of attachments made under the PMLA. If X has
sold or mortgaged properties to Y which were obtained from proceeds of crime then Y’s propriety entitlement
cannot be snatched away by an attachment under the PMLA if Y is a ‘bona fide purchaser for value without
notice’.82 Once the consideration has moved from Y (the third party) to X (the accused) then the proceeds of crime
can be traced into the consideration which X (the accused) has received and not the properties which X sold to Y
for such consideration.83

As we have argued and stated below the criteria to unwind any transaction with a third party can only be
entertained if it is demonstrated that the transaction was a sham transaction to conceal the properties so that the
accused can evade legal consequences. For example, in the UK, under POCA section 329(2)(c), a person who
acquires or possesses criminal property after payment of adequate consideration cannot be charged for the offence
of money laundering nor can that person’s acquisition be attached. In Mark Hogan v The Director of Public
Prosecutions,84 the Queen’s Division Bench, UK considered the defence taken by the offender under Section
329(2)(c) of having paid adequate consideration for acquisition of scaffolding found in his possession. The court
held that, “It is an inevitable consequence of the way this Act is drawn that a person who acquires property which
he knows to be stolen, but acquires it for full consideration, will not be guilty under this part of the Act.” The court
also held that the burden of proof was upon the Prosecution to prove that there was no adequate consideration.
Therefore, the UK Courts have gone to the extent that even when a stolen property was acquired by a third party
with the knowledge that it is stolen, but when adequate consideration was paid by such acquirer, he was protected
under the POCA and it was held that he had not committed any offence under POCA. The policy of the PMLA is to
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curtail the enjoyment and confiscate the assets of a money launderer and not interfere and cause hardship to third
parties which have paid valuable consideration for an asset.
2.3.1.5 “concealment”, “possession”, “acquisition” and “use”

The words “concealment”, “possession”, “acquisition”, or “use” were introduced in section 3 by virtue of an
amendment to widen the scope of the offence of money laundering and include the physical acts as well.85 The
legislature has, however; not defined these terms in the PMLA.

The word ‘conceal’ is derived from a Latin word, “concelare“, which means, “to hide or withdraw from the
observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of.”86 The word
“possession”, is defined as the “physical control, whether actual or in the eyes of law, over property, the condition of
holding at one’s disposal”.87 The word “acquisition” stems out of the word “acquire”. It is the act of acquiring a
property leading to the transfer of ownership. The Oxford Dictionary defines the word “use” as “using”,
“employment”, “application to a purpose”, “availability”, “utility”, “purpose for which things can be used”.
2.3.1.6 “projecting or claiming”

As discussed earlier, an offence of money laundering is a process that allows a criminal to conceal and disguise the
illicit proceeds as clean money and benefit from such process. The essence of the money-laundering is in
“projecting of the proceeds of crime as untainted property”. To be held guilty for the offence of money laundering,
the person must not only be involved in the process or activity connected with proceeds of crime, but must also
project or claim the same as untainted property.88 The actus reus for the offence cannot merely be “use” or
“possession” of proceeds of crime. This is because using, receiving or possessing monies and assets is something
every person indulges in as a part of ordinary living. The criminal conduct has to be something more like taking
steps or indulging in activity to project funds or assets which are acquired by tainted monies as untainted. Keeping
this in mind the Select Committee specifically stated that if the act of money laundering is defined as acquiring,
owning, possessing or transferring and nothing more, then it “may lead to harassment of innocent persons who
bona fide and unknowingly deal with the persons who have committed the offence of money laundering and enter
into transactions with them”.89 The Committee then specifically proposed after noting the above concern that the
definition of money laundering should be tweaked to include the term “projecting as untainted property”.90

The “laundering” as used in section 3 comprises of involvement in any process or activity by which the illicit money
is being projected as untainted.91 It is this “projecting” that attracts the applicability of the penal provisions of the
PMLA.92 Thus, the offence of money laundering lies in the laundering of the proceeds, i.e. “projecting or claiming”
tainted property as untainted.93

The Amendment (Finance No. 2) Act, 2019 makes a subtle change to the definition of money laundering which has
a substantial impact on what constitutes the offence of money laundering. The revised amendment replaces the
word “and” with the word “or” before the term “projecting as untainted money”. This now means that mere use or
possession would be sufficient to constitute the act of money laundering. The concern expressed by the Select
Committee that mere use or possession shall not suffice and what is required is that the person using or possessing
tainted money should also be “projecting it as untainted money” has been ignored completely.

The offence is committed when the proceeds of crime are laundered and not when the proceeds of crime are
generated. Existence of proceeds of crime is a sine qua non for the offence to have been committed. In order to
invoke the provisions of PMLA, the first necessary pre-requisite is that there shall be commission of a “Schedule
Offence” as defined in section 2(1)(y) resulting in generation of “proceeds of crime” pursuant to such criminal
activity. For invoking the offence against any person, it is necessary that such person must not only be knowingly
involved in any process or activity connected with the “proceeds of crime”, but must also project or claim such
proceeds of crime as untainted property. It is important to note that firstly, it “is a money laundering statute and not
a money spending statute. Merely spending unlawful proceeds does not automatically provide a basis for a money
laundering conviction.”94 Secondly, “[T]here must be some evidence that the funds are more concealed after the
transaction is completed than before.”95 It is the concealing or disguising by projecting tainted monies as untainted
money and not their spending that is prohibited. The amendment, by way of an “Explanation”, seeks to change the
scope and application of section 3, contrary to the meaning and scope as noted in Nikesh Tarachand Shah
(supra).96 Going by the explanation appended to the section, a person would now commit the offence of money
laundering the minute proceeds of crime is generated.97 For example, earlier if X stole cash from a bank then he
would not commit money laundering if that money remains in his pocket (i.e. possession). The offence would be
committed if he transferred that money to Y who declared it in his books as monies received as consideration for
services rendered when, in fact; no services were rendered and projected it as “untainted money.” The offence
would be committed by X and Y for laundering stolen money by projecting it as untainted monies. In fact Y having
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provided no services to X has indulged in a sham transaction only to help X launder the money. The transaction
between X and Y was designed to conceal the illicit source of the monies.

Two decisions of various circuit courts of United States of America explain that it is not spending or using “proceeds
of crime” but “laundering” which constitutes the offence. Section 3 of the PMLA requires that the purpose of the
transaction is to project tainted monies as untainted which really means concealing the illicit background of the
source of the money. Therefore, it is similar to section 1956 of the United States Code (Title 18)98 which catches
transactions ‘to conceal or disguise the nature, the location, the source, the ownership, or the control of the
proceeds of specified unlawful activity’. The legislature did not incorporate a similar provision like section 195799 of
the United States Code which made knowingly engaging in a monetary transaction with criminally derived property
an offence. Therefore, the following two decisions in the context of section 1956 of the United States Code would
be relevant. First being the United States of America v Renee Armstrong Sanders100 case where the defendant
purchased a car in his daughter’s name with the proceeds of crime. The prosecution argued that the transaction
was set-up to conceal or disguise proceeds which were generated from the sale of drugs. The court disagreed. The
court reasoned that because the daughter was also there at the car showroom at the time of the purchase and the
defendant and his wife used the car conspicuously tended to show that it was not a transaction designed to conceal
the illicit source of the money. The car was bought so that the family could use it as they needed a car. It was not a
case of laundering but spending the proceeds of crime. The court stated:

“The government essentially presents no arguments to counter defendant’s contentions with respect to the Volvo purchase.
With respect to the purchase of the Lincoln, the government argues that the design of concealment is evidenced by several
facts: that the Sanderses paid $11,400 in cash for the car, and that the Sanderses titled the car in the name of Mr. Sanders’
daughter, that Mrs. Sanders signed the purchase agreement for the car as “Denise Sanders,” and that Denise Sanders was
never observed driving the car. The government’s basic position, however, is that the money laundering statute should be
broadly interpreted to include all purchases made by persons with knowledge that the money used for the transaction
represents the proceeds of illegal activity.

We reject the government’s argument that the money laundering statute should be interpreted to broadly encompass all
transactions, however ordinary on their face, which involve the proceeds of unlawful activity. To so interpret the statute
would, in the court’s view, turn the money laundering statute into a “money spending statute.” This interpretation would be
contrary to Congress’ expressly stated intent that the transactions being criminalized in the statute are those transactions
“designed to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of
specified unlawful activity.” 18 U.S.C. § 1956(a)(1)(B)(i). Thus, by the express terms of the statute, a design to conceal or
disguise the source or nature of the proceeds is a necessary element for a money laundering conviction. In other words, the
purpose of the money laundering statute is to reach commercial transactions intended (at least in part) to disguise the
relationship of the item purchased with the person providing the proceeds and that the proceeds used to make the
purchase were obtained from illegal activities.

Further, we agree with defendant that the evidence of a design to conceal the nature or source of the proceeds used to
purchase the cars was insufficient to support her convictions. Clearly, the transaction involving the purchase of the Volvo,
and to a slightly lesser extent the purchase of the Lincoln, differ from what could be described as a “typical money
laundering transaction” in the Sanderses’ failure to use a third party to make the car purchases and thereby conceal the
buyers’ identities. See, e.g., United States v Lee, 886 F.2d 998 (8th Cir.1989), cert. denied, Paige v United States, 493 U.S.
1032, 110 S.Ct. 748, 107 L.Ed.2d 765 (1990). As outlined above, both defendant and her husband, Johnny Lee, were
present at these purchases and were readily identified by the respective salespersons involved. Further, both cars were
conspicuously used by the Sanderses, making the association of these vehicles with the Sanderses obvious to law
enforcement.

Although the Lincoln purchase clearly presents a closer case in favor of conviction than the Volvo purchase, we hold that
the evidence in connection with the Lincoln purchase was also insufficient to support defendant’s conviction. Although Mr.
Sanders titled the Lincoln in his daughter’s name, and Mrs. Sanders signed the daughter’s name to the car purchase
agreement, we conclude that the daughter’s presence in person at the car lot during or somewhat subsequent to the
transaction, the fact that the daughter shared the family last name, and defendant’s and her husband’s conspicuous use of
the car after the purchase, undermine the government’s argument (based in large part upon the titling of the car in the
daughter’s name), that the Lincoln purchase involved the requisite design of concealment.”

Second case is the decision in United States of America v Roger Faulkenberry,101 wherein the defendant was
convicted in the District Court of securities fraud, wire fraud, money laundering, and conspiracies to commit all of
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those crimes. Upon appeal, the court upheld the conviction for securities fraud and wire fraud but set aside the
conviction for money laundering, since “money laundering is a different animal than fraud; …that the government
did not prove money laundering here.”102 The defendant was involved in use of bogus documents and moving US
$22 million of investor monies to a medical company called Scott Medical Group (‘Scott’). These funds were
obtained from investors by various false misrepresentations. The question arose whether the defendant had
indulged in money laundering by concealing the illicit monies as untainted monies. The court stated:103

“...So the advance involved a couple of bogus documents and moved $22 million of investor funds from NPF XII to Scott.
The question presented is whether that amounts to money laundering under § 1956(a)(1)(B)(i). That subsection provides:
Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of
unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of
specified unlawful activity…knowing that the transaction is designed in whole or in part ... to conceal or disguise the
nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity ... shall be
sentenced to a fine ... or imprisonment for not more than twenty years, or both.

18 U.S.C. § 1956(a)(1)(B)(i)

Faulkenberry does not seriously contest—and the government proved—that the Scott advance involved proceeds of wire or
securities fraud, and that Faulkenberry knew that fact. Faulkenberry’s argument, instead, is that the government did not
prove that the advance was “designed in whole or in part...to conceal or disguise” the nature or source of the fraudulently
obtained $22 million.

The Supreme Court recently interpreted this very language, albeit as part of a neighboring provision, § 1956(a)(2)(B)(i),
which criminalizes transportation (as opposed to a transaction) that is designed to conceal the nature, source, or location of
illicit funds. In Cuellar v United States, 553 U.S. 550, 128 S.Ct. 1994, 170 L.Ed.2d 942 (2008), the Court observed that the
word “designed,” as used in this provision, could potentially be understood in two “different sense[s].” Id. at 2003. One
sense, adopted by the Fifth Circuit in that case, was that design means “structure or arrangement[,]” so that it would be
enough to convict if certain “‘aspects of the transportation ... were designed to conceal or disguise’ the nature and location
of the cash.” Id. (quoting the Fifth Circuit’s opinion) (emphasis added). Under this interpretation, any knowing concealment
of a listed attribute of the funds would violate the statute even if the concealment was merely incidental to the
transportation’s purpose.

But the Supreme Court rejected that interpretation, “think[ing] it implausible ... that Congress intended this meaning of
‘design.’” Id. at 2004. Instead, the Court thought it “far more likely that Congress intended courts to apply the familiar
criminal law concepts of purpose and intent than to focus exclusively on how a defendant ‘structured’ the transportation.” Id.
Moreover, the Court reasoned, “when an act is ‘designed to’ do something, the most natural reading is that it has that
something as its purpose.” Id. at 2003 (emphasis added). Thus, the Court held, as used in § 1956(a)(2)(B)(i), “‘design’
means purpose or plan; i.e., the intended aim of the transportation.” Id. (emphasis added).

All of this reasoning, in our view, applies to the meaning of “designed” as used in § 1956(a)(1)(B)(i). To prove a violation of
that subsection, therefore, it is not enough for the government to prove merely that a transaction had a concealing effect.
Nor is it enough that the transaction was structured to conceal the nature of illicit funds. Concealment—even deliberate
concealment—as mere facilitation of some other purpose, is not enough to convict. See id. at 2005 (evidence was
insufficient to convict where it “suggested that the secretive aspects of the transportation were employed to facilitate the
transportation, but not necessarily that secrecy was the purpose of the transportation”) [emphasis added]. What is required,
rather, is that concealment be an animating purpose of the transaction. See id. at 2003.

That is not to say, of course, that concealment must be the only purpose of the transaction; the statute requires only that
the transaction be designed “in whole or in part” to conceal. 18 U.S.C. § 1956(a)(1)(B) [emphasis added]. Moreover,
“purpose and structure are often related[,]” Cuellar, 128 S.Ct. at 2004; and thus, depending on context, proof that a
transaction was structured to conceal a listed attribute of the funds can yield an inference that concealment was a purpose
of the transaction. See id. at 2004–05. But the ultimate question under the statute is one of purpose, not structure”.

We, hence argue that even under the PMLA, the animating purpose of the transaction should be to project tainted
monies as untainted money. The laundering of money cannot be merely spending or using proceeds of crime. The
laundering lies in concealing the source of the money. The activity which cleans dirty money and tenders it as
untainted monies is laundering. The definition of money laundering as set out in the newly added explanation
creates a serious potential for misuse and harassment. If Y in the above example did provide actual services to X
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and was not aware that X was paying Y from stolen monies but was still wrongly charged for the offence of money
laundering then Y would have to go through a full trial. Whether Y had the requisite “knowledge” could only be
determined after evidence is led. Under the Act, by the virtue of section 24; the onus would be on Y to prove in the
trial that he had no knowledge. A mere statement made by any person before the investigating officer that Y did, in
fact, have the knowledge would be admissible as evidence and such a statement could be the sole basis for
attaching the assets of Y up to the amount received by Y from X. If Y had bought a property from that money then Y
would have to vacate the property after the attachment is confirmed by the Adjudicating Authority and Y would only
get back possession of the property after being acquitted at the end of the trial. The attachment of Y’s assets by the
investigating agency which subsequently has to be confirmed by the Adjudicating Authority constituted under the
Act would ordinarily rely on statements made by witnesses before the investigating agency and there would be no
opportunity given to Y to cross-examine any witness before the authority. The consequences, therefore, of getting
entangled in a PMLA case could be severe and disastrous. Had it not been for the decision in Nikesh Tarachand
Shah (supra), Y if arrested would languish in prison as the twin conditions for bail require the court to be satisfied
that Y has not committed the offence of money laundering which is a tall asking for any accused to satisfy before
any evidence is led. It is, therefore, imperative that the warning of the Select Committee in its report of 1999 be
taken seriously and the “Explanation” to the Act is amended to provide that Y can only be charged with money
laundering if Y indulges in activity by which tainted money is projected as untainted money. The Explanation also
specify that entering into “sham transactions” would tantamount to “projecting as untainted property.” Y should not
suffer any attachment of assets if he is able to demonstrate that the transactions with X was for adequate
consideration and, therefore, not a sham transaction. The Act does not differentiate between those who provide
adequate consideration and those who enter into sham transactions. Both types of persons are left to prove that
they had no knowledge that the monies they received were tainted. This adjudication can only happen after going
through an entire trial and can have disastrous financial effect on innocent persons.

As per the data provided by the Indian government to the FATF,104 and the data available on the official website of
the ED, the statistics demonstrate an unprecedented increase in searches and investigations escalating to almost
about 300 percent.105 The convictions secured under PMLA have only been 4 till 2018 (2 in 2017 and 2 in 2018).
This vindicates the apprehensions expressed by the Select Committee in 1999 that doing away with the mandatory
requirement of “projecting” proceeds as “untainted money” may cause harassment of innocent persons. The
premonition by some members of the Rajya Sabha that ghost of FERA will come back to haunt us needs to be
avoided and suitable amendments as suggested above should be brought in to ensure that innocent persons are
not harassed by the use of PMLA.106
2.3.1.7 Explanation (ii)—“continuing activity”

The legislature by virtue of the Amendment Act, 2019,107 added an Explanation (ii) to section 3 of the PMLA which
states that, “the process or activity connected with proceeds of crime is a continuing activity and continues till such
time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition
or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever”.

The question arises as to what constitutes a “continuing activity”? The amendment does not state that the offence
of money laundering is a “continuous offence”. The amendment calls the activity connected with proceeds of crime
as a “continuing activity”. This peculiar amendment brought in is probably to impede the growing judicial clamour
across the country that the offence of money laundering cannot be imposed retrospectively.108 The Supreme Court
in a number of cases has described the term continuous wrong as one, “... which creates a continuing source of
injury and renders the doer of the act responsible and liable for the continuance of the injury. If the wrongful act
causes an injury which is complete, there is no continuing wrong though the damage resulting from the act may
continue.”109 In Gokak Patel Volkart Ltd v Dundayya Gurushiddaiah Hiremath,110 the Apex Court has held, “The
concept of continuing offence does not wipe out the original guilt, but it keeps the contravention alive day by day …
The expression ‘continuing offence’ has not been defined in the Code. The question whether a particular offence is
a ‘continuing offence’ or not must, therefore, necessarily depend upon the language of the statute which creates
that offence, the nature of the offence and the purpose intended to be achieved by constituting the particular act as
an offence.” In Uday Shankar Awasthi v State of UP,111 the Apex Court again reiterated that “...in the case of a
continuing offence, the ingredients of the offence continue, i.e. endure even after the period of consumption,
whereas an instantaneous offence, the offence takes place once and for all i.e. when the same actually takes place.
In such cases, there is no continuing offence, even though the damage resulting from the injury may itself continue.”

In State of Maharashtra v Kaliar Koil Subrahmaniam,112 the Supreme Court was examining the applicability of the
newly amended Prevention of Corruption Act, 1947 in the case of one Kaliar Koil Subrahmaniam who was
employed as an Inspector in the Regional Transport Office, Kolhapur. On 17 May 1964, a search was conducted in
Subrahmaniam’s house which led to recovery of some property from his possession. While the matter was still
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under investigation, the Anti-Corruption Laws (Amendment) Act, 1964 was enacted by Parliament. The said
amendment Act inserted a new clause (e) to section 5(1) of the Prevention of Corruption Act, 1947.113 Under the
newly inserted clause (e), a public servant could be prosecuted under the Prevention of Corruption Act, 1947 if he
had ever been in possession of assets disproportionate to his known sources of income. The result of the insertion
was that mere possession of pecuniary resources or property disproportionate to the known sources of income of a
public servant, for which he could not satisfactorily account, became an offence by itself. Such a possession was
not, however, an offence by itself until December 18, 1964 (i.e. the date of the amendment). In this view, the
Supreme Court was pleased to uphold that “in the absence of any evidence on record to show that the appellant
acquired or was found to be in possession of pecuniary resources or property disproportionate to his known
sources of income after the coming in to force of the Amending Act, he was entitled to the protection of clause (1) of
Article 20 of the Constitution…”

The decision in Kaliar Koil Subrahmaniam (supra) is significant for the reason that though section 5(1)(e) was not
termed as a “continuing offence” by the Legislature, the said provision effectively criminalised mere possession of
property disproportionate to known sources of a public servant’s income even if such property had been acquired
prior to the amendment of the Act. In this view, the Supreme Court consciously upheld the protection accorded to
an accused under Article 20(1) of the Constitution of India despite him being in possession of property
disproportionate to his known sources of income simply because the there was no law in force, at the time when the
accused was found in possession of disproportionate assets under which such possession could be said to
constitute an offence.

In Venkataraman T Pai v CR Shah,114 the Gujarat High Court was concerned with section 9AA of the Central
Excises and Salt Act, 1944 whereby vicarious liability (through a legal fiction) was imposed on every person who at
the time of any offence committed by a company (under the Act) was in charge of and was responsible to the
Company for the conduct of its business. In the facts of the case, persons employed as excise clerks of the
accused Company were accused of intentionally overdrawing and manipulating the credit of duty amounting to Rs.
1,17,00,000/- between 10 July 1983 and 12 July 1983 without receipt of any corresponding goods on which such
credit could be claimed. Subsequently, the abovementioned section 9AA was inserted into the Act on 27 December
1985. Before the High Court, the accused contended that Article 20(1) of the Constitution of India barred the
creation of any offence, if given retrospective effect. On behalf of the State, it was argued that the accused having
been charged under section 120B of the IPC from the very beginning, the conspiracy was a continuing offence and
the offence continued till the complaint was filed (on detection) in the year 1987 i.e. much after section 9AA came
into force (in the year 1985). It was, thus; contended that the newly inserted section 9AA would certainly apply. And,
there was, hence; no question of retrospective operation of section 9AA at all. It was also argued that section 9AA
was only declaratory and so would, in any case; operate retrospectively. However, the High Court rejected the
aforesaid arguments by holding that:

“when (the) amending Act itself does not assign any reason or set out any object, it will not be possible to ascertain the
purpose of creation of fiction. If it is taken to be the one as submitted by learned Counsel Shri Abichandani that persons in-
charge of the Company should not be allowed to escape, even then, Article 20(1) will have to be borne in mind. The
aforesaid discussion in G. P. Singh’s Work, in my opinion, therefore, will not help the complainant in any manner. Learned
Counsel Shri Abichandani is right in submitting that there is no prohibition of ex post facto laws. However, this submission
cannot be accepted in its entirety because it will have to be considered in light of Article 20(1) of the Constitution of
India...The legislation as to deeming fiction will automatically be restricted to that extent”

The Gujarat High Court also proceeded to reject the argument of section 9AA being a “declaratory statute” by
holding that “the language of the statute should itself declare it to be retrospective. This declaration is missing in
section 9AA.” The decision in Venkataraman T Pai (supra) is significant insofar as it eschews a purposive
interpretation of the penal provisions of the Act to uphold the primacy of Article 20(1) of the Constitution.

In Om Prakash Shrivastava v State of NCT of Delhi,115 the accused was charged with various serious offences
during the period 1983–1995 and was extradited to India from Singapore in this connection. Subsequently, the
Maharashtra Control of Organised Crime Act (‘MCOCA’) was extended to National Capital Territory of Delhi (on 02
January 2002) and another FIR was filed against the Accused in 2006 alleging commission of the offence of
“organised crime” listed under section 3 of the Act. The phrase “organised crime” was in turn defined as any
“continuing unlawful activity” by an individual, singly or jointly, either as a member of an organised crime syndicate
or on behalf of such syndicate, by use of violence or threat of violence or intimidation or coercion, or other unlawful
means, with the objective of gaining pecuniary benefits, or gaining undue economic or other advantage for himself
or any person or promoting insurgency under section 2(1)(e) of the Act. Finally, the phrase “continuing unlawful
activity” was defined under section 2(1)(d) as:
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“any activity prohibited by law for the time being in force, which is a cognizable offence punishable with imprisonment of
three years or more, undertaken either singly or jointly, as a member of an organised crime syndicate or on behalf of such,
syndicate in respect of which more than one charge-sheets have been filed before a competent Court within the preceding
period of ten years and that Court has taken cognizance of such offence.”

The challenge to the abovementioned impugned provisions was restricted to the ground of unconstitutionality of the
expression “within the preceding period of ten years” in section 2(1)(d) of the said Act contending the same to be in
contravention of Article 20(1) of the Constitution of India as on account of the said expression, the competent
authority under the Act was empowered to consider the acts committed prior to the enforcement of the said Act as
the offences under the said Act. However, the Delhi High Court was pleased to uphold the validity of the impugned
provisions by relying on the decision rendered by the High Court of Bombay in Jaisingh v State of Maharashtra,116
wherein a similar challenge to the impugned provisions was repelled. The Delhi High Court held that:

“... the observations in The Queen v St Mary Whitechapel case (supra) relied upon both by the Bombay High Court and the
Supreme Court cannot be lost sight of that a statute which in its direct operation is prospective cannot be called a
retrospective statute because a part of the requisites for its action is drawn from a time antecedent to its passing. The act of
omission or commission which constitutes an offence of the crime has to be after the said Act come into force and the
accused person should have been involved in cognizable offences punishable with imprisonment of three (3) years or more
in respect of such offences, more than one charge sheet having been filed before the competent court. The limitation for the
charge sheets to be considered is that they should have been filed within a period of ten years preceding the date of the
commission of offence in respect of which an FIR is sought to be registered under the said Act and the competent court has
taken cognizance of one more such charge sheet. The fact that some charge sheets have been filed prior to the said Act
coming into force does not mean that they become ipso facto subject matter of the prosecution under the said Act. This is
also the stand of the respondents and thus, there is really no aspect of retrospectivity which is involved.”117

The decision rendered in Om Prakash Shrivastava (supra) is notable for carefully delineating the scope of Article
20(1) of the Constitution to hold that:

“35. …The aspect of continuing offences cannot be ignored. The distinction between the act or activity itself being termed
as an offence under the statute and being taken into consideration as one of the requisite as under the statute cannot be
lost sight of. It is the former which has to satisfy the mandate of Article 20(1) of the Constitution of India It is the continuing
activity which was even an offence earlier which has now been made into an offence within the definition of sections 2
(1)(d), (e) & (f) of the said Act.

36. An illustration was given in Jagmohan @ Mohar Singh case (supra) where a person commits no unlawful activity after
the invocation of the said Act. In that case the person cannot be arrested under the said Act on account of offences
committed by him before coming into force of the said Act even if he is found guilty of the same. However, if the person
continues with his unlawful activities and is arrested after the promulgation of the said Act then the person can be tried for
offence under the said Act. If a person ceases to indulge in any unlawful act after the said Act then he is absolved of the
prosecution under the said Act but if he is continuing unlawful activity it cannot be said that the State has to wait till he
commits two acts of which cognizance is taken by the Court after the Act coming into force. The observations in Sajjan
Singh v State of Punjab case (supra) are to the effect that a statute cannot be said to be retrospective merely because a
part of the requisites for its action is drawn from a time antecedent to its passing, thus, cannot be ignored.”118

The Bombay High Court in Hasan Ali Khan v UOI thru’ Asst. Director, Directorate of Enforcement, Mumbai,119 prior
to the 2019 Amendment, held that the offence of money laundering is not a continuing offence and once the
proceeds of crime has been projected as “untainted property”, the offence is over.120 The court, however; clarified
that what is important is not the date when the scheduled offence was committed but the date on which the offence
of money laundering was committed. Even if the scheduled offence was committed on a date prior to the date such
offence became a scheduled offence under the Act, the offence of money laundering would attract if the proceeds
of crime were laundered after the offence was added as a scheduled offence under the PMLA. This decision is in
line with the reasoning in Om Prakash Srivastav121 case that “...a statute cannot be said to be retrospective merely
because a part of the requisites for its action is drawn from a time antecedent to its passing…” and can only happen
when an offence is listed in the schedule of the PMLA as the Scheduled Offence. If laundering of proceeds
generated from an offence (which was not a scheduled offence on the date the commission of the offence) is
continuing then there is no reason why such laundering should be tolerated any further. However, there has to be
laundering of the proceeds and not just mere possession or use. This is because in every case in one form or other
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the accused will be either possessing or using the proceeds of crime or property generated from the proceeds of
crime.

Let us take the example of X who allegedly commits a scheduled offence of cheating a bank in the year 2007 and,
thereafter, buys a property from such proceeds in the year 2008 and continues to enjoy the property till 2019.122
Section 420 of the IPC became a scheduled offence in the year 2009 when it was added to the schedule under the
PMLA. Can X be charged with the offence of money laundering? X would argue that:

(a) That the offence of cheating was allegedly committed in the year 2007, i.e. much prior to the offence being
included as a schedule offence under the PMLA; and
(b) the property which was bought by X from the “proceeds of crime” was purchased in the year 2008, again
prior to the date the offence of cheating was added as a schedule offence under the Act.

The Amendment, however; attempts to put a spanner for the above argument to succeed. The argument, often,
raised by the Investigating Agency is that as the Amendment clarifies the offence of money laundering being a
continuing offence, and mere use and possession of the property which represents the proceeds of crime results in
the offence being repeatedly committed till the accused is “directly or indirectly” enjoying the proceeds of crime in
“any manner whatsoever”.123 Therefore, the mere fact that X is in enjoyment of the property after the year 2009 (the
year when the offence of cheating became a schedule offence) attracts the provisions of money laundering under
section 3 PMLA.

This very argument could create a havoc because regardless of when the scheduled offence was committed or
regardless of when the proceeds of crime was first projected as untainted property if mere use or possession could
allow the charge of money laundering to apply on the pretext that enjoying proceeds of crime is a continuing activity
and, therefore money laundering is a continuing offence, then that would be a backhanded manner of circumventing
Article 20(1) of the Constitution of India.124

The Delhi High Court’s judgement in Mahanivesh Oils (supra),125 is a watershed decision for it balances the right of
the accused from being subjected to a penal provision ex-post facto and on the other hand treats money laundering
as a separate offence distinct from the scheduled offence. In Mahanivesh Oils, the court observed that:

“The words ‘concealment, possession, acquisition or use’ must be read in the context of the process or activity of money
laundering and this is over once the money is laundered and integrated into the economy. Thus, a person concealing or
coming into possession or bringing proceeds of crime to use would have committed the offence of money-laundering when
he came into possession or concealed or used the proceeds of crime. For any offence of money-laundering to be alleged,
such acts must have been done after the Act was brought in force. The proceeds of crime which had come into possession
and projected and claimed as untainted prior to the Act coming into force, would be outside the sweep of the Act.”

This means that because X in the above example bought the property in 2008 which was before the scheduled
offence of cheating became a part of the PMLA, X cannot be charged with the offence of money laundering. X
“projected the proceeds of crime” as “untainted property” prior to the date the offence became a schedule offence
and therefore escapes the rigours of the PMLA. The decision in Mahanivesh Oils clarifies that “activity of money
laundering is over once the money is laundered and integrated into the economy”. This, therefore; means that pitted
against the safeguard of Article 20(1) of the Constitution of India, the PMLA cannot be invoked retrospectively by
relying on an explanation which labels money laundering as a “continuing activity”.

However, the question arises that can a person be subjected to investigation under PMLA even when the
scheduled offence has occurred prior to the date of the Act coming into force?126 Can the ED register an ECIR in
such cases on the pretext that the laundering may have occurred on a date after the alleged offence became a
scheduled offence under the PMLA? The problem with such an approach is that this can allow investigating
agencies to open up cases which have occurred even before the PMLA was enacted. It is therefore imperative that
there should be strict adherence to the principle propounded in Mahanivesh Oils case that “activity of money
laundering is over once the money is laundered and integrated into the economy.”

If X in our above given example invests the money loaned from a bank in a fixed deposit in the year 2007 then of
course X can be prosecuted for alleged offence of cheating. However, given that X has integrated the laundered
money in the economy by making a fixed deposit then there is no reason why X should be subjected to an
investigation under the PMLA even if X used the fixed deposit to buy a property in 2019. This is because money
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2.3 Offence of Money Laundering in India

laundering was complete when X laundered the proceeds of crime into a fixed deposit way back in 2007 when the
alleged offence of cheating was not a scheduled offence under the PMLA.

The Explanation added in 2019 cannot come in the way of the decisions in Mahanivesh Oils case. The said
Explanation127 has been inserted by way of a clarificatory Amendment to section 3 of the PMLA. The Explanation
purportedly seeks to clarify that the process or activity connected with “proceeds of crime” is a “continuing activity”
and continues till the time a person is enjoying such “proceeds of crime”. This is contrary to the law set out in
Mahanivesh Oils case which specifically states that, “the process or activity of money-laundering is over once the
third stage of integration is complete... once the money is laundered and integrated into the economy”. Moreover,
as we argued above enjoying proceeds of crime or possessing it cannot be termed as money laundering.
Laundering happens when dirty money is cleaned. The animating purpose of any transaction to be termed as
laundering is when it is being done to conceal or project tainted money as untainted money.

Ordinarily, if an Explanation is clarificatory in its nature, then the Explanation must be read into the main provision
with effect from the time that the main provision came into force.128 However, the mere description of a certain
provision, such as “Explanation” is not decisive of its true meaning. It is true that the orthodox function of an
Explanation is to explain the meaning and effect of the main provision to which it is an Explanation and to clear up
any doubt or ambiguity in it, but ultimately it is the intention of the Legislature which is paramount and mere use of a
label cannot control or deflect such intention.129 Thus, if an Explanation changes the law it is not presumed to be
retrospective irrespective of the fact that the phrase used are “it is declared” or “for the removal of doubts”.130 It is
undeniable that the genesis of the offence of money laundering remains the commission of a “scheduled offence”
even post the 2019 Amendment. The term “scheduled offence” is defined under section 2(1)(y) of the Act to mean
the offences specified under Part A, Part B (provided the total value involved in such offence is Rs. 1 crore or more)
and Part C of the Schedule to the Act. Further, even acts or omissions which were made punishable offences prior
to coming in force of the PMLA have been inserted into the Schedule with effect from a prospective date131 i.e.
much after the enactment of the PMLA. The very use of a Schedule to the Act by the Legislature reflects the
intention to link the “proceeds of crime” to offences which only become predicate offences after their insertion into
the Schedule. Thus, if the intention were to criminalise “proceeds of crime” irrespective of the date of insertion of the
predicate offence into the Schedule, then that would render the purpose of having a Schedule redundant and
otiose. In fact, if that were the intention of the Legislature, a simple omnibus provision providing for criminalisation of
any activity connected with the “proceeds of crime” for any offence having a minimum punishment/involving a
monetary threshold would have sufficed. The Explanation thus appears to be a substantive amendment to the
existing law in the guise of a clarificatory provision and must consequently be interpreted as prospective in nature.
2.3.2 Section 4 of PMLA

2.3.2.1 Punishment for offence of money-laundering

Section 4 of the PMLA provides for the punishment for the offence of money laundering that provides for two sets of
punishments: one, rigorous imprisonment for a term which shall not be less than three years but which may extend
to ten years and fine; and second, rigorous imprisonment for a term which shall not be less than three years but
which may extend to seven years and fine.

The first set of the punishment prescribes three to ten years of rigorous punishment for the offences committed
under the NDPS Act and the second set prescribes three to seven years of rigorous punishment for all the offences
other than the offences under the NDPS 1985 enumerated under the Schedule of PMLA.

Section 4, at the time of implementation of PMLA, read as—

“Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall
not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five
lakh rupees.”

In this context, the FATF in its Mutual Evaluation Report (MER) in 2010 noted that, “The INR 500 000 (USD 10 000)
maximum fine provided for legal persons for transgressions of the PMLA is low, taking into account the possible
scale of the ML activity and the financial capacity of most commercial companies”.132 Taking note of this
recommendation, the Indian government decided to remove the limit of “five lakh rupees” from the punishment,
suggesting that the imposition of fine should be proportionate to the gravity of the offence which will be determined
by the court.

The FATF proposed that the “legal persons” and not just “natural persons” should be subject to sanctions for money
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2.3 Offence of Money Laundering in India

laundering. To implement the given recommendation, an explanation was appended to section 70 declaring that the
prosecution or conviction of any legal juridical person shall not be contingent on the prosecution or conviction of any
individual.

The wording of section 4 of PMLA uses the word “and” in conjoining imprisonment and fine. This needs to be
amended as a company can only be penalised by a fine and not imprisonment.

18 Section 8A of the Narcotic Drugs and Psychotropic Substances Act, 1985.

19 Substituted by the Prevention of Money Laundering (Amendment) Act, 2012 (2 of 2013), section 3, for “proceeds of
crime and projecting” (w.e.f. 15 February 2013).
20 Inserted by the Finance (No. 2) Act, 2019, section 193 (w.e.f. 1-8-2019).
21 See, Mahanivesh Oils, supra, footnote 3, wherein the Delhi High Court has held, “Section 3 of the Act now also takes
within its sweep any person who assists or is a party or is involved in any process or activity connected with
concealment, possession, acquisition or use of the proceeds of crime.” (Para 9). The decision in Mahanivesh Oils,
however, has been stayed by the Division Bench of the Delhi High Court vide Order dated 30 November 2016 in LPA
144 of 2016. The matter is pending adjudication before the Delhi High Court.
22 Nikesh Tarachand Shah, supra, footnote 10.
23 See, the Select Committee Report (Rajya Sabha) of 1999 (discussion on Clause 3 at page 6) where the Committee
specifically noted that: “the Bill may lead to harassment of innocent persons who bona fide and unknowingly deal with
the persons who have committed the offence of money laundering”. A newspaper article “Money Laundering Bill hung
on idiom” published in the Hindu Business, published on 11 December 2000 available at https://www.
thehindubusinessline.com/ 2000/12/11/stories/141120gd.html (last accessed in August, September) had also reported
that the definition of the offence of money laundering was not accepted by the Finance Ministry on the grounds that it
was extremely complex and to narrow down its scope the Ministry had suggested inclusion of phrases such as
“willingly” along with “knowingly”.
24 Vide the Finance (No.2) Act, 2019.
25 The phrase “whosoever directly or indirectly” may not be even relevant or required. The offence of money laundering is
committed when any person deals with the proceeds of crime and intentionally seeks to disguise or conceal or use it for
his/her benefit and projects it as untainted money, irrespective of whether the person has committed the predicate
offence or not. The criminal liability for the offence of money laundering arises on dealing with the proceeds of crime
with the intention to aid the offender who has committed the predicate offence to evade legal consequences. The
question, therefore; is not whether the person accused of the offence of money laundering has committed any act
directly or indirectly. The question is whether the person who has committed the money laundering has done any act
with the intention and knowledge to launder the proceeds of crime.
26 State of Maharashtra v Mohd Yakub s/o Abdul Hamid, AIR 1980 SC 1111 [LNIND 1980 SC 99]: 1980 (3) SCC 57
[LNIND 1980 SC 99] : 1980 SCC (Cr) 513 :1980 Cr LJ 793.
27 Jafar Mohammed Hasanfatta v Deputy Director, 2017 (353) ELT 55 (Gujarat). The challenge to the decision of the
Gujarat High Court is now pending adjudication before the Supreme Court in SLP (Diary) No. 22833 of 2018.
28 Section 3, the way it stands, indicates that any person who simply “attempts to indulge” or has “attempted to indulge” in
any activity connected with the proceeds of crime, in any manner whatsoever, even without any intention or knowledge,
shall be guilty for the offence of money laundering. However, such a reading would create havoc because there would
be no requirement of mens rea for “attempting” to commit the offence of money laundering. This section should be
amended and the term “knowingly” should be added before “attempts to indulge”.
29 Morrissette v United States, 342 U.S. at 250.
30 P S A Pillai, P.S.A. Pillai’s Criminal Law, Tenth Edition, LexisNexis, India, p55.
31 See Morrissette, supra, footnote 29. “The contention that an injury can amount to a crime only when inflicted by
intention is no provincial or transient notion. It is as universal and persistent in mature systems of law as belief in
freedom of human will and a consequent ability and duty of the normal individual to choose between good and evil”.
32 P S A Pillai, P.S.A. Pillai’s Criminal Law, Tenth Edition, LexisNexis, India, p 59. Also see, the Karnataka High Court in K
Sowbhagya, (supra, footnote 3) held that a bare perusal of the definition would go to show that the word “knowingly” is
used in section 3 so as to ensure that an element of mens rea is present to attract the offence of money laundering.
33 See, RS Joshi S T O Gujarat v Ajit Mills Limited, Ahmedabad, AIR 1977 (SC) 2279 [LNIND 1977 SC 260]: (1977) 4
SCC 98 [LNIND 1977 SC 260] : (1978) 1 SCR 338 [LNIND 1977 SC 260], where the seven Judge Bench of the
Supreme Court has held (p 2287) that (Para 19), “When discussing the rulings of this Court we will explore whether this
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2.3 Offence of Money Laundering in India

true nature of “forfeiture” is contradicted by anything we can find in Sections 37(1), 46 or 63. Even here we may reject
the notion that a penalty or a punishment cannot be cast in the form of an absolute or no-fault liability but must be
preceded by mens rea. The classical view that ‘no mens rea, no crime’ has long ago been eroded and several laws in
India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments
even where the offences have been defined to exclude mens rea. Therefore, the contention that Section 37(1) fastens
a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty.” Also see JK
Industries Limited v Chief Inspector of Factories and Boilers, (1996) 6 SCC 665 [LNIND 1996 SC 1547] : 1997 SCC
(L&S) 1 : JT 1996 (9) SC 27 [LNIND 1996 SC 1547]: 1996 (7) SCALE 247 [LNIND 1996 SC 1547], the Supreme Court
when posed with a challenge to a statute on the ground of lack of mens rea held that, “The offences under the Act are
not a part of general penal law but arise from the breach of a duty provided in a special beneficial social defence
legislation, which creates absolute or strict liability without proof of any mens rea. The offences are strict statutory
offences for which establishment of mens rea is not an essential ingredient. The omission or commission of the
statutory breach is itself the offence. Similar type of offences based on the principle of strict liability, which means
liability without fault or mens rea, exist in many statutes relating to economic crimes as well as in laws concerning the
industry, food adulteration, prevention of pollution etc. in India and abroad. ‘Absolute offences’ are not criminal offences
in any real sense but acts which are prohibited in the interest of welfare of the public and the prohibition is backed by
sanction of penalty. Such offences are generally knows as public welfare offences.” Also see, the US Supreme Court in
Morrissette, supra, footnote 29, at page 255-256: “Many of these offenses are not in the nature of positive aggressions
or invasions, with which the common law so often dealt, but are in the nature of neglect where the law requires care, or
inaction where it imposes a duty. Many violations of such regulations result in no direct or immediate injury to person or
property but merely create the danger or probability of it which the law seeks to minimize. While such offenses do not
threaten the security of the state in the manner of treason, they may be regarded as offenses against its authority, for
their occurrence impairs the efficiency of controls deemed essential to the social order as presently constituted. In this
respect, whatever the intent of the violator, the injury is the same, and the consequences are injurious or not according
to fortuity. Hence, legislation applicable to such offenses, as a matter of policy, does not specify intent as a necessary
element. The accused, if he does not will the violation, usually is in a position to prevent it with no more care than
society might reasonably expect and no more exertion than it might reasonably exact from one who assumed his
responsibilities. Also, penalties commonly are relatively small, and conviction does no grave damage to an offender’s
reputation. Under such considerations, courts have turned to construing statutes and regulations which make no
mention of intent as dispensing with it and holding that the guilty act alone makes out the crime. This has not, however,
been without expressions of misgiving.”
34 See, Sachidananda Banerjee, Assistant Collector of Custom Calcutta v Sitaram Agarwala, AIR 1966 SC 955 [LNIND
1965 SC 237]: (1966) 2 SCR 1 [LNIND 1965 SC 237] : 1966 Cr LJ 712. Justice Subba Rao in his dissent stated:
“3. Now coming to the relevant clause, the following material ingredients constitute an offence thereunder: (1) a person
must have knowledge that there is a prohibition to restriction against doing any of the enumerated acts with respect to
goods imported or exported contrary to the restriction or prohibition imposed against their import or export, (2) he must
have acted with an intention to evade such a restriction or prohibition; there is no offence unless the said two elements
of mens rea, namely, knowledge and intention, are established. It is not enough if a person has only knowledge of such
a prohibition or restriction; in addition he shall have the intention to evade such a prohibition or restriction against the
import or export of goods, as the case may be. A person who knowingly purchases smuggled goods from an importer
cannot have an intention to evade a provision against import, for the prohibited goods have already been imported. A
person who receives goods with knowledge that they are stolen goods cannot possibly have an intention to commit
theft, for the theft has already been committed, though he may have the intention to receive the stolen goods.
Knowledge of an offence cannot be equated with an intention to commit the offence. Such a construction effaces the
distinction between the two distinct elements of mens rea, knowledge and intention, laid down in the clause.”
35 Direct Sales v United States, 1943 SCT 707 : 319 US 703 (1943).
36 Ibid., at p 712.
37 United States v Falcone, 109 F2d 579 (2d Cir).
38 Ibid., at p 581. Also see, G Richard Strafer, “Money Laundering: The Crime of The ‘90’s”, American Criminal Law
Review, Vol 27, 1989, p 149, “criminal statutes which attempt to dispense with an intent requirement have a generally
disfavoured status. Although Congress may dispense with intent requirements under some circumstances, these
circumstances are limited by due process concerns.”
39 See, the Mutual Evaluation Report “Anti-Money Laundering and Combating the Financing of Terrorism – India”
published by the Financial Action Task Force (FATF) 25 June 2010. The Report in Para 139 states: “The section 3
mens rea threshold is lower than the Article 6.1(a) of the TOC Convention in that no specific purpose or intention is
required ...”
40 See R v Saik, [2006] UKHL 18, the UK House of Lords stated that, “In ordinary usage, and time and again in statutes, a
distinction is drawn between suspicion and knowledge. The former is not to be equated with the latter.”
41 See United States v Ramsey, 785 F2d 184 : 190 (Seventh Circuit 1986).
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2.3 Offence of Money Laundering in India

42 See Rachel Ratliff, “Third-Party Money Laundering: Problems of Proof and Prosecutorial Discretion”, [7 Stan. L. & Pol’y
Rev. 173].
43 United States v Charles Demore Jewell, 532 F 2d 697 (Ninth Circuit 1976).
44 United States v Charles Demore Jewell, 532 F 2d 697 (Ninth Circuit 1976).
45 Ibid.
46 See, Richard Strafer, “Money Laundering: The Crime of The ‘90’s”, American Criminal Law Review, Vol 27, 1989, p
149.
47 Section 1956 of the US Code states “knowing” that the property constitutes “proceeds” of “some” unlawful activity.
48 R v Da Silva, [2006] 4 All ER 900 : [2006] EWCA Cr 1654 : [2007] 1 WLR 303.
49 See judgment of Mark Hogan v DPP, [2007] 1 WLR 2944, where the Queen’s Division Bench, UK considered the
defence taken by the offender under section 329(2)(c) of having paid adequate consideration for acquisition of
scaffolding found in his possession. The Court held that, “It is an inevitable consequence of the way this Act is drawn
that a person who acquires property which he knows to be stolen, but acquires it for full consideration, will not be guilty
under this part of the Act.” (Para 17). The Court also held that the burden of proof was upon the Prosecution to prove
that there was no adequate consideration. Therefore, the UK Courts have gone to the extent that even when a stolen
property was acquired by a third party with the knowledge that it is stolen, but when adequate consideration was paid
by such acquirer, he was protected under the POCA and it was held that he had not committed any offence under
POCA.
50 Section 330 Failure to disclose: regulated sector of the POCA.
51 See Mahanivesh Oils, supra, footnote 3, where the Delhi High Court has observed that, “...the offence of money-
laundering relates to the proceeds of crime, the genesis of which is a scheduled offence.” Also see, GLS Films v
Deputy Director, Enforcement of Directorate, FPA-PMLA-2692/PTN/2018, decided on date 29 August 2019 (Appellate
Tribunal - PMLA, New Delhi) where the Appellate Tribunal observed that, “...proceed of crime leads to money
laundering while as there can be no money laundering without existence of proceeds of crime or any link and nexus
directly or indirectly knowingly or unknowingly.”
52 Inserted by Finance Act, 2015 (20 of 2015), section145(i) (w.e.f. 14-5-2015).
53 Inserted by Finance Act, 2018 (13 of 2018), section 208(a) (w.e.f. 28-3-2018).
54 Inserted by the Finance (No. 2) Act, 2019, section 192(iii) (w.e.f. 1-8-2019).
55 The Delhi High Court in the batch matters of J Sekar, supra, footnote 2. has in Para 12 observed that:

“The expression-proceeds of crime forms the heart of the offence of money-laundering under Section 3 of the Act.
Any person who is involved in any—process or activity connected with proceeds of crime, including its
concealment, possession, acquisition, use or projecting or claiming the proceeds of crime as untainted property,
would be guilty of committing the offence of money-laundering”.
56 Enforcement Directorate v A Raja, Complaint Case No. 01/14 PMLA (2G Spectrum Cases), New Delhi, decided on
date 21 December 2017. The ED had preferred an appeal against the order of the Special Court before the Delhi High
Court challenging the acquittal of all accused in the 2G spectrum case. The matter is pending adjudication before the
High Court.
57 The Delhi High Court in The Deputy Director Directorate of Enforcement Delhi v Axis Bank, (2019) II BC 489 (DEL) :
(2019) 259 DLT 500 in Para 54 has held that: “It is not any or every crime, the fruits whereof would be treated as
“proceeds of crime” for initiation of action under PMLA. The enactment restricts it to the “result of criminal activity”
relating to a “scheduled offence”. The appeal from this matter is pending before the Supreme Court in SLP (Crl) No
7927 of 2019. The Supreme Court has tagged the matter along with SLP (Crl) No 6554 of 2019 and has directed the
parties to maintain status quo.
58 See The Deputy Director Directorate of Enforcement Delhi v Axis Bank, (2019) II BC 489 (DEL) : (2019) 259 DLT 500,
where the Delhi High Court has explained all the three categories of proceeds of crime (mentioned above). Also see,
Seema Garg v The Deputy Director, Directorate of Enforcement, PMLA No 1 of 2019 (O&M), decided on date 6 March
2020 (Punjab & Haryana High Court) which differs with the above case on the interpretation of the term “value of any
such property” and whether it would involve even those properties which have been acquired by the accused prior to
the commission of the offence and are not obtained pursuant to the alleged criminal activity. This issue has been
discussed further below.
59 This observation was made by the Delhi High Court in Ibid. However, the Patna High Court in Rose Valley Hotels &
Entertainment Limited v UOI represented by the Secretary, (2015) 3 PLJR 487 [LNIND 2015 PAT 2129] held that the
proceeds of crime would not only mean the amount directly collected from the public through the illegal debenture
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2.3 Offence of Money Laundering in India

scheme but also to all other benefits which have been directly or indirectly accrued to the credit of the company
therefrom.
60 Article 5 of the Vienna Convention and Article 12 of the Palermo Convention uses the term “proceeds of crime derived
from offences.” Article 1 of the Vienna Convention and Article 2 of the Palermo Convention defines, “Proceeds of crime”
as “any property derived from or obtained, directly or indirectly, through the commission of an offence.” Therefore, it is
clear that if the criminal activity does not generate any proceeds then there cannot be any proceeds of crime. Even the
Palermo Convention (Article 1) and United Nations Convention Against Corruption (UNCAC) (Article 2) in pith and
essence use the same terminology. The definition of the term “Property” under the Vienna Convention unlike the PMLA
does not state “includes property of any kind used in the commission of an offence”.
61 Proceeds generated from a scheduled offence constitutes ‘proceeds of crime’. Not proceeds generated from any
criminal activity. Section 3 specifically restricts proceeds of crime obtained as a “result of criminal activity relating to a
scheduled offence.” The words “obtained, ... as a result of any criminal activity relating to the scheduled offence” to the
definition of proceeds of crime added in 2019 cannot expand the scope of Section 3 which is concerned only with
proceeds generated from the scheduled offence.
62 Jharkhand Ispat Pvt Ltd v The Joint Directorate of Enforcement, Ranchi. FPA-PMLA-1718/RNC/2017, decided on date
6 September 2019 (Appellate Tribunal – PMLA, Ranchi).
63 The ED sought to justify the attachment on the ground that the share application money may not be property “derived
or obtained from the scheduled offence” but certainly was “property” which may be derived or obtained directly or
indirectly, by any person as a result of any criminal activity relating to a scheduled offence...” Also see, the Adjudicating
Authority’s order in Joint Director, Directorate of Enforcement, Ranchi v Shri Ram Chandra Rungta wherein it held that
the company invited investments in the company using the allurement of the allocation of the coal block or its possible
allocation, and therefore, derivation of benefit from such investment would constitute proceeds of crime. However, it is
pertinent to note that the finding of the Adjudicating Authority was reversed by the Appellate Tribunal in Ram Chandra
Rungta v The Joint Director, Directorate of Enforcement, Ranchi, FPA-PMLA-1753/RNC/2017, decided on date 6
September 2019 (Appellate Tribunal – PMLA, New Delhi) and observed that the Adjudicating Authority has gone
beyond the material before it to arrive at this particular finding.
64 See, Para 61 of the judgement where the ED argued that the Share Application money (SAM) was contributed by
related parties and group companies of the accused persons. This argument as rightly noted by the Tribunal further
weakens the case for attaching the Share Application money because then “there can be no question of profiteering or
benefiting from the coal allocation and thus, no question of any proceeds of crime”.
65 Himachal Emta Power Limited (HEPL) v UOI, WP (C) 5537/2018, CM Nos. 21583/2018 and 33487/2018, decided on
date 23 August 2018, Delhi High Court).
66 The authors represented the Petitioner HEPL in this case.
67 Himachal Emta, supra, footnote 65 (Para 17).
68 R v Ahmed, [2012] 2 All ER 1137 : [2014] 2 WLR 2335 .
69 R v James, [2012] 2 Cr App R (S) 253.
70 There are various other statutes such as Unlawful Activities (Prevention) Act, 1967 (‘UAPA’), the NDPS Act, the
Prohibition of Benami Property Transactions Act, 1988 (“the Benami Property Act”) and the Fugitive Economic
Offenders Act, 2018 (“the Fugitive Economic Offenders Act”) that provide a similar definition of proceeds of crime or
illegal acquired property. The elements of the proceeds of crime, in terms of the PMLA are also found in all these
statues as well, except the Benami Property Act where the concept of value thereof is absent. The definition of
proceeds of terrorism, as mentioned in the UAPA does not include the concept of value thereof, but the courts are
given power under section 24A to “pass an order directing attachment or forfeiture, as the case may be, of property
equivalent to, or, the value of the proceeds of terrorism involved in the offence.”
71 Axis Bank, supra, footnote 57.
72 The Delhi High Court in Abdullah Ali Balsharaf v Directorate of Enforcement, (2019) 3 RCR (Cr) 798 : 2019 SCC Online
Del 6428, (para 107-108) had allowed the attachment of shares (subscribed by remittances paid through proper
banking channels much prior to commission of any alleged crime and much prior to the PMLA coming into force) on the
ground that if the properties that are derived or obtained from any criminal activity relating to a scheduled offence is
held outside India, then a property of an equivalent value held in India, would also fall within the scope of expression of
“proceeds of crime”. This decision of the Single Judge was challenged by the ED before the Division Bench of the Delhi
High Court in LPA No. 179 of 2019. The Division Bench of the High Court vide Order dated 15 March 2019, dismissed
the appeal.
73 Axis Bank, supra, footnote 57.
74 The High Court specifically records that: “When this appeal came up before the Court on 06.02.2018, in light of the
submissions made, the bank was permitted to sell the Audi car, by open auction, in terms of the relevant guidelines and
the proceeds of such sale directed to be deposited with the Registrar General in the form of interest bearing fixed
deposit receipt (FDR)”. (Para 14).
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2.3 Offence of Money Laundering in India

75 See, Naresh Jain v The Deputy Director, Directorate of Enforcement, Delhi, FPA-PMLA-1332/DLI/2016, decided on
date 12 September 2019 (Appellate Tribunal – PMLA, Delhi) (para 56), where the Appellate Tribunal has observed that:
“…The banks are innocent parties. One is failed to understand after filing the reply, the banks are un-necessary
dragged in the litigation. Their duty amount has to be secured. They cannot be harassed in this fashion. No civil death
should be given to banks without their involvement. The banks money is a public money.”
76 See The Appellate Tribunal decision in IDBI Bank Ltd v The Deputy Director Directorate of Enforcement, Delhi, FPA-
PMLA-2147/DLI/2018, decided on date 10 May 2018 (Appellate Tribunal –PMLA, Delhi) (para 24). The bank had
preferred an appeal against the impugned order of the Adjudicating Authority confirming the attachment of the
mortgaged properties to the Appellant Bank. The Tribunal reversed the order of the Adjudicating Authority and quashed
the attachment on the ground that both the events, viz purchase of the property and the mortgage of the property to the
bank were done prior to date of the alleged offence “... which shows that no proceeds of crime are involved in the
acquiring of these properties ...” Also see, Stressed Assets Stabilization Fund (SASF) v The Joint Director Directorate
of Enforcement, FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015, decided on date 20 September 2018
(Appellate Tribunal – PMLA, New Delhi) (para 12(g)) where the Adjudicating Authority confirmed the attachment of the
property by the ED not because the said property was acquired out of proceeds of crime but as “value thereof”. The
Tribunal, however, without going into the definition of “proceeds of crime” simply held that since the properties in
question are already mortgaged and under personal guarantee with the appellant banks, the same cannot be attached
as value thereof. Also see, the Appellate Tribunal judgments of Bank of Baroda v The Deputy Director, Directorate of
Enforcement, Mumbai., FPA-PMLA-2115, 2117 & 2189/MUM/2017, decided on date 12 December 2018 (Appellate
Tribunal – PMLA, New Delhi); Bajaj Finance Ltd. v Directorate of Enforcement, FPA-PMLA-2058/LKW/2017, decided
on date 28 June 2018 (Appellate Tribunal for Foreign Exchange); Bank of India v The Deputy Director Directorate of
Enforcement, Mumbai, FPA-PMLA-2173/MUM/2018, decided on date 31 October 2018 (Appellate Tribunal – PMLA,
Mumbai); Bhuvan Madan (Resolution Professional for Diamond Power Infrastructure Limited) v The Deputy Director,
FPA-PMLA-2742/AHD/2018, decided on date 18 June 2019 (Appellate Tribunal – PMLA, Ahmedabad); Chief Manager,
Syndicate Bank v The Deputy Director Directorate of Enforcement, FPA-PMLA-1935/DLI/2017, decided on date 11
December, 2019 (Appellate Tribunal – PMLA, New Delhi); ICICI Bank Ltd v The Deputy Director Directorate of
Enforcement, FPA-PMLA-2897/MUM/2019 decided on date 18 February 2019 (Appellate Tribunal – PMLA, Mumbai);
IDBI Bank Ltd v The Deputy Director Directorate of Enforcement, FPA-PMLA/2147/DLI/2018, decided on date 10 May
2018 (Appellate Tribunal – PMLA, New Delhi); Indian Overseas Bank v The Joint Director Directorate of Enforcement,
FPA-PMLA-1530/DLI/2016, decided on date 28 June 2018 (Appellate Tribunal – PMLA, New Delhi); PNB Housing
Finance Ltd v The Deputy Director Directorate of Enforcement, decided on date 28 August 2017 (Appellate Tribunal –
PMLA, Jalandhar); ICICI Bank v The Deputy Director, Directorate of Enforcement, FPA-PMLA-2798/MUM/2019, date of
decision 30 August 2019 (Appellate Tribunal – PMLA, Mumbai); State Bank of India v The Deputy Director Directorate
of Enforcement, FPA-PMLA-2538/MUM/2018 & FPA-PMLA-2539/MUM/2018, date of decision 10 October 2018.
77 Axis Bank, supra, footnote 57.
78 The Deputy Director Directorate of Enforcement Delhi v Axis Bank, (2019) II BC 489 (DEL) : (2019) 259 DLT 500.
79 Dr V M Ganesan v The Joint Director, Directorate of Enforcement, WP Nos. 24432 and 28235 of 2014 MP Nos 1 and 1
of 2014, decided on date 17 November 2014, (Madras High Court). The appeal challenging the judgment dated 17
November 2014 was filed before the Supreme Court in Writ Appeal No.1625-26 of 2014 along with M.P. No.1 & 2 of
2014. However, since the issue became infructuous, the Supreme Court vide Order dated 27 February 2015, disposed
off the writ appeals.
80 State Bank of India v Dr Vijay Mallya, [2018] EWHC 1084 (Common) : [2020] EWCH96 (Ch).
81 State Bank of India v The Deputy Director Directorate of Enforcement Mumbai, FPA-PMLA-2538/MUM/2018, decided
on date 10 October 2018, (Appellate Tribunal – PMLA, Mumbai).
82 See Foskett v McKeown, [2000] UKHL 29 : [2000] 3 All ER 97 : [2000] 2 WLR 1299, (18t May 2000). per Lord Millet, “A
beneficiary’s claim against a trustee for breach of trust is a personal claim. It does not entitle him to priority over the
trustee’s general creditors unless he can trace the trust property into its product and establish a proprietary interest in
the proceeds. If the beneficiary is unable to trace the trust property into its proceeds, he still has a personal claim
against the trustee, but his claim will be unsecured. The beneficiary’s proprietary claims to the trust property or its
traceable proceeds can be maintained against the wrongdoer and anyone who derives title from him except a bona fide
purchaser for value without notice of the breach of trust.” Similarly, Government cannot have a proprietary claim over
assets which the accused money launderer has encumbered for consideration regardless of whether the assets of the
laundered were directly obtained from proceeds of crime or is the equivalent assets of the amount laundered by the
accused. Also, see Delhi High Court’s decision in VLS Finance Ltd v BMS IT Institute Private Limited, (2016) 155 DRJ
89 [LNIND 2016 DEL 471] (1 February 2016) in the context of principles of tracing in law.
83 See, B Rama Raju v UOI, LQ 2011 HC 9168, decided on date: 4 March 2011 where the Andhra Pradesh High Court
observed that: “It is therefore clear that where a property is provisionally attached under Section 5, the person in
possession of such property may avail the opportunity under Section 8 to indicate/establish that he has acquired the
property attached (prima facie the proceeds of crime) out of his lawful earnings or assets, that he has the means to do
so, and that his acquisition is therefore legitimate, bona fide and at fair market value of such property; and that the
value paid for acquisition of the property and not the property in his possession that constitutes proceeds of crime, if at
all. On such showing, to the satisfaction of the adjudicating authority, it would perhaps be not the property in
 Page 24 of 27
2.3 Offence of Money Laundering in India

possession of a person but the fair value for which he has acquired the property and paid to the transferor that
constitutes proceeds of crime and the authorities may have to proceed against the property or value in the hands of the
transferor”. The decision of the High Court of Telangana in B. Rama Raju has been challenged before the Supreme
Court in Special Leave to Appeal (Civil) No. 28394 of 2011.
84 Mark Hogan v The Director of Public Prosecutions, [2007] 1 WLR 2944 : [2007] EWHC 978 (decided on date 21
February 2007)).
85 Prevention of Money-Laundering (Amendment) Act, 2012, (w.e.f. 3-1-2013). The amendment was made after the FATF
in its MER of 2010 had observed that acts such as concealment, possession, acquisition and use of the proceeds of
crime were not criminalized under Section 3 of the PMLA.
86 P Ramanatha Aiyar, Advanced Law Lexicon, 3rd Edn, p 940.
87 P Ramanatha Aiyar, “The Law Lexicon” with Legal Maxims, Latin Terms and Words & Phrases, 2nd Edn, 1998,
published by Wadhwa and Company Law Publishers, p 1481-1483, Also, see law Sukh Lal (deceased by LR’s v Ashok
Raghuwansi), 2013 (3) ALJ 82 : 2013 (97) ALR 163 : 2013 4 AWC 3426 All, date of decision 21 November 2012.
88 See, Nikesh Tarachand Shah, supra, footnote, 10.
89 See the Select Committee Report 1999 (page 6).
90 The Select Committee proposed the following definition: “Whosoever directly or indirectly attempts to indulge or
knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds
of crime and projecting it as untainted property shall be guilty of offence of money laundering.” It needs to be
emphasised that use of the word “and” before the term “projecting as untainted property” made it clear that mere use or
possession will not suffice.
91 See, Hari Narayan Rai v UOI, WP (Cr) No. 325 of 2010 (2) : AIR Jhar R 692, decided on date 6 August 2010 (Jharkand
High Court). Where the High Court of Jharkhand held that “The reason is that what is being targeted by Section 3 and
another provisions of the Act is the “laundering of money” acquired by committing the scheduled crimes and, therefore,
it would be the date of “laundering” which would be relevant. The ‘laundering’ as used in Section 3 comprises of
involvement in any process or activity by which the illicit money is being projected as untainted.”
92 In Hasan Ali Khan s/o Ghousudin Ali Khan v UOI Through Assistant Director, Directorate of Enforcement, (2012) Bom
CR (Cr) 807, the Bombay High Court stated that, “It is clear that the essence of the offence of the money-laundering is
‘projecting of the proceeds of crime as untainted property’. It is this ‘projecting’ that attracts the applicability of the penal
provisions of PML Act.” This order of the High Court granting bail to Hasan Ali was successfully challenged by the ED
before the Supreme Court. However, the ED did not dispute this finding of the Bombay High Court and in fact argued
that, “the key expressions used in Section 3 are “proceeds of crime” and “projecting it as an untainted property”. In
other words, in order to prove an offence of money-laundering, it has to be established that the monies involved are the
proceeds of crime and having full knowledge of the same, the person concerned projects it as untainted property. The
process undertaken in doing so, amounts to be offence of money-laundering.” This submission was duly accepted by
the Supreme Court, which cancelled the bail of Hasan Ali on the ground that there were allegations that said monies
were the proceeds of crime and by depositing the same in his bank accounts, the Respondent No. 1 had attempted to
project the same as untainted money.
93 As discussed above section 3 of the PMLA is premised on Article 3 of the Vienna Convention and Article 6 of the
Palermo TOC Convention. The FATF observed that the physical element (actus reus) in the provision mandates the
“substantive condition” of ‘projecting’, which implies that even though the provision covers any “process or activity”
involving criminal proceeds, the activity can only be criminalised when the proceeds of crime is projected as “untainted”.
It, therefore; fails to consider a situation of physical concealment without “projecting”, such as the criminal proceeds
hidden in safes. The FATF recommended amendments to section 3 of the PMLA, so as to include the physical
concealment of the proceeds along with its acquisition, possession and use of the proceeds, and bring it in conformity
with the conventions. Partially accepting the recommendation of amending the offence of money laundering, India in
2013 amended Section 3 of the PMLA by way of the Amendment Act, 2013 and widened the import of the provision by
substituting the words “with the proceeds of crime and projecting” with “proceeds of crime including its concealment,
possession, acquisition or use and projecting.” Section 3 of the PMLA, post the amendment, thus reads as “whosoever,
directly or indirectly attempts to indulge or knowingly is a party or is actually involved in any process or activity
connected with proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it
as untainted property shall be guilty of [the] offence of money laundering.” It may be observed that no heed was paid to
the recommendation suggesting the deletion of the substantive condition of “projecting or claiming it as untainted
property”. The situation persisted in the statute even after the amendment of 2013, limiting the physical element of the
offence, implying that any act involved or connected with criminal proceeds of crime, shall not be an offence of money
laundering, unless the same is concurrently projected or claimed as untainted. Ironically, the FATF claims that India has
provided it with certain case law that demonstrate that this “deficiency” which appears to limit the acts coming under the
purview of money laundering offence has been mitigated.
94 As Jennifer Wang explains in the context of American anti money laundering statute, specifically with regard to Section
1956 of 18 U.S. Code: “One area where the courts have agreed is the purpose of the statute. The money laundering
statute is a statute meant to punish money laundering and nothing more. While the statute is admittedly broad, there is
 Page 25 of 27
2.3 Offence of Money Laundering in India

widespread agreement among the circuits that it does not criminalize the mere act of spending illicit proceeds.”
[Jennifer Wang, Yes, That is Money Laundering. Oh Wait, It’s Not –The Impact of Cellular on Concealment Money
Laundering Case Law, 18 J Bus L 255 (2015)].
95 See United States v Johnson, 440 F3d 1286, 1293 (11th Cir 2006).
96 Section 3 remains unchanged. The amendment adds a new explanation. Therefore, it has been argued in several writ
petitions pending before the Supreme Court that the newly added Explanation cannot be resorted to expand the scope
of a provision. See, Bihta Cooperative Development Cane Marketing Union Ltd v Bank of Bihar, AIR 1967 SC 389
[LNIND 1966 SC 253]: 1967 SCR (1) 848; Hiralal Ratan Lal v State of UP, AIR 1973 SC 1034 [LNIND 1972 SC 476]:
1973 SCR (2) 502; Dattatraya Govind Mahajan v State of Maharashtra, AIR 1977 SC 915 [LNIND 1977 SC 56](928)
for the proposition that the an Explanation must be read so as to harmonise with and clear up any ambiguity in the main
section and it should not be so construed as to widen the ambit of that section.
97 As discussed above, even the Vienna and Palermo Conventions specifically provide that the offence of money
laundering would only be committed if the “use” and/or “concealment” is “for the purposes of concealing or disguising
the illicit origin of the property” or of “helping any person who has been involved in the commission of the predicate
offence to evade the legal consequences of his/her action”. Therefore, mere possession, acquisition and/or use will not
suffice unless the activity is for the purpose of disguising the illicit origin of the property or helping any person evade
legal consequences.
98 18 USCode §1956 - Laundering of monetary instruments.
99 18 US Code §1957 - Engaging in monetary transactions in property derived from specified unlawful activity:”(a)
Whoever, in any of the circumstances set forth in subsection (d), knowingly engages or attempts to engage in a
monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified
unlawful activity, shall be punished as provided in subsection (b)”.
100 United States of America v Renee Armstrong Sanders, 929 F 2d 1466 (Tenth Circuit, decided on the date 19 March
1991).
101 United States of America v Roger Faulkenberry, 614 F 3d 573 (Sixth Circuit, decided on the date 28 July 2010).
102 Ibid.
103 Ibid.
104 Statistics provided by India to the FATF in the 8th Follow-Up Report. The Report available at - http://www.fatf-
gafi.org/media/fatf/documents/reports/mer/India_FUR8_2013.pdf [last accessed in September, 2020].
105 http://www.newindianexpress.com/thesundaystandard/2018/may/06/hundreds-of-financial-fraud-cases-only-four-
convictions-1810706.html. [last accessed in September, 2020]. The Article, Hundreds of financial fraud cases, only four
convictions, published on 6 May 2018, suggested that as per the data available in 2016-17, a total 161 searches were
conducted by the probe agency under the PMLA, and this went up to 570 in 2017-18 (Upto February 2018), a hike of
over 300 per cent. Over the past two years from 2018, investigations were initiated in 318 cases and investigations
were concluded in 417 cases.
106 Several members of the Rajya Sabha had expressed their apprehension on the PMLA being abused by authorities,
similar to the repealed Act of Foreign Exchange Regulation Act, 1947. See, the Rajya Sabha Debate dated July 25,
2002, Part 2 (Other than Question and Answer) on the Prevention of Money Laundering Bill, 1999 (contd.). Shri
Prithviraj Chavan (as was then the Member of Rajya Sabha from Maharashtra) at page 242 of his address to the Rajya
Sabha, in reference to the PMLA Bill stated that, “The Committees had to recommend several changes, because there
were apprehensions. The major apprehension was that, while we did away with FERA, the famous law against foreign
exchange manipulations, it was thought that FERA was being brought back through the backdoor, that all the draconian
features of FERA would be brought back in this legislation, and it was to address these fears that Parliament had to
spend a lot of time on this Bill. The experience of FERA was not very good, It was misused; it led to many prosecutions,
but few convictions. The cases were pending for many years. Ultimately, the sunset clause had to be applied; arrests
were made; records were confiscated; people were harassed. But in spite of such powers given to the Government, it is
reported that black money, out of foreign exchange transactions, particularly, import-export transactions, to the tune of
over 100 billion dollars has been stashed away in Swiss banks, and tax saved, And, no big fish has been caught. The
official machinery went after only the small fry. There were no truck loads of money seized from foreign trade
racketeers or hawala operators or of the money made in defence deals, — the Tehelka tape exposed the kind of
corruption that goes on in defence deals — and nobody was punished.” The Member also suggested wide powers to
arrests on mere suspicion has been given to fairly junior officers, like in FERA. He stated, “I want to make one more
concrete suggestion, and that is about the potential of misuse, the arrest part of it. Now, you have given powers to fairly
junior officers, like in FERA, to arrest people on suspicion. Section 19 deals with this subject. I suggest –that arrest
should be restricted to only Part A crimes, like the crime of waging war against the State and drug related offences, and
arrests should not be there against Part B crimes, because if they commit any offence listed in Part B, they are,
anyway, going to be proceeded against, under the normal law. So, I think, this should be considered.” Shri Kapil Sibal,
in his address at page 260, drew a parallel between the PMLA and FERA and stated, “You know how the FERA was
misused, how laws relating to customs and excise were misused and what kind of people were involved.” Another
member, Dr. T. Subbarami Reddy (Andhra Pradesh) in his address said that “Sir, this Bill takes within its ambit crimes
 Page 26 of 27
2.3 Offence of Money Laundering in India

under the Indian Penal Code, the Immoral Traffic Act, Prevention of Corruption Act, the Arms Act, the Narcotic Drugs
and Psychotropic Substances Act and so on. This Bill is so powerful that it is like the elder brother of FERA. But people
have failed in implementing FERA. About 16,000 cases were filed, but not even forty cases could be proved. So, 16000
people were chargesheeted, arrested and harassed.”
107 Finance Act No. 2 of 2019, section 193.
108 The High Court of Karnataka in Obulapuram Mining Company Pvt Ltd, Represented by its Director v Joint Director,
Directorate of Enforcement, ILR 2017 Karnataka 1846 : (2017) 3 Kant LJ 179 : 2017 Kar HC 171, decided on date 13
March, 2017 held that “...petitioner cannot be tried and punished for the offences under the PML Act when the offences
were not inserted in the schedule of offences under the PML Act. This would deny the writ petitioner the protection
provided under clause (1) of Article 20 of the Constitution of India. Article 20(1) of the Constitution of India prohibits the
conviction of a person or his being subjected to penalty for ex-post facto laws”. The Andhra Pradesh High Court in Tech
Mahindra Ltd v Directorate of Enforcement., [Writ Petition No 17525/2014 decided on 22 December 2014 (AP)] the
court had observed that “It is settled principle of law that no person can be prosecuted on the allegation which occurred
earlier by applying the provision of law which has come into force after the alleged incident. In other words, there can
be no retrospective application of criminal liability for the incident occurred prior to the introduction of such liability in the
statue book.” The Delhi High Court in Arun Kumar Mishra v Directorate of Enforcement, 2015 SCC Online Del 8658 :
(2015) 2 DLT (Cri) 731 : LQ 2015 HC 10998 (decided on date 9 April 2015) has held: “it is settled principle of law that
the provisions of law cannot be retrospectively applied, as Article 20 (1) of the Constitution bars the ex-post facto penal
laws and no person can be prosecuted for an alleged offence which occurred earlier, by applying the provisions of law
which have come into force after the alleged offence.” All these decisions are prior to the date of the amendment Act of
2019. The challenge to the decision of the Delhi High Court in Arun Kumar Mishra is pending before the Supreme Court
in SLP (Diary) No. 33633 of 2015 and is tagged with the case of B. Rama Raju (SLP (Crl.) Diary No(s). 22529 of 2018).
109 See, Sankar Dastidar v Banjula Dastidar, (2006) 13 SCC 470 [LNIND 2006 SC 1083] : AIR 2007 SC 514 [LNIND 2006
SC 1083]: 2006 (13) SCALE 598 [LNIND 2006 SC 1083] (decided on date 5 December 2006). Also see, State of Bihar
v Deokaran Nenshi, (1972) 2 SCC 890 [LNIND 1972 SC 392] : AIR 1973 SC 908 [LNIND 1972 SC 392]: 1973 CRLJ
347 (decided on date 24 August 1972), the Supreme Court of India examined continuing offence in depth and has
observed that “Continuing offence is one which is susceptible of continuance and is distinguishable from the one which
is committed once and for all.”
110 Gokak Patel Volkart Ltd v Dundayya Gurushiddaiah Hiremath, 1991 SCC (2) 141 (decided on date 14 February 1991).
111 Uday Shankar Awasthi v State of UP, 2013 (2) SCC 435 [LNIND 2013 SC 22] : 2013 (1) SCALE 212 [LNIND 2013 SC
22] (decided on date 9 January 2013).
112 State of Maharashtra v Kaliar Koil Subrahmaniam, 1978 SCR (1) 274 : AIR 1977 SC 2091 [LNIND 1977 SC
247](decided on date 8 August 1977).
113 Section 5(1)(e) of the Prevention of Corruption Act, 1947 read as—
(e) if he or any person on his behalf is in possession or has, at any time during the period of his office, been in
possession, for which the public servant cannot satisfactorily account, of pecuniary resources or property
disproportionate to his known sources of income.
114 Venkataraman T Pai v CR Shah, Reported at 1996 (81) ELT 467 (Guj) : 1995 (2) GLH 940 (decided on date 23 July
1993).
115 Om Prakash Shrivastava v State of NCT of Delhi, 164 (2009) DLT 218 (decided on date 15 October 2009).
116 Jaisingh v State of Maharashtra, 2003 Bom CR (Cri) 160 (decided on date 31 March 2003).
117 Om Prakash Shrivastava, supra, footnote 115.
118 Om Prakash Shrivastava, supra, footnote 115.
119 Hasan Ali Khan, supra, footnote 92.
120 The judgment of Hasan Ali Khan v Union of India Thru’ Asst. Director, Directorate of Enforcement, Mumbai (decided by
the Bombay High Court) has been set aside by the Supreme Court in Union of India Thru’ Asst. Director, Directorate of
Enforcement, Mumbai v Hassan Ali Khan on 30 September, 2011 and bail given to Hasan Ali was cancelled. However,
the Supreme Court has not interfered with the logic of the argument as propounded in this case that the offence of
money laundering is not a continuing offence.
121 Om Prakash Shrivastava, supra, footnote 115.
122 Whether X who simply uses “proceeds of crime” i.e. the loan monies to buy a house can be termed as money
laundering is debatable because the animated purpose of the transaction may not be to launder money or conceal its
origins but to simply spend it and convert it into immovable property (use the proceeds but not with the purpose to
project it as untainted). However, for the purpose of the above illustration, let’s assume that the property was bought to
hide the true origins of money and it is, therefore; money laundering.
 Page 27 of 27
2.3 Offence of Money Laundering in India

123 There is some authority to support this argument which is often made by the Enforcement Directorate. The Bombay
High Court in Nitish J Thakur v State of Maharashtra & Directorate of Enforcement, (Anticipatory Bail Application No.
823 of 2012), (High Court of Bombay – Appellate Side) held that the offence of money laundering is a continuing
offence since it also punishes the possession of property acquired from crime and therefore there is no question of
retrospective criminalisation.
124 Article 20(1) of the Constitution of India, 1950,—

No person shall be convicted of any offence except for violation of the 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 offence of money laundering being a penal provision would come under the purview of Article 20 of the
Constitution, entailing that offence of money laundering would not be retrospective in nature.
125 Mahanivesh Oils, supra, footnote 3.
126 In A K Samsuddin v UOI, supra, footnote 3, the High Court of Kerala held that, “...though the commission of a
scheduled offence is a fundamental pre-condition for initiating proceedings under the Act, the offence of money
laundering is independent of the scheduled offences. The scheme of the Act indicates that it deals only with the
laundering of money acquired by committing the scheduled offences. In other words, the Act deals only with the
process or activity with the proceeds of crime including its concealment, possession, acquisition or use. In other words,
there cannot be any prosecution under the Act or laundering of money acquired by committing the scheduled offences
prior to the introduction of the Act. The time of commission of scheduled offences is therefore not relevant in the context
of the prosecution under the Act. What is relevant is the context of the prosecution is the time of the commission of the
act of money laundering”. However, in this case, the court refused to quash the ECIR (and stay the investigation
conducted by the ED) notwithstanding that the scheduled offence was committed between the period 1997 to 2002 and
the PMLA came into force in the year 2005. The only justification could be that the time of the commission of the act of
money laundering could be after 2005 which would only be clear after the investigation would be over.
127 Explanation.—For the removal of doubts, it is hereby clarified that,—
...

(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person
is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or
projecting it as untainted property or claiming it as untainted property in any manner whatsoever.
128 Shyam Sunder v Ram Kumar, AIR 2001 SC 2472 [LNIND 2001 SC 1541]. Also see, footnote 96.
129 Katira Construction Ltd. v UOI, 2013 (258) CTR (Guj) 337 : [2013] 352 ITR 513 (Guj) (decided on date 4 March 2013);
Dattatraya Govind Mahajan v State of Maharashtra (supra footnote 96).
130 CIT v Podar Cement, [1997] 226 ITR 625 (SC) (decided on date 27 May 1997), Also see R. Rajagopal Reddy v
Padmini Chandrasekharan, 1995 (2) SCC 630 [LNIND 1995 SC 176] : AIR 1996 SC 2388 decided on date 31 January
1995).
131 Refer to—
Part B of the Schedule—Offence under Section 132 of the Customs Act, 1962 (w.e.f. 14-05-2015)

Part C of the Schedule—Offence against property under Chapter XVII of the Indian Penal Code (w.e.f. 01-06-2009).
132 Mutual Evaluation Report Executive Summary 25 June 2010, Anti-Money Laundering and Combating the Financing of
Terrorism (INDIA) available at http://www.fatf-gafi.org/media/ fatf/documents/reports/ mer/MER%20India%20ES.pdf
(last accessed in September, 2020).

End of Document
 3.1 Introduction
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 3 ATTACHMENT, ADJUDICATION AND
CONFISCATION UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

CHAPTER 3 ATTACHMENT, ADJUDICATION AND CONFISCATION

UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

3.1 Introduction
The anti-money laundering laws do not restrict to merely punishing the offender for the offence of money-laundering
but also extend to stripping the offender off the properties involved in money-laundering.1 In this vein, the PMLA
contains two parallel streams of proceedings, namely, prosecution for punishment under section 4, for the offence
of money-laundering as defined under section 3;2 and attachment of the property involved in money-laundering
under section 5.3

The trial for the offence of money laundering is initiated following the filing of a complaint before the Special Court
(constituted under section 43),4 and the punishment is thereafter prescribed, while the proceedings pertaining to the
adjudication of the attachment or seizure of the proceeds of crime by the Enforcement Directorate (ED) is carried
out by the Adjudicating Authority (constituted under section 6).
3.1.1 Scheme of the PMLA

The Act intends to provide for a comprehensive scheme for investigation for an offence of money-laundering,
recording of statements, search and seizure, provisional attachment of the proceeds of crime and its confirmation,
confiscation, and prosecution.

The premise for initiation of the proceedings under this Act is the commission of the scheduled offence and then the
commencement of an investigation of the scheduled offence. The offence of money-laundering is not a “sui generis
autonomous offence” but is dependent on the commission of a predicate offence. If the FIR reveals that a
scheduled offence has been committed, the ED may register an Enforcement Case Information Report (ECIR).5

The FATF has campaigned for a long time that India should amend the PMLA and not make the initiation of the
proceedings under the PMLA dependent upon the commission of a scheduled offence,6 and, India has consistently
rejected this suggestion.

Upon the registration of an ECIR, the ED would then either approach the Special Court by filing a complaint/charge
sheet before the commencement of trial for the offence of money-laundering and could simultaneously or at any
point of time after the registration of an ECIR would provisionally attach the alleged proceeds of crime by following
the process set out under sections 5, 17 or 18 of the PMLA to initiate proceedings before the Adjudicating Authority
under section 8.

1 This form of a parallel system is prevalent in countries such as the US, the UK, India, Australia, Ireland, China, Hong
Kong, Canada and Taiwan, to name a few.
2 See, section 2.3.1 of Chapter 2 of this book, where the ingredients of section 3 have been discussed in details.
 Page 2 of 2
3.1 Introduction

3 The High Court of Delhi in J Sekar v UOI, (2018) Cr LJ 1720: (2018) 2 RCR (Cr) 586, decided on date 11 January
2018, has stated (para 36) that, “There are, therefore, two parallel streams of proceedings—(i) criminal proceedings
before the Special Court for trial of the offences under Section 3 read with Section 4 PMLA and; (ii) the departmental
proceedings before the authorities instituted under the PMLA, i.e. the Director, the AA, and the AT, the orders of which
are subject to appeal before the High Court.” Also, see Alive Hospitality and Food Private Limited v UOI, 2014 (5) (Civil)
297 : 2014 (2) RCR (Cri) 311, decided on date 31 July 2013, the High Court of Gujarat had observed (para 10) that:

“On the afore-stated scheme the provision of the Act, the prosecution under the Act; and attachment and eventual
confiscation proceedings are distinct proceedings. These two set of proceedings may be initiated against the same
person if he is accused of the offence of money-laundering ...”
Also, see, the High Court of Telangana (Single Judge Bench) in P Trivikrama Prasad v Enforcement Directorate, 2014
SCC Online Hyd 819, decided on date 16 October 2014, had observed (para 22) that, “… The object of this enactment
is not only to punish the person who receives proceeds of crime after following due procedure, but the assets acquired
by utilisation of proceeds of crime should also be confiscated.” However, as we have argued in this book, the PMLA
should be concerned not with the proceeds of crime but the use of proceeds of crime in money-laundering. Therefore, it
is not the “utilisation of proceeds of crime” but the laundering of proceeds of crime which needs to be attached. The
Union of India has consistently made the argument that, “ … the very definition of proceeds of crime under Section
2(1)(u) PMLA…permits any property involved in money-laundering to be attached and not necessarily the proceeds of
crime of the persons facing trial under Section 3 PMLA” [See, para 44(iii) of J Sekar case (supra)].
The decision in J. Sekar (supra) dated 11 January 2018, has been stayed by the Supreme Court vide Order dated
04.07.2018 in SLP (C) No. 012865 of 2018. The matter is pending adjudication before the Supreme Court. The decision
of the Gujarat High Court in Alive Hospitality (supra) dated 31 July 2013 was challenged in the Supreme Court was
challenged by way of an SLP bearing No. 012136 of 2014. In this matter, since the parties had availed the alternative
remedy available to them, the Supreme Court did not entertain the appeal and sent it back to the Appellate Tribunal.
4 In terms of section 44(1)(a), Special Court is empowered to carry on joint trials for the scheduled offence and the
offence of money-laundering. It states that, “…the scheduled offence and offence punishable under section 4 shall be
triable only by the Special Court constituted for the area in which the offence has been committed...”
5 Despite the fact, that a case for the offence of money-laundering will be initiated only upon the filing of the ECIR, the
PMLA has still not defined it. The Act is also silent on the relevant procedure and at what stage an ECIR needs to be
registered. Other relevant issues pertaining to the filing of the ECIR have been dealt in Chapter 4.
6 See, Mutual Evaluation Report by the FATF on Anti-Money Laundering and Combating the Financing of Terrorism India
dated 25 June 2010, where at page 43 it has been recorded that:
“168. The linkage and interaction of the ML offence with a specific predicate criminality is historically very tight in the
Indian AML regime. The concept of stand-alone money laundering is quite strange to the practitioners, who cannot
conceive of pursuing money laundering as a suigeneris autonomous offence. Some interlocutors were even of the
(arguably erroneous) opinion that only a conviction for the predicate criminality would effectively satisfy the evidential
requirements. As said, this attitude is largely due to the general practice in India to start a ML investigation only on the
basis of a predicate offence case. ...”

End of Document
 3.2 Proceedings before the Adjudicating Authority
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 3 ATTACHMENT, ADJUDICATION AND
CONFISCATION UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

CHAPTER 3 ATTACHMENT, ADJUDICATION AND CONFISCATION

UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

3.2 Proceedings before the Adjudicating Authority

By virtue of section 5(1) of the PMLA, the power and jurisdiction to provisionally attach a property involved in
money-laundering is conferred generally on the Director (of enforcement), or on an Additional Director or Joint
Director or a Deputy Director, appointed in terms of sections 48 and 49. These officers are the authorities who have
been conferred by the Act with the powers and jurisdiction to carry out the requisite probe leading to criminal action
vis-à-vis the offence of money-laundering defined in section 3 and also to initiate action in the nature of attachment
leading to confiscation of “proceeds of crime”.

These functionaries are equipped with requisite power of survey (section 16), search and seizure (section 17),
search of persons (section 18), power to arrest (section 19), retention of property (section 20) and retention of
records (section 21) under the PMLA.

For dealing with the matters relating to attachment leading to confiscation of “proceeds of crime”, the Act provides
for the procedure conferring powers on enforcement authorities thereby established such process beginning with a
provisional attachment order under section 5(1), being subject to “confirmation” by the Adjudicating Authority. The
order of the Adjudicating Authority being amenable to challenge by appeal (under section 26) to the Appellate
Tribunal (constituted under section 25). The proceedings before the Adjudicating Authority are governed by the
Adjudicating Authority (Procedure) Regulations, 2013.7

The Act bestows the ED with requisite powers to provisionally attach (under section 5(1)), seize (under section
17(1)(iii)(c) or section 18) or freeze (under section 17(1A)) any property alleged to be proceeds of crime.8 The idea
behind these sections is the same, viz. to take expeditious actions during the course of investigation so that the
alleged proceeds of crime are not dealt in a manner that may frustrate any proceedings under the Act.

To ensure that the proceeds of crime are not dealt in a manner that may prove to be contrary to the spirit of the Act,
the legislature gave wide and excessive powers to the ED to attach/seize/freeze,9 “any property” of “any person”.
3.2.1 Provisional Attachment under Section 5 PMLA

Section 5 of the PMLA deals with the provisional attachment of properties involved in money laundering. It reads as
follows:

“5. Attachment of property involved in money-laundering.—(1) Where the Director or any other officer not below the
rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for
such belief to be recorded in writing), on the basis of material in his possession, that—
(a) any person is in possession of any proceeds of crime; and

(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in
frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter,

he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from
the date of the order, in such manner as may be prescribed:
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3.2 Proceedings before the Adjudicating Authority

Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been
forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been
filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking
cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the
corresponding law of any other country:

Provided further that, notwithstanding anything contained in first proviso, any property of any person may be attached under
this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of
this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his
possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-
attachment of the property is likely to frustrate any proceeding under this Act.

Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the
proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days
from the date of order of vacation of such stay order shall be counted.

(2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-
section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the
Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall
keep such order and material for such period as may be prescribed.

(3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified
in that sub-section or on the date of an order made under sub-section (3) of section 8, whichever is earlier.

(4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under
sub-section (1) from such enjoyment.

Explanation.—For the purposes of this sub-section “person interested”, in relation to any immovable property, includes all
persons claiming or entitled to claim any interest in the property.

(5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of
thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.”

(i) Section 5(1) PMLA

Section 5(1) provides for the provisional attachment of the proceeds of crime by the Director, or any other officer not
below the rank of Deputy Director authorised by the Director.

The provisions of Section 5(1) can be invoked, when the officer concerned has reasons to believe that:

(a) any person is in possession of any proceeds of crime; and

(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result
in frustrating any proceedings relating to the confiscation of such proceeds of crime under this Chapter.10

This section does not state that there has to be a FIR in relation to a scheduled offence being an IPC offence before
the ED can begin to investigate and take steps towards making a provisional attachment. However, section 5(1)(a)
of the PMLA contemplates the existence and possession of “proceeds of crime”. The definition of proceeds of crime
refers to property obtained as a “result of criminal activity relating to a scheduled offence”. Therefore, without a FIR
registered for a scheduled offence, in particular of an IPC offence, it would not be possible to allege that proceeds
of crime have been generated.

Many scheduled offences are not IPC offences, and therefore; there will never be a FIR but even in those cases
there has to be a written complaint or show cause or summon or communication from the investigating agency to
state that a scheduled offence is being investigated. The ED is allowed to attach “any property” from “any person”
provided it has reasons to believe that the person from whom the property has been provisionally attached “is in the
possession of the proceed of crime” and such property is likely to be dealt with any manner which may result in
frustrating any proceedings relating to the confiscation of that property.

This section, however; contains two provisos. The first proviso restricts the wide powers conferred upon the ED and
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3.2 Proceedings before the Adjudicating Authority

acts as a safeguard against it. It states that the ED cannot initiate any action unless a report in relation to the
scheduled offence has been forwarded to a magistrate under section 173 of the Code of Criminal Procedure, 1973
(‘CrPC’) or a complaint has been filed by a person authorised to investigate the scheduled offences, as the case
may be. This proviso is based on the settled premise that the generation of proceeds of crime is a result of a
scheduled offence and the commission of the scheduled offence is a sine qua non for the offence of money-
laundering. Until a formal complaint or charge-sheet is filed in the court seized of the matter relating to the schedule
offence, no attachment can be made. Thus, the first proviso acts as a shield against unwarranted and discretionary
attachments which the ED can make under the main provision section 5(1).

However, the safeguard ensured by the first proviso is to some extent sought to be negated by the second proviso.
The second proviso features a non obstante clause and is an exception to the first proviso, as it allows the ED to
attach “any property” of “any person” on the reasons to believe that if such property “involved in money laundering”
and is not attached immediately, the non-attachment of the property is likely to frustrate any proceedings under the
Act.11

The first proviso which allows attachment subsequent to filing of a charge-sheet requires “possession of proceeds
of crime”. The second proviso which allows attachment even if there is no charge-sheet requires property to be
“involved in money laundering”. In J Sekar (supra), it was argued that the “phrase —any property has to meet the
higher threshold contemplated in the latter part of the second proviso, i.e. it has to be—involved in money-
laundering”. The court observed that

“Although the second proviso to Section 5(1) states that the property has to be ‘involved in money-laundering’ and Section
5(1) states that mere possession of proceeds of crime is sufficient, the Court does not see any conflict in these
expressions. When the definition in Section 3 PMLA is read with Section 2(1)(v) and the Explanation thereto, it becomes
clear that the property which constitutes ‘proceeds of crime’ is the property involved in money-laundering.”12

As we have argued in chapter 2, mere possession of proceeds of crime cannot be termed as money laundering.
When proceeds of crime are projected as untainted money then the offence is committed. The Act seeks to
confiscate properties involved in money laundering which have been obtained as a result of a criminal activity. First,
the essence of the offence of the money-laundering is “projecting of the proceeds of crime as untainted property.” In
Nikesh Tarachand Shah, the Supreme Court explained, “thus, whosever is involved as aforesaid, in a process or
activity connected with ‘proceeds of crime’ as defined, which would include concealing, possessing, acquiring or
using such property, would be guilty of the offence, provided such persons also project or claim such property as
untainted property.”13 In absence of projecting or claiming a property as untainted, there can be no money
laundering as the offence under the PMLA is laundering of proceeds of crime and not mere possession of proceeds
of crime.14

Secondly, even section 8(3) of PMLA requires Adjudicating Authority to first decide whether “any property is
involved in money-laundering” before confirming attachment of such property. Section 8(6) states that the
properties not involved in money-laundering shall be released. Such properties could be proceeds of crime but not
involved in money-laundering. Therefore, the observation in J Sekar (supra) that any property which is proceeds of
crime is the property involved in money-laundering is questionable. If eventually after a trial pursuant to section 8(6)
properties that have not been involved in money laundering have to be released then attaching all proceeds of
crime regardless of whether it has been laundered or used in money laundering would be unreasonable. It is,
therefore; difficult to understand why under section 5(1) any proceeds of crime can be attached after a charge-sheet
has been filed while prior to filing of charge-sheet only properties involved in money-laundering can be attached. In
both cases, attachment should be restricted to properties involved in money laundering.

In many cases, specially drug related offences, proceeds generated from crime will be by way of unaccounted
wealth “black money” which when converted and brought into the economy would trigger money laundering. In such
cases, usually the entire proceeds of crime will be subject to laundering and attachment. However, in economic
offences where the bank finance has been wrongly utilised, the entire proceeds of crime may not be laundered and
attaching all proceeds of crime will be counterproductive.

In Axis Bank’s case (as discussed in chapter 2), the banks who had complained about a potential bank fraud,
allegedly committed by the borrowers, found their own mortgaged assets attached by ED. This bizarre situation
arose because properties mortgaged to the bank which were not involved (admittedly even by the ED) in money
laundering were attached because they were deemed as proceeds of crime.

What does the term “any person” referred to under section 5(1) means? In Dr VM Ganesan,15 the Madras High
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3.2 Proceedings before the Adjudicating Authority

Court in common order has stated that: “….person who is in possession of a property that allegedly represents the
proceeds of crime” may come under these three categories, viz. (a) person who is not accused of any offence, but
who has merely come to possess the proceeds of crime; (b) person against whom a complaint is lodged, but the
investigation is not yet complete, and a final report under section 173 of CrPC not yet filed; or (c) a person who is
accused of committing an offence and against whom a final report has been filed under section 173 of CrPC before
the competent Court.16 Relying on VM Ganesan (supra), the Delhi High Court in J Sekar (supra), has also stated
that that a person, in the main provision and second proviso of section 5(1) can be a person who is in mere
possession of proceeds of crime with no charge of committing a scheduled offence.17

If section 5(1) is read in its entirety, it would show that even the first proviso to section 5(1) does not restrict the
“person” in section 5(1) to be someone who has been charged with the scheduled offence. It is possible, “that a
person who commits the offence under Section 3 PMLA is not himself or herself facing trial for any scheduled
offence.”18The first proviso only states that there must be a report in relation to the scheduled offence or a complaint
has been filed by a person authorised to investigate the scheduled offences, as the case may be. This section
clearly does not require that the person or owner of the asset who suffers the attachment should have been named
as an accused in either the charge sheet or the complaint filed by the (i) investigating agency investigating the
scheduled offence or (ii) ED investigating the money laundering offence. However, in Seema Garg (supra), the
division bench of Punjab and Haryana High Court seems to indicate that for an attachment to sustain eventually a
complaint should be filed within the prescribed period against the person whose assets are being attached by the
ED for the offence of money laundering. This would mean than an innocent donee who has received proceeds of
crime and has been used to launder the proceeds of crime without the donee’s knowledge will be either immune to
an attachment or if the laundered assets are attached, such a donee has to be named in the ED complaint as an
accused. Therefore, to this limited extent, the observation in Seema Garg (supra) may not be correct. A donee who
may have innocently received laundered properties cannot be made to suffer a trial and be named as an accused
but will still be liable for the assets to be attached as a civil recovery measure.19 However, the property involved in
money laundering which sought to be attached should be clearly set out in the complaint and such a complaint must
have been filed within the prescribed period.

The language of section 5(1) shows that the second proviso has the potential to be misused by the investigating
agency because an officer can make impulsive and unwarranted attachments of “any property” of “any person” on
mere “reasons to believe” even if a charge-sheet in relation to the scheduled offence has not been filed. This
concern was articulated in the case of J Sekar (supra) wherein the petitioners who were suffering attachments
argued that the second proviso to section 5(1) PMLA, as it presently stands, is “manifestly arbitrary”.20 It was
contended that the “right to property” being a human right, as explained in PT Munichikkanna Reddy v Revamma,21
there can be numerous instances where resort need not be had to the powers of attachment when in fact there is
no real basis, material or apprehension that the property would be concealed, transferred or dealt with in a manner
that frustrates its confiscation. In other words, resort to the second proviso should be had in the rarest of rare cases.
The Delhi High Court in J Sekar (supra), when posed with the vires of the second proviso, upheld its constitutional
validity. The Court held that firstly, the language of the second proviso demands that an officer of the Director or
Deputy Director level is supposed to form reasons to believe “and the reason for such belief to be recorded in
writing”22 before taking any action, and it is in itself is a safeguard against impulsive and unwarranted
attachments.23 Secondly, the word “immediately” used in the second proviso:

“… also imports a sense of urgency into the situation that warrants exercise of the powers. The reasons to believe, as
recorded by the officer must reflect this sense of immediacy which impels the officer to invoke the power (Para 60).”

It has now consistently been held that any attachment under section 5(1) requires reasons to be recorded in order
to justify that if the attachment is not made then the proceeds of crime will be concealed, transferred or dealt with in
any manner which may result in frustrating any eventual confiscation. Such recording of reasons cannot “be a
mechanical reproduction of the words in the statute”.

In Seema Garg (supra), the ED before attaching alleged proceeds of crime under section 5(1) simply recorded that
properties are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any
proceedings relating to the confiscation of such proceeds of crime and matter is under investigation. The Punjab &
Haryana High Court made it clear that the:

“...authorities under the Act are bound to be specific while exercising power conferred under Section 5 of the PMLA. Words
used in the order cannot be verbatim replica of words used in Section 5 of the PMLA.”
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3.2 Proceedings before the Adjudicating Authority

Similarly, in Ajay Kumar Gupta v The Joint Director, Directorate of Enforcement Adjudicating Authority,24 High Court
of Judicature at Madras (Chennai) has held that the impugned provisional attachment was not valid as no reasons
were recorded showing that there was a threat of disposal of properties which were sought to be provisionally
attached under section 5(1) PMLA.25

The power of the ED to issue a Provisional Attachment Order under sub-section (1) of section 5 is to be read with
the Prevention of Money-Laundering (Issuance of Provisional Attachment Order) Rules, 2013 (‘PML PAO Issuance
Rules, 2013’).26 The Rules mainly provide for the manner of issuance of provisional attachment order and the
service of such order on corporate bodies, societies and trusts, etc.

Rule 3 of PML PAO Issuance Rules, 2013 provides for the, “manner of issuance of provisional attachment order”.
Sub-Rule (1) of rule 3 states that:

“where the Director or any officer authorised in this behalf has reason to believe on the basis of material in his possession
that the proceeds of crime or the property involved in money-laundering has to be provisionally attached, the said officer
shall make a provisional attachment order.”“The authorized officer shall then endorse a copy of the provisional attachment
order to all concerned including the persons in possession of the properties and the Adjudicating Authority.”27

The service of the said attachment order is provided in the following manner:

(a) by delivering or tendering the provisional attachment order to the owner or person; or

(b) if it cannot be delivered to such owner or person, by delivering it to the person duly authorised by such owner or
person; or
(c) if the owner or person is absent from his residence at the time when service of the provisional attachment order is
being effected on him, and there is no likelihood of his being found at the residence within a reasonable time and
he has not duly authorised any person to accept the service on his behalf, service may be made on any adult
member in the family of such owner or person who is residing with him; or
(d) if the service cannot be effected as provided in clauses (a) to (c), the serving officer shall affix one of the duplicate
of the provisional attachment order at some conspicuous part of the premises in which the person or owner
resides or is known to have last resided or carried on business or personally works or has worked for gain and
that the written report thereof shall be witnessed by two persons.”28

Sub-Rule (4) of Rule 3 provides that if for any reason the provisional attachment order cannot be served in an
above-mentioned manner, then it must be published in a leading newspaper (both in vernacular and in English)
having wide circulation in the area or jurisdiction in which the person resides or is known to have last resided or
carried on business or personally works or last worked for gain.

Sub-Rule (5) of Rule 3 states that:

“notwithstanding anything contained above, the provisional attachment order to the owner or person, in addition to and
simultaneously may be sent by speed post with proof of delivery at the address of his place of residence or his last known
place of residence or the place where he carried on, or last carried on, business or personally works or last worked for
gain.”

Rule 4 provides with the procedure of “service of provisional attachment order on corporate bodies, societies, and
trusts, etc”.

According to sub-Rule (1)(a) of Rule 4:

“the provisional attachment order on corporate bodies, societies and trust etc. shall be effected by serving it on the
secretary, local manager or the principal officer of the corporate bodies, societies and trust etc., or by letter sent by speed
post addressed to the chief officer of such bodies in India, in which case the service shall be deemed to have been
effected”. In the event “if the service cannot be effected as provided in clause (a), the serving officer shall affix one of the
duplicate of the provisional attachment order at some conspicuous part of the premises in which the office of the corporate
body, society and trust etc. carries on business or have last carried on business.”29

The Rule further provides that,

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3.2 Proceedings before the Adjudicating Authority

“if the provisional attachment order cannot be served under sub-rule (1), then by publishing it in a leading newspaper (both
in vernacular and in English) having wide circulation in the area or jurisdiction where the corporate body, society and trust
etc. carries on business or have last carried on business.”30

(ii) Section 5(2) PMLA

Pursuant to the issuance of the provisional attachment of the alleged proceeds of crime, section 5(2) PMLA
requires the officer concerned to immediately forward a copy of the order, along with the materials in his possession
to the Adjudicating Authority, in a sealed envelope.

The procedure of forwarding a copy of the Provisional Attachment Order is prescribed under Rule 3 of the
Prevention of Money-Laundering (the Manner of Forwarding a Copy of the Order of Provisional Attachment of
Property along with the Material and Copy of the Reasons along with the Material in respect of Survey, to the
Adjudicating Authority and its Period of Retention) Rules, 2005 (‘PML Forwarding the PAO Rules, 2005’).31

The said Rules, 2005 provide that the Director or the authorised officer, as the case may be, in order to forward the
provisional attachment order along with materials to the Adjudicating Authority, shall carry out the following acts:

(a) To prepare an index of the copy of the order, and the material;
(b) To sign each page of such index, order and the material; and
(c) To write a letter while forwarding such index, order and the material to the Adjudicating Authority in a
sealed envelope.32

The authorised officer must also place an acknowledgment slip in Form I appended to the Rules inside the
envelope before sealing it. The reference number and the date of dispatch must also be indicated on the sealed
envelope. The sealed envelope should then be marked “Confidential” and “To be opened by the addressee only”,
the complete address of the Adjudicating Authority including his name, shall be mentioned on the sealed envelope
with official seal. The authority shall then place the sealed envelope inside an outer envelope along with an
acknowledgement slip in Form III appended to these rules. The outer envelope should also be sealed and the
complete address of the Adjudicating Authority shall be mentioned on the sealed outer envelope. The authority is
required to maintain registers and other records such as acknowledgement slip register, dak register for the
purposes of this rule and shall ensure that necessary entries are made in the register immediately as soon as a
copy of the reasons along with the material in respect of survey is forwarded to the Adjudicating Authority.33

This provision also emphasises on the fact that the officer must have cogent reasons to believe and the same must
be communicated to the Adjudicating Authority, soon after the provisional attachment of the alleged proceeds of
crime.
(iii) Section 5(3) PMLA

Section 5(3) states that every order of attachment made under sub-section (1) of section 5 shall cease to have
effect after the expiry of the period specified in that sub-section, i.e. one-hundred and eighty days or on the date of
the order made by the Adjudicating Authority under sub-section (3) of section 8, whichever is earlier.
(iv) Section 5(4) PMLA

According to this sub-section, nothing in section 5 shall prevent a person interested in the enjoyment of the
immovable property attached under sub-section (1) from such enjoyment. The meaning of the expression “persons
interested” for the purposes of this sub-section in relation to any immovable property includes “...all persons
claiming or entitled to claim any interest in the property.”
(v) Section 5(5) PMLA

This provision provides that the Director or any officer who provisionally attached any property under sub-section
(1) shall, within a period of thirty days from the date of such attachment, file a complaint stating the facts of such
attachment before the Adjudicating Authority.
3.2.2 Section 16, 17 & 18 PMLA

(i) Section 16

Section 16 enables an officer to enter any place where “any act constituting the commission” of an offence under
section 3 takes place provided such place is within limits of the area assigned to said authority or in respect of
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3.2 Proceedings before the Adjudicating Authority

which he is so authorised. This is subject to the condition that the authority must have reasons to believe (the
reasons for such belief to be recorded in writing) on the basis of the material in his possession that an offence
under section 3 has been committed. Also, once the survey is completed a copy of the reasons so recorded along
with the material in his possession has to be “immediately” forwarded to the Adjudicating Authority in a sealed
envelope which will be kept by the Adjudicating Authority for a prescribed period. This section empowers the ED to
seek from the employee or the proprietor any assistance that he may require in connection with (i) accessing the
premises which the ED wants to survey, (ii) checking or verifying the proceeds of the crime or any transaction
“related to the proceeds of crime” which may be found in the premises and (iii) any information that the ED may
require as to any matter which may be useful to any proceedings under this Act. The ED can place marks of
identification on the records inspected by him, take copies, make an inventory and record the statement of any
person present in the place.

The manner of forwarding a copy of the reasons along with the material in respect of the survey under sub-section
(2) of section 16 PMLA to the Adjudicating Authority is provided under Rule 4 of the Prevention of Money-
Laundering (the Manner of Forwarding a Copy of the Order of Provisional Attachment of Property along with the
Material, and Copy of the Reasons along with the Material in respect of Survey, to the Adjudicating Authority and its
Period of Retention) Rules, 200534 (‘PML Forwarding the PAO Rules, 2005’).

The Rule provides that the authority must forward the reasons along with the material to the Adjudicating Authority
as per the following manner:

1. The authority shall prepare an index of a copy of the reasons and the material in respect of survey and sign
each page of such index, reasons and the material and shall also write a letter while forwarding such index,
reasons and the material to the Adjudicating Authority in a sealed envelope.
2. The authority shall place an acknowledgement slip in Form II appended to these rules inside the envelope
before sealing it.
3. The authority shall indicate a reference number and date of despatch on the sealed envelope.
4. The sealed envelope shall be marked “Confidential” and “To be opened by the addressee only”, the
complete address of the Adjudicating Authority including his name, shall be mentioned on the sealed
envelope with official seal.
5. The authority shall place the sealed envelope inside an outer envelope along with an acknowledgement
slip in Form III appended to these rules.
6. The outer envelope shall be sealed and the complete address of the Adjudicating Authority shall be
mentioned on the sealed outer envelope.
7. The authority shall maintain registers and other records such as acknowledgement slip register, dak
register for the purposes of this rule and shall ensure that necessary entries are made in the register
immediately as soon as a copy of the reasons along with the material in respect of survey are forwarded to
the Adjudicating Authority.35

(ii) Section 17

Section 17 (1) allows the Director or any other officer not below the rank of Deputy Director authorised by him to
authorise any officer subordinate to him to enter and search any building, etc. and/or seize records of property
found as a result of such search. Section 17(1A) further enables an officer to make an order of freezing such a
property, in case it is impractical to seize the property. The search and seizure powers can only be exercised if the
officer has material in his possession on the basis of which he has reason to believe that any person:

(i) has committed any act which constitutes money-laundering, or

(ii) is in possession of any proceeds of crime involved in money-laundering,
(iii) is in possession of any records relating to money-laundering, or
(iv) is in possession of any property related to crime.36

Upon satisfaction of any of the above-mentioned act by any person, the authorised officer has the power to, “enter
and search any building, place, vessel, vehicle or aircraft where he has reasons to suspect that such records or
proceeds of crime are kept”, and in the event, the keys of such places are not available, then the provision allows
the ED to “break open the lock of any door, box, locker, safe, almirah or other receptacle”. The ED is empowered to
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3.2 Proceedings before the Adjudicating Authority

“seize any record or property found as a result of such search”. For the purpose of identification, the ED can place
marks on the records inspected by him, take copies, make an inventory and record the statement of any person
present in the place.

In addition to this, the provision also allows the ED to, “examine on oath any person, who is found to be in
possession or control of any record or property, in respect of all matters relevant for the purpose of any
investigation under this Act.”

The procedure of search under section 17(1) is provided under Rule 3 of Prevention of Money-Laundering (Forms,
Search and Seizure or Freezing and the Manner of Forwarding the Reasons and Material to the Adjudicating
Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005 (‘PML Search, Seizure
and Freezing Rules, 2005’). The authorisation given by the Director under Section 17(1) is prescribed in Form I.

Section 17(1A)37 provides that where it is not practicable to seize such property or record, the officer authorised
under section 17(1) may make an order to freeze such property whereupon the property shall not be transferred or
otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order
shall be served on the person concerned. If at any time before its confiscation under sub-section (5) or sub-section
(7) of section 8 or section 58B or sub-section (2A) of section 60, it becomes practical to seize a frozen property, the
officer authorised under sub-section (1) may seize such a property.

The procedure to freeze or seize property under section 17(1A) is provided under rule 4 of the PML Search, Seizure
and Freezing Rules, 2005. The officer can hand it over to the person from whom goods were seized, for safe
custody. Rule 4 provides that the Seizure memo shall be prepared by the authorised officer and must be in
accordance with Form II.

Rule 5 states that the provisions of the Code of Criminal Procedure, 1973 will apply to the search and seizure.

After the seizure or freezing of the property or record under section 17(1), section 17(2) requires the officer
authorised under section 17(1) to immediately forward a copy of the reasons so recorded along with the material in
his possession (referred to in section 17(1)) to the Adjudicating Authority in a sealed envelope in a prescribed
manner. Such reasons and materials shall be kept with the Adjudicating Authority for the prescribed period.38 The
sub-section does not provide for any time limit required by the ED to forward the reasons so recorded and the
materials in possession, to the Adjudicating Authority. However, section 17(4) provides that the authority seizing or
freezing any record or property under section 17(1) or 17(1A) respectively, must file an application requesting for
retention of such record or property, before the Adjudicating Authority.

According to section 17(3), if an officer upon information received during the survey being conducted under section
16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons (to be
recorded in writing), enter and search the building or place where such evidence is located and seize that evidence.
The concerned officer can carry out search and seizure under this sub-section and does not require any permission
from the Director or any other officer not below the rank of Deputy Director prescribed under section 17(1).

It has been rightly observed that, “… the power of freezing is a draconian power and safeguards have to be kept in
mind to check its abuse and limit its exercise”.39It is, therefore; surprising that the safeguards inbuilt within section
17 are much weaker than those provided under section 5. Firstly, (unlike section 5) there is no requirement that the
officer before making any search or seizure should on the basis of information in his possession has reason to
believe that if the seizure or search is not made then it is likely that the property involved in money-laundering will
be concealed or transferred resulting in frustrating any proceedings relating to confiscation. It has been the
consistent argument of the investigating agencies that, “…proceeds of such crime are “susceptible to stealth and
clandestine movement” which, if not seized immediately upon detection, can vanish forever”40 and, therefore; if
there is no material to justify that laundered assets will vanish forever then there should not be any reason to invoke
this section. Resort to section 17 should only be allowed in exceptional cases where the officer has a real
apprehension on the basis of some information that property involved in money-laundering may be dealt with if such
a seizure or search is not made which will cause irreparable harm in clawing the property back for confiscation.
Secondly, the section allows the officer to enter any property and conduct a search and seize property if any person
“has committed any act which constitutes money-laundering.” Post the 2019 Amendments, it is the case of the ED
that mere “possession” of proceeds of crime constitutes money laundering. This would mean that an officer can
enter any premises of any person even if he is an innocent recipient of proceeds of crime and even if there is no
immediate threat or apprehension of that innocent recipient dealing with any such property. Thirdly, section 17(1)(iv)
further expands the scope and allows the officer to conduct a search or seizure if any person “is in possession of
any property related to the crime.” As discussed earlier, the Act does not allow attachment and confiscation of any
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3.2 Proceedings before the Adjudicating Authority

property related to the crime. Only proceeds of crime involved in money-laundering can be attached and
confiscated. Therefore, allowing an officer to invoke powers under section 17 simply if someone is in possession of
property related to the crime is manifestly unreasonable. Fourthly, proviso to section 17(1) which now stands
omitted, required that until there is an FIR registered in relation to a scheduled offence no officer will be able to
invoke section 17. The Standing Committee in 2008 had specifically cautioned while discussing a technical
amendment to section 17(1) that:

“The Committee note that an amendment has been proposed in sections 17 and 18 of PMLA 2002 to enable the
investigating agency to take up the matter at the stage of filing of report by police authorities or filing of complaint before the
magistrate or court by authorised persons in respect of offences in which non police authorities are the investigating
agencies. The Committee desire that this provision coupled with the existing powers of confiscation and attachment of
property should not lead to any kind of overbearing conduct by officials. The Committee, therefore, expect that adequate
safeguard measures will be put in place to ensure that the powers vested in the enforcement authorities are used
judiciously and do not result in any undue harassment of individuals.”

Rather than putting adequate safeguard measure in addition to section 17(1), the entire proviso to section 17(1) has
now been omitted. The omission of this section altogether allows the ED to conduct a search and a seizure even
when there is no FIR in relation to a scheduled offence. The concern of the Committee of “undue harassment of
individuals” has now become a reality that is much more severe.
(iii) Section 18

Section 18 empowers an authority, authorised by the Central Government by general or special order, if it has
reason to believe that any person has secreted about his person or in anything under his possession, ownership or
control, any record or proceeds of crime which may be useful for or relevant to any proceedings under the Act, to
search and seize such record or property which may be useful for or relevant to any proceedings under the Act.

As has been argued in detail earlier, the PMLA allows confiscation of the property involved in “money laundering”.

A person who has dealt with “proceeds of crime” for adequate consideration should be kept out from the rigours of
this Act. By allowing powers of search to be invoked against “any person” in possession of any proceeds of crime
will again raise issues about harassment of innocent persons. A person should only be searched if he is involved in
money-laundering and not if he is dealing in proceeds of crime by providing adequate consideration. After search
and seizure, the concerned authority in terms of section 8(2) is required to immediately, forward a copy of the
reasons so recorded along with the material in his possession, to the Adjudicating Authority in a sealed envelope, in
the manner, as may be prescribed and such Adjudicating Authority shall keep reasons and materials for the
prescribed period. Where an authority is about to search any person, he shall, if such person so requires, take such
person within twenty-four hours to the near gazetted officer, superior in rank to him, or a Magistrate.41 If the
requisition under section 18(3) is made, the authority shall not detain the person for more than twenty-four hours
prior to taking him before the Gazetted Officer superior in rank to him, or the Magistrate.42 It is highly doubtful that
any person will object to a search and allow detention of up to twenty-four hours so that such person can be
produced to a Magistrate.

Section 18(5) provides that if the Gazetted Officer or the Magistrate sees no reasonable ground for search still has
the power to forthwith discharge such person but otherwise shall direct that search be made. Section 18(6) requires
that before making such search under sections 18(1) and 18(5), the authority shall call upon two or more persons to
attend and witness the search, and the search shall be made in presence of such persons. Although the section
does not specify, it is obvious that the Magistrate should in such circumstances allow the person to have access to
the material and the reasons to believe recorded in writing so that the person can make out a case that there are no
reasonable grounds for a search. It is hoped that this section does not encourage the general growing trend to
provide information to judicial forums in “sealed envelopes” which the accused cannot peruse and counter. Upon
completion of the search, the authority is required to prepare a list of record or property seized in the course of
search and must obtain the signatures of the witnesses in the list.

Further, according to section 18(9) the authority empowered under section 18, shall record the statement of the
person searched under section 18(1) and section 18(5) in respect of the records or proceeds of crime found or
seized in the course of the search. Further, section 18(10) states that the authority seizing any record or property
under section 18(1) shall within a period of thirty days from such seizure, file an application requesting for retention
of such record or property, before the Adjudicating Authority.

The requirement upon the concerned officer to have “reasons to believe” to be “recorded in writing” is like a golden
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3.2 Proceedings before the Adjudicating Authority

thread running through the entire Act curtailing the arbitrary and indiscriminate use of section 5, section 8, section
17 and section 18. An act which entrusts upon the investigating authority vast powers of attachment, search and
seizure are sought to be contained with this requirement of “reasons to believe”.

In J Sekar’s case which marks a watershed in clarifying the importance of the requirement of having reasons to
believe, the court, thus; explained:

“Reasons to believe cannot be a rubber stamping of the opinion already formed by someone else. The officer who is
supposed to write down his reasons to believe has to independently apply his mind. Further, and more importantly, it
cannot be a mechanical reproduction of the words in the statute. When an authority judicially reviewing such a decision
peruses such reasons to believe, it must be apparent to the reviewing authority that the officer penning the reasons has
applied his mind to the materials available on record and has, on that basis, arrived at his reasons to believe. The process
of thinking of the officer must be discernible. The reasons have to be made explicit. It is only the reasons that can enable
the reviewing authority to discern how the officer formed his reasons to believe. As explained in Oriental Insurance
Company v Commissioner of Income Tax, [2015] 378 ITR 421 (Delhi), the prima facie formation of belief should be rational,
coherent and not ex facie incorrect and contrary to what is on record. A rubberstamp reason can never take the character
of ‘reasons to believe’, as explained by the Supreme Court in Union of India v Mohan Lal Kapoor (1973) 2 SCC 836 [LNIND
1973 SC 292]. In Dilip N Shroff v CIT, (2007) 6 SCC 329 [LNIND 2007 SC 728], the Supreme Court decried the practice of
issuing notices in a standard pro forma manner without material particulars and without deleting inappropriate words or
paragraphs (Para 72)”

Powers of the ED under section 5(1) are sought to be tamed by the requirement that there has to be “reasons to
believe” that proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result
in frustrating any proceedings relating to confiscation. This is absent from sections 17 and 18 which gives the ED
unbridled discretion to seize assets. Although the expression “reasons to believe” used is the same,43 the table
given below differentiates the degree of “reasons of believe” which is required to exercise the power under the
respective section:

Reason to believe under Section 5(1) Reason to believe under Section 17 Reason to believe under Section 18
(i) any person is in possession of any (i) any person has committed any act (i) any person has secreted about his
proceeds of crime; which constitutes money-laundering; person;

And Or Or

(ii) such proceeds of crime are likely to (ii) any person is in possession of any (ii) any person has secreted in anything
be concealed, transferred or dealt with in proceeds of crime involved in money- under his possession, ownership or
any manner which may result in laundering; control, any record or proceeds of crime
frustrating any proceedings relating to
confiscation of such proceeds of crime Or
under this Chapter.
(iii) any person is in possession of any
records relating to money-laundering.

The reason recorded by the officers must be cogent and convincing and must be formed on the basis of the
material in the possession of the officer with a rational connection between the two.44 An officer, therefore; must
frame the “reasons” by relying on the material in his possession, which must be forwarded to the Adjudicating
Authority by the concerned officer.45 The term “materials” is defined as, “any material in possession of the Director
or the Authorized officer, as the case may be, on the basis of which he has recorded reasons including—(i) a report
forwarded to a Magistrate under section 173 of CrPC; or (ii) a complaint filed before a magistrate or a court by a
person authorized to investigate the scheduled offence for taking cognizance of such scheduled offence”.46 This,
therefore; implies that the no attachment or seizure can be made under sections 5 or 16 or 17 of the PMLA unless
the concerned officer has requisite material, i.e. a report/charge-sheet under section 173 CrPC filed by the police or
a complaint by an authorized person filed before the competent court for cognizance with respect to the scheduled
offences. This definition of “material” for the purposes of section 5(1) PMLA throws light on the fact that the intent of
the legislature was to link the offence of money laundering with the commission of the scheduled offences.

It should not be a mere formality but instead, be “akin to prima facie findings that the person concerned is positively
involved in money-laundering”.47

It is important to note that the order of provisional attachment or the order of seizure of any property is only valid for
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3.2 Proceedings before the Adjudicating Authority

a number of days, i.e. 180 days and ceases to have an effect on the expiry of the period of 180 days or on the date
Adjudicating Authority makes an order under section 8(2), whichever is earlier. The ED, immediately after attaching
or seizing the property, is required to approach the Adjudicating Authority for adjudication of the said attachment or
seizure. The action taken under these sections is a precursor to the proceedings before the Adjudicating Authority.
In some cases, ED has issued letters to various parties or banks asking them not to either pay their dues to an
accused under investigation or put a debit freeze on the bank account of the accused. In our opinion, such an
action without following the rigours of the Act is completely illegal. It is important to note that the ED can exercise
powers of attachment only in accordance with the scheme of the PMLA. In Abdullah Ali Balsharaf v Directorate of
Enforcement,48 the Delhi High Court (Single Judge) after discussing the scheme of sections 8, 17 and 20 observed
that:

“56. It is clear from the aforesaid scheme of the PMLA that any property can be provisionally attached under Section 5 or
be seized under Section 17 or be frozen under Section 17(1A) of the PMLA. However, any such order can be passed only if
the necessary checks and balances are complied with; namely, that the seizure or attachment is preceded by the
concerned authority having reason to believe that such properties are proceeds of crime or are otherwise related to crime.
Further, such reasons to believe must be formed on the basis of the material in possession of the concerned officer and
must be recorded in writing. In addition, such orders cannot be extended beyond the period of one hundred and eighty
days, within which the Adjudicating Authority has to examine the matter and pass an order after issuing notice to the
concerned persons and after affording the concerned persons full opportunity to be heard. Any person aggrieved by any
such order of the Adjudicating Authority is entitled to prefer an appeal to the appellate tribunal constituted under Section
25of the Act.

57. It is axiomatic that no order of freezing can be passed except in accordance with the provisions of Section 17(1A) of the
PMLA.

58. In terms of Section 73 of the PMLA, the Central Government is empowered to make rules for carrying out the provisions
of the PMLA. In exercise of such powers, the Central Government has notified the Prevention of Money-Laundering
(Forms, Search and Seizure or Freezing and the Manner of Forwarding the Reasons and Material to the Adjudicating
Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005. Rule 4 of the said Rules also
provides for the procedure related to freezing of any property found as a result of search of any building, place, vessel,
vehicle or aircraft.”49

Notwithstanding the above decision, the trend to attach assets or freezing accounts by merely issuing letters
remains unabated. This has led to various writ petitions being filed challenging such coercive measures without
following the mandate of the Act.

The provisional attachment by the ED does not dispossess the person from its property however; it disables a
person from dealing with its own property. The actual possession of the property may be taken away only
subsequent to the Adjudicating Authority confirming the attachment made by the ED as provided for in section 8.

The attachment or seizure of the property by the ED is an executive action. The law, however, requires the order of
the executive to be scrutinised by an independent body, in this case; the Adjudicating Authority (which is a quasi-
judicial authority).
3.2.3 Retention of Property under Section 20 and Retention of Record under Section 21

(i) Section 20—Retention of Property50

Section 20(1) provides that, where any property has been seized under section 17 or section 18 or frozen under
sub-section (1A) of section 17 and the officer authorised by the Director in this behalf has, on the basis of material
in his possession, reason to believe (the reason for such belief to be recorded by him in writing) that such property
is required to be retained for the purposes of adjudication under section 8, such property may, if seized, be retained
or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day
on which such property was seized or frozen, as the case may be.51

Further, on the expiry of the period specified in sub-section (1), the property shall be returned to the person from
whom such property was seized or whose property was ordered to be frozen unless the Adjudicating Authority
permits retention or continuation of freezing of such property beyond the said period.52

Further, sub-section (2) states that, the officer authorised by the Director shall, immediately after he has passed an
order for retention or continuation of freezing of the property for purposes of adjudication under section 8, forward a
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3.2 Proceedings before the Adjudicating Authority

copy of the order along with the material in his possession, referred to in sub-section (1), to the Adjudicating
Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep
such order and material for such period as may be prescribed.53

This sub-section (2) is to be read with the Prevention of Money-Laundering (the Manner of Forwarding a Copy of
the Order of Retention of Seized Property alongwith the Material to the Adjudicating Authority and the Period of its
Retention) Rules, 2005.54 The Rules mainly provide the manner of forwarding the copy of the order of retention of
seized property along with the material to the Adjudicating Authority55 and the acknowledgment of receipt of the
copy of the order by the Adjudicating Authority.56

Rule 5 states that, the Adjudicating Authority shall keep the copy of the order of retention of seized property and the
material for a period of ten years or if, before the expiry of the said period of ten years,—

(i) any proceedings under section 8 of the Act have been commenced, until the disposal of such proceedings,
or
(ii) where an appeal has been preferred to the Appellate Tribunal under section 26 of the Act, until the
disposal of such appeal by the Appellate Tribunal, or
(iii) where an appeal has been filed in the High Court under section 42 of the Act, until the disposal of such
appeal by the High Court, whichever is later.

It must be noted that, the Adjudicating Authority, before authorising the retention or continuation of freezing of such
property beyond the period specified in sub-section (1), shall satisfy himself that the property is prima facie involved
in money-laundering and the property is required for the purposes of adjudication under section 8.57

If the Court or the Adjudicating Authority, records the finding that all or any of the attached/seized/frozen properties
are not involved in money laundering, then in such cases, the Court or the Adjudicating Authority shall direct the
release of all properties other than the properties involved in money-laundering to the person from whom such
properties were seized or the person entitled to receive it.58 However, sub-section (6) provides that where an order
releasing the property has been made by the Court under sub-section (6) of section 8 or by the Adjudicating
Authority under section 58B or sub-section (2A) of section 60, the Director or any officer authorised by him in this
behalf may withhold the release of any such property for a period of ninety days from the date of such order, if he is
of the opinion that such property is relevant for the appeal proceedings under the Act.
(ii) Section 21—Retention of Records

Section 21 provides for the retention of records.59 Sub-section (1) states that, where any records have been seized,
under section 17 or section 18 or frozen under sub-section (1A) of section 17 and the Investigating Officer or any
other officer authorised by the Director in this behalf has reason to believe that any of such records are required to
be retained for any inquiry under this Act, such records may if seized, be retained or if frozen, may continue to
remain frozen, for a period not exceeding one hundred and eighty days from the day on which such records were
seized or frozen, as the case may be.60The person, from whom records seized or frozen, shall be entitled to obtain
copies of records.61

Sub-section (3) of Section 21 further provides that:

“on the expiry of the period specified under sub-section (1), the records shall be returned to the person from whom such
records were seized or whose records were ordered to be frozen unless the Adjudicating Authority permits retention or
continuation of freezing of such records beyond the said period.

The Adjudicating Authority, before authorising the retention or continuation of freezing of such records beyond the period
specified in sub-section (1), shall satisfy himself that the records are required for the purposes of adjudication under Section
8.”62

After passing of an order of confiscation under sub-section (5) or sub-section (7) of section 8, the Adjudicating
Authority shall direct the release of the records to the person from whom such records were seized.63 However, the
Director or any other officer authorised by him in this behalf, may withhold the release of any such record for a
period of ninety days if he (Director of Enforcement) is of the opinion that such property is relevant for the appeal
proceedings under this Act.64 Even if the intention behind this provision was to preserve the property till the filing of
the appeal, the said power should have been bestowed on the Adjudicating Authority or the Special Court, and not
on the Director.
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3.2 Proceedings before the Adjudicating Authority

3.2.4 Powers of the Adjudicating Authority under Section 8 PMLA

Section 8 deals with the adjudication proceedings. The provision is reproduced here:

“8. Adjudication.—(1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-
section (4) of section 17 or under sub-section (10) of section 18, if the Adjudicating Authority has reason to believe that any
person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not
less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which
or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized or frozen under
section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause
why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated
by the Central Government:

Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other
person, a copy of such notice shall also be served upon such other person:

Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons
holding such property.

(2) The Adjudicating Authority shall, after—

(a) considering the reply, if any, to the notice issued under sub-section (1);

(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and

(c) taking into account all relevant materials placed on record before him,

by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are
involved in money-laundering:

Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person
shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering.

(3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he
shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of section 5 or retention of
property or record seized or frozen under section 17 or section 18 and record a finding to that effect, whereupon such
attachment or retention or freezing of the seized or frozen property or record shall—
(a) continue during investigation for a period not exceeding three hundred and sixty-five days or the pendency of the
proceedings relating to any offence under this Act before a court or under the corresponding law of any other
country, before the competent court of criminal jurisdiction outside India, as the case may be; and
(b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or
section 58B or sub-section (2A) of section 60 by the Special Court.

Explanation.—For the purposes of computing the period of three hundred and sixty-five days under clause (a), the period
during which the investigation is stayed by any court under any law for the time being in force shall be excluded.

(4) Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-
section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the
property attached under section 5 or frozen under sub-section (1A) of section 17, in such manner as may be prescribed:

Provided that if it is not practicable to take possession of a property frozen under sub-section (1A) of section 17, the order
of confiscation shall have the same effect as if the property had been taken possession of.

(5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering
has been committed, it shall order that such property involved in the money-laundering or which has been used for
commission of the offence of money-laundering shall stand confiscated to the Central Government.

(6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken
place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to
receive it.
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3.2 Proceedings before the Adjudicating Authority

(7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared
a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on
an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an
order has been passed under sub-section (3) of section 8, pass appropriate orders regarding confiscation or release of the
property, as the case may be, involved in the offence of money-laundering after having regard to the material before it.

(8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such
manner as may be prescribed, may also direct the Central Government to restore such confiscated property or part thereof
of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence
of money laundering:

Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith
and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money
laundering:

Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration
of such properties during the trial of the case in such manner as may be prescribed.”

Any and every asset attached by the ED if not confirmed within the prescribed period (180 days) by the Adjudicating
Authority shall be released. Therefore, every attachment is scrutinised by Adjudicating Authority before it can be
confirmed. Section 8 provides for the procedure to be followed by the Adjudicating Authority in adjudication of (i) a
complaint filed by ED under section 5(5) (for provisional attachment of property), or (ii) the application under section
17(4) (for seizure of any record or property) or (iii) application under section 18(10) (seizure of any record or
property that maybe useful for investigation).65
(i) Section 8(1)—Issuance of show-cause notice

In terms of section 8(1) of the PMLA, upon receipt of the complaint/application, the Adjudicating Authority may issue
a Show-Cause Notice (‘SCN’) to the person against whom the complaint/applications are filed (“notice”), if there
exist reasons to believe that:

(a) the person has committed the offence of money laundering under section 3 or that
(b) he is in possession of proceeds of crime.66

It is crucial that the Adjudicating Authority applies its mind and records reasons in writing before issuing the SCN,
failure of which would render the provisional attachment order illegal.67 In the landmark decision of J Sekar (supra),
the Court clarified:

“There are two reasons to believe. One recorded by the officer passing the order under Section 5(1) PMLA and the other
recorded by the Adjudicating Authority under Section 8(1) PMLA. Both these reasons to believe should be made available
to the person to whom notice is issued by the Adjudicating Authority under Section 8(1) PMLA. The failure to disclose, right
at the beginning, the aforementioned reasons to believe to the noticee under Section 8(1) PMLA would not be a mere
irregularity but an illegality. A violation thereof would vitiate the entire proceedings and cause the order of provisional
attachment to be rendered illegal”.68 (Para 75)

The practice largely has been for the Adjudicating Authority to send out a show cause notice after a complaint or an
application has been filed by the ED. The show cause notice usually in most cases contains no reasons to believe
as required by section 8(1). The ED continues to argue that first, the reasons to believe are contained in the
Provisional Attachment Order and the Complaint filed before the Adjudicating Authority and those very reasons
have been adopted.69 In view of this, Adjudicating Authority is not required to separately provide reasons to believe
while issuing the show cause. Secondly, there is no express requirement under section 8(1) that the reasons to
believe recorded by the Adjudicating Authority have to be communicated to the party whose properties have been
attached. Both these arguments have been rightly rejected in Excel Powmin’s case which was decided subsequent
to J Sekar’s case. The court in Excel Powmin’s case reasoned that the Adjudicating Authority has to independently
determine its reasons to believe before issuing any show cause notice:

“…Section 8(1) envisages that, on receipt of a complaint under Section 5(5) of the PMLA or applications made under
Section17(4) or Section 18(10) “if the Adjudicating Authority has reason to believe ... (Para 30)
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3.2 Proceedings before the Adjudicating Authority

that any person has committed the offences mentioned therein, it may serve a notice as envisaged under Section 8(1) of
the PMLA. As such, the exercise of arriving at reasons to believe by the Adjudicating Authority prior to issuance of a notice
asking the noticee to show-cause on the counts as indicated in the said application, has to be arrived at independently by
the Adjudicating Authority, irrespective of the reasons to believe attributed for the initial notice under Section 5(1) of the
PMLA. Hence, the very fact that the Adjudicating Authority merely adopted the reasons to believe attributed at the stage of
Section 5(1) of the PMLA, shows that there was a dereliction of duty on the part of the Adjudicating Authority, which
palpably failed to exercise jurisdiction vested in it by law and to fulfill a necessary pre-condition of the notice under Section
8(1), that is, arriving at independent reasons to believe regarding commission of the offence. Such fact itself vitiates the
notice and consequentially further proceedings”. (Para 32)

Moreover, the court also reasoned that the reasons to believe have to be communicated to the defendant:

“Moreover, unless the reasons to believe for the Adjudicating Authority to issue the notice under Section 8(1) are
communicated to the noticee, the latter would not be in a position to produce the total evidence on which he relies and
other relevant information and particulars, which right also incorporates within its fold the entitlement to show that the
reasons to believe the commission of the offence, as given by the Adjudicating Authority, were incorrect, factually or legally,
which would hit at the very root of the proceeding and vitiate the same in the eye of law.” (Para 33)

The SCN of a period of not less than 30 days is given to the noticee to show cause as to why all or any of his
properties should not be declared to be properties involved in money laundering and be confiscated by the Central
Government and accordingly opportunity is given, to produce evidence on which he relies and other relevant
information and particulars indicating the sources of his income, earnings or assets, out of which the subject
property has been acquired and which is being attached or seized or frozen.

The Appellate Tribunal has time and again reiterated in a number of decisions that the Adjudicating Authority must
issue a show cause notice to all the persons holding the property which the ED has attached or seized under
section 5 or 17 of the PMLA.70 Failure to issue a show-cause notice to the lawful claimant under section 8(1) would
be a sufficient ground to quash the final order passed by the Adjudicating Authority.71

In Amanpreet Singh Gandhi v The Deputy Director,72 the property was held by more than one person and therefore
the show-cause notice was required to be served to all persons holding such property. The Tribunal in this
reference observed:

“The second proviso to section 8(1) requires that in case the property is held by more than one person, the showcause
notice shall be served to all persons holding such property. Section 8(2) empowers the Adjudicating Authority to record a
finding by an order whether all or any of the properties referred to in the showcause notice are involved in money-
laundering and the proviso to sub-section (2) of section 8 lays down if the property is claimed by a person, other than the
person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the
property is not involved in money laundering. It is this proviso which casts a responsibility on the Adjudicating Authority to
afford an opportunity of hearing to any person who has not issued a notice under section 8(1) but claims a right in the
property in question.” (Para 11)

The Appellate Tribunal while addressing an interim prayer in an appeal titled as State Bank of India v Enforcement
of Directorate,73 was faced with a similar issue where the banks (appellants) were not served with the show-cause
notice under section 8(1), nor any opportunity was granted to the banks to present their claim over the attached
properties before the Adjudicating Authority. The appellant banks filed the present appeal before the Appellate
Tribunal along with the application seeking condonation of delay of 562 days in filing the appeal.

The Tribunal condoned the delay with following reasons:

“10. [...]This Tribunal is of the considered opinion that as a matter of fact, ED has failed to perform his duty not to implead
the appellants (lenders) banks despite of having full knowledge that the loan amounts have to be returned by Vijay Mallya
and his associate company to the banks who are the mortgagees of the attached properties. One is failed to understand
why have not done so when they were full aware. Thus, the prayer made in the application for condonation of delay is liable
to be allowed as the sufficient cause has been shown, the Misc. Petition is disposed of.”

(ii) Section 8(2)—Passing an Order

Section 8(2) requires the Adjudicating Authority to consider all material submitted as a reply to the SCN before
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arriving at a conclusion whether the property which is a subject matter of the SCN is involved in money laundering
or not.

The Adjudicating Authority is also required to give an opportunity to a third party or any other aggrieved party, who
is not the noticee, but who may have an interest in the subject property or who may be aggrieved by the order of
provisional attachment and consider all material submitted by such persons for passing an order. Where a property
is claimed by a third party who is a person other than the noticee and who holds the property in question “on behalf
of any other person”, an opportunity is also given to such person to approach the Adjudicating Authority to show
that the property is not involved in money-laundering.74 Common examples of such persons may be banks,
mortgagees, transferee, lessee, hypothecate, manager, agent, trustee and joint family members who all have an
interest in the property amongst others.

In passing an order under section 8(2), the Adjudicating Authority must apply its mind to the Complaint and all
relevant materials placed before it by all parties and must record its satisfaction that it had reasons to believe that
the subject property is involved in money laundering before confirming an order of attachment.

In effect, the noticee and even third party approaching the Adjudicating Authority, is required to discharge the
burden that the property does not constitute proceeds of crime.75 Where a transaction of acquisition of property is a
part of interconnected transactions, the onus of establishing that the property acquired is not connected to the
activity of money-laundering, is on the person in ownership, control or possession of the property, even though he
may not be accused of a section 3 offence, provided one or more of the interconnected transactions is proved to be
involved in money-laundering (section 23). Interestingly, the burden of proof applies equally to a person who is a
noticee or a person accused of the predicate offence as well as to the third party to show that the subject property is
not involved in money laundering.

It, therefore; becomes extremely important as to what is the meaning of the term that the “property is involved in
money-laundering”. If the mere use of proceeds of crime in the acquisition of a property in every case tantamount to
“money laundering”76 then it would have a disastrous effect on a person who has paid adequate consideration for
acquiring a property purchased initially out of proceeds of crime. For example, a third party may have acquired the
property or interest in the property innocently as a bona fide acquirer and may also have paid adequate
consideration, without having any knowledge that the subject property has proceeds of crime invested in it and,
therefore; the property is involved in money laundering. Even if a third party is able to prove that it has paid
adequate consideration and had no knowledge about the property being acquired with proceeds of crime, there is
no provision under the PMLA to release the property or the interest therein in favour of such person and the
property becomes liable to be attached.77 Such a broad meaning to the term “money laundering” would lead to
making the provisions extremely harsh and almost draconian as an acquirer of a property or interest may not
always be aware that a certain property has been acquired from proceeds of crime and therefore by virtue of that
the property is involved in money laundering.

This leads to two kinds of cases, viz. where the third party acquirer may know that the property has been bought
from proceeds of crime and, therefore; is involved in money laundering and cases where they may not be aware. A
second kind of the case is where the property has not been brought from proceeds of crime and therefore not
involved in money laundering. This category is the only instance where the property can be released, as is
discussed subsequently under section 8(6) if the term “property involved in money laundering” is equated with
“property acquired using proceeds of crime”. The Appellate Tribunal has repeatedly urged and upheld the rights of
the second category of persons,78 but there is little judicial reasoning or clarification as to what constitutes “property
involved in money laundering”. The trend to attach third party assets even when adequate consideration has been
paid remains unabated. As we have argued in chapter 2, there can be no “money laundering” if the purpose of the
transaction is not to project tainted monies and untainted monies. It“is a money-laundering statute and not a money
spending statute. Merely spending unlawful proceeds does not automatically provide a basis for a money
laundering conviction.”79 A sham transaction or a transaction without adequate consideration may lead itself to the
conclusion that there is money laundering. However, a transaction for value would indicate that the property has
merely passed on to new owners and is not to further any laundering of the proceeds of crime. A third party who
can demonstrate that he has paid adequate consideration from legitimate means to purchase the property should
not, therefore; be made to suffer any such attachment. The only way to ensure that the Act is not used to harass
innocent persons is to insist that any attachment would only survive if the third party is unable to demonstrate that
he has not paid adequate consideration for the property. Moreover, once a third party has paid adequate
consideration then the proceeds of crime cannot be traced to the property acquired but the consideration in the
hands of the accused person who has sold such property to the third party. The Gujarat High Court, in the matter of
Alive Hospitality (supra),80 thus, rightly reasoned that once an innocent or fair value acquirer of property proves so,
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it should perhaps be not the property in possession of a person but the fair value for which he has acquired the
property and paid to the transferor that constitutes proceeds of crime and the authorities may have to proceed
against the property or value in the hands of the transferor.

The Appellate Tribunal in a number of cases has come to the rescue of innocent buyers who had purchased
properties for adequate consideration but found their properties attached on the pretext that such property was
proceeds of crime in the hands of the seller.81 In Indian Performing Right Society (IPRS) v The Deputy
Director,82the Tribunal specifically noted, “if the plea is raised that the party whose property is attached is innocent
or is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider
the said plea and proceed to release the said property out of the properties by holding that the said property is not
involved in money laundering.” The Tribunal has even held that money generated or accrued from a genuine
transaction cannot be termed as proceeds of crime. Therefore, if X pays Y for cleaning his car then Y’s
remuneration cannot be attached even if X uses “proceeds of crime” to pay Y for his services.83

The case of Rajendra Kumar Jain v The Deputy Director Directorate of Enforcement84 illustrates the harassment an
innocent person can be subjected to, even after paying adequate consideration for a property. In this case the
appellant before the Tribunal argued that he was an innocent bona fide purchaser of the property which was
attached by the ED (respondent in this case) notwithstanding that the appellant had no nexus whatsoever with the
predicate offence or the offence of money laundering. Moreover, the appellant had documented proof to
substantiate that he had purchased the property in question with adequate consideration from his legitimate and
independent income from fully documented sources. What made this case peculiar was that the property in
question had been attached by the ED by invoking the principle of “value thereof” and not because the property had
been acquired from the proceeds of crime generated from the predicate offence. It was also argued that at the time
of issuance of the impugned Provisional Attachment Order, the ED was aware of the bona fide purchase of the
property by the appellant, and yet chose not to investigate the matter further. In fact, in complete violation to the
mandate of sections 8(1) and 8(2), no show cause notice was issued to the appellant by the Adjudicating Authority
nor was the appellant given any opportunity to be heard. The ED is its defence argued that the appellant purchased
the property in connivance with Mr Vijay Mallya. It argued that in the event the said appeal is allowed, it would result
in giving priority to the claims of the appellant over the claims of other secured creditors. Rejecting the arguments
raised by the ED, the Tribunal allowed the appeal and held that

“From the entire gamut of the matter, it is evident that the appellant was the claimant in the flat. By making the entire
payment, the appellant is become stake-holder as the amount paid by the appellant was not proceed of crime. The
appellant is also not involved in the money laundering. The question of link and nexus in the criminal activities directly or
indirectly does not arise.”(Para 32)

In order to avoid harassment to third parties, section 329 (2)(c) of the POCA provides that a person who acquires or
possesses criminal property after payment of adequate consideration is exempted from the offence of money
laundering. Notably, if a third party acquires the criminal property for adequate consideration, then that would not
amount to money laundering even if he knew that the property was proceeds of crime. This is because payment of
consideration would lead to tracing of the proceeds of crime in the hand of the person who has received the
consideration and not the property which was bought from proceeds of crime. Moreover, once a third party has paid
adequate consideration for a property then he does not benefit from the receipt of proceeds of crime. The purpose
of attaching proceeds of crime is to take away the benefit that the accused has acquired from committing a criminal
offence. If there is no benefit that arises from a crime then there cannot be any justification to attach and property.
In R v Waya85 the Supreme Court of UK therefore modified a confiscation order to the extent of the benefit that the
accused had derived by committing the scheduled offence. The court stated:

“The difficult question is when a confiscation order sought may be disproportionate. The clear rule as set out in the
Strasbourg jurisprudence requires examination of the relationship between the aim of the legislation and the means
employed to achieve it. The first governs the second, but the second must be proportionate to the first. Likewise, the clear
limitation on the domestic court’s power to read and give effect to the statute in a manner which keeps it Convention-
compliant is that the interpretation must recognise and respect the essential purpose, or “grain” of the statute.”(Para 20)

Attaching a third party’s assets who has paid adequate consideration even if such a third party has knowledge may
be disproportionate and against the “grain of the statute.” As we have argued in chapter 2, the aim of the PMLA is
to attach properties involved in money laundering. The aim is not to attach proceeds of crime regardless of whether
those proceeds have been laundered. In any event, if no benefit has accrued to a person who has dealt with the
proceeds of crime then there cannot be any justification for attaching his properties. A third party by paying
adequate consideration has not benefitted in any manner. There is no unjust enrichment and the proceeds of crime
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3.2 Proceedings before the Adjudicating Authority

can now be traced into the consideration paid by the third party to the transferor. It would be manifestly arbitrary if a
third party who pays adequate consideration and, therefore; is a purchaser for value is treated similarly to a third
party who pays no consideration (or nominal consideration) and indulges in a sham transaction to conceal the
proceeds of crime. The latter is assisting in money laundering while the former is not. Interestingly, from the time
when the PMLA was enacted, the scope of provisional attachment under section 5 was limited to persons who were
involved in the commissioning of the scheduled offence. By way of the amendment, the scope of section 5 was
expanded to cover not just persons charged with having committed the scheduled offence but also other persons
who could be in possession of proceeds of crime. The consequent changes were, however; not brought in the
provisions of section 8 and consequently the adequate protection to an acquirer of property for adequate
consideration and an innocent acquirer, from attachment of its assets have been left out from the provisions of
section 8.
(iii) Section 8(3)—Confirmation of Provisional Attachment

Where the Adjudicating Authority decides under section 8(2) that any property is involved in money-laundering, it
passes an order in writing, under section 8(3) which has the effect of confirming the provisional attachment/seizure
or retention of the subject property.86 The confirmation order continues (a) during the pendency of investigation of
the offences under the PMLA before the Special Court for a period not exceeding 365 days or (b) during the
pendency of the proceedings relating to an offence of money laundering before the Special Court or (c) pending
proceedings before the corresponding court of another country where it is being tried under corresponding law.

Clause (a) protects a person from suffering an attachment if within 365 days of the attachment the investigation has
not completed. Therefore, let us take the example of X whose car has been attached on the pretext that the car
attached was involved in money laundering. If within 365 days from the date of confirmation the investigation has
not completed and complaint has not been filed before the Special Court then the attachment cannot continue and
X’s car attached stands released. The question arises what if a complaint has been filed but the complaint filed
does not relate to the specific asset (i.e. the car)? It would often happen that an initial complaint has been filed
which may not cover the allegation of money laundering qua additional properties that are found to be involved in
money laundering which have been attached subsequent to filing of the initial complaint. Such a situation arose in
Seema Garg’s case where an initial complaint was filed which did not relate to a certain property which was
attached and no further supplementary complaint was filed even after 365 days period. The court held that given
that no supplementary complaint was filed and the initial complaint did not make the person suffering the
attachment (the Petitioner) an accused, therefore, the attachment would cease in view of clause (a) to section
8(3).87 There is little justification in not applying the safeguard contemplated in clause (a) even in such a case but
the problem with such an interpretation is that it ignores the second part of clause (a) which states that the
attachment would continue “during the pendency of the proceedings relating to an offence of money laundering
before the Special Court”. If an initial complaint has been filed and the proceedings are pending before the Special
Court then one could argue that the cap of 365 days cannot come to the benefit of the person suffering the
attachment on the pretext that such a person is not made an accused in the initial complaint. The words “relating to
an offence of money laundering” does not mean relating to the person suffering the attachment. The court also
found that the appellant the owner of the attached asset was neither named in the ECIR nor in the initial complaint.
This may, however; be an irrelevant consideration. It is not necessary that the person who has suffered attachment
should be made an accused for the offence of money laundering. What is however important is that the facts
relating to the property involved in money laundering should be clearly set out in the complaint or in a
supplementary complaint based on the result of the investigation within the cap of 365 days. However, the decision
in Seema Garg’s case on this point (although debatable if one follows the literal construction of Clause (a)) is
necessary as it safeguards persons from unnecessary harassment.
(iv) Section 8(4) to Section 8(6)—Taking possession of property

When a confirming order is passed by the Adjudicating Authority under section 8(3), the ED under section 8(4) is
directed to take over the possession of the subject property. The manner of taking possession of the property is
provided by way of the Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties
confirmed by the Adjudicating Authority) Rules, 2013. The Rules also provide for modes of attachment of various
kinds of movable and immovable property including disposal of property that is perishable or whose value is
diminishable.
(v) Taking over the possession (Section 8(4))

From a conjoint reading of sub-sections 3 to 6 of section 8, it is clear that the confirming order is subject to
conviction by the Special Court for the offence of money laundering. If the Special Court acquits a person for the
offence of money laundering, then the property is released. This leads us to wonder, if the true meaning of the
words “take possession” of the property in section 8(4) should be constructive possession instead of physical
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possession as the latter would deprive the owner of the property from accessing and using the property for the
entire duration of the trial before the Special Court. The constitutional validity of inter alia section 8(4) of the PMLA
came to be challenged before the Andhra Pradesh High Court88 where it was upheld. The Single Bench of the
Madras High Court89 specifically held that the term “possession” in section 8(4) of PMLA does not mean actual
possession but can only be taken to mean “symbolic possession” and actual possession can only be taken after
conviction passed by the Trial Court. The court reasoned:

“68. The right to property, though not a fundamental right, is nevertheless a Constitutional right in terms of Article 300-A.
The Supreme Court has held the right to property as a human right also. Even if I assume for a minute, that the object of
the Prevention of Money Laundering Act, 2002 is to keep the accused out of the possession and enjoyment of the proceeds
of crime, the human rights of other members of his family or even persons who are in occupation of the property under
lawful agreements of tenancy, cannot be thrown to the mercy of the respondents. We must be conscious of the fact that the
right to dispossess the accused, is conferred upon the respondents by the Statute, even before his conviction. Therefore, if
the expression “possession” is construed to mean actual physical possession, Section 8(4) would infringe upon the human
rights and Constitutional rights not only of persons accused, but also of other persons who are in actual physical
possession of the property.”

The said judgment was subsequently stayed by the Division Bench of the Madras High Court on appeal by the ED.
However, the reasoning of the court in the above case is compelling. First, it is now well established that right to
property is not only a constitutional right under Article 300A of the Constitution but also a human right and “property
must be secured, else liberty cannot subsist.”90 Therefore, any provision of the PMLA which allows the state to
divest a person from his property has to be construed in a manner so that the interpretation does not lead to a
disproportionate result. Thus, it “requires examination of the relationship between the aim of the legislation and the
means employed to achieve it. The first governs the second, but the second must be proportionate to the first.”91
The Act provides for confiscation after conviction and, therefore; dispossessing a person from his property prior to
conviction in all practical sense would have the effect of “confiscation” subject to final result in the trial. Therefore,
interpreting “possession” to mean actual physical possession would lead to a disproportionate result. Secondly, the
Act does not provide for any compensation to be paid to a person who was eventually acquitted and, therefore;
wrongly deprived of his property for a considerable amount of time (till the conclusion of the criminal trial).
Therefore, divesting a person from his property for a significant period of time without compensation is a violation of
Article 300A of the Constitution. The obligation to pay compensation though not expressly included in Article 300A,
can be inferred in that Article.92 Why should a person who is not yet convicted of a scheduled offence be deprived
of his own property, much before his conviction that is, if he is ever convicted. The argument that the person should
be restrained from selling off or creating any encumbrance in the property is valid, but why the person should be
dispossessed. The power to attach has been held to be akin to powers provided to the court under the CPC for
attaching properties before judgement so that the proceedings are not frustrated.93 There is, therefore; no
justification for taking a step in addition to attaching of dispossessing as the subject matter is secured after an
attachment takes place.

In the UK, to maintain proper checks and balances, the confirmation of the provisionally attached property is carried
out by the High Court (in case of a civil recovery) or the Crown Court (in case of the criminal recovery), and that too
after the conviction in the criminal matter is confirmed.94 In India, not only the confirmation of the provisional
attachment order can happen even before the trial of the scheduled offence begins and rather shockingly a person
is asked to vacate his property even before he is convicted for a scheduled offence under the Act. In the event the
defendant has suffered losses due to the wrongful attachment, section 283 POCA empowers the court in the UK to
grant compensation to the defendants. The same provision is amiss under the PMLA giving wide and discretionary
powers to the ED without any accountability.95
(vi) Section 8(5) and 8(6)

Section 8 (5) PMLA states that upon conclusion of the trial where the Special Court finds that the offence of money-
laundering has been committed, it shall order that the property involved in money-laundering shall stand confiscated
to the Central Government. If it finds to the contrary then under section 8 (6), it shall order the release of the
property to the person entitled to receive it.

Section 8(6) provides for the release of the attached properties by the special courts, which can occur in the
following two circumstances:

(i) Where on the conclusion of the trial of an offence of money laundering, the special court finds that the
offence of money laundering has not taken place or the property is not involved in the money-laundering, it
shall order the release of such property to the person entitled to receive it.96
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(ii) In cases, where the trial under the PMLA cannot be conducted and concluded for the reason of the death
of the accused or, the accused being declared a proclaimed offender or any other reasons, the special
court upon receiving applications either moved by the Director or a person claiming to be entitled to
possession of a property under section 8(3) PMLA, is required to pass appropriate orders regarding
confiscation or release of the property, based on the material before it.

In contrast to the effect of the order of “attachment” which only entails “prohibition of transfer, conversion,
dispossession or movement” of such property, section 9 states that “the confiscation” in terms of section 8(5) or 8(7)
or section 58B or section 60(2A) entails all the rights and title in such property vesting absolutely in the Central
Government “free from all encumbrances”. Further, section 10 confers the Central Government with the power to
take over and manage such property as has been confiscated which ensures that the confiscation of the property to
the Central Government is absolute.

The procedure of receipt and management of the confiscated properties pursuant to the order of the Special Court
under section 8(6) of PMLA is provided in the Prevention of Money-laundering (Receipt and Management of
Confiscated Properties) Rules, 2005.97

Rule 3 provides for the procedure of receipt of confiscated property. It states that the Administrator shall, at the time
of receiving the confiscated properties, ensure proper identification of such property with reference to its particular
mentioned in the order confiscating such property.

Rule 4 further provides for the management of a confiscated property. Sub-rule (1) states that where the property
confiscated is of such a nature that its removal from the place of attachment is impracticable or its removal involves
expenditure out of proportion to the value of the property, the Administrator shall arrange for the proper
maintenance and custody of the property at the place of attachment. Sub-rule (2) further states that if the property
confiscated consists of cash, Government or other securities, bullion, jewellery or other valuables, the Administrator
shall cause to deposit them for safe custody in the nearest Government Treasury or a branch of the Reserve Bank
of India or State Bank of India or its subsidiaries or of any authorised bank.

According to sub-rule (3), the Administrator shall maintain a register containing the details in Form I for recording
entries in respect of moveable property, such as cash, Government or other securities, bullion, jewellery or other
valuables.

It is further required that the Administrator shall obtain a receipt from the Treasury or the bank, as the case may be,
against the deposit of moveable properties stated in sub-rule (3) of this rule and will maintain a register containing
the details in Form II for recording entries in respect of property other than the properties referred to in sub-rule (3)
of this rule.

Rule 5 provides for the assistance to the Administrator. It states that the Central Government may provide from time
to time such members of staff and other persons as it thinks fit to assist the Administrator in exercise of his powers
and performance of duties under these rules.
(vii) Section 8(7)—Release of property of proclaimed offender

In cases where the trial before the Special Court cannot be conducted for reason of death of the accused or the
accused having been declared a proclaimed offender or for any reason, section 8(7) provides that any person who
claims to be entitled to the possession of such property which is subject matter of an order under section 8(3), may
apply to the Special Court for release of the property and the Special Court may consider the application and pass
orders for confiscating or releasing the same.
(viii) Section 8(8)—Compensation and Restoration

Section 8(8) was inserted in the PMLA in the year 2015,98 whereby the Special Court has been given powers to
pass orders for restoring the property confiscated under Section 8(5), to persons who may have suffered a heavy
loss as a result of the offence of money laundering. This was a laudable step taken by the Government in
recognising that offences of money laundering, in many cases, cause large scale losses to a section of society, and
despite conviction of the perpetrators of money laundering and also despite confiscation of proceeds of crime, there
was no provision to compensate the identified victims for their losses.

However, section 8(8) consists of two provisos. The first proviso states the Special Court shall not consider such
claim under it is satisfied that claimant acted in good faith and has suffered the loss despite having taken all
reasonable precautions and is not involved in the offences of money laundering.
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3.2 Proceedings before the Adjudicating Authority

The second proviso has been recently inserted by way of the Finance (No 13) Act, 2018. It states that “Provided
that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such
properties during the trial of the case in such manner as may be prescribed”. The insertion of the second proviso to
section 8(8) allows the Special Court to restore the property attached by the ED back to its lawful claimant even
during the trial. The person claiming the property need not have to wait for the conclusion of the trial. However,
section 8(8) cannot be construed to curtail the powers and jurisdiction of the Adjudicating Authority which at all
times has to first decide whether the property is liable to attachment in the first place.

In ICICI Bank v The Deputy Director, Directorate of Enforcement, Mumbai,99 the Appellate Tribunal in reference to
section 8(8) held that the Adjudicating Authority erred in upholding the view that the pleas of the claimant
possessing legitimate interest and bona fide claim as a third party to the properties cannot be tackled at the stage of
confirmation of the provisional attachment order by the Adjudicating Authority and that the rights of the appellant will
be dealt with by the Special Court at the stage of section 8(8) of the PMLA. Defining the contours of its jurisdiction
under the Act, Tribunal also held that the

“32. Therefore, this Tribunal is empowered and have jurisdiction in terms with the Act as the court of first appeal, to
adjudicate upon the pleas of the Appellant and determine the bona fides and legitimacy of its claims as well as the legality
of the Provisional Attachment Order. Upon an argument being raised by the Enforcement Directorate that claims of third
parties are to be solely adjudicated by the Special Court before whom trial is pending, the Hon’ble High Court of Delhi in the
Axis Bank Decision has held that the claim of a party asserting a bona fide and legitimate claim would be inquired into by
the Special Court only if the order confirming the attachment “has attained finality”. An order cannot be said to have
attained finality until and unless all the remedies under the Act have been exhausted.”

The Tribunal also observed that the findings of the Adjudicating Authority is contrary to the statutory and legislative
scheme of the Act, which would also amount to an exercise in futility and wasteful litigation if the Appellant were
required to be a mute spectator to the confirmation of attachment of mortgaged properties before the Adjudicating
Authority. The Tribunal, thus, observed that:

“[...] It would be futile to deny the Appellant his claim over the mortgaged properties at the stage of confirmation of the PAO
itself. Further, the legislative intent for relief at this stage can be borne out from the fact that under the proviso to sub clause
1 and 2 of section 8 of the Act, prior to the confirmation of the PAO, the Adjudicating Authority is required to adjudicate over
the claim of an innocent party who seeks claim over the attached property, apart from the person to whom notice had been
issued. Therefore, the Adjudicating Authority vide the Impugned Judgment has erred in failing to recognise the legitimate
claim of the Appellant at the stage of confirmation of the PAO itself.”

Section 8(8) of the PMLA is to be read with the Prevention of Money Laundering (Restoration of Property) Rules,
2016100 (‘PML Restoration Rules, 2016’). The PML Restoration Rules, 2016 mainly provide for the manner for the
restoration of the confiscated property and the manner of restoration of property during the trial. Rule 3 provides for
the manner in which the confiscated property is restored by the Special Court. Sub-Rule (1) states that the Special
Court, within forty-five days from the date of passing the order of confiscation under sub-section (5) section 8 of the
Act in respect of property, shall cause to be published a notice in two daily newspapers, one in English language
and one in vernacular language, having sufficient circulation in the locality where the property is situated calling
upon the claimants, who claim to have a legitimate interest in such property or part thereof, to submit and establish
their claims, if any, for obtaining restoration of such property or part thereof.

The Rule also provides for a situation when the confiscated property is insufficient to meet the loss suffered by the
claimants as a result of the offence of money-laundering, it states that the Special Court, as it thinks fit, may pass
an order of restoration of property on a pro-rata basis in accordance with the share of loss suffered by each
claimant.101 It is also stated under sub-rule (3) of rule 3 that no claimant shall be entitled to claim restoration of
confiscated property before the Special Court beyond thirty days from the date of publication of the notice referred
to in sub-rule (1), provided that the Special Court may entertain any claim not exceeding further thirty days, upon
the satisfaction that the claimant was prevented by sufficient cause.

By way of a very recent amendment, Rule 3A was inserted to the PML Restoration Rules, 2016. It provides for a
manner of the restoration of property during trial. It states sub-rule (1) of Rule 3A states that the Special Court, after
framing of the charge under section 4 of the Act, on the basis of an application moved for restoration of a property
attached under sub-section (1) of section 5, or, seized or frozen under section 17 or section 18 of the PMLA prior to
confiscation, if it thinks fit, may, for the purposes of the second proviso to sub-section (8) of section 8 of the PMLA,
cause to be published a notice in two daily newspapers, one in English language and one in vernacular language,
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having sufficient circulation in the locality where such property is situated calling upon the claimants, who claim to
have a legitimate interest in such property or part thereof, to submit and establish their claims, if any, for obtaining
the restoration of such property or part thereof.

It is when the property referred to in sub-rule (1) is insufficient to meet the loss suffered by the claimant as a result
of the offence of money-laundering, the Special Court, may then pass an order of restoration of property directing
the Central Government, if necessary, to auction such property and disburse on a pro-rata basis in accordance with
the share of loss suffered by each claimant and may give custody, thereof to such claimant on his executing a bond
undertaking to produce such restored property before the Special Court as and when required for the purposes of
sub-section (5) or sub-section (6) or sub-section (7) of section 8 of the PMLA.102

Rule 3A in sub-rule (3) further provides that no claimant shall be entitled to claim restoration of the property referred
in sub-rule (1) before the Special Court beyond thirty days from the date of publication of the notice referred to in
that sub-rule, provided that the Special Court may entertain any claim not exceeding further thirty days, upon the
satisfaction that the claimant was prevented by sufficient cause.

Sub-rule (4) in Rule 3A also provides that no order shall be passed by the Special Court under this rule, without
giving an opportunity of being heard to the owner of the property referred to in sub-rule (1) or in the event of his
death, the legal representatives of such person or official assignee or official receiver, as the case may be.
3.2.5 Overlap between the Adjudicating Authority and the Special Courts

Another interesting aspect which arises from the language of Section 8 is the overlap of the issues to be
adjudicated by the Adjudicating Authority and the Special Court. The Adjudicating Authority and Special Court are
required to decide the following similar issues:

(i) Whether the person has committed an offence of money laundering,

(ii) Whether the person in question is in-possession of the proceeds of crime,
(iii) Whether all or any of the properties referred to in the SCN are involved in money laundering.

A conflict may arise between the decision of the Adjudicating Authority and the Special Court in a situation where
the Adjudicating Authority quashes a PAO and the Special Court finds that the offence of money-laundering has
been committed and the properties which were released by the Adjudicating Authority were involved in money
laundering. Will the properties released by the ED be confiscated again?

In B Rama Raju’s case (supra), the Andhra Pradesh High Court observed:

“The several degrees of assumptions and reason to believe on the part of the adjudicating authority, anterior to the stage of
confiscation are thus in the scheme of the Act prima facie and tentative assumptions or reasons to believe, since
determination of the guilt of the person accused, of the offence of money laundering is within the exclusive domain of the
Special Court constituted for trial of the offence and outside the domain of the adjudicating authority under Section 8.”

No doubt that determination of the guilt of the person accused of money laundering is the exclusive domain of the
Special Court but once the Adjudicating Authority has come to the conclusion that a specific property is not involved
in money laundering then that should be the end of any debate as to whether that particular property is involved in
money laundering. Even section 8(5) which gives power to the trial court to pass an order of confiscation refers to
“such property” which relates to those attached properties which have been confirmed by the Adjudicating Authority.
Therefore, no confiscation order can be passed against those properties which have been released by the
Adjudicating Authority. Moreover, if all attachments made by the ED in a case are released by the Adjudicating
Authority then there is little justification to proceed with any trial before the Special Court because there would be no
properties involved in money laundering unless the accused is being prosecuted for “attempt to” commit the
offence. For example where X is caught trying to hand over stolen cash to Y for the purpose of laundering but is
caught on his way to meet Y.

7 Vide GSR 177 (E), dated 18 March 2013, published in the Gazette of India, Extra, Pt II Section 3(i), No 142, dated 18
March 2013.
8 Section 5 requires that the Director (or any other officer not below the rank of Deputy Director) before initiating any
action against a property must have reasons to believe that any person is in possession of any proceeds of crime and
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3.2 Proceedings before the Adjudicating Authority

such proceeds are likely to concealed, transferred or dealt with in any manner which may result in frustrating
confiscation proceedings of such proceeds of crime. Whereas, section 17 requires the Director (or any other officer not
below the rank of Deputy Director) to have reasons to believe that the person has committed any act which constitutes
money laundering, or is in possession of any proceeds of crime involved in money laundering, or is in possession of
any records relating to money laundering or is in possession of any property related to a crime before it can seize such
a property. Section 18, on the other hand, authorises any authority, authorised by the Central Government by general
or special order to seize from any person has secreted about his person or in anything under his possession, ownership
or control, any records or proceeds of crime which may be useful for or relevant to any proceedings under the Act.
9 For the purpose of this book, we shall use the word “attach” in the place of attach/seize/ freeze.
10 The Appellate Tribunal in the case of Satyen Suresh Gathani v The Deputy Director, Directorate of Enforcement, FPA-
PMLA-1988/MUM/2017, decided on date 25 February 2019, has held that:
“Section 5 of the PMLA, 2002 provides that property can be attached only when the attaching officer has “reasons to
believe” based on the material on record that a person is in possession of any proceeds of crime or where the proceeds
of crime are likely to be transferred or dealt with in a manner which would frustrate any proceedings relating to
confiscation of such proceeds. It is not merely formality nor it means to repetition of contents/allegations referred in the
FIR and charge-sheet. Being an independent action under PML Act, the officer concern has to examine the entire
matter in addition to the allegation couple with the additional/independent evidence gathered after investigation.”

Also see, ICICI Bank v The Deputy Director, Directorate of Enforcement, Mumbai, FPA-PMLA-2798/MUM/2019,
decided on 30 August 2019 by the Appellate Tribunal.
11 The ED under the second proviso needs to show that “any proceedings under the Act” is likely to be frustrated in
contradiction to “any proceedings relating to confiscation” as provided in the main provision. However, the ED should
only rush into an attachment in either case if non-attachment of property is likely to frustrate any eventual confiscation
of such property.
12 J Sekar, Supra footnote 3, (see paragraph 74(i)). Also, see the High Court of Telangana decision in B Rama Raju v
UOI, Writ Petition Nos. 10765, 10769 & 21366 of 2010, decided on date 4 March 2011, that, “… it is clear that what is
targeted for confiscation is proceeds of crime in the ownership, control or possession of any person and not all property
or proceeds of all crime in the ownership, control or possession of any person”. This decision again seems to indicate
that “proceeds of crime” obtained as a result of a scheduled offence is liable to be attached. There is no requirement to
show that such proceeds of crime have been laundered. In pith and essence, this decision and J Sekar’s case, both
treat proceeds of crime and properties involved in money laundering as similar and interchangeable. The decision of
the High Court of Telangana in B. Rama Raju (supra) has been challenged before the Supreme Court in Special Leave
to Appeal (Civil) No. 28394 of 2011 and at present is pending.
13 Nikesh Tarachand Shah v UOI, AIR 2017 SC 500 : (2018) 11 SCC 1 : 2017 SC 1279 : (2018) 2 RCR (Cr) 232, decided
on 23 November 2017.
14 See Chapter 2 for a detailed discussion of what constitutes money laundering.
15 Dr V M Ganesan v The Joint Director, Directorate of Enforcement, WP Nos. 24432 and 28235 of 2014 MP Nos 1 and 1
of 2014, decided on date 17 November 2014, (Madras High Court)
16 The Madras High Court in Dr VM Ganesan v The Joint Director, categorised “persons” in the following three
categories—
“21. Keeping in mind the scheme of the second proviso to Section 5(1) of the Act, if we have a look at the first proviso,
the construction to be given to the first proviso would be very clear. A person who is in possession of a property that
allegedly represents the proceeds of crime, may come under any of the three categories namely: (i) person who is not
accused of any offence, but who has merely come to possess, under fortunate or unfortunate circumstances, a property
that represents the proceeds of a crime; (ii) person against whom a complaint is lodged, but the investigation is not yet
complete and a final report under Section 173 of the Code of Criminal Procedure not yet filed; or (iii) a person who is
accused of committing an offence and against whom a final report has been filed under Section 173 of the Code of
Criminal Procedure before the competent Court.”
The appeal challenging the judgment dated 17 November 2014 was filed before the Supreme Court in Writ Appeal No.
1625-26 of 2014 along with M.P. No. 1 & 2 of 2014. However, since the issue became infructuous, the Supreme Court
vide Order dated 27 February 2015, disposed off the writ appeals.
17 The Delhi High Court in J Sekar (supra, footnote 3) has stated (para 52) that:

“However, the second proviso deals with—any property of any person. This—any person could be a person in
possession of proceeds of crime, which is likely to be—concealed, transferred or dealt with in a manner that would
frustrate the proceedings relating to confiscation. The second proviso, therefore, is consistent with Section 5(1) PMLA
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3.2 Proceedings before the Adjudicating Authority

insofar as the person in possession of the proceeds of crime may not be a person who is facing trial for a scheduled
offence.”
18 See J. Sekar (supra footnote 3) paragraph 50. However, see the Report of the Select Committee on the PML Bill, 1999
where it suggests that, “The whole idea behind establishing this machinery is to immediately set in motion the process
for attachment of property the moment it is known that a person is in possession of proceeds of crime and such person
has been charged of having committed a scheduled offence and the proceeds of crime are likely to be concealed,
transferred or dealt with in any manner likely to result in frustrating of the proceeds elating to confiscation of such
proceeds of crime”.
19 A donee cannot be in a better position than the Donor. If the Donor is accused of money laundering and has passed
laundered proceeds of crime to the donee then the donee cannot resist attachment unlike a “bona fide purchaser for
value without notice”. [See Foskett v Mceowen, (2000) UKHL 29 : (2001) 1 AC 102, decided on date 18 May 2000].
20 As explained although in a different context by the Supreme Court in The State of Bombay v FN Balsara, AIR 1951 SC
318 [LNIND 1951 SC 42]: (1951) 2 SCR 682 [LNIND 1951 SC 42] : 1951 Cr LJ 1361 : 1951 SCJ 478 [LNIND 1951 SC
42], decided on date 25 May 1951, and later expostulated in Shreya Singhal v UOI, AIR 2015 SC 1523 [LNIND 2015
SC 198]: (2015) 5 SCC 1 [LNIND 2015 SC 198] : (2015) 2 RCR (Cr) 403 : 2015 (4) SCALE 1 [LNIND 2015 SC 198],
decided on date 24 March 2015 and Shayara Bano v UOI, AIR 2017 SC 4609 [LNIND 2017 SC 3040]: (2017) 9 SCC 1
: 2017 (9) SCALE 178 : 2017 SC 975, decided on date 22 August 2017.
21 PT Munichikkanna Reddy v Revamma, AIR 2007 SC 1753 [LNIND 2007 SC 524]: (2007) 5 SCR 491 [LNIND 2007 SC
524] : (2007) 6 SCC 59 [LNIND 2007 SC 524] : 2007 (6) SCALE 95 [LNIND 2007 SC 524], decided on date 24 April
2007.
22 The requirement to record reasons in writing was proposed by the Select Committee on PML Bill 1999 in its report
dated 20 July 2000.
23 The Delhi High Court in J Sekar (supra footnote 3) has observed (para 59) that, “The fact that the Director will,
therefore, have to first apply his mind to the materials on record before recording in writing his reasons to believe is
certainly a sufficient safeguard to the impulsive invocation of the powers under the second proviso to Section 5(1)
PMLA.”
24 Ajay Kumar Gupta v The Joint Director, Directorate of Enforcement Adjudicating Authority, 2017 MCH 4443, decided on
date 13 July 2007.
25 The appeal from this matter is pending before the Supreme Court in SLP (Crl) No. 2255 of 2018.
26 Vide GSR 557 (E), dated 19 August 2013, published in the Gazette of India, Extra, Pt II Section 3(i), No 416, dated 19
August 2013.
27 Rule 3 (2) of the PML PAO Issuance Rules, 2013).
28 Rule 3 (3) of the PML PAO Issuance Rules, 2013.
29 Rule 4 (1)(b) of PML PAO Issuance Rules, 2013.
30 Rule 4 (2) of PML PAO Issuance Rules, 2013.
31 Came into force on 1 July 2005 vide G S R 442(E), published in the Gazette of India, Extra, Pt II Section 3(i).
32 Rule 3 (1) of PML Forwarding the PAO Rules, 2005.
33 Rule 3 of the PML Forwarding the PAO Rules, 2005.
34 Came into force on 1 July 2005 vide G S R 442(E), published in the Gazette of India, Extraordinary, Pt II, Section 3(i).
35 Rule 4 of the PML Forwarding the PAO Rules, 2005.
36 Section 17(1) of the Prevention of Money-Laundering Act, 2002.
37 Inserted by Act 2 of 2013, section14(ii) (w.e.f. 15 February 2013, vide SO 343(E), dated 8 February 2013).
38 Rule 10 states that the Adjudicating Authority is required to retain a copy of the reasons and the material relating to
search and seizure and search of persons for a period of ten years or if, before the expiry of the said period of ten
years,— any proceedings under section 8 of the Act have been commenced, until the disposal of such proceedings, or
where an appeal has been preferred to the Appellate Tribunal under section 26 of the Act, until the disposal of such
appeal by the Appellate Tribunal, or where an appeal has been filed in the High Court under section 42 of the Act, until
the disposal of such appeal by the High Court; whichever is later.
39 See, Sudeep Kaur Sawhney v UOI, (2015) 3 RCR (Cr) 178, decided on date 19 May 2015 in the High Court of Punjab
& Haryana (para 29).
40 See J Sekar (supra footnote 3), para 44(iii).
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3.2 Proceedings before the Adjudicating Authority

41 Proviso to section 8(3) requires that the period of twenty-four hours shall exclude the time necessary for the journey
undertaken to take such person to the nearest gazetted officer, superior in rank to him, or Magistrate’s Court.
42 Proviso to section 8(4) requires that the period of twenty-four hours shall exclude the time necessary for the journey
from the place of detention of the office of the Gazetted Officer, superior in rank to him, or Magistrate’s Court.
43 The Madras High Court (Madurai Bench, Single Judge) in G Gopalakrishnan v The Deputy Director, Writ Petition (MD)
No 11454 of 2018, decided on date 03 January 2019, has observed that, “What should constitute the ‘reasons to
believe’ that are to be recorded? In this context, it must be seen that even for the exercise of power under Section 5(1),
the Director/Deputy Director/Authorized Officer has to record his reasons to believe in writing. That is the expression
that is used in the second proviso to Section 5(1) PMLA as well. It is the same expression that is used even as far as
the powers exercised by the AA under Section 8(1) PMLA are concerned.”(Para 69). This decision of in G
Gopalakrishnan (supra) dated 03 January 2019 was challenged before the Division Bench of the Madurai Bench in Writ
Appeal No. 283 of 2019, where the Division Bench vide Order dated 06 March 2019 granted an order of stay with
respect of passing of final order.
44 The Supreme Court in a number of cases has held that there must be a direct nexus or live link between the material in
possession of the officer and the formation of his belief. See, Aslam Mohd Merchant v Competent Authority, (2008) 14
SCC 186 [LNIND 2008 SC 1349] : (2008) Cr LJ 3621 : 2008 (10) SCALE 383 [LNIND 2008 SC 1349] : (2008) 10 SCR
332, decided on date 8 July 2008 [Para 38 to 42]. This decision was rendered in the context of NDPS Act, provisions of
which are substantially in pari materia with PMLA on the point of provisional attachment.). Also see, Income Tax Officer
v Lakhmani Mewaldas, (1976) 3 SCC 757 [LNIND 1976 SC 143] : (1976) 3 SCR 956 : AIR 1976 SC 1753 [LNIND 1976
SC 143], decided on date 30 March 1976 [Para 11]; Kranti Associates Pvt Ltd v Masood Ahmed Khan, (2010) 9 SCC
496 [LNIND 2010 SC 841] : (2010) 4 RCR (Civil) 600 [LNIND 2010 SC 841] : AIR 2010 SC 5715 : 2010 (9) SCALE 199
[LNIND 2010 SC 841], decided on date 8 September 2010 [Para 47], Phool Chand Bajrang Lal v Income Tax Officer,
(1993) 4 SCC 77 : AIR 1993 SC 2390 : 1993 (3) SCALE 18 : (1993) 203 ITR 456 (SC), decided on date 13 July 1993.
45 See Seema Garg v Deputy Director, Directorate of Enforcement PMLA No 1 of 2019 (O&M), decided on date 6 March
2020 (Punjab & Haryana High Court).
46 Rule 2(f) of the Prevention of Money Laundering (The Manner of Forwarding a Copy of the Order of Provisional
Attachment of Property Along with the Material and Copy of the Reasons along with the Material in respect of Survey,
to the Adjudicating Authority and its period of Retention) Rules, 2005
47 The Appellate Authority in Penna Cement Industries Ltd v The Joint Director, Directorate of Enforcement, FPA-PMLA-
1190 & 1191/HYD/2016, decided on date 14 June 2019 in Para 56 held that—
“Reason to believe is not a formality but it should akin to prima facie findings that the person concerned is positively
involved in money laundering. The provisional attachment order can only be passed if such exercise is done within the
four corners of settled law. The meaning of proceeds of crime is any property derived or obtained directly or indirectly
as a result of criminal activities relating to a schedule offence.”
In reference to the reasons to believe mentioned under section 5(1) and section 8(1) of the PMLA, the Madras High
Court (Madurai Bench) in G Gopalakrishnan v The Deputy Director (supra footnote 43), has cited that:

“There are two reasons to believe. One recorded by the officer passing the order under Section5(1)PMLA and the other
recorded by the AA under Section 8(1) PMLA. Both these reasons to believe should be made available to the person to
whom notice is issued by the AA under Section 8(1) PMLA. The failure to disclose, right at the beginning, the
aforementioned reasons to believe to the noticee under Section 8(1) PMLA would not be a mere irregularity but an
illegality. A violation thereof would vitiate the entire proceedings and cause the order of provisional attachment to be
rendered illegal.”
48 Abdullah Ali Balsharaf v Directorate of Enforcement, 2019 SCC OnLine Del 6428 : 2019 DHC 029, decided on date 9
January 2019. This decision of the Single Judge was challenged by the ED before the Division Bench of the Delhi High
Court in LPA No. 179 of 2019. The Division Bench of the High Court vide Order dated 15 March 2019, dismissed the
appeal.
49 In this case, the ED had issued several communications to the Bombay Stock Exchange to interdict and interfere with
the transactions of shares of the petitioners. The ED had also exercised its power under section 17 to search and seize
the alleged proceeds of crime which were acquired prior to the enactment of the PMLA. The main issue which was
raised in this case was whether section 102 of CrPC is applicable to proceedings under the PMLA. The ED argued that
by virtue of section 65 of the PMLA, it had powers to take recourse to CrPC to exercise powers to seize a property on a
mere suspicion. The High Court, however; rejected this contention and held that the communication issued to the BSE
under section 102 CrPC were “without the authority of law”. The reasoning given by the High Court as to why the
provisions of section 102 CrPC are not applicable to the PMLA is discussed in the subsequent Chapter. Another issue
the Court addressed was whether the provisions of the PMLA apply to the shares in respect of which freezing orders
were passed under section 17(1A), which were acquired prior to the enactment of the PMLA. The court answered this
question in the affirmative, as the second part of the definition of “proceeds of crime” includes within its ambit, a
 Page 26 of 30
3.2 Proceedings before the Adjudicating Authority

property equivalent to the value of the property which is derived from any criminal activity and is held outside the
country.
50 S. 20. Retention of property.—(1) Where any property has been seized under section 17 or section 18 or frozen
under sub-section (1A) of section 17 and the officer authorised by the Director in this behalf has, on the basis of
material in his possession, reason to believe (the reason for such belief to be recorded by him in writing) that such
property is required to be retained for the purposes of adjudication under section 8, such property may, if seized, be
retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the
day on which such property was seized or frozen, as the case may be.

(2) The officer authorised by the Director shall, immediately after he has passed an order for retention or continuation of
freezing of the property for purposes of adjudication under section 8, forward a copy of the order along with the material
in his possession, referred to in sub-section (1), to the Adjudicating Authority, in a sealed envelope, in the manner as
may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be
prescribed.

(3) On the expiry of the period specified in sub-section (1), the property shall be returned to the person from whom such
property was seized or whose property was ordered to be frozen unless the Adjudicating Authority permits retention or
continuation of freezing of such property beyond the said period.
(4) The Adjudicating Authority, before authorising the retention or continuation of freezing of such property beyond the
period specified in sub-section (1), shall satisfy himself that the property is prima facie involved in money-laundering
and the property is required for the purposes of adjudication under section 8.
(5) After passing the order of confiscation under sub-section (5) or sub-section (7) of section 8, [Special Court] shall
direct the release of all property other than the property involved in money-laundering to the person from whom such
property was seized or the persons entitled to receive it.
(6) Where an order releasing the property has been made by the Special Court under sub-section (6) of section 8 or by
the Adjudicating Authority under section 58B or sub-section (2A) of section 60, the Director or any officer authorised by
him in this behalf may withhold the release of any such property for a period of ninety days from the date of receipt of
such order, if he is of the opinion that such property is relevant for the appeal proceedings under this Act.
51 Section 20(1) of the PMLA.
52 Section 20(3) of the PMLA.
53 Section 20(2) of the PMLA.
54 Published vide Notification GSR 447(E), dated 1 July 2005, publication in the Gazette of India, Extraordinary, Part 2,
Section 3(i), dated 1 July 2005.
55 Rule 3 of the Prevention of Money-Laundering (the Manner of Forwarding a Copy of the Order of Retention of Seized
Property along with the Material to the Adjudicating Authority and the Period of its Retention) Rules, 2005.
56 Rule 4 of the Prevention of Money-Laundering (the Manner of Forwarding a Copy of the Order of Retention of Seized
Property along with the Material to the Adjudicating Authority and the Period of its Retention) Rules, 2005.
57 Section 20(4).
58 Section 20(5) of the PMLA.
59 S. 21. Retention of records.—(1) Where any records have been seized, under section 17 or section 18 or frozen
under sub-section (1A) of section 17 and the Investigating Officer or any other officer authorised by the Director in this
behalf has reason to believe that any of such records are required to be retained for any inquiry under this Act, such
records may if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred
and eighty days from the day on which such records were seized or frozen, as the case may be.
(2) The person, from whom records seized or frozen, shall be entitled to obtain copies of records.

(3) On the expiry of the period specified under sub-section (1), the records shall be returned to the person from whom
such records were seized or whose records were ordered to be frozen unless the Adjudicating Authority permits
retention or continuation of freezing of such records beyond the said period.
(4) The Adjudicating Authority, before authorising the retention or continuation of freezing of such records beyond the
period specified in sub-section (1), shall satisfy himself that the records are required for the purposes of adjudication
under section 8.
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3.2 Proceedings before the Adjudicating Authority

(5) After passing of an order of confiscation [or release under sub-section (5) or sub-section (6) or sub-section (7) of
section 8 or section 58B or sub-section (2A) of section 60], the Adjudicating Authority shall direct the release of the
records to the person from whom such records were seized.
(6) Where an order releasing the records has been made by the Court Adjudicating Authority under sub-section (5) of
section 21 the Director or any other officer authorised by him in this behalf may withhold the release of any such record
for a period of ninety days from the date of receipt of such order, if he is of the opinion that such record is relevant for
the appeal proceedings under this Act.
60 Section 21(1) of the PMLA.
61 Section 21(2) of the PMLA.
62 Section 21(4) of the PMLA.
63 Section 21(5) of the PMLA.
64 Section 21(6) of the PMLA.
65 Rule 6 of the Prevention of Money-laundering (the Manner of Forwarding a Copy of the Order of Provisional Attachment
of Property along with the Material, and Copy of the Reasons along with the Material in respect of Survey, to the
Adjudicating Authority and its Period of Retention) Rules, 2005, provides that:

the Adjudicating Authority shall retain a copy of the order of provisional attachment of property and the material and a
copy of the reasons and the material for a period of ten years, or, if before the expiry of the said period of ten years,—
(i) any proceedings under section 8 of the Act have been commenced, until the disposal of such proceedings; or
(ii) where an appeal has been preferred to the Appellate Tribunal under section 26 of the Act, until the disposal of
such appeal by the Appellate Tribunal; or
(iii) where an appeal has been filed in the High Court under section 42 of the Act, until the disposal of such appeal by
the High Court; whichever is later.
66 In case, where a subject property that is sought to be attached/seized or frozen, is held jointly in the name of more than
one person or it is held by a person on behalf of another, the SCN is required to be served on all such persons.
67 See, the Delhi High Court in J Sekar (supra, footnote 3), para 75. Also see, ICICI Bank v The Deputy Director,
Directorate of Enforcement, Mumbai, (supra, footnote 10), where the Appellate Tribunal held that, “36. [...] the notice
u/S 8(1) of the Act as was issued to the Appellant as Lead Bank of Consortium Lenders was non-application of mind.
The PAO ought not to have been confirmed in view of settled law on the subject.”
68 See, Brig (Retd) Jitender Kumar Narang v The Deputy Director, FPA-PMLA-1458/CHD/2016, decided on date 10 April
2019, the Appellate Tribunal held that:
“The Adjudicating Authority issued the shows cause notice in a mechanical manner without applying its mind to the
Complaint and materials forwarded by Appellant No.1 and without recording its satisfaction that it had reasons to
believe that the Appellant had committed an offence under section 3 or is in possession of proceeds of crime, as is
mandated under Section 8(1) of the Act without compliance of mandatory provisions of Section 8(1) and (2) of the Act
as the Adjudicating Authority ...”
69 See Excel Powmin v UOI, Writ Petition No 12831 of 2019, decided on date 19 February 2020, High Court of Judicature
at Calcutta.
70 Some of the examples of such cases where the show-cause notice was not issued are, Rajendra Kumar Jain v The
Deputy Director, FPA-PMLA-2532/MUM/2017, decided on date 6 August 2019, Appellate Tribunal, New Delhi,
Standard Chartered Bank v The Deputy Director, Directorate of Enforcement Mumbai (‘Winsome case’), MP-PMLA-
3363/MUM/ 2017 (Stay) & FPA-PMLA-1604/MUM/2017, vide Order dated 02 August 2018, Appellate Tribunal, Mumbai;
State Bank of India v Enforcement of Directorate, FPA-PMLA-2538/MUM/2018 & FPA-PMLA-2539/MUM/2018, vide
Order dated 06 August 2019. Harsh Grover v The Joint Director, FPA-MLA-1982/LKW/2017, decided on date 22
November 2018, Appellate Tribunal, New Delhi.
71 In reference to non-issuance of notice under section 8(1), the Appellate Tribunal in Rajendra Kumar Jain v The Deputy
Director Directorate of Enforcement, FPA-PMLA-2532/ MUM/2017, decided on date 6 August 2019, has observed (in
para 22) that:

“22. It has come on record as per material available that at the time of issuance of the subject Provisional Attachment
Order, the Respondent ED as well as the Adjudicating Authority were aware that the Appellant was a ‘‘Claimant’’ to the
subject Property in terms of proviso to Section 8(2), PMLA; despite which the Respondent ED and the Adjudicating
Authority failed to issue notice to the Appellant or to afford him a hearing, during the adjudication proceedings. Non
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3.2 Proceedings before the Adjudicating Authority

issuance of notice which is mandatory within the meaning of Section-8(1) to the aggrieved party after having knowledge
itself amounts breach of act. Any order passed by the Adjudicating Authority is liable to be quashed.”
72 Amanpreet Singh Gandhi v The Deputy Director, MP-PMLA-1721/JL/2015.
73 State Bank of India v Enforcement of Directorate, (supra footnote 70).
74 See, the case of Indian Performing Rights Society Ltd (IPRS) v Deputy Director, Directorate of Enforcement, Appeal No
FPA-PMLA-1302/MUM/2016 decided on 22 June 2017, where the Appellate Tribunal (‘IPRS’) has observed that:

“...It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his
innocence that he has not received any proceeds of crime. The consequence of this is that while considering whether
all or any of the properties provided under notice issued u/S 8(1) are involved in money laundering, the Adjudicating
Authority can take into consideration the plea of innocence raised by any person and also the fact as to whether the
property which has been attached has any nexus whatsoever with that of money laundering or not if the person before
the Tribunal / Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has attempted to
indulge nor with knowledge or ever assisted any process or activity in connection with proceeds or crime and the
question of his involvement does not arise as he is third party, then the Tribunal / Adjudicating Authority can consider
the said plea depending upon whether there exist bona fide in the said plea or not and proceed to adjudicate the plea of
innocence of the said party.”(Para 26)
75 See, Section 24 of the PMLA which reverses the burden of proof. This provision has been discussed in Chapter 4. Also
see, the decision of the Andhra Pradesh High Court in B Rama Raju, (supra footnote 12).
76 The Amendment (Finance No 2) Act, 2019 makes a subtle change to the definition of money laundering which has a
substantial impact on what constitutes the offence of money laundering. The revised amendment replaces the word
“and” with the word “or” before the term “projecting as untainted money”. This now means that a mere use or
possession would be sufficient to constitute the act of money laundering. The concern expressed by the Standing
Committee that mere use or possession shall not suffice and what is required is that the person using or possessing
tainted money should also be “projecting it as untainted money” has been ignored completely. This has been dealt with
in Chapter 2.
77 See, the Madras High Court (Single Bench) in Indian Bank v Government of India, Ministry of Finance, Department of
Revenue, Directorate of Enforcement, Writ Petition No 4696 and 12854 of 2012, decided on date 11th July 2012, in
(para 29) states that:

“… the proviso to sub-section (2) of Section 8 enables any person who claims the property to be his own, also to be
given an opportunity of being heard to prove that the property is not involved in money laundering. This proviso makes
it clear that the leverage given to the Adjudicating Authority to release the property is limited to instances where the
property is proved to be not involved in money laundering. This is only a very same leverage given to the Adjudicating
Authority. None of the sub-sections of Section 8 enables the Adjudicating Authority to release a property to a third
party, even after the property is proved to be involved in money laundering.”
78 See, IPRS, (supra, footnote 74), where the Appellate Tribunal has observed that:
“59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any
person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person
or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to
involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said
person is connected with any activity or process with the proceeds of the crime. The same principle should be applied
while judging the involvement of any property of any person in money laundering. This is due to the reason that if the
property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers
which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the
involvement of the said property with the proceeds of the crime nor being the participant in the said transaction ever,
cannot be penalized for no fault of his. Therefore, it cannot be the Scheme of the Act whereby bona fide person without
having any direct/ indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere
attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the
element of mens rea or knowledge is missing.”
This is in line with the decision of Seema Garg (supra).
79 See, Jennifer Wang, Yes, That is Money Laundering. Oh Wait, It’s Not—The Impact of Cellular on Concealment Money
Laundering Case Law, 18 J Bus L 255 (2015).
80 The Gujarat High Court in the matter of Alive Hospitality and Food Private Limited v UOI, (supra footnote 3), decided on
date 31 July 2013 discussed the question of attachment of the property under section 8(5) of a person who is not
 Page 29 of 30
3.2 Proceedings before the Adjudicating Authority

prosecuted for the offence of money laundering. It distinguished between the position of law prior to and post the
second Amendment in 2013 and held that:
“Section 8(1) clearly postulates affording of an opportunity to a person in possession of proceeds of crime to indicate
the sources of his income, earnings or assets; out of which or by means of which he has acquired the property
attached, under Section 5(1) or seized under Sections 17 or 18 the evidence on which he relies and other relevant
information and particulars. It is therefore clear that where a property is provisionally attached under Section 5, the
person in possession of such property may avail the opportunity under Section 8 to indicate/establish that he has
acquired the property attached (prima facie the proceeds of crime) out of his lawful earnings or assets, that he has the
means to do so, and that his acquisition is therefore legitimate, bona fide and at fair market value of such property; and
that the value paid for acquisition of the property and not the property in his possession that constitutes proceeds of
crime, if at all. On such showing, to the satisfaction of the adjudicating authority, it would perhaps be not the property in
possession of a person but the fair value for which he has acquired the property and paid to the transferor that
constitutes proceeds of crime and the authorities may have to proceed against the property or value in the hands of the
transferor.”
81 S Ramesh Pothy v The Deputy Director Directorate of Enforcement, Chennai, FPA-PMLA-1624/CHN /2017, decided on
date 11 January 2019, Appellate Tribunal, New Delhi held that:
“The Adjudicating Authority have miserably failed to consider since the subject property was purchased bona fidely by
the Appellants with legal sale consideration. Therefore, the said property losses the character of proceeds of crime and
the sale proceeds in the hands of vendor only could have been attached.”
Similar views were expressed by the Tribunal in PHL Finance P Ltd v The Deputy Director, Directorate of Enforcement,
Chennai, FPA-PMLA-2534/CHN/2018, FPA-PMLA-2533/CHN/218 & FPA-PMLA-2498/CHN/2018, decided on date 14
February 2019, Appellate Tribunal, New Delhi; Rajendra Kumar Jain, supra, footnote 71).
82 IPRS, (supra, footnote 74).
83 The Appellate Tribunal while deciding 14 appeals in Shri YS Jagan Mohan Reddy v The Joint Director, Directorate of
Enforcement, Hyderabad, FPA-PMLA-1573/HYD/2016, decided on date 26 July 2019 (the titled matter) has observed
that the PMLA does not empower the ED to attach legitimate earnings of a person received in lieu of rendering services
connected with legitimate activities. The ED being aggrieved by the decision of the Appellate Tribunal, preferred an
appeal before the Andhra Pradesh High Court. The High Court vide Order dated 18 November 2019 has granted status
quo to the parties. The matter is pending adjudication.
84 Rajendra Kumar Jain (supra, footnote 71), Appellate Tribunal, New Delhi. The appeal has been filed under section 26
of the PMLA against the Impugned Order dated 01 December, 2016 passed by the Adjudicating Authority in a case
titled as “Enforcement Directorate v Kingfisher Airlines Ltd” arising out of the Original Complaint bearing No 612 of
2016. Based on findings in the decision of Rajendra Kumar, (supra, footnote 71), the Appellate Tribunal decided the
matters, namely, Vivek Mathias v Deputy Director, Directorate of Enforcement, 2018 SCC Online ATPMLA 22, decided
on date 13 August 2018 and Kiran Mazumdar v Deputy Director, Directorate of Enforcement, 2018 SCC Online
ATPMLA 42, decided on date 13 August 2018.
85 R v Waya, [2012] UKSC 51 : [2013] Cr LR 256 : [2012] 3 WLR 1188 : [2013] 1 All ER 889.
86 The Madras High Court (Single Bench) in Indian Bank (supra, footnote 77), has stated that:
“...if a property is proved to be involved in money laundering, the Adjudicating Authority has only one choice viz., to
make the attachment absolute, wait for the final adjudication by the Criminal Court and either release the property to
the accused if he is acquitted in the Criminal Court or confiscate the property to the Central Government if the accused
is convicted by the Criminal Court. Therefore, Section 8 in its entirety is accused-centric and Central Government-
centric. It does not take into account the plight of victims of crime.” (Para 30)
87 In the case of Seema Garg v Deputy Director, Directorate of Enforcement (supra), the Respondent had not filed any
criminal complaint under section 3 of PMLA against Appellants and a period of even 365 days from the date of
confirmation order passed by Adjudicating Authority has already expired. The Punjab & Haryana High Court observed
that “...even 365 days period has expired but investigation is still pending, thus Appellants are entitled to benefit of
90/365 days cap and provisional attachment order stands ceased to exist by operation of law.” (Para 29)
88 B Rama Raju v UOI, (supra, footnote 12) of Chapter 3.
89 A Kamarunnisa Ghori v Chairperson, Prevention of Money Laundering, Union of India, 2012 Writ LR 719 [LNIND 2012
MAD 2409], decided on date 11 July 2012, High Court of Judicature at Madras. An appeal (W.A. No. 2137 of 2012) was
filed before the Madras High Court where this decision dated 11 July 2012 was stayed.
90 See Delhi Airtech Services Pvt Ltd v State of UP, (2011) 12 SCR 191 [LNIND 2011 SC 788] : (2011) 9 SCC 354
[LNIND 2011 SC 788] : AIR 2012 SC 573 [LNIND 2011 SC 788]: (2011) 9 SCC 354 [LNIND 2011 SC 788], decided on
date 18 August 2011.
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3.2 Proceedings before the Adjudicating Authority

91 See Waya’s case, (supra footnote 85) [Supreme Court of UK].

92 KT Plantation Pvt. Ltd v State of Karnataka, (2011) 9 SCC 1 [LNIND 2011 SC 740] : AIR 2011 SC 3430 [LNIND 2011
SC 740]: 2011 (8) SCALE 583 [LNIND 2011 SC 740] : (2012) 5 RCR (Civil) 878.
93 The Delhi High Court in Axis Bank case has held that:
“The provision for “provisional attachment” and its confirmation, pending trial before court (wherein the issue of
confiscation would come up at the time of determination of guilt in criminal case), is similar to the one for “attachment
before judgment” in civil law. The law conceives of possibility of disposal of ill-gotten assets to “frustrate” the objective.
The argument to the contrary is thus repelled. Ultimately, the confiscation is left to the special court. But then, the order
to such effect only follows the determination of the guilt in the criminal trial on the charge for offence of money-
laundering. This view is in sync with the rulings in the cases of S.K. Ghosh (supra) and Biswanath Bhattacharya (supra)
in context of Ordinance of 1944 and SAFEMA quoted above”. (Para 93)
94 See Abhimanyu Bhandari & Kartika Sharma, “When the use of legislation could trigger distrust”, published 12
September 2019 (can be accessed at https://m.hindustantimes.com/india-news/when-the-use-of-legislation-could-
trigger-distrust/ story-JOAcOleQJ5 sF1 BcuEr3fYO_amp.html) (last accessed in September 2020).
95 See Abhimanyu Bhandari & Kartika Sharma, “When the use of legislation could trigger distrust”, published 12
September 2019 (can be accessed at https://m.hindustantimes.com/india-news/when-the-use-of-legislation -could-
trigger-distrust/story-JOAcOleQJ5sF1BcuEr3fYO_amp.html). (last accessed in September 2020).
96 Section 8(6).
97 Vide GSR 443 (E), dated 1 July 2005, published in the Gazette of India, Extra, Pt II, Section 3(i), dated 1 July 2005.
98 Ins. by the Finance Act, 2015 (20 of 2015) Section 147(ii), w.e.f 14 May 2015.
99 ICICI Bank v The Deputy Director, Directorate of Enforcement, Mumbai, (supra footnote 10).
100 Vide GSR 913 (E), dated 26 September 2016, published in the Gazette of India, Extra, PtII, Section 3(i), No. 675, dated
26 September 2016.
101 Rule 3(2) of the PML Restoration Rules, 2016.
102 Rule 3A (2) of the PML Restoration Rules, 2016.

End of Document
 3.3 Adjudicating Authority
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 3 ATTACHMENT, ADJUDICATION AND
CONFISCATION UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

CHAPTER 3 ATTACHMENT, ADJUDICATION AND CONFISCATION

UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

3.3 Adjudicating Authority

3.3.1 Appointment of the Adjudicating Authority under PMLA

The Adjudicating Authority is defined under section 2 (a) of the PMLA as an adjudicating authority appointed under
sub-section (1) of section 6. In terms of sub-section (1) of section 6 of the PMLA, an Adjudicating Authority shall be
appointed by the Central Government, by notification, to exercise jurisdiction, powers and authority conferred by or
under the PMLA. It functions within the Department of Revenue, Ministry of Finance of the Central Government with
its headquarters at New Delhi.103
3.3.2 Composition of the bench and Qualification and Vacation of the Members of the Adjudicating
Authority

Section 6 of the discusses the Adjudicating Authority, its composition and powers.104 As per section 6(2), the
Authority comprises of three members, one Chairperson and two other members with one member each shall be a
person having experience in the field of law, administration and finance or accountancy. A member would not be
considered to be qualified for the appointment unless, in the field of law, he is qualified for appointment as District
Judge or has been a member of the Indian Legal Service and has held post of Grade I of that Service;105 and in the
field of finance, accountancy or administration unless he possesses such qualifications, as may be prescribed.106
The Chairperson and every Member shall hold office as such for a term of five years from the date on which he
enters upon his office, provided that no Chairperson or other Member shall hold office as such after he has attained
the age of sixty-five years.107

The Central Government shall appoint a Member to be the Chairperson of the Adjudicating Authority.108 It is to be
noted that the Act requires no specific qualification for the appointment of the Chairperson.

Sub-section (9) of section 6 states that the salary and allowances payable to and the other terms and conditions of
service of the Member shall be such as may be prescribed, provided that neither the salary and allowances nor the
other terms and conditions of service of the Member shall be varied to his disadvantage after appointment.

According to sub-section (10) of section 6, if, for reasons other than temporary absence, any vacancy occurs in the
office of the Chairperson or any other Member, then, the Central Government shall appoint another person in
accordance with the provisions of this Act to fill the vacancy and the proceedings may be continued before the
Adjudicating Authority from the stage at which the vacancy is filled.

Sub-section (11) of section 6 further states that the Chairperson or any other Member may, by notice in writing
under his hand addressed to the Central Government, resign his office. The sub-section further provides that the
Chairperson or any other Member shall, unless he is permitted by the Central Government to relinquish his office
sooner, continue to hold office until the expiry of three months from the date of receipt of such notice or until a
person duly appointed as his successor enters upon his office or until the expiry of his term of office, whichever is
the earliest.

As per sub-section (12) of section 6, the Chairperson or any other Member shall not be removed from his office
 Page 2 of 5
3.3 Adjudicating Authority

except by an order made by the Central Government after giving necessary opportunity of hearing. However, as per
sub-section (13), in the event of the occurrence of any vacancy in the office of the Chairperson by reason of his
death, resignation or otherwise, the senior-most Member shall act as the Chairperson of the Adjudicating Authority
until the date on which a new Chairperson, appointed in accordance with the provisions of this Act to fill such
vacancy, enters upon his office.

Sub-section (14) of section 6 states that when the Chairperson of the Adjudicating Authority is unable to discharge
his functions owing to absence, illness or any other cause, the senior-most Member shall discharge the functions of
the Chairperson of the Adjudicating Authority until the date on which the Chairperson of the Adjudicating Authority
resumes his duties.

Further, sub-section (1) of section 7 provides that the Central Government shall provide each Adjudicating Authority
with such officers and employees as that Government may think fit. These officers and employees of the
Adjudicating Authority shall discharge their functions under the general superintendence of the Chairperson.109 The
salaries and allowances and other conditions of the service of the officers and employees of the Adjudicating
Authority shall be as such as may be prescribed.110
3.3.3 Jurisdiction of the Adjudicating Authority

Sub-section (5) of section 6, discusses the jurisdiction of the Adjudicating Authority. It states that the jurisdiction
may be exercised by Benches thereof111 and the bench may be constituted by the Chairperson of the Adjudicating
Authority (‘Chairperson’) with one or two Members as the Chairperson may deem fit.112

The Benches of the Adjudicating Authority shall ordinarily sit at New Delhi and such other places as the Central
Government may in consultation with the Chairperson by notification specify.113 In furtherance, the Central
Government shall, by notification, specify the name areas in relation to which each Bench of the Adjudicating
Authority may exercise jurisdiction.114

As per sub-section (7) of section 6, if at any stage of the hearing of any case or matter it appears to the Chairperson
or a Member that the case or matter is of such a nature that ought to be heard by a Bench consisting of two
Members, the case may be transferred by the Chairperson or, as the case may be, referred to him for transfer, to
such Bench as the Chairperson may deem fit.
3.3.4 Procedure to be followed by the Adjudicating Authority

According to sub-section (15) of section 6, the Adjudicating Authority shall not be bound by the procedure laid down
by the CPC but shall be guided by the principles of natural justice and, subject to the other provisions of this Act,
the Adjudicating Authority shall have powers to regulate its own procedure.

However, it is pertinent to note that as per Regulation 21 of the Adjudicating Authority (Procedure) Regulations,
2013 the provisions of CPC relating to the issuing of commissions for the examination of witnesses and documents
shall, as far as may be applicable, apply in the matters from summoning and enforcing the attendance of any
person as a witness and issuing commission for cross-examination of such witness.

Section 11 further specifies the power regarding summons, production of documents and evidence, etc.115 Sub-
section (1) of section 11 states that the Adjudicating Authority, for the purposes of this Act, shall have the same
powers as vested in a civil court under the CPC while trying a suit in respect of the following matters, namely,—

(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a banking company or a financial institution
or a company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed.

Sub-section (2) of section 11 obliges all the persons so summoned by the Adjudicating Authority to attend in person
or through authorised agents, as the Adjudicating Authority may direct. The sub-section further provides that the
person summoned shall be bound to state the truth upon any subject respecting which they are examined or make
 Page 3 of 5
3.3 Adjudicating Authority

statements, and produce such documents as may be required. Sub-section (3) states that every proceeding under
this section to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code.

As stated in Chapter 2, the ED relies on statements made by various witnesses that are interrogated by the ED
during the course of the investigation. These statements are made before the officer investigating the offence and
are then set out in the Provisional Attachment order to justify attachment of any particular property. It is, therefore;
essential that an opportunity should be given to the person who suffers an attachment to cross-examine such a
witness before the Adjudicating Authority. However, it seems that till date the Adjudicating Authority has not allowed
any defendant the opportunity to cross-examine a witness. Arun Kumar Mishra v UOI,116 is one such case where
permission to cross-examine was denied by the Adjudicating Authority. The accused filed applications under
section 11 PMLA read with Regulation 18 of the Adjudicating Authority Regulations, 2006, before the Adjudicating
Authority seeking permission for cross-examination of witnesses on whose statements the complaints against them
were filed. On being denied the opportunity to cross-examine the accused filed a writ petition before the Delhi High
Court. It was argued that the Adjudicating Authority heard arguments on the applications but no speaking order was
passed thereon and to the contrary, the complaint was posted for final disposal. The appellants, therefore; preferred
writ petitions seeking an opportunity for cross-examination as sought in the applications and restraining the
respondent (ED) from proceeding with the complaints without the appellants having such right/opportunity to cross-
examine. The writ petitions were however dismissed on the ground that the Adjudicating Authority is seized of the
matter and no interference is called for. Being aggrieved by the order of the Single Judge in the writ petitions, the
appellants preferred intra court appeal. The Delhi High Court dismissed the writ appeals on the ground that:

“The Adjudicating Authority is currently seized of and in seizing of the complaints. We, at this stage, do not know as to
which way the order of the Adjudicating Authority will go. It cannot also be said at this stage whether the Adjudicating
Authority even if deciding against the appellants will rely upon the material before it qua which the appellants claim a right
of cross-examination.”

The Court dismissed the appeal on the simple ground that it is premature to entertain the writ without the
Adjudicating Authority passing the order. It is, however; important to note that the Court did not controvert the stand
of the appellants that it has the right to cross examine the witnesses under section 11 of the PMLA.

103 As provided on the official website of the Department of Revenue at https://dor.gov.in/ prevention of money
laundering/composition adjudicating-authority (last accessed in September 2020).
104 S. 6. Adjudicating Authorities, composition, powers, etc.—(1) The Central Government shall, by notification,
appoint an Adjudicating Authority to exercise jurisdiction, powers and authority conferred by or under this Act.
(2) An Adjudicating Authority shall consist of a Chairperson and two other Members:

Provided that one Member each shall be a person having experience in the field of law, administration, finance or
accountancy.
(3) A person shall, however, not be qualified for appointment as Member of an Adjudicating Authority,—
(a) in the field of law, unless he—

(i) is qualified for appointment as District Judge; or

(ii) has been a member of the Indian Legal Service and has held a post in Grade I of that service;

(b) in the field of finance, accountancy or administration unless he possesses such qualifications, as may be
prescribed.
(4) The Central Government shall appoint a Member to be the Chairperson of the Adjudicating Authority.

(5) Subject to the provisions of this Act,—

(a) the jurisdiction of the Adjudicating Authority may be exercised by Benches thereof;
(b) a Bench may be constituted by the Chairperson of the Adjudicating Authority with one or two Members as the
Chairperson of the Adjudicating Authority may deem fit;
(c) the Benches of the Adjudicating Authority shall ordinarily sit at New Delhi and such other places as the Central
Government may, in consultation with the Chairperson by notification, specify;
 Page 4 of 5
3.3 Adjudicating Authority

(d) the Central Government shall, by notification, specify the areas in relation to which each Bench of the Adjudicating
Authority may exercise jurisdiction.
(6) Notwithstanding anything contained in sub-section (5), the Chairperson may transfer a Member from one Bench to
another Bench.

(7) If at any stage of the hearing of any case or matter it appears to the Chairperson or a Member that the case or
matter is of such a nature that it ought to be heard by a Bench consisting of two Members, the case or matter may be
transferred by the Chairperson or, as the case may be, referred to him for transfer, to such Bench as the Chairperson
may deem fit.
(8) The Chairperson and every Member shall hold office as such for a term of five years from the date on which he
enters upon his office:

Provided that no Chairperson or other Member shall hold office as such after he has attained the age of sixty-five years.

(9) The salary and allowances payable to and the other terms and conditions of service of the Member shall be such as
may be prescribed:

Provided that neither the salary and allowances nor the other terms and conditions of service of the Member shall be
varied to his disadvantage after appointment.

(10) If, for reasons other than temporary absence, any vacancy occurs in the office of the Chairperson or any other
Member, then the Central Government shall appoint another person in accordance with the provisions of this Act to fill
the vacancy and the proceedings may be continued before the Adjudicating Authority from the stage at which the
vacancy is filled.
(11) The Chairperson or any other Member may, by notice in writing under his hand addressed to the Central
Government, resign his office:

Provided that the Chairperson or any other Member shall, unless he is permitted by the Central Government or
relinquish his office sooner, continue to hold office until the expiry of three months from the date of receipt of such
notice or until a person duly appointed as his successor enters upon his office or until the expiry of his term of office,
whichever is the earliest.
(12) The Chairperson or any other Members shall not be removed from his office except by an order made by the
Central Government after giving necessary opportunity of hearing.

(13) In the event of the occurrence of any vacancy in the office of the Chairperson by reason of his death, resignation or
otherwise, the senior-most Member shall act as the Chairperson of the Adjudicating Authority until the date on which a
new Chairperson appointed in accordance with the provisions of this Act to fill such vacancy, enters upon his office.
(14) When the Chairperson of the Adjudicating Authority is unable to discharge his functions owing to absence, illness
or any other cause, the senior-most Member shall discharge the functions of the Chairperson of the Adjudicating
Authority until the date on which the Chairperson of the Adjudicating Authority resumes his duties.
(15) The Adjudicating Authority shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, (5
of 1908) but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, the
Adjudicating Authority shall have powers to regulate its own procedure.
105 Section 6(3)(a) of the PMLA.
106 Section 6(3)(b) of the PMLA.
107 Section 6(8) of the PMLA.
108 Section 6(4) of the PMLA.
109 Section 7(2) of the PMLA.
110 Section 7(3) of the PMLA.
111 Section 6(5)(a) of the PMLA.
112 Section 6(5)(b) of the PMLA.
113 Section 6(5)(c) of the PMLA.
114 Section 6(5)(d) of the PMLA.
 Page 5 of 5
3.3 Adjudicating Authority

115 S. 11. Power regarding summons, production of documents and evidence, etc.—(1) The Adjudicating Authority
shall, for the purposes of this Act, have the same powers as are vested in a civil court under the Code of civil
Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:—
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company or a financial institution or a
company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed.

(2) All the persons so summoned shall be bound to attend in person or through authorised agents, as the Adjudicating
Authority may direct, and shall be bound to state the truth upon any subject respecting which they are examined or
make statements, and produce such documents as may be required.
(3) Every proceeding under this section shall be deemed to be a judicial proceeding within the meaning of section 193
and section 228 of the Indian Penal Code (45 of 1860).
116 Arun Kumar Mishra v UOI, (2014) 208 DLT 56, decided on date 31 January 2014, High Court of Delhi.

End of Document
 3.4 Appellate Tribunal
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 3 ATTACHMENT, ADJUDICATION AND
CONFISCATION UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

CHAPTER 3 ATTACHMENT, ADJUDICATION AND CONFISCATION

UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

3.4 Appellate Tribunal

3.4.1 Appointment of the Appellate Tribunal under PMLA

Chapter VI of the PMLA deals with “Appellate Tribunal”. The order of the Adjudicating Authority is subject to appeal
before the Appellate Tribunal which is constituted under section 25 of the PMLA.117

In exercise of the powers conferred by section 25, the Central Government has established an Appellate Tribunal at
New Delhi to hear appeals against the orders of Adjudicating Authority and the other authorities under this Act.118

Section 26 provides with the procedure to appeal to the Appellate Tribunal.119 According to sub-section (1), the
Director or any person being aggrieved by the order of the Adjudicating Authority under this Act, may prefer an
appeal to the Appellate Tribunal. By way of sub-section (2), a reporting entity120 being aggrieved by the order of the
Director made under sub-section (2) of section 13, is also allowed to prefer an appeal to the Appellate Tribunal.

The limitation for filing such an appeal under section 26(3) PMLA is forty-five days from the date on which a copy of
the order of the Adjudicating Authority is received. The Tribunal can, however; after giving opportunity of being
heard entertain an appeal after the expiry of the prescribed period of forty-five days, if it is satisfied that there was
as sufficient cause for not filing the appeal within the given time.

Section 26(4) states that the Appellate Tribunal upon receiving the appeal under sub-section (1), or sub-section (2),
and after giving a hearing to the parties, may pass such orders confirming, modifying or setting aside the order
appealed against. As per sub-section (7), the Tribunal is required to send a copy of every order made by it to the
parties to the appeal and to the concerned Adjudicating Authority or the Director, as the case may be.
3.4.2 Procedure and powers of the Appellate Tribunal under PMLA

Section 35 PMLA provides with the procedure and powers of the Appellate Tribunal.121

According to sub-section (1), “the Appellate Tribunal shall not be bound by the procedure laid down by the Code of
Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural justice and, subject to the other
provisions of this Act, the Appellate Tribunal shall have powers to regulate its own procedure.” However, for the
purposes of discharging its functions under this Act, the Appellate Tribunal shall have the same powers as are
vested in a civil court under the CPC while trying a suit, in respect of the following matters, namely:—

(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872),
requisitioning any public record or document or copy of such record or document from any office;
(e) issuing commissions for the examination of witnesses or documents;
 Page 2 of 4
3.4 Appellate Tribunal

(f) reviewing its decisions;

(g) dismissing a representation for default or deciding it ex parte;
(h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte;
and
(i) any other matter, which may be, prescribed by the Central Government.122

It is important to note that the Appellate Tribunal has more powers than those prescribed to the Adjudicating
Authority under sub-section (1) of section 11 of the PMLA. In fact, as per sub-section (3) of section 35, “an order
made by the Appellate Tribunal under this Act shall be executable by the Tribunal as a decree of civil court and, for
this purpose the Appellate Tribunal shall have all the powers of a civil court”. Further, sub-section (4) provides that,
“notwithstanding anything contained in sub-section (3), the Appellate Tribunal may transmit any order made by it to
a civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by that
court”.

According to sub-section (5), “all proceedings before the Appellate Tribunal shall be deemed to be judicial
proceedings within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 and the Appellate Tribunal
shall be deemed to be a civil court for the purposes of Sections 345 and 346 of the Code of Criminal Procedure,
1973 (2 of 1974)”. Further, section 41 of the PMLA provides, “no civil court shall have jurisdiction to entertain any
suit or proceeding in respect of any matter which the Director, an Adjudicating Authority or the Appellate Tribunal is
empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in
respect of any action taken or to be taken in pursuance of any power conferred by or under this Act”.
3.4.3 Power of the Chairman of the Appellate Tribunal

Section 36 of the PMLA provides for the distribution of businesses amongst Benches.123

Section 37 of the PMLA, further provides with the power of Chairman to transfer cases.124 According to the
provision, the Chairman on receiving an application of any of the parties and after notice to the parties, and after
hearing such of them as he may desire to be heard, or on his own motion without such notice, may transfer any
case pending before one Bench, for disposal, to any other Bench.
3.4.4 Miscellaneous provisions

Section 38 of the PMLA provides that the decision of the Appellate Tribunal must be given by majority.125

Section 39 of the PMLA provides with the right of appellant to take assistance of authorised representative and of
Government to appoint presenting officers.126 According to sub-section (1), “a person preferring an appeal to the
Appellate Tribunal under this Act may either appear in person or take the assistance of any authorised
representative of his choice to present his case before the Appellate Tribunal. Explanation.—For the purposes of
this sub-section, the expression “authorised representative” shall have the same meaning as assigned to it under
sub-section (2) of section 288 of the Income-tax Act, 1961 (43 of 1961)”.127 Further, sub-section (2), “the Central
Government or the Director may authorise one or more authorised representatives or any of its officers to act as
presenting officers and every person so authorised may present the case with respect to any appeal before the
Appellate Tribunal”.

Section 40 of the PMLA states that the Chairman, Members and other officers and employees of the Appellate
Tribunal, the Adjudicating Authority, Director and the officers subordinate to him shall be deemed to be public
servants within the meaning of section 21 of the IPC.128

117 Section 25 PMLA states:

“25. Appellate Tribunal.—The Appellate Tribunal constituted under sub-section (1) of Section 12 of the Smugglers and
Foreign Exchange manipulators (Forfeiture of Property) Act, 1976 (13 of 1976) shall be the Appellate Tribunal for
hearing appeals against the orders of Adjudicating Authority and the other authorities under this Act.”
118 As provided in the “Comments” to section 25 of the PMLA.
119 S. 26. Appeals to Appellate Tribunal.—(1) Save as otherwise provided in sub-section (3), the Director or any person
aggrieved by an order made by the Adjudicating Authority under this Act, may prefer an appeal to the Appellate
Tribunal.
 Page 3 of 4
3.4 Appellate Tribunal

(2) Any reporting entity aggrieved by any order of the Director made under sub-section (2) of section 13, may prefer an
appeal to the Appellate Tribunal.

(3) Every appeal preferred under sub-section (1) or sub-section (2) shall be filed within a period of forty-five days from
the date on which a copy of the order made by the Adjudicating Authority or Director is received and it shall be in such
form and be accompanied by such fee as may be prescribed:
Provided that the Appellate Tribunal may after giving an opportunity of being heard entertain an appeal after the expiry
of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

(4) On receipt of an appeal under sub-section (1), or sub-section (2), the Appellate Tribunal may, after giving the parties
to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting
aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned
Adjudicating Authority or the Director, as the case may be.

(6) The appeal filed before the Appellate Tribunal under sub-section (1) or sub-section (2) shall be dealt with by it as
expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the
date of filing of the appeal.
120 Reporting entity, as per section 2(1)(wa) of the PMLA means: “a banking company, financial institution, intermediary or
a person carrying on a designated business or profession.”
121 S. 35. Procedure and powers of Appellate Tribunal.—(1) The Appellate Tribunal shall not be bound by the
procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural
justice and, subject to the other provisions of this Act, the Appellate Tribunal shall have powers to regulate its own
procedure.
(2) The Appellate Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as
are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit, in respect of the
following matters, namely:—
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any
public record or document or copy of such record or document from any office;
(e) issuing commissions for the examination of witnesses or documents;
(f) reviewing its decisions;
(g) dismissing a representation for default or deciding it ex parte;
(h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and
(i) any other matter, which may be, prescribed by the Central Government.

(3) An order made by the Appellate Tribunal under this Act shall be executable by the Appellate Tribunal as a decree of
civil court and, for this purpose, the Appellate Tribunal shall have all the powers of a civil court.
(4) Notwithstanding anything contained in sub-section (3), the Appellate Tribunal may transmit any order made by it to a
civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by that court.

(5) All proceedings before the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of
sections 193 and 228 of the Indian Penal Code, 1860 (45 of 1860) and the Appellate Tribunal shall be deemed to be a
civil court for the purposes of sections 345 and 346 of the Code of Criminal Procedure, 1973 (2 of 1974).
122 Section 35(2) PMLA.
123 S. 36. Distribution of business amongst Benches.—Where any Benches are constituted, the Chairman may, from
time to time, by notification, make provisions as to the distribution of the business of the Appellate Tribunal amongst the
Benches and also provide for the matters which may be dealt with by each Bench.
124 S. 37. Power of Chairman to transfer cases.—On the application of any of the parties and after notice to the parties,
and after hearing such of them as he may desire to be heard, or on his own motion without such notice, the Chairman
may transfer any case pending before one Bench, for disposal, to any other Bench.
 Page 4 of 4
3.4 Appellate Tribunal

125 S. 38. Decision to be by majority.—If the Members of a Bench consisting of two Members differ in opinion on any
point, they shall state the point or points on which they differ, and make a reference to the Chairman who shall either
hear the point or points himself or refer the case for hearing on such point or points by third Member of the Appellate
Tribunal and such point or points shall be decided according to the opinion of the majority of the Members of the
Appellate Tribunal who have heard the case, including those who first heard it.
126 S. 39. Right of appellant to take assistance of authorised representative and of Government to appoint
presenting officers.—(1) A person preferring an appeal to the Appellate Tribunal under this Act may either appear in
person or take the assistance of any authorised representative of his choice to present his case before the Appellate
Tribunal.
Explanation.—For the purposes of this sub-section, the expression “authorised representative” shall have the same
meaning as assigned to it under sub-section (2) of section 288 of the Income-tax Act, 1961 (43 of 1961).

(2) The Central Government or the Director may authorise one or more authorised representatives or any of its officers
to act as presenting officers and every person so authorised may present the case with respect to any appeal before
the Appellate Tribunal.
127 Section 288 of the Income-Tax Act describes the persons entitled to appear before any Income-Tax Authority or the
Appellate Tribunal, as an “authorized representative”.
128 S. 40. Members, etc., to be public servants.—The [Chairman], Members and other officers and employees of the
Appellate Tribunal, the Adjudicating Authority, Director and the officers subordinate to him shall be deemed to be public
servants within the meaning of section 21 of the Indian Penal Code, 1860 (45 of 1860).

End of Document
 3.5 The Prevention of Money Laundering (Appeal) Rules, 2005
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 3 ATTACHMENT, ADJUDICATION AND
CONFISCATION UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

CHAPTER 3 ATTACHMENT, ADJUDICATION AND CONFISCATION

UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

3.5 The Prevention of Money Laundering (Appeal) Rules, 2005129

3.5.1 Form of Appeal

Rule 3 of the Prevention of Money Laundering (Appeal) Rules, 2005 (‘Appeal Rules, 2005’) provide with the Form of
Appeal preferred to the Appellate Tribunal against the order of the Adjudicating Authority. Sub-rule (1) of Rule 3
states that the every appeal preferred before the Appellate Tribunal under section 26 of the Act shall be in the Form
as appended to these rules and the appeal shall be in quadruplicate and accompanied by four copies of the order
appealed against. Sub-rule (2) further states every appeal shall be accompanied with a prescribed amount of fee, in
the form of demand draft payable in favour of the Registrar, Appellate Tribunal, New Delhi:

“The appeal shall set forth concisely and under distinct head the grounds of objection to the order appealed against and
such grounds shall be numbered consecutively; and shall specify the address of service at which notice or other processes
of the Appellate Tribunal may be served on the appellant and the date on which the order appealed against was served on
the appellant.”130

The Appeal Rule, 2005 in Rule 3(4) also states that:

“where the appeal is preferred after the expiry of the period of forty-five days referred to in sub-section (3) of section 26 of
the Act, it shall be accompanied by a petition, in quadruplicate, duly verified and supported by the documents, if any, relied
upon by the appellant, showing cause as to how the appellant had been prevented from preferring the appeal within the
period of forty-five days.”

3.5.2 Order of the Appellate Tribunal and its Services

The order of the Appellate Tribunal shall be in writing and shall state the reasons for the decision.131

Rule 5 discusses the manner in which a notice, requisition or an order issued under these Rules, should be served
on any person. The Rule reads as under:

“Rule 5—A notice, requisition or an order issued under these rules shall be served on any person in the following
manner:—
(a) by delivering or tendering the notice or requisition or order to that person or the person duly authorized by him; or

(b) by sending the notice or requisition or order to him by registered post with acknowledgement due to the address
of his place of residence or his last known place of residence or the place where he carried on, or last carried on,
business or personally works or last worked for gain; or
(c) by affixing it on the outer door or some other conspicuous part of the premises in which the person resides or is
known to have last resided or carried on business or personally works or has worked for gain and that written
report thereof should be witnessed by two persons; or
 Page 2 of 2
3.5 The Prevention of Money Laundering (Appeal) Rules, 2005

(d) if the notice or requisition or order cannot be served under clause (a) or clause (b) or clause (c), then by
publishing in a leading newspaper (both in vernacular and in English) having wide circulation in the area or
jurisdiction in which the person resides or is known to have last resided or carried on business or personally works
or last worked for gain.”

129 Vide GSR 449 (E), dated 1 July 2005, published in the Gazette of India, Extra, Pt II Section 3(i), dated 1 July 2005.
130 Rule 3(3) of the Prevention of Money Laundering (Appeal) Rules, 2005.
131 Rule 4 of the Prevention of Money Laundering (Appeal) Rules, 2005.

End of Document
 3.6 High Court
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 3 ATTACHMENT, ADJUDICATION AND
CONFISCATION UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

CHAPTER 3 ATTACHMENT, ADJUDICATION AND CONFISCATION

UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

3.6 High Court

Against the order of the Appellate Tribunal, there lies an appeal before the High Court under section 42 of the
PMLA.132 This appeal would be on “any question of law or fact” arising out of the order of the Appellate Tribunal.
The appeal to the High Court is the second appeal, the first being to the Appellate Tribunal against the order of the
Adjudicating Authority.

The limitation to prefer an appeal before the High Court is sixty days from the date of communication of the decision
or order of the Appellate Tribunal. However, if the High Court is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the prescribed time, it may allow the appeal to be filed within a further
period, not exceeding sixty days.

The jurisdiction of the High Court shall depend on where the aggrieved party ordinarily resides or carries on
business or personally works for gain, but when the Central Government is the aggrieved party, the jurisdiction shall
lie in the High Court within the jurisdiction of which the respondent, or in a case where there are more than one
respondent, any of the respondents, ordinarily resides or carries on business or personally works for gain.

It must be noted that since the attached properties may be located in different parts of the country in a particular
case, the appeals can be filed in various High Courts in the country in relation to the same attachment confirmation
order and provisional attachment order.133 As multiple properties can be attached by way of one common
provisional attachment it is likely to lead a situation where the common order of provisional attachment might be
reversed by one High Court and upheld by another High Court. While the properties may be different the trail of
proceeds of crime and evidence justifying such attachment may be similar. This section should be amended, and
jurisdiction should be vested with the High Court which has territorial jurisdiction over the special court which will
eventually hold the trial for the offence of money laundering and the predicate offence.

The scope of section 42 was discussed by the Bombay High Court in Radha Mohan Lakhotia v Deputy Director.134
In this case, the court held that the appeal under section 42 is in the nature of second appeal, but the scheme of the
PMLA is such that the High Court under section 42 will have to proceed on question of law as well as fact as if it is a
first appeal. The court, however; held that the concurrent findings by the Adjudicating Authority and Appellate
Tribunal on the facts cannot be simply brushed aside by the court unless it is shown that the same are manifestly
wrong or perverse.

132 S. 42. Appeal to High Court.—Any person aggrieved by any decision or order of the Appellate Tribunal may file an
appeal to the High Court within sixty days from the date of communication of the decision or order of the Appellate
Tribunal to him on any question of law or fact arising out of such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the
appeal within the said period, allow it to be filed within a further period not exceeding sixty days.
Explanation.—For the purposes of this section, “High Court” means—
 Page 2 of 2
3.6 High Court

(i) The High Court within the jurisdiction of which the aggrieved party ordinarily resides or carries on business or
personally works for gain; and
(ii) Where the Central Government is the aggrieved party, the High Court within the jurisdiction of which the
respondent, or in a case where there are more than one respondent, any of the respondents, ordinarily resides or
carries on business or personally works for gain.
133 See, the 56th Report of the Standing Committee (2011-12) on The Prevention of Money Laundering (Amendment) Bill,
2011.
134 Radha Mohan Lakhotia v Deputy Director, 2010 (5) BOM CR 625 [LNIND 2010 BOM 651], decided on date 5 August
2010, High Court of Judicature at Bombay.

End of Document
 3.7 Whether a Single Member of the Adjudicating Authority can hear and/or
decide the issues under Section 8 PMLA?
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 3 ATTACHMENT, ADJUDICATION AND
CONFISCATION UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

CHAPTER 3 ATTACHMENT, ADJUDICATION AND CONFISCATION

UNDER THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

3.7 Whether a Single Member of the Adjudicating Authority can hear and/or
decide the issues under Section 8 PMLA?
In J Sekar (supra), out of the many issues raised by the petitioners, one of the issues was “whether a Single
Member of the Adjudicating Authority can exercise powers and conduct proceedings under section 8 PMLA”. The
petitioners had challenged the orders of the Adjudicating Authority because the Bench was presided by a Single
Member in contravention to the requirements of the PMLA.

Rejecting the arguments of the petitioners, the Delhi High Court held that:

“79. The Court next takes up the question of the composition of the AA on which extensive arguments were advanced by
the learned counsel for the Petitioners. In this context, it must be noticed that under Section 6 PMLA, the AA is supposed to
consist of the Chairperson and two other members - one of whom shall be a person having experience in the field of law.
Section 6(3) further sets out what the qualifications for appointment as a member of an AA should be. One of those
qualifications is that the person has to be qualified for appointment as a District Judge or a person in the field of law or a
member of an Indian Legal Service. The other qualification is possession of a qualification in the field of finance,
accountancy or administration as may be prescribed. It is, therefore, not the case that all the members of the AA should be
judicial members.

80.It is seen that under Section 5 PMLA, the jurisdiction of the AA “may be exercised by the Benches thereof”. Under
Section 6(5)(b) PMLA, a Bench may be constituted by the Chairperson of the AA “with one or two members” as the
Chairperson may deem fit. Therefore, it is possible to have single-member benches. The word ‘bench’ therefore does not
connote plurality. There could, even under Section 6(5)(b) PMLA, be a ‘single member bench’. When Section 6(6) PMLA
states that a Chairperson can transfer a member from one bench to another bench, it has to be understood in the above
context of there also being single-member benches.”

The petitioners argued that the matter must be heard by a bench comprising the Chairperson and members, and
relied on the Adjudicating Authority (Procedure) Regulations 2013 which requires every order sheet to have
signatures of the Chairperson and members constituting the bench. The Court, however held otherwise and
stated—

“The Court is unable to agree with the submission that since the Adjudicating Authority (Procedure) Regulations 2013
requires every order-sheet to have the signatures of the Chairperson and members constituting the bench, it necessarily
means that every matter has to be heard by a bench comprising the Chairperson and members. This would be an
erroneous interpretation which is contrary to the main provision of the PMLA itself, viz., Section 6(5)(b) PMLA. Likewise,
under Rule 3 of the Prevention of Money-laundering (Appointment and Conditions of Service of Chairperson and Members
of the Adjudicating Authorities) Rules 2007, although it states that the AA should have three members, that has to be read
 Page 2 of 5
3.7 Whether a Single Member of the Adjudicating Authority can hear and/or decide the issues under Section 8
PMLA?

along with Section 6(5)(b) that there can be single-member benches. A contrary interpretation would actually frustrate the
working of the AA. The Court, therefore, rejects the contention of the Petitioners that there cannot be any single-member
benches of the AA. (Para 81)”

The petitioners also relied on a couple of judgments to draw a parallel of the Adjudicating Authority with other
Tribunals established under other special statutes to show that it has been a settled principle of law that when a
Single Member is presiding the Bench, it has to necessarily be a Judicial Member (JM) and not an Administrative
Member (AM). Some of the judgments relied by the petitioners were L Chandra Kumar v UOI,135 Eastern Institute
for Integrated Learning v Joint Directorate,136 Vishal Exports Overseas Ltd v UOI,137 and Uday Navinchandra
Sanghani v UOI,138 Distinguishing these judgments, the High Court held—

“83. The reliance on L. Chandrakumar v Union of India (supra) is misplaced. There the question was whether the ousting
the jurisdiction of the High Court and vesting the powers of the High Court in a Tribunal is constitutionally valid. That is not
what is sought to be done under Section 8 PMLA. It is only to provide an internal judicial review of the orders passed by the
authorities under Section 5(1) PMLA. The AA under Section 8 PMLA cannot, therefore, be equated with an Administrative
Tribunal under the Administrative Tribunals Act 1985 (ATA). The Central Administrative Tribunal under the ATA was vested
with the powers originally with a High Court under Article 226 of the Constitution. Those were Tribunals under Article 323-B
of the Constitution of India. The AA is not that kind of a Tribunal at all. The Court is, therefore, unable to agree with
judgments of the learned Single Judges of the Sikkim and Gujarat High Courts in this context.

84. There are other reasons why the Court finds that the aforementioned decisions of the learned Single Judges of the
Sikkim and Gujarat High Courts cannot be concurred with. They fail to notice that under Section 25 PMLA, an appeal is
provided for from the order of the AA before the AT [Appellate Tribunal]. Even so, such an AT is not the equivalent to the
High Court since an appeal against the order of the AT is provided to the High Court itself. Thus, the hierarchy of judicial
review authorities under the PMLA presents a very different scheme from what is found in other statutes, particularly the
ATA.

85. Under the PMLA, however, we first have a decision by an authority under Section 5(1) PMLA. Then we have a review of
that decision by the AA under Section 8 PMLA. Then we have an appeal against that decision to the AT under Section 25
PMLA. These authorities, i.e. the AA and the AT, need not be entirely manned only by JMs. They can be AMs as well.

86. No two tribunals are alike. The National Company Law Tribunal (NCLT) comprises of both JMs and AMs. The
circumstances under which the Supreme Court insisted that a Bench of the NCLT should be presided over by a JM is that
the NCLT seeks to exercise the powers earlier vested in a High Court. That is not the case as far as the PMLA is
concerned. Neither the AA nor the AT exercises the power that would otherwise be available to a High Court. That power,
in fact, remains with the High Court in an expanded capacity. Under Section 42 PMLA, an appeal is provided to the High
Court, both on questions of law as well as on facts. That makes it a full-fledged appeal, the scope of which would be wider
than the exercise of powers of a judicial review by a High Court under Article 226/227 of the Constitution.”

In crux, the High Court held that neither the Adjudicating Authority nor the Appellate Tribunal replaces the powers
vested with the High Court, and since the hierarchy present in the PMLA is such that the orders passed by the
Adjudicating Authority are appealable before the Appellate Tribunal and the orders passed by the Appellate
Tribunal are appealable before the High Court, a Single Member who may not necessarily be a Judicial Member
can adjudicate matters under the Act.

The decision of the Court in J Sekar (supra) holding that a Single Member presiding the Bench can be an
Administrative Member and need not be a Judicial Member may not be in line with the overall intention of the
legislature behind constituting Tribunals and its functioning. According to the Law Commission of India Report139 the
main objective behind establishing the “Tribunals” was to provide an effective and speedier forum for dispensation
of justice. The Tribunals (or the Authorities) have the trappings of a Court as they perform functions which are
“judicial” as well as “quasi-judicial” in nature. The Tribunals are required to ensure justice and fair play; and has
many features of a regular court to ensure speedy and affordable justice.140 The Tribunals have been established
with the primary objective of providing a special forum for specific type of disputes and for faster and more
efficacious adjudication of issues. The Supreme Court in Associated Cement Companies Ltd v PN Sharma,141 held
that:
 Page 3 of 5
3.7 Whether a Single Member of the Adjudicating Authority can hear and/or decide the issues under Section 8
PMLA?

“the basic and fundamental feature that is common to both the Courts and the tribunals is that they discharge judicial
functions and exercise judicial powers which inherently vest in a sovereign State”.

In Rojer Mathew v South Indian Bank,142 a five-judge bench of the Supreme Court was faced with a number of
petitions seeking directions for the Ministry of Law and Justice to take over the administration of all tribunal created
by the Parliament, and streamline its functioning. The court emphasised on the importance of presence of a judicial
mind in a Tribunal to improve the quality of the decisions of the Tribunal, and provide justice to the parties, thereby,
lowering the burden of judicial review from the constitutional courts.

Per Gogoi CJI, speaking for the bench observed:

“14. [...] With the inclusion of technical members along with judicial members in composition of Tribunals, it is ensured that
the adjudicatory authority is equipped with the technical knowledge required to comprehend and decide issues involving
specialised subjects.

[...]

47. In Union of India v R. Gandhi, President, Madras Bar Association [(2010) 11 SCC 1 [LNIND 2010 SC 495]], a
Constitution Bench of five judges of this Court reviewed the Constitutional validity of Parts I-B and I-C of The Companies
Act, 1956 inserted by the Companies (2nd Amendment) Act, 2002.

48. The bench observed that if Tribunals are established in substitution of Courts, they must also possess independence,
security and capacity. Additionally, with transfer of jurisdiction from a traditional Court to a Tribunal, it would be imperative
to include members of the judiciary as presiding officers/members of the Tribunal. Technical members could only be in
addition to judicial members and that also only when specialised knowledge or know-how is required. Any inclusion of
technical members in the absence of any discernible requirement of specialisation would amount to dilution and
encroachment upon the independence of the judiciary.

[...]

54. Finally, in Gujarat Urja Vikas Ltd. v Essar Power Ltd., [(2016) 9 SCC 103 [LNIND 2016 SC 324]], while examining the
composition and working of Tribunals and statutory framework thereof, this Court reiterated its earlier decisions in L.
Chandra Kumar (supra) and Madras Bar Association (2014) (supra), observing that remedy of appeal to this Court was in
effect, being obliterated due to cost and inaccessibility. In addition to this, a flood of appeals from all the Tribunals directly to
this Court hindered its efficiency in fulfilling its primary Constitutional role. Since appellate tribunals, manned by non- judicial
members, were adjudging complex questions of law, the composition of Tribunals was put under review by this Court and a
reference to the Law Commission of India was made in this regard. Pursuant to this, the Law Commission of India, in its
272nd Report titled ‘Assessment of Statutory Frameworks of Tribunals in India’ gave a detailed analysis of statutory
framework with respect to Tribunalisation in India.

[...]

54. The last issue is whether there should be a Commission or a body to oversee the appointment of members of various
tribunals. In my view it is necessary to have such a Commission which is itself an independent body manned by honest and
competent persons. This body is required to select those persons who man the specialised tribunals in terms of the law laid
down in various judgments of this Court. We need persons who not only have grassroot experience but a judicious mix of
judicial members and those with grassroot experience. We need persons who have an independent outlook, integrity,
character and good reputation. We need people who are totally free from the influence or pressure from the Government. It
is only then that the people will have faith in the adjudicating mechanism of the tribunals.”

In State of Gujarat v Utility Users Welfare Association,143 the Supreme Court was adjudicating on issue whether the
expression “may” should be read as “shall”, i.e., whether it is mandatory to have a judicial mind presiding over these
Central and State Regulatory Commissions under the Electricity Act, 2003, in the form of a Judge. The Union of
India argued that the primary functions of these Commissions were technical in character such as determination of
 Page 4 of 5
3.7 Whether a Single Member of the Adjudicating Authority can hear and/or decide the issues under Section 8
PMLA?

tariff, regulating electricity purchase and procurement process of distribution licensees, facilitating intra-State
transmission, issuance of license, promotion of cogeneration and generation of electricity from renewable sources
of energy, levying fee, etc., and hence, there was no need for a judicial mind. The court rejecting the arguments of
the Petitioner concluded that:

“It is mandatory that there should be a person of law as a Member of the Commission, which requires a person, who is, or
has been holding a judicial office or is a person possessing professional qualifications with substantial experience in the
practice of law, who has the requisite qualifications to have been appointed as a Judge of the High Court or a District
Judge. (Para 114(ii))”

Although, this decision is on a different footing as the issue here was whether the Member of the Commission
should be a Judicial Member or not, the decision can be relied on to show how the Supreme Court has emphasised
on the presence of a judicial mind in the Tribunal. It would also not be out of place to mention that provisions of the
Electricity Act, 2003 for powers vested with the Appropriate Commission under sections 94, 95 & 96 of the
Electricity Act, 2003 are very much similar to section 11(1) and section 35(1) of the PMLA.

Relying on the judgment in Utility Users Welfare Association (supra); the Delhi High Court in Mahindra Electric
Mobility Limited v Competition Commission of India144 directed the Competition Commission of India (CCI)
to,“...ensure that at all times, during the final hearing, the judicial member (in line with the declaration of law in Utility
Users Welfare Association, (supra) is present and participates in the hearing.”

In addition to these judgments, the Law Commission of India Report145 has also suggested the since the Tribunals
are established to serve a specific area of law and are also vested with the judicial powers which are to be
exercised by the Courts, the appointment of Technical members in addition to judicial members must always be
welcomed, as they can provide an input which may not be available with the judicial members. It has been noted
that:

“5.5. As the Tribunals are vested with the judicial powers which had been hitherto vested in or exercised by Courts, the
Tribunals should possess the same independence, security and capacity which are possessed by the judges. However, if
the Tribunals are intended to serve an area which requires specialised knowledge or expertise, the appointment of
Technical members in addition to judicial members must always be welcomed, as they can provide an input which may not
be available with the judicial members. When any jurisdiction is shifted from Courts to Tribunals on the ground of pendency
and delayed Court proceedings and the jurisdiction so transferred does not involve any technical aspects requiring the
assistance of experts, the Tribunals should normally have only the judicial members. But when the exercise of jurisdiction
involves inquiry and decisions into technical or special aspects, the presence of Technical members would be useful and
necessary. The indiscriminate appointment of technical members in all the Tribunals will have weakening and adverse
effect on its working.”

This strengthens the argument that the presence of a Member (Judicial) while adjudicating an issue should be
maintained at all times, and the addition of a Technical or an Administrative Member, in addition to the Judicial
Member is a subsequent step.

135 L Chandra Kumar v Union of India, (1997) 2 SCR 1186 [LNIND 1997 SC 488] : (1997) 3 SCC 261 [LNIND 1997 SC
488] : AIR 1997 SC 1125 [LNIND 1997 SC 488]: 1997 (3) SCALE 40 [LNIND 1997 SC 488], decided on date 18 March
1997, Supreme Court of India.
136 Eastern Institute for Integrated Learning v Joint Directorate, 2016 Cr LJ 526, decided on date 22 September 2015, High
Court of Sikkim.
137 Vishal Exports Overseas Ltd. v UOI, SCA No 13949 of 2014, decided on date 9 March 2016, High Court of Gujarat.
138 Uday Navinchandra Sanghani v UOI, SCA No. 10076/2015, decided on date 1 April 2016, High Court of Gujarat.
139 See, Report No. 272, Law Commission of India on the Assessment of Statutory Frameworks of Tribunals in India dated
October 2017. The Commission has considered the statutory framework constituting Tribunals, keeping the very
objective of their establishment and procedure and terms and conditions for appointment of Chairperson and Members
of such Tribunals.
 Page 5 of 5
3.7 Whether a Single Member of the Adjudicating Authority can hear and/or decide the issues under Section 8
PMLA?

140 Id, Para 3.13 at pg 28. Also see, Rojer Mathew v South Indian Bank, (2019) SCC Online 1456 : 2019(15) SCALE 615
[LNIND 2019 SC 902], decided on date 13 November 2019, Supreme Court of India.
141 Associated Cement Companies Ltd v PN Sharma, AIR 1965 SC 1595 [LNIND 1964 SC 346]: (1965) 2 SCR 366
[LNIND 1964 SC 346], decided on date 9 December 1964, Supreme Court of India.
142 Rojer Mathew v South Indian Bank, (2019) SCC Online 1456 : 2019 (15) SCALE 615 [LNIND 2019 SC 902], decided
on date 13 November 2019, Supreme Court of India.
143 State of Gujarat v Utility Users Welfare Association, AIR 2018 SC 4215 : 2018 (6) SCC 21 [LNIND 2018 SC 194] : 2018
(5) SCJ 225 [LNIND 2018 SC 194] : 2018 (5) SCALE 572, decided on date 12 April 2018, Supreme Court of India.
144 Mahindra Electric Mobility Limited v Competition Commission of India, (C) Writ Petition No 11467/2018, Civil
Miscellaneous Appeal No 44376-44378/2018, decided on date 10 April 2019, High Court of Delhi. An appeal (SLP
No.10346 of 2019) before the Supreme Court is pending and an interim stay has been granted on the order of the High
Court.
145 See, Report No 272, Law Commission of India on the Assessment of Statutory Frameworks of Tribunals in India dated
October 2017. The Commission has considered the statutory framework constituting Tribunals, keeping the very
objective of their establishment and procedure and terms and conditions for appointment of Chairperson and Members
of such Tribunals.

End of Document
 4.1 Introduction
Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act, 2002, 1st ed
Abhimanyu Bhandari and Kartika Sharma

Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money Laundering Act,
2002, 1st ed > Abhimanyu Bhandari and Kartika Sharma: A Critique of the Prevention of Money
Laundering Act, 2002, 1e, HB > CHAPTER 4 ENFORCEABILITY OF CODE OF CRIMINAL
PROCEDURE, 1973 TO THE PREVENTION OF MONEY-LAUNDERING ACT, 2002: A CONUNDRUM

CHAPTER 4 ENFORCEABILITY OF CODE OF CRIMINAL PROCEDURE,

1973 TO THE PREVENTION OF MONEY-LAUNDERING ACT, 2002: A
CONUNDRUM

4.1 Introduction
As discussed before, PMLA is a special law created by the legislature to curb money-laundering activities in the
country.1 The prime objective of the Act is two folds, viz. to prevent the offence of money-laundering and to
confiscate property derived from or involved in money-laundering. To achieve this objective, the Act contains an
extensive statutory scheme that bestows wide powers on the ED.2
4.1.1 Directorate of Enforcement & Authorities under the PMLA

4.1.1.1 Authorities under PMLA

The power to act under the PMLA is bestowed upon the “Authorities” which are defined under section 48 of the Act.

Section 48 of the PMLA reads as under—

“Section 48—Authorities under Act.—There shall be the following classes of authorities for the purposes of this Act,
namely:—
(a) Director or Additional Director or Joint Director,

(b) Deputy Director,

(c) Assistant Director, and

(d) such other class of officers as may be appointed for the purposes of this Act.”

4.1.1.2 Directorate of Enforcement

There is no provision in the PMLA which gives exclusive jurisdiction and power to the officers of the Enforcement or
ED to conduct investigations for the offence of money-laundering under the Act. In fact, the Directorate of
Enforcement is a body statutorily constituted under the Foreign Exchange Management Act, 1999 (‘FEMA’).3

At the time of implementation of the PMLA in 2005, the officers of Enforcement were not given powers to
investigate the offence under the PMLA, and it was only pursuant to the notifications issued by the government that
the officers of Enforcement were given powers to investigate the offence under the PMLA.4

What is more interesting is that the officers of ED (appointed under sub-section (1) of section 36 of FEMA), which
now act as Authorities under the PMLA have in fact been enlisted under section 54 of the PMLA, as officers which
may be required to assist the Authorities under the PMLA.5 Some of the other officers enlisted in section 54 of the
PMLA include police officers, officers of NDPS Act, RBI Act, IRDA Act, etc. The inclusion of the officers of the ED
has not been removed by any of the amendments and the “officers of the Enforcement” till date finds mention in the
category of other officers enlisted under section 54 of the PMLA. In a case before the Delhi High Court, the question
 Page 2 of 63
4.1 Introduction

arose whether officers of ED can be held to be “police officers” under the PMLA given that the Authorities have
powers analogous to that of a police officer.6 The Delhi High Court reasoned that:

“...If the authorities under the Act—who are authorised to carry out investigation under the Act, were considered by the
Parliament to be police officers, there was no need to empower and oblige the officers of police to assist the authorities
under the Act in the implementation of the Act.”

4.1.2 Enforcement Case Information Report

An Enforcement Case Information Report (‘ECIR’) has not been defined in the PMLA or Rules framed thereunder.
The ED often refers it to as “an internal document of Directorate of Enforcement for proper identification of a
particular case”. It is the official report of the ED setting in motion the process of investigation under the PMLA. In
this aspect, it appears, though not so described explicitly or required under the law, to be akin to a First Information
Report (‘FIR’) that is ordinarily registered by the police in respect of a cognizable offence under section 154 of CrPC
or a non- cognizable offence under section 155 of CrPC.7

Since there is no clarity on the concept of an ECIR, there is complete ambiguity at what stage an ECIR is registered
and at what stage should the ECIR be filed before the Special Court. As discussed in the previous chapters, the
offence of money laundering is the result of the laundering of proceeds of crime obtained from the scheduled
offence. Therefore, there has to be an existence of a scheduled offence before a case of money-laundering can be
initiated. The registration of an ECIR must, therefore; be pursuant to the registration of the FIR or a complaint or
filing of the charge-sheet in relation to the scheduled offence. The FIR is not a confidential document and any
person named in the FIR as an accused has a right to seek a copy of the FIR from the concerned police station.8 A
FIR also has to be forthwith filed before the concerned jurisdictional magistrate.9 The practice of not filing an ECIR
upon registration before a competent court and treating it differently from an FIR10 is justified on the pretext that
mere registration of the ECIR against a person does not entail him to be an accused as in the case of an FIR.11
4.1.3 Special Courts

Section 44 of the PMLA provides that the offence of money-laundering and the scheduled offence connected to that
offence of money-laundering shall be tried by the Special Court constituted for the area in which the offence has
been committed. However, by way of an explanation, the legislature has now clarified that the jurisdiction of the
Special Court while dealing with the offence of money-laundering, during investigation, enquiry or trial under this
Act, shall not be dependent upon the orders passed in respect of the scheduled offence, and the trial of both sets of
offences by the same court shall not be construed as joint trial.

The section further provides that the Special Court while trying the scheduled offence or the offence of money-
laundering shall hold the trial in accordance with the provisions of CrPC, as it applies to a trial before the Court of
Session. Section 46 of the PMLA also provides for the application of CrPC (including the provisions for bails or
bonds), to the proceedings before a Special Court. The remedy from the order of the Special Court is provided
under section 47 of the PMLA in the nature of appeal and revision to the High Court.

Section 44 of the PMLA provides that the Special Court is empowered to take cognizance of the offence of money-
laundering without the accused being committed to the Special Court for trial. The second proviso to section 45 (1)
further states that the cognizance can only be taken upon a complaint in writing being made for such action by the
“Director” (of Enforcement) or any other officer of the Central or State Government specially authorized in this
behalf.

For a better understanding, section 43 and section 44 are reproduced below:

“Section 43—Special Courts.—(1) The Central Government, in consultation with the Chief Justice of the High Court,
shall, for trial of offence punishable under section 4, by notification, designate one or more Courts of Session as Special
Court or Special Courts for such area or areas or for such case or class or group of cases as may be specified in the
notification.

Explanation.—In this sub-section, “High Court” means the High Court of the State in which a Sessions Court designated as
Special Court was functioning immediately before such designation.

(2) While trying an offence under this Act, a Special Court shall also try an offence, other than an offence referred to in sub-
section (1), with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974), be charged at the same
trial.
 Page 3 of 63
4.1 Introduction

Section 44—Offences triable by Special Courts.—(1) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974),—

12[(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall
be triable by the Special Court constituted for the area in which the offence has been committed:

Provided that the Special Court, trying a scheduled offence before the commencement of this Act, shall continue to try such
scheduled offence; or]

(b) a Special Court may 13[***] upon a complaint made by an authority authorised in this behalf under this Act take
14[cognizance of offence under section 3, without the accused being committed to it for trial]

15[Provided that after conclusion of investigation, if no offence of money-laundering is made out requiring filing of such
complaint, the said authority shall submit a closure report before the Special Court; or]

16[(c)
if the court which has taken cognizance of the scheduled offence is other than the Special Court which has taken
cognizance of the complaint of the offence of money-laundering under sub-clause (b), it shall, on an application by the
authority authorised to file a complaint under this Act, commit the case relating to the scheduled offence to the Special
Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it is committed.

(d) a Special Court while trying the scheduled offence or the offence of money-laundering shall hold trial in accordance with
the provisions of the Code of Criminal Procedure, 1973(2 of 1974), as it applies to a trial before a Court of Session.]

17[Explanation.—For the removal of doubts, it is clarified that,—

(i) the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial
under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both
sets of offences by the same court shall not be construed as joint trial;

(ii) the complaint shall be deemed to include any subsequent complaint in respect of further investigation that may be
conducted to bring any further evidence, oral or documentary, against any accused person involved in respect of the
offence, for which complaint has already been filed, whether named in the original complaint or not.]

(2) Nothing contained in this section shall be deemed to affect the special powers of the High Court regarding bail under
section 439 of the Code of Criminal Procedure, 1973 (2 of 1974) and the High Court may exercise such powers including
the power under clause (b) of sub-section (1) of that section as if the reference to “Magistrate” in that section includes also
a reference to a “Special Court” designated under section 43.”

Section 44, acts as an umbilical cord between the scheduled offence and the offence of money-laundering because
the, “… section provides for the trial of a scheduled offence and the offence of money laundering together by the
same Special Court, which is to try such offences under the Code of Criminal Procedure as if it were a court of
sessions.”18

This provision further supports the argument that the commission of the scheduled offence is a sine qua non to the
offence of money-laundering. However, by way of the newly appended Explanation (i) to section 44(1) of the PMLA,
the legislature has attempted to severe the ties between the scheduled offence and the offence of money-
laundering. The Explanation specifically states that the, “enquiry or trial under this Act, shall not be dependent upon
any orders passed in respect of the scheduled offence”. This amendment disturbs the scheme of the Act by
allowing a Special Court to carry on with the trial of the offence of money-laundering irrespective of what has
transpired in the trial of the predicate offence. This means that if the investigating agency files a closure report
stating that no scheduled offence was committed, or the court discharges the accused from committing the
scheduled offence then that would not necessarily discharge the accused persons from the charge of money-
laundering. As extensively argued in Chapter 2, commission of a predicate offence is a sine qua non for the
occurrence of an offence of money-laundering. The plain reading of Section 3 makes it clear that the offence of
money laundering is contingent upon the commission of a scheduled offence, as it states that an offence of money
laundering occurs when a person carries out any activity connected with the proceeds of crime, which is defined in
section 2(1)(u) as “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”. Therefore, if there is no criminal activity
then there cannot be generation of proceeds of crime, and therefore, there cannot be any money-laundering.
 Page 4 of 63
4.1 Introduction

Another relevant issue which must be addressed is—what is the meaning of “Complaint” as referred to in section 44
of the PMLA?

From the bare reading of the above, it is clear that the Special Court may take cognizance of the offence under
section 3 only upon a complaint made by the Authority authorised in this behalf. It has also been clarified by way of
a newly appended explanation to section 44 that the complaint shall be deemed to include any subsequent
complaint in respect of the further investigation that may be conducted to bring any further evidence, oral or
documentary, against any accused person involved in respect of the offence, for which complaint has already been
filed, whether named in the original complaint or not.19 In addition to the power of filing of complaints, the Act also
by way of a newly appended proviso has empowered the Authority to submit a closure report before the Special
Court if upon completion it finds that no offence of money-laundering is committed.20

The term “Complaint” has, however; not been defined under the PMLA. The perusal of section 44 of the PMLA
entails that “Complaint” is a document which is prepared by the authority after due investigation and collection of
materials from all sides before it is submitted to the Special Court. The question, which, therefore; arises here, is
that whether the complaint prescribed under section 44 of the PMLA is in the nature of the charge-sheet filed by the
police under section 173 of CrPC.21

The Jharkhand High Court in Hari Narayan Rai v UOI,22 has equated the filing of the complaint by the Authority
before the Special Court to the filing of the charge-sheet by the police under section 173 of CrPC and rejected the
bail application which was filed under section 167(2) of CrPC for non-filing of the charge sheet within the prescribed
time limit.

Similarly, in Yogesh Mittal v Enforcement Directorate,23 the Delhi High Court observed that a complaint referred to
in section 44 of the PMLA is akin to a report under section 173 of CrPC in as much as a report under section 173 of
CrPC is submitted after the investigation is completed. The court had observed,

“41. [...] Needless to state here that the prosecution/complaint referred to in Section 44 of the PMLA is akin to a report
under Section 173 in as much as a report under Section 173 of the Code of Criminal Procedure is submitted after the
investigation is completed. So is the prosecution/ complaint under Section 44 of the PMLA. After the filing of the predicate
offences and registration of the ECIR, investigations are held and the prosecution/complaint under Section 44 is only a
culmination of the investigation. [...]”

4.1.4 Application of the provision of Code of Criminal Procedure, 1973 to the PMLA

The question arises whether the PMLA provides for the procedure to be followed by the ED to carry out powers
bestowed upon it or whether it draws its procedure from the CrPC. The Code being a parent statute contains
procedural laws for investigation, inquiry and trials into offences under the Indian Penal Code, 1908 and other
special laws. However, the Code itself provides an exception to this rule.

In this regard, section 4 and section 5 of CrPC are reproduced:

“4. Trial of offences under the Indian Penal Code and other laws.—(1) All offences under the Indian Penal Code (45 of
1860) shall be investigated, inquired into, tried, and otherwise dealt with according to the provisions hereinafter contained.

(2) All offences under any other law shall be investigated, inquired into, tried, and otherwise dealt with according to the
same provisions, but subject to any enactment for the time being in force regulating the manner or place of investigating,
inquiring into, trying or otherwise dealing with such offences.

5. Saving.—Nothing contained in this Code shall, in the absence of a specific provision to the contrary, affect any special or
local law for the time being in force, or any special jurisdiction or power conferred, or any special form of procedure
prescribed, by any other law for the time being in force.”

Section 4(2) of CrPC provides that the provisions of CrPC shall be applicable for the trial of offences under any
other law for the time being in force.24 The section simply means that the offence complained of should be
investigated or inquired into or tried according to the provisions of CrPC where the special law which creates the
offence provides no special procedure.25 Section 5 of CrPC also supports section 4 of CrPC.26
 Page 5 of 63
4.1 Introduction

Section 4 of CrPC has been said to act as a bridge before embarking upon an investigation either into the offences
under the IPC or a special statute.27

A similar provision to that of section 4(2) of CrPC is found in section 65 of the PMLA. According to section 65 of the
PMLA, the provisions of CrPC shall apply to the PMLA, insofar as they are not inconsistent with the provisions of
the Act, to arrest, search, and seizure, attachment, confiscation, investigation, prosecution and all other
proceedings under the said Act. Further, section 71 of the PMLA gives the provisions of the PMLA an overriding
effect notwithstanding anything inconsistent with any other law for the time being in force.

Sections 65 and 71 of the PMLA are reproduced herein:

65. Code of Criminal Procedure, 1973 to apply.—The provisions of the Code of Criminal Procedure, 1973 (2 of 1974)
shall apply, insofar as they are not inconsistent with the provisions of this Act, to arrest, search and seizure, attachment,
confiscation, investigation, prosecution and all other proceedings under this Act.

71. Act to have overriding effect.—The provisions of this Act shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force.

Therefore, a conjoint reading of section 65 read with section 71 of the PMLA, and section 4 read with section 5 of
CrPC entails that the provisions of CrPC will only apply to the PMLA, if the said procedure is missing from the
PMLA. If the procedure is provided in the PMLA, then by virtue of section 71 of the PMLA and section 4 of CrPC,
the said procedure will override the general procedure provided in CrPC.28

Since, the incorporation of the provisions of CrPC to the PMLA is established; the question that arises is to what
extent can the procedure of CrPC apply to the PMLA? This question has been further broken into the following
issues to scrutinise the respective realms of the two statutes and their common ground:

(a) Issue No 1—What is the nature of the offence of money-laundering—Cognizable or Non-cognizable?

(b) Issue No 2—Whether the ED is conferred with the powers analogous to the police officers for the purposes
of Section 25 of the Evidence Act?
(c) Issue No 3—Whether provisions of Chapter XII of the Code of Criminal Procedure, 1973 apply to the
Prevention of Money Laundering Act, 2002?
(d) Issue No 4—Whether the person arrested under section 19(1) of the PMLA is entitled to receive a copy of
the grounds of arrest? If so, then at what stage should the grounds be served?

4.1.5 What is the nature of the offence of money-laundering—Cognizable or Non-cognizable ?

4.1.5.1 Meaning of cognizable and non- cognizable offences under CrPC

A “cognizable offence” and a “non-cognizable offence” are defined in section 2(1)(c) and section 2(1)(l) of CrPC, as:

“Section 2(c)—Cognizable Offence—“Cognizable Offence” means an offence for which, and “cognizable case” means a
case in which, a police officer may, in accordance with the First Schedule or under any other law for the time being in force,
arrest without warrant.

Section 2(l)—Non-cognizable Offence—“Non-Cognizable Offence” means an offence for which, and “non-cognizable case”
means a case in which, a police officer has no authority to arrest without warrant.”

It is, therefore; clear that if the offence falls under the First Schedule of CrPC or under any other law for the time
being in force, the Police Officer may arrest without a warrant. The “First Schedule” of CrPC specifically provides
classification of the offences, as cognizable or non-cognizable, bailable or non-bailable and also specifies which
offence will be tried by which court according to the punishment of the said offences.29 Under Part II of the First
Schedule, “Classification of Offences against Other Laws” provides that, “offences punishable with imprisonment for
more than three years or upwards would be cognizable and non-bailable”.

The offence of money-laundering under section 3 read with section 4 of the PMLA is punishable with an
imprisonment for more than three years which may extend upto seven years or even upto ten years, as the case
 Page 6 of 63
4.1 Introduction

may be. Therefore, in view of the definition of the cognizable offences read with Part II of the First Schedule of
CrPC, the offence of money-laundering becomes cognizable.
4.1.5.2 Offence of money-laundering—A cognizable offence

The Amendment (vide Finance (No 2)) Act, 2019 has appended an Explanation to section 45 of the PMLA (titled as
“Offences to be cognizable and non-bailable”) which clarifies that notwithstanding anything to the contrary
contained in CrPC, the offences under PMLA shall be cognizable and non-bailable. In view of this newly inserted
Explanation, the dispute around the nature of the offence of money-laundering has been settled. However, it is
important to briefly discuss the historical background in relation to the amendment clarifying that the offence of
money-laundering is cognizable.
4.1.5.3 Confusion on the nature of the offence of money-laundering before Amendment Act No. 20 of 2005

At the time of implementation of the Act, i.e. 2005,30 section 45 read as under:

45. Offences to be cognizable and non-bailable.—(1) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974):
(a) every person punishable under this Act shall be cognizable;
(b) no person accused of an offence punishable for a term of imprisonment of more than three years under Part A of
the Schedule shall be released on bail or on his own bound unless—

(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and

(ii) where the Public Prosecutor opposes the application, the Court is satisfied that there are reasonable grounds
for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:

Provided that a person, who, is under the age of sixteen years, or is a woman or is sick or infirm, may be
released on bail, if the Special Court so directs:

Provided further that the Special Court shall not take cognizance of any offence punishable under
Section 4 except upon a complaint in writing made by—
(i) the Director; or

(ii) any officer of the Central Government or a State Government authorized in writing in this behalf by the
Central Government by a general or special order made in this behalf by that Government.

(2) The limitation on granting of bail specified in clause (b) of sub-section (1) is in addition to the limitations under the Code
of Criminal Procedure 1973 (2 of 1974) or any other law for the time being in force on granting of bail.

A bare reading of the above section (at the time of implementation of PMLA) shows that the legislature intended it to be a
cognizable offence and had specifically stated so in sub-clause (a) of clause (1) of the provision.

The PMLA soon after its implementation, was amended by way of the PML Amendment Bill, 2005. One of the
purposes for the amendment was to omit clause (a) of sub-section (1) of section 45 of the PMLA, which provides
that every offence punishable under that Act shall be cognizable.31

At the time of introducing the PML Amendment Bill, 2005 in the Parliament, the then Finance Minister was asked
whether the offences under the PMLA were cognizable or non-cognizable, to which the Minister said:

“… Under the existing provisions in Section 45 of the Act, every offence is cognizable. If an offence is cognizable, then any
police officer in India can arrest an offender without warrant. At the same time, under Section 19 of the Act, only a Director
or a Deputy Director or an Assistant Director or any other officer authorised, may arrest an offender. Clearly, there was a
conflict between these two provisions. Under Section 45(1)(b) of the Act, the Special Court shall not take cognizance of any
offence punishable under Section 4 except upon a complaint made in writing by the Director or any other officer authorised
by the Central Government. So, what would happen to an arrest made by any police officer in the case of a cognizable
offence? Which is the court that will try the offence? Clearly, there were inconsistencies in these provisions.
 Page 7 of 63
4.1 Introduction

They have now been removed. We have now enabled only the Director or an officer authorised by him to investigate
offences. Of course, we would, by rule, set up a threshold: and, below that threshold, we would allow State police officers
also to take action

...

What we are doing is; we are inserting a new Section, 2 (n) (a) defining the term, ‘investigation’; making an amendment to
Sections 28, 29 and 30, dealing with tribunals; amending Sections 44 and 45 of the Act to make the offence non-cognisable
so that only the Director could take action; and also making consequential changes in Section 73. I request hon. Members
to kindly approve of these amendments so that the Act could be amended quickly and we could bring it into force.”32

(emphasis supplied)

Further, during a debate in the Lok Sabha on section 45 and its proposed amendment, the Finance Minister
clarified:

“Sir, first to answer Mr. Sudhakar Reddy, Section 45(1)(a) is being omitted because, if the offence is cognizable, then any
police officer in this country can arrest without a warrant. Section 19 says, only the Director or Assistant Director should
investigate the offence. There is a conflict. Therefore, we are making it non-cognizable. But, investigation will be by the
Director. We will authorise, up to a threshold, State police officers also to investigate offences. That is why Section 45(1) (a)
is being omitted.”

(emphasis supplied)

Eventually, clause (a) of sub-section (1) of section 45 of the PMLA was omitted. After the Amendment Act 20 of
2005, section 45 read as under:

45. Offences to be cognizable and non-bailable.—(1) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), no person accused of an offence punishable for a term of imprisonment of more than three
years under Part A of the Schedule shall be released on bail or on his own bond unless—
(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and

(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for
believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:

Provided that a person who is under the age of sixteen years or is a woman or is sick or infirm, may be
released on bail, if the special court so directs:

Provided further that the Special Court shall not take cognizance of any offence punishable under section 4
except upon a complaint in writing made by-
(i) the Director; or

(ii) any officer of the Central Government or State Government authorised in writing in this behalf by the Central
Government by a general or a special order made in this behalf by that Government.

33(1A) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), or any other provision of
this Act, no police officer shall investigate into an offence under this Act unless specifically authorised, by the Central
Government by a general or special order, and, subject to such conditions as may be prescribed.]

(2) The limitation on granting of bail specified in [***] sub-section (1) is in addition to the limitations under the Code of
Criminal Procedure, 1973 (2 of 1974) or any other law for the time being in force on granting of bail.

A glance at the amended section 45 along with the statements given by the then Finance Minister, gives an
impression that the legislature consciously deleted clause (a) from the pre-existing section 45(1) to make the
offence of money-laundering a non-cognizable offence. The dispute in question started off from this amendment
because even though the body of the provision was altered, yet for some unknown reasons, the heading of section
45 remained unchanged as “Offences to be cognizable and non-bailable”.
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4.1 Introduction

Since the heading of section 45 remained unaltered as “Offences to be cognizable and non-bailable”, the ED
proceeded with the investigations, inquiry and arrests under the PMLA as if the offences were cognizable. No heed
was paid to the omission of clause (a) from sub-section (1) of section 45 of the PMLA.

This confusion led to the filing of a series of habeas corpus petitions before the various High Courts of the country.
The detainees in such petitions sought release from custody by seeking to set aside the arrest orders, and, in many
cases, consequent remand orders or warrants, on the ground that they are manifestly improper, illegal, without
jurisdiction, null and void ab initio on the touch-stone of Articles 14, 21 and 22 of the Constitution of India. The
argument raised by the petitioners in such cases inter-alia was two-fold:

(i) the offences under section 3 of the PMLA were non-cognizable as was evidenced by the PMLA
Amendment Act 20 of 2005 by which section 45 of the PMLA stood amended with effect from 1 July 2005;
and
(ii) the arrest made by the authorities under the PMLA was not in accordance with law, i.e. Section 155(1) of
CrPC was not complied with and hence illegal.34

Per contra the ED in response to these allegations argued that:

(i) the offence of money-laundering continues to be cognizable as was evident from the fact that heading of
section 45 of the PMLA remained unchanged; and
(ii) the arrest was done in accordance with the PMLA as in view of section 71 of the PMLA; the provisions of
PMLA prevails over the provisions of CrPC, and hence, the arrests cannot be termed as illegal.

There are a number of judicial pronouncements dealing with this issue, and in particular to the interpretation of
section 45 post the Amendment Act 20 of 2005.

The Division Bench of the Punjab & Haryana High Court in Karam Singh v UOI,35 was confronted with the argument
by the petitioner that the offence of money laundering is a bailable and non-cognizable offence. The Division Bench
observed that the argument of the petitioner that the offence is a non-cognizable and a bailable offence as defined
under section 2(l) of CrPC cannot be accepted.

The Gujarat High Court in Rakesh Manekchand Kothari v UOI,36 in a habeas corpus petition was also faced with a
similar issue. The High Court held that the offence under the PMLA is a cognizable and non-bailable offence and it
begins with non-obstinate clause “notwithstanding anything contained in the Code of Criminal Procedure, 1973”.

Another judgment in relation to this issue is the decision by the Division Bench of the Delhi High Court in
Gurucharan Singh v UOI.37 The petitioners in this case had assailed various actions of the ED (respondents) in
arresting the petitioners while they were summoned to their office. One of the petitioners in this case was taken into
custody on 11 October 2015 and later shown to be arrested on 13 October 2015 on the basis of the statement of
another accused recorded two days later, i.e. on 13 October 2015, in purported exercise of powers under section
19 of the PMLA. In this case, the petitioners had also filed an additional application seeking grant of bail. None of
the petitioners arrested were named as accused for any scheduled offence and were arrested under section 3 read
with section 4 of the PMLA. The petitioners argued that since the offence of money-laundering is a non-cognizable
offence, the ED could not initiate investigations without a legitimate sanction of the Magistrate in terms of section
155 (2) of CrPC nor could any arrest be made without a warrant from the Magistrate. It was, further; contended that
neither any order was obtained from the court prior to the commencement of the investigation nor were the
petitioners arrested after warrants of arrest were issued. In fact, the petitioners, who were summoned by the ED,
were arrested without any warrant from the court, thus making the arrests unconstitutional and illegal violating rights
under Article 21 of the Constitution of India.38 The ED (respondents) in challenge to the said petitions on the issue
of whether the offence under section 3 was cognizable or not mainly relied upon the heading of section 45 to show
that the offence has continued to be cognizable and non-bailable.

After hearing the parties the Division Bench in Gurucharan Singh (supra), inter alia, observed (para 38) that:

“...it is mandatory for the respondents to follow the procedure prescribed under the Code of Criminal Procedure in the
absence of any inconsistent provision under the PMLA concerning investigation, arrest and or other proceedings. Prima
facie we are of the view that it was mandatory for the respondents to comply with the provision of Sections 155, 177(1) and
172 of the Code of Criminal Procedure in case the offence is non-cognizable. However, should this court reach a
 Page 9 of 63
4.1 Introduction

conclusion that the offence under PMLA is held to be cognizable, the respondents were bound to follow and comply with
Sections 154, 157 of the Code of Criminal Procedure.”

In Chhagan Chandrakant Bhujbal v UOI,39 a writ of Habeas Corpus seeking quashing of the impugned arrest and
consequent remand orders was filed before the Bombay High Court. The arrest was challenged mainly on three
grounds:

(i) the offence punishable under section 4 read with section 3 of the PMLA is a non-cognizable one and,
hence, without permission of the competent court, as required under section 155(1) of CrPC, the arrest
could not have been effected,
(ii) the arrest has been not effected by the Officer, duly authorized by the Central Government, and
(iii) the procedural safeguards for the arrest, as laid down under the PMLA read with the provisions of CrPC,
were not followed by the ED (respondents).40

The ED again countered the first ground of challenge and argued that in view of the head-note of section 45 of
PMLA, the offences of money-laundering continue to be cognizable and non-bailable.

The Bombay High Court agreeing with the arguments of the ED held that the offence of money laundering
continues to be a cognizable offence as Amendment No 20 of 2015 was brought with an intention to delete the
provision making the offence cognizable only to ensure that there should not be any conflict between the power of
the Police Officer as referred to in CrPC, who can arrest, in cognizable offence, without warrant and allowing the
Authority under PMLA to arrest under section 19 of the PMLA. The court further held that in view of section 65 of
the PMLA read with section 4(2) and section 5 of CrPC,41 the offence of money laundering is a cognizable offence
as it is punishable with an imprisonment for more than three years (which is extendable upto seven years). This
according to the High Court, further; confirmed the view that the offence of money laundering is a cognizable
offence.

Another decision of the Delhi High Court which would be relevant to discuss here is the judgment of Vakamulla
Chandrashekhar v Enforcement Directorate.42 In this case, the petitioner filed a petition to seek an order of restraint
against the ED (respondents) from taking any coercive steps against him during the course of proceedings under
section 50(2) and section 50(3) of the PMLA. The petitioner apprehended his arrest by the ED under section 19 of
the PMLA. The petitioner relied on the decision of the Division Bench in Gurucharan Singh (supra) and contended
that the procedure of CrPC must be followed by the ED to carry out arrest under the PMLA. One of the issues that
were raised in this case was whether the offence under section 3 is cognizable or not.

The court after perusing through section 45 along with amendments made thereto with the statements made by the
then Finance Minister in the Parliament in support of such amendment, concluded that despite the amendment of
2005 to the PMLA, there is no positive indication in section 45 that the offence of money-laundering has become
non-cognizable. It was thus held that:

“The consequence of label[l]ing the offence u/s 3 as a “cognizable offence” was that a police officer, upon disclosure of
information relating to commission of the said offence was obliged to register the said information as a First Information
Report u/s 154 CrPC; carry out investigation (under Section 156), and arrest the accused without a warrant, and; even file a
report u/s 173 of the Code before the concerned Magistrate. However, the Act provides that u/s 19 a Director or Deputy
Director or Assistant Director or any other officer authorized may arrest an offender under the Act. It also provides in
Section 44 that the Special Court shall not take cognizance of any offence punishable under Section 4, except upon a
complaint made in writing by the Director or any other officer authorized by the Central Government. The Act, as we have
noticed above, vests extensive powers of investigation under the Act, upon the authorities under the Act, who are not police
officers. Thus, there were serious inconsistencies resulting on account of the label[l]ing of the offence u/s 3 of the PMLA as
a “cognizable offence”. It is for this reason that section 45 of the PMLA was amended, inter alia, by deleting clause (a) of
section 45(1), and introducing sub section (1A) in section 45 which provided that “Notwithstanding anything contained in the
Code of Criminal Procedure, 1973, or any other provision of this Act, no police officer shall investigate into an offence under
this Act unless specifically authorised, by the Central Government by a general or special order, and, subject to such
conditions as may be prescribed”. Consequently, after the amendment, the police cannot take cognizance of the offence
u/s 3 of the PMLA.” (para 28)

This decision of Vakamullla Chandrashekhar (supra) was followed by the Single Judge of Delhi High Court in
Virbhadra Singh.43 It was contended that since the offence of money-laundering is a “non-cognizable offence”,
therefore; an investigation cannot be undertaken without there being an order of a competent court. Per contra, it
 Page 10 of 63
4.1 Introduction

was submitted by the ED (respondents) that the offence of money laundering continues to be a cognizable offence,
even after the amendment of 2005. It was further argued by the ED that there is no requirement for the authorities
under PMLA to take prior permission from the Special Court for taking up an investigation.

The court, in Virbhadra Singh (supra) thus observed:

“There is nothing in PMLA to indicate that the power to arrest conferred on the Director or the other specified officers is
contingent upon formal authorisation by the court. Further, the law does not contain any clause from which it could be
deduced that the authorization to the Director or other specified officers to take up the investigation or exercise any of the
powers thereby conferred requires prior approval from the court in each case.” (Para 125)

In view of this finding, the court (in para 126) concluded that notwithstanding the deletion of clause (a) of the then
existing sub-section (1) of section 45 of PMLA, by the amendment of 2005, the offences under PMLA continue to be
“cognizable” in nature.

The Division Bench of Delhi High Court in Rajbhushan Omprakash Dixit v UOI,44 was also faced with a writ seeking
habeas corpus on the count that arrest and consequent remand orders were illegal and contrary to Articles 14, 21 &
22 of the Indian Constitution. The main issue in this petition was whether the provisions of Chapter XII of CrPC are
applicable to the PMLA.45 While answering this question, the court also discussed several ancillary issues, one of
which was, whether the offence of money laundering is a cognizable offence or not.

The parties from both the sides cited the above mentioned judgments to support their respective contentions and
arguments with respect to the issue in question. The court after considering the judgments in detail held that the
offence of money laundering is non-cognizable in nature. The court also noted that in the event the offence of
money laundering is considered as a cognizable offence, then also the authorities under the PMLA is bound to
follow the specific procedure as prescribed under Chapter XII of CrPC to investigate such an offence. The Division
Bench of the Delhi High Court thus observed that it “is unable to subscribe” with the decisions of the coordinate
bench of Delhi High Court in Vakamulla Chandrashekhar (supra) and Moin Akhtar Qureshi v UOI46 and, hence;
referred the following questions for consideration to a larger bench:

“(i) Consequent upon the amendment in section 45 of the PMLA with effect from 1 July 2005, are the offences
under the PMLA cognizable or non-cognizable?
(ii) Do the provisions of Chapter XII CrPC apply to PMLA insofar as the offences under the PMLA are
concerned and if so, to what extent?47
(iii) Under section 19 of PMLA read with Rules 2(h) and 2(g) of the PML Arrest Rules read with Rule 6 and
Form III thereof, does a person arrested under Section 19(1) of the PMLA have to be furnished a copy of
the grounds of arrest? If so, should they be furnished soon enough to enable the person arrested to apply
for bail or to oppose the application for remand? What are the consequences of the failure to do so?48
(iv) Notwithstanding that the remand of the person arrested is under the orders of a Competent Court under
the PMLA, will a writ of habeas corpus still maintainable if the initial arrest is itself shown to be unlawful?
(v) In the context of the above questions, do the decisions of the Division Bench of this Court in Vakamulla
Chandrashekhar v Enforcement Directorate (supra) Moin Akhtar Qureshi v Union of India (supra) require
reconsideration?”49

These questions referred to a larger bench were transferred to the Supreme Court and was tagged along with a
matter titled as Vijay Madanlal Choudhary v UOI.50

In and around 2019, the Amendment vide Finance (No. 2) Act, 2019 inserted the Explanation to section 45 which
states as follows:

“For the removal of doubts, it is clarified that the expression “Offences to be cognizable and non-bailable” shall mean and
shall be deemed to have always meant that all offences under this Act shall be cognizable offences and non-bailable
offences, notwithstanding anything to the contrary contained in the Code of Criminal Procedure, 1973 (2 of 1974), and
accordingly the officers authorised under this Act are empowered to arrest an accused without warrant, subject to the
fulfilment of conditions under Section 19 and subject to the conditions enshrined under this section.”

While this Explanation clarifies that the offence of money-laundering is cognizable. However, this amendment was
brought by way of a Finance Act and was never placed before the Rajya Sabha nor this Amendment was ever
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4.1 Introduction

discussed by any Committee.51 In any event, the reasoning given by the Delhi High Court in Rajbhushan
Omprakash Dixit (supra) that regardless of whether the offence under the PMLA are cognizable or non-cognizable,
the procedure prescribed under law has to be followed still holds good.52 There is no reason that the safeguards
provided to an accused under CrPC should not be adhered to in a PMLA case “except where there are specific
provisions in the PMLA”.
4.1.6 Whether the statements recorded under section 50 are in contravention to the doctrine of “self-
incrimination” guaranteed under Article 20(3) of the Indian Constitution and section 25 of the Evidence Act,
1872? Also, whether the ED is conferred with the powers analogous to the police officers for the purposes
of section 25 of the Evidence Act, 1872?

As discussed above, to ensure proper functioning of the Act, the legislature has endowed the Authorities with wide
range of powers which includes the power to summon any person whose attendance it considers necessary
whether to give evidence or to produce any records during the course of any investigation or proceedings under the
Act [under section 50(2)]. The PMLA by virtue of section 50(3) further imposes an obligation on the person
summoned to attend in person or through authorised agents, as such officer may direct, and states that such a
person shall be bound to state the truth upon any subject respecting which they are examined or make statements,
and produce such documents as may be required. Section 50 of the PMLA reads as under:

S. 50. Powers of authorities regarding summons, production of documents and to give evidence, etc.—(1) The
Director shall, for the purposes of section 13, have the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:—
(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a reporting entity, and examining him on oath;

(c) compelling the production of records;

(d) receiving evidence on affidavits;

(e) issuing commissions for examination of witnesses and documents; and

(f) any other matter which may be prescribed.

(2) The Director, Additional Director, Joint Director, Deputy Director or Assistant Director shall have power to summon any
person whose attendance he considers necessary whether to give evidence or to produce any records during the course of
any investigation or proceeding under this Act.

(3) All the persons so summoned shall be bound to attend in person or through authorised agents, as such officer may
direct, and shall be bound to state the truth upon any subject respecting which they are examined or make statements, and
produce such documents as may be required.

(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial proceeding within the meaning of
section 193 and section 228 of the Indian Penal Code, 1860 (45 of 1860).

(5) Subject to any rules made in this behalf by the Central Government, any officer referred to in sub-section (2) may
impound and retain in his custody for such period, as he thinks fit, any records produced before him in any proceedings
under this Act:

Provided that an Assistant Director or a Deputy Director shall not—

(a) impound any records without recording his reasons for so doing; or

(b) retain in his custody any such records for a period exceeding three months, without obtaining the previous
approval of the Joint Director.

In other words, this means that the Authority under the PMLA during the course of investigation can summon any
person and require that person to state the truth upon any subject respecting which they are examined or make
statements, and produce such documents as may be required. The statements of truth made by the persons
summoned can then be used by the Authority against those very persons to implicate them in the offence of money-
laundering under section 4 of the PMLA. Section 50 (4) of the PMLA states that every proceeding under the sub-
section (2) and (3) shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of
IPC. The Authority is further armoured by section 63(2) of PMLA which provides for punishment for failure to give
 Page 12 of 63
4.1 Introduction

information, etc. This sub-section of section 63 empowers the Authority to impose punishment upon any person
who refuses to answer any questions put to him by an authority or if he refuses to sign any statement made by him
in the course of any proceedings under this Act, which an authority may legally require to sign or where the person
summoned under section 50, omits to act on those summons. The section, however; in sub-section (3) provides
that the authority must give a reasonable opportunity of being heard to the person before imposing any penalty
prescribed under sub-section (2).

A conjoint reading of sections 50(2), 50(3) and section 63(2) highlights the excessive power given to the Authority
under the Act. The effect of reading these provisions together is that the Authority can summon any person and
require him to produce requisite documents and evidence, which can be used by the Authority against him as well,
during the trial before the Special Court and if the person refuses to provide the desired statement or evidence, the
Authority has the power to even penalise him.

It is important to reiterate that the Authority which is empowered to seek statements from the persons summoned
and has the power to penalise such a person on the failure to do so, is also the same Authority that can institute
complaint to prosecute such a person before the Special Court. Therefore, the Authority is in the position to extract
favourable statements from the persons summoned under section 50(2) of the Act. The PMLA widens the power of
the Authority by allowing it to use the statements given to it as confessions which can be used against him during
trial before the Special Court. The scheme of the Act is such that the person who is summoned under section 50 of
the PMLA will always be in a prejudicial position. If he produces documents and evidence, it can be used against
him by the prosecution during the trial and if he refuses to make any statement, he can be penalised under section
63(2) of the PMLA. Moreover, PMLA also contains section 24 which places burden of proof on the accused rather
than on the prosecution. These provisions, therefore; temper the constitutional right against self-incrimination
guaranteed under Article 20(3) of the Indian Constitution and the protection given to an accused under section 161
of CrPC.
4.1.6.1 Article 20 (3) of the Indian Constitution

Article 20 of the Constitution of India guarantees certain protections in respect of conviction for offences including
against double jeopardy and self-incrimination. Article 20(3) of the Constitution guarantees that no person accused
of any offence shall be compelled to be a witness against himself.

Article 20 reads as under—

“20. Protection in respect of conviction for offences.

...

(3) No person accused of any offence shall be compelled to be a witness against himself”

This Article provides protection to an accused from being a witness against himself. It is based on the maxim,
“Nemo Tenetur Prodere Accussare Seipsum” which on translation means “no man is obliged to be a witness
against himself”. This article guarantees a right against self-incrimination.

The Supreme Court in the landmark decision of Nandini Satpathy v Dani (P L)53 has discussed the right to silence
and observed that the accused was entitled to keep his mouth shut and not answer any questions if the questions
were likely to expose him to guilt. This protection was available before the trial and during the trial. The learned
Judge observed as follows:

“Whether we consider the Talmudic Law or the Magna Carta, the Fifth Amendment, the provisions of other constitutions or
Article 20(3), the driving force behind the refusal to permit forced self-incrimination is the system of torture by investigators
and courts from medieval times to modern days. Law is response to life and the English rule of the accused privilege of
silence may easily be traced as a sharp reaction to the Court of Star Chamber when self-incrimination was not regarded as
wrongful. Indeed then the central feature of the criminal proceedings, as Holdsworth noted, was the examination of the
accused.” (para 16)

However, a person is entitled to the protection under Article 20(3) of the Constitution from being interrogated or
compelled to be a witness only when he has already been named as an accused for an offence and not for general
inquiry or investigation or merely “on the ground that his statement may at some later stage lead to an
accusation”.54
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4.1 Introduction

The phrase used in the Article 20(3) of the Constitution of India is to be a witness and not to appear as a witness. It
follows that the protection provided to an accused in so far as it is related to the phrase to be a witness is not
merely in respect of testimonial compulsion in the court room but may well extend to compelled testimony
previously obtained from him. It is available, therefore; to a person against whom a formal accusation relating to the
commission of an offence has been levelled which in the normal course may result in prosecution.55

The ED in several cases have read Article 20(3) of the Constitution, to say that it only provides protection to the
person who is an accused of an offence and not any other person who has been summoned by the authorities
under section 50.56 This argument was taken by the ED in the case of Virbhadra (supra), where the Delhi High
Court observed that:

“132. These fundamental rights including against self-incrimination are available to all persons facing criminal charge,
whether under the general law represented by IPC or under the special statutes. But, it is well settled that to claim
protection of Article 20(3), the person should be an accused of an offence. Formal accusation of a person is generally
necessary to make him an accused. Whether or not a person is an accused depends on the facts and circumstances of the
case and the stage of the process of investigation or the law governing the same.”

The fundamental problem with this argument is that the court while drawing reference to the offence of money-
laundering with “general law represented by IPC” did not take into consideration that in general law, “no confession
made to a police officer, shall be proved as against a person accused of any offence” (under section 25 of the
Evidence Act, 1872). This safeguard provided under section 25 is not available to an accused facing a charge of
money-laundering as officials of ED are not considered as “police officers”.57
4.1.6.2 Section 25 of the Evidence Act, 1872

Section 25 of the Evidence Act, 1872 makes the confessions given to a police officer inadmissible in nature. The
section in the Evidence Act, 1872 reads as follows:

“25. Confession to police officer not to be proved. No confession made to a police officer, shall be proved as against a
person accused of any offence.”

This section only applies to confessions made to a “police officer”.

Confession made to the Authority under sections 50(3) is not hit by the provisions of section 25, because the
officers of the Authority are not considered as “police officers” for the purposes of section 25 Evidence Act. In the
decision of Vakamulla Chandrashekhar (supra), it has been held that officers of the Authority are not police
officers.58

We seek to argue below that a closer examination of the judgments describing who is a “police officer” would
support our view that the officers of the Authority should be treated as “police officers” for the purposes of section
25 of the Evidence Act.
4.1.6.2.1 Meaning of the term “police officer” under the Police Act, 1861

This term, though widely used in the criminal jurisprudence, has neither been defined in the CrPC nor in the
Evidence Act, 1872 (‘Evidence Act’). The term “police” has however been defined under section 1 (Interpretation
Clause) of the Police Act, 1861 as “all persons who shall be enrolled under this Act”. This definition is not inclusive
as it uses the expression “includes”, indicating thereby that persons other than those enrolled under that Act can
also be covered by the, word “Police”.59 If the Police Act (‘Police Act’) is prodded further, one may derive the
meaning of the term “police” in light of its various provisions. Section 8 of the Police Act provides that every police
officer shall receive a certificate on his appointment; and the person holding such certificate shall be vested with the
powers, functions and privileges of a Police Officer.60 It, therefore; implies that every officer who has received a
certificate on his appointment is a police officer. Further, the scope of police is widened by sections 17 and 18 of the
Police Act which states that special police officers who are not enrolled under the Act but are appointed for special
occasions shall have the same powers, privileges and protection and are liable to perform the same duties as the
ordinary officer of the police.

The word “police officer” is therefore not to be construed in a narrow way, but have to be construed in a wide and
popular sense.61
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4.1 Introduction

Therefore, by applying the principles of permissible rules of interpretation, the term “police officer”, may mean any
one of the following categories of officers:62

(i) a police officer who is a member of the police force constituted under the Police Act;
(ii) though not a member of the police force constituted under the Police Act, an officer who by statutory fiction
is deemed to be a police officer in charge of a police station under the Code;
(iii) an officer on whom a statute confers powers and imposes duties of a police officer under the Code, without
describing him as a police officer or equating him by fiction to such an officer;
(iv) an officer who is responsible for maintaining law and order in the society and preventing and detecting
crimes.

4.1.6.2.2 Meaning of the term “Police Officer” in section 25 of the Evidence Act, 1872

We need to ascertain as to which of the above meaning is attributed to the term “police officer” in section 25 of the
Evidence Act. To understand it better, it would be appropriate to delve into section 25, from the time it was imported
to the Evidence Act.

Sir James Stephen, in the Introduction to the Evidence Act, p. 171, has observed:63

“I may observe, upon the provisions relating to them, that sections 25, 26 and 27 were transferred to the Evidence Act
verbatim from the Code of Criminal Procedure, Act XXV of 1861. They differ widely from the law of England, and were
inserted in the Act of 1861 in order to prevent the practice of torture by the police for the purpose of extracting confessions
from persons in their custody.”

4.1.6.3 Judicial pronouncements to ascertain the meaning of “police officer” for the purposes of section 25
of the Evidence Act, 1872

For the purposes of this chapter, the decisions of various courts imparting meaning to the term “police officer” within
the meaning of section 25 of the Evidence Act, have been divided into two categories, viz. Pre-Independence and
Post-Independence.
4.1.6.4 Judgments - Pre-Independence

Soon after the incorporation of section 25 to the Evidence Act, the Calcutta High Court in the case of R v Hurribole
Chunder Ghose,64 was posed with the question whether the Deputy Commissioner of Police before whom a
prisoner made a statement was a police officer within the meaning of section 25 of the Evidence Act. The State
argued that the term “police officer” comprised only that class of persons who are called the members of the police
force under the Bengal Police Act (Bengal Act IV of 1866). The court held that the Deputy Commissioner of Police
can be considered as a police officer for the purposes of section 25 of the Evidence Act.65 Garth CJ in reference to
section 25 of the Evidence Act, observed:

“Its humane object is to prevent confessions obtained from accused persons through any undue influence, being received
as evidence against them. It is an enactment to which the Court should give the fullest effect, and I see no sufficient reason
for reading the 26th section so as to qualify the plain meaning of the 25th. […] In construing the 25th section of the
Evidence Act of 1872, I consider that the term “police officer” should be read not in any strict technical sense, but according
to its more comprehensive and popular meaning.”66

Even though the court was concerned with the question whether the Deputy Commissioner of Police was a police
officer or not, but this judgment is relevant to understand that to qualify to be a “police officer” within the meaning of
section 25 of the Evidence Act one need not be a member of the police force as per the Police Act, 1861.

Post the decision in Hurribole, various courts passed a series of judgments imparting their own interpretation to the
term “police officer” within section 25 of the Evidence Act.

In the case of Queen-Empress v Babulal,67 the Court observed the reasons for the enactment of section 25 of the
Evidence Act (at p 523), in the following manner:

“The legislature had in view the malpractices of police officers in extorting confessions from accused persons in order to
gain credit by securing convictions, and that those malpractices went to the length of positive torture; nor do I doubt that the
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4.1 Introduction

Legislature, in laying down such stringent rules, regarded the evidence of police officers as untrustworthy, and the object of
the rules was to put a stop to the extortion of confession, by taking away from the police officers as the advantage of
proving such exported confessions during the trial of accused persons.”

In the year 1926, the Full Bench of the Bombay High Court in Nanoo Sheikh Ahmed v Emperor,68 held that an
Abkari-Officer under the Bombay Abkari Act, 1878 was a police officer within the meaning of section 25 of the
Indian Evidence Act. The court reasoned (at p 94):

“After giving then my best attention to the arguments, which have been addressed to us, in my judgment, we should hold
that as the Bombay Legislature has deliberately conferred upon these Abkari officers substantially all the powers of a Police
officer, they have thereby in effect made them Police officers within the meaning of Section 25...”

To the same effect it was observed (at p. 97):

“It seems to me a perfectly fair interpretation of Section 25 to say that the Police officer within the meaning of that section is
an officer, who exercises the powers of police conferred upon him by law, whether he is called a Police officer or he is
called by any other name and exercises other functions also under other provisions of law. He is a Police officer within the
meaning of Section 25, if in the investigation of offences under particular Act he exercises the powers of an, officer in
charge of a police station for the investigation of a cognizable offence conferred upon him by that Act.”

A Full Bench of the Patna High Court in Radha Kishun Marwari v King Emperor,69 adopted the functional
approach.70 Terrell CJ held that:

“…the distinction between a person who is nothing but a Police Officer and one who is primarily not a Police Officer but
merely invested with the powers of a Police Officer is material and cannot be ignored for the purpose of construing Section
25 of the Evidence Act on the basis of the said principle, it came to the conclusion that an Excise Officer was not a “Police
Officer” within the meaning of Section 25 of the Evidence Act.”71

The reasoning given by the court in Radha Kishun Marwari (supra) is extremely narrow and misplaced. The court
failed to provide the rationale for the divide between the two classes of officers. There is no reasonable basis of
such a divide adopted by the courts.

Taking a different view from the decision of Radha Kishun Marwari (supra), the Calcutta High Court in Ameen Sharif
v Emperor72 held the Excise officers to be police officers under section 25 of the Evidence Act.

The court at p 629 concluded:

“It is the nature of the duties performance of which was likely to give occasion for improper influences being exercised or
felt, and not any particular aversion for a particular department of public service that must have moved the legislature in
enacting the provision. I am, therefore, of opinion that if matters which previously did not fall within the category of crime
subsequently came to be recognized as such and on that’ officers have been appointed to discharge or have been vested
with powers of discharging duties which a police officer had to discharge in 1872, then whatever may be the name of the
department to which such officers may have been attached, such officers must be, regarded as coming within the term
“police officer”, with regard to whom Section 25 of the Evidence Act was intended to be applied.”

A division bench of the Madras High Court in Public Prosecutor v Paramasivam,73 considered the status of an
Excise Officer under the Opium Act with respect to section 25 of the Evidence Act. The court held that an excise
officer invested with the powers of an officer in charge of a police station for investigation of offences under section
20A of the Opium Act was a “police officer” within the purview of section 25 of the Evidence Act.

Per Balakrishna Ayyar, J, made the following observations (at p 918):

“There is no exhaustive definition of the expression ‘Police Officer’ in any of our statutes. [...] In the absence of a statutory
definition, and, apart from all authority, one would be tempted to say that a police officer is a person whom any statute or
other provision of law calls such or, on whom it confers all or substantially all the powers and imposes the duties of a police
officer. If he is expressly called a police officer there is no difficulty whatsoever. If he is not so called then the next step is to
ask - what does the law require him to do? What are the duties imposed on him? And what are the powers conferred on
him ? If these are substantially those of a police officer there need be no qualms in regarding him as one. If his powers and
duties are confined to a particular extent of territory or to a particular subject matter he will be a police officer only in respect
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4.1 Introduction

of that territory or that subject-matter. The material thing to consider would be not the name given to him, nor the colour of
the uniform be is required to wear, but his functions, powers and duties. A police officer does not cease to be such merely
because he is put into a white, khadder uniform instead of one in khaki drill; a medicine will be just the same whether it is
packaged in a glass jar or a plastic container.”

4.1.6.5 Judgments—Post-Independence

In 1953, the Calcutta High Court in the case of Fernandez v State,74 when posed with the question whether the
confessions given to a customs officer would be inadmissible in view of section 25 of the Evidence Act, held that the
customs officer was a police officer within the meaning of section 25 of the Evidence Act and thus the confessions
would be inadmissible. The Punjab and Haryana High Court in Gopal Dass v State,75 also held that a customs
officer under the Sea Customs Act had powers analogous to police powers relating to prevention or detection of
crimes and, therefore, he was a police officer within the meaning of section 25 of the Evidence Act. In 1959, the
Mysore High Court in Issa Yacub Bichara v State of Mysore,76 however, took a contrary view.

After the diverging opinions of various High Courts, the Supreme Court of India in State of Punjab v Barkat Ram,77
addressed an issue “whether a Customs Officer, either under the Land Customs Act, 1924 or under the Sea
Customs Act, 1878 is a police officer within the meaning of that expression in section 25 of the Indian Evidence
Act”.78

It was argued by the State that mere fact that powers to arrest certain persons, to make searches and to record
evidence having a bearing on the alleged contravention of the legal provisions, are conferred on certain officers of
the Customs Department, is not sufficient to make them “police officers” as contemplated by section 25 of the
Evidence Act. The contention of the respondent was that officers on whom such powers are conferred are police
officers, though they are not so called and that the difference in nomenclature is of no effect in considering them
police officers for the purposes of section 25 of the Evidence Act.

The court in order to provide a conclusive answer whether the customs officers in question can be called police
officers, compared the duties and powers of the police officers with that of the customs officers. The comparison is
summarised as follows:79

(i) The police is the instrument for the prevention and detection of crime which can be said to be the main
object of having the police. The powers which the police officers enjoy are powers for the effective
prevention and detection of crime in order to maintain law and order. Whereas, the powers of customs
officers are really not for such purpose. The provisions conferring various powers on the Sea Customs
Officers are for the purpose of levying and realization of duties of customs on goods and that those powers
are conferred on the Lands customs officers also for the same purpose. The Customs officers are meant to
be checking the smuggling of goods and due realisation of customs duties and for determining the action to
be taken in the interest of the revenue of the country by way of confiscation of goods on which no duty had
been paid and by imposing penalties and fines.
(ii) The preamble of the Sea Customs Act states “Whereas it is expedient to consolidate and amend the law
relating to the levy of Sea Customs-duties”. Practically all the provisions, of the Act are enacted to achieve
this object. Accordingly, customs staff has to merely make a report in relation to the offences which are to
be dealt with by a Magistrate. The customs officer, therefore, is not primarily concerned with the detection
and punishment of crime but he is merely interested in the detection and prevention of smuggling of goods
and safeguarding the recovery of customs duties. The Customs Officer, therefore, is not primarily
concerned with the detection and punishment of crime committed by a person, but is mainly interested in
the detection and prevention of smuggling of goods and safeguarding the recovery of customs duties. He is
more concerned with the goods and customs duty, than with the offender.
(iii) The powers of search etc. conferred on the customs officers are of a limited character and have a limited
object of safeguarding the revenues of the State and the statute itself refers to police officers in
contradistinction to customs officers.
(iv) If a customs officer takes evidence under section 171A and there is an admission of guilt, it will be too
much to say that statement is a confession to a police officer as a police officer never acts judicially and no
proceeding before him is deemed to be a judicial proceeding for the purpose of sections193 and 228 of the
IPC or for any other purpose.
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The majority agreed with the submissions of the State and held that the customs officers are not police officers
within the meaning of that term in section 25 of the Evidence Act and thus the confessions made to the customs
officers were admissible in evidence at the trial of persons accused of offences, inter alia, under old Customs Act.

Per Dayal J speaking through the majority held:

“We therefore hold that the Customs Officers are not police officers for the purpose of s. 25 of the Evidence Act. We further
hold that the conviction of the respondent for the offences under s. 23(1) of the Foreign Exchange Regulation Act, 1947,
‘and under s. 167(81) of the Sea Customs Act, 1878, on the basis of his statements to the Customs Officers, was legal and
was wrongly set aside by the High Court. We therefore allow the appeal, set aside the order of acquittal of the respondent
for the aforesaid offences and restore the order of conviction passed by the Magistrate and confirmed by the Sessions
Judge. We make it clear, however, that we do not express any opinion on the question whether officers of departments
other than the police, on whom the powers of an Officer in-charge of a Police Station under Ch. XIV of the Code of Criminal
Procedure, have been conferred, are police officers or not for the purpose of s. 25 of the Evidence Act, as the learned
counsel for the appellant did not question the correctness of this view for the purpose of this appeal.” (para 29)

However, Subba Rao J, gave a dissenting judgment and held that the customs officers under the Sea Customs Act,
1878, have the powers and they also discharge the functions of police officer. Therefore, the customs officers are
police officers for the purpose of section 25 Evidence Act, in so far as they exercise or discharge such powers and
functions. A customs officer is a police officer qua his police functions, and a confession made to him cannot be
provided against a person accused of an offence.80

Subba Rao J in the dissent observed:

“It is, therefore, clear that Section 25 of the Evidence Act was enacted to subserve a high purpose and that is to prevent the
police from obtaining confessions by force, torture or inducement. The salutary principle underlying the section would apply
equally to other officers, by whatever designation they may be known, who have the power and duty to detect and
investigate into crimes and is for that purpose in a position to extract confessions from the accused.” (para 36)

[...]

If a literal meaning is given to the term “police officer” indicating thereby an officer designated as police officer, it will lead to
anomalous results. An officer designated as a police officer, even though he does not discharge the well understood police
functions, will be hit by Section 25 of the Evidence Act, whereas an officer not so designated but who has all the powers of
a police officer would not be hit by that section; with the result, the object of the section would be defeated. The
intermediate position, namely, that an officer can be a police officer only if powers and duties pertaining to an officer in
charge of a police station within the meaning of the Code of Criminal Procedure are entrusted to him, would also lead to an
equally anomalous position, for, it would exclude from its operation a case of an officer on whom specific powers and
functions are conferred under specific statutes without reference to the Code of Criminal Procedure. (para 39)”

The reasons adopted by the majority to hold that the customs officers are not police officers, may not hold good for
the Authority under the PMLA. The PMLA, unlike the Sea Customs Act contains only one offence i.e. offence of
money laundering, which is defined under section 3 and punishable under section 4 of the PMLA. Further, the
Authorities under the Act are vested with full and complete powers to not only investigate the offence but also to
undertake prosecution of the offender before the Special Court.

A similar question pertaining to the confessions before the Excise Officers under the Bihar & Orissa Act, 1915 was
considered by the Supreme Court in Raja Ram Jaiswal v State of Bihar.81 The Apex Court observed that an Excise
Inspector or Sub-Inspector in the State of Bihar is empowered to investigate into offences, record statements of the
persons questioned by him, make searches, seize any articles connected with an offence under the Excise Act,
arrest an accused person, grant him bail, send him up for trial before a Magistrate, file a charge sheet and so on.
Thus, per Mudholkar J speaking for the majority held that that an Excise Inspector or Sub-Inspector under the Bihar
Excise Act shall be deemed to be in charge of a police station and is entitled to investigate any offence under the
Excise Act and a confession recorded by him during an investigation into an excise offence cannot reasonably be
regarded as anything different from a confession to a police officer.

The majority bench also laid down a test to ascertain whether the statements given to the officers under the special
law would tantamount to the statements given to a police officer under section 25 of the Evidence Act. It stated:

“In our judgment what is pertinent to bear in mind for the purpose of determining as to who can be regarded a “police
 Page 18 of 63
4.1 Introduction

officer” for the purpose of this provision is not the totality of the powers which an officer enjoys but the kind of powers which
the law enables him to exercise. The test for determining whether such a person is a “police officer” for the purpose of
Section 25 of the Evidence Act would, in our judgment, be whether the powers of a police officer which are conferred on
him or which are exercisable by him because he is deemed to be an officer in charge of a police station establish a direct or
substantial relationship with the prohibition enacted by Section 25, that is, the recording of a confession. In our words, the
test would be whether the powers are such as would tend to facilitate the obtaining by him of a confession from a suspect
or a delinquent. If they do, then it is unnecessary to consider the dominant purpose for which he is appointed or the
question as to what other powers he enjoys. These questions may perhaps be relevant for consideration where the powers
of a police officer conferred upon him are of a very limited character and are not by themselves sufficient to facilitate the
obtaining by him of a confession.” (para 11)

Per Dayal J, conforming to his decision in Barkat Ram (supra) delivered a dissenting judgment. He held that the
power of the excise officer under various provisions of the Bihar & Orissa Excise Act, 1915, are similar to the
powers of the customs officer and therefore in view of the decision in Barkat Ram (supra) it cannot be called a
“police officer”.

The test provided in Raja Ram Jaiswal (supra) is very simple and states that if the power of investigation has a
direct relationship with the prohibition enacted under section 25 of the Evidence Act then confessions made to the
officer is not admissible. The question is whether, “the powers are such as would tend to facilitate the obtaining by
him of a confession from a suspect or a delinquent”. In relation to the PMLA, the Authority under the Act is not only
responsible for investigating the offence of money laundering but also “obtaining a confession from a suspect” and if
need arises then arresting such a person. The Authority is also in-charge of filing a complaint after investigation and
conducting the trial before the Special Court.

Another relevant judgment in this aspect is that of Badku Joti Savant v State of Mysore,82 where the Constitution
Bench of the Supreme Court was posed with the same question as to whether a Central Excise Officer appointed
under the Central Excises and Salt Act, 1944 (‘Salt Act’) is a police officer within the meaning of the said expression
used in section 25 of the Evidence Act. The Constitution Bench unanimously agreed with the majority view in Barkat
Ram (supra), and held that the Central Excise Officer is not deemed to be an officer in-charge of a police station, as
the Central Excise Officer does not have the power to file a charge-sheet under section 173 of CrPC.

The Supreme Court observed:

“9. [...] It does not however appear that a Central Excise Officer under the Act has power to submit a charge-sheet under
Section 173 of the Code of Criminal Procedure. Under Section 190 of the Code of Criminal Procedure a Magistrate can
take cognizance of any offence either (a) upon receiving a complaint of facts which constitute such offence, or (b) upon a
report in writing of such facts made by any police officer, or (c) upon information received from any person other than a
police officer, or upon his own knowledge or suspicion, that such offence has been committed. A police officer for purposes
of clause (b) above can in our opinion only be a police officer properly so-called as the scheme of the Code of Criminal
Procedure shows and it seems therefore that a Central Excise Officer will have to make a complaint under clause (a) above
if he wants the Magistrate to take cognizance of an offence, for example, under Section 9 of the Act. Thus though under
sub-section (2) of Section 21 the Central Excise Officer under the Act has the powers of an officer in-charge of a police
station when investigating a cognizable case, that is for the purpose of his inquiry under sub-section (1) of Section 21.

[...]

All that Section 21 provides is that for the purpose of his enquiry, a Central Excise Officer shall have the powers of an
officer in-charge of a police station when investigating a cognizable case. But even so it appears that these powers do not
include the power to submit a charge-sheet under Section 173 of the Code of Criminal Procedure for unlike the Bihar and
Orissa Excise Act, The Central Excise Officer is not deemed to be an officer in-charge of a police station.

[...]

10. [...] that mere conferment of powers of investigation into criminal offences under Section 9 of the Act does not make the
Central Excise Officer a police officer even in the broader view mentioned above. Otherwise any person entrusted with
investigation under Section 202 of the Code of Criminal Procedure would become a police officer.

[...]
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4.1 Introduction

11. [....] In these circumstances we are of opinion that even though the Central Excise Officer may have when making
enquiries for purposes of the Act powers which an officer incharge of a police station has when investigating a cognizable
offence, he does not thereby become a police officer even if we give the broader meaning to those words in Section 25 of
the Evidence Act…”

Distinguishing the decision of Raja Ram Jaiswal (supra), the Supreme Court further observed,

“The scheme of the Act therefore being different from the Bihar and Orissa Excise Act, 1915, the appellant cannot take
advantage of the decision of this Court in Raja Ram Jaiswals’ case taking even the broader view of the words “police
officer” in Section 25 of the Evidence Act. We are of opinion that the present case is more in accord with the case of Barkat
Ram.”

After the decision of Badku Joti Savant (supra), there was a considerable shift in the approach of the courts to
determine whether an officer was police officer for the purposes of section 25 of the Evidence Act as the power to
file the charge sheet under Section 173 of CrPC now became the determinative test.83 Under the PMLA the
Authority has the power to file a charge-sheet which is referred to as a “complaint” under section 44 of the PMLA.
Therefore, the scheme of the PMLA has the trappings of the Bihar and Orissa Excise Act, 1915 and, therefore; the
decision in Raja Ram Jaiswal case would apply and not the decision in Badku Joti Savant case where the officer
had no power to file a charge-sheet.

Adopting the test laid down by the Supreme Court in Badku Joti Savant, two five-judge bench decisions of the
Supreme Court in the same year considered the applicability of section 25 of the Evidence Act to confessions made
before the customs officers under Sea Customs Act, 1878 (now repealed)84 and the Customs Act, 1962.85

The first five judge bench decision was that of Ramesh Chandra Mehta v State of West Bengal,86 where the
Supreme Court was posed with the question whether an officer of customs under the Sea Customs Act, 1878 is a
police officer within the meaning of section 25 of the Evidence Act. The Supreme Court observed:

“A customs officer under the 1878 Act, had the power to detain, to arrest, obtain a search warrant to produce the person
arrested before a Magistrate and to obtain an order for remand and to keep him in custody with a view to collect evidence.
He may therefore have opportunities, which a police officer has of extracting a confession from a suspect, but a customs
officer is not on that account a police officer. The test for determining whether an officer of customs is to be deemed a
police officer is whether he is invested with all the powers of a police officer qua investigation of an offence. including the
power to submit a report under Section 173 CrPC An officer of customs may exercise the various powers conferred on him
for preventing smuggling of goods dutiable or prohibited and for adjudging confiscation of those goods. The enquiry made
by him is a judicial proceeding for the purpose of Sections 193 and 228 IPC, and his orders are subject to appeal and
revision. He does not exercise, when enquiring into a suspected infringement of the Sea Customs Act, powers of
investigation which a police officer may, in investigating the commission of an offence. He has no power to investigate an
offence triable by a Magistrate nor the power to submit a report under Section 173 CrPC.”

In Illias v Collector of Customs, Madras,87 the second five-judge bench decision of the Supreme Court the issue
arose with respect to the Customs Act, 1962. The Constitution Bench of the Supreme Court held that a customs
officer under the Custom Act, 1962 is not a police officer within the meaning of section 25 of the Evidence Act. The
court observed:

“...the appellant could not take advantage of the decision in Raja Ram Jaiswal’s, [1964] 2 SCR 752 [LNIND 1963 SC 94]
case and that Barkat Ram’s, [1962] 3 SCR 338 [LNIND 1961 SC 288] case was more apposite. The ratio of the decision
Badku Joti Savant, [1966] 3 SCR 698 [LNIND 1966 SC 68] is that even if an officer under the special Act has been invested
with most of the powers which an officer-in-charge of a police station exercises when investigating a cognizable offence he
does not thereby become a police officer within the meaning of Section 25 of the Evidence Act unless he is empowered to
file a charge sheet under Section 173 of the Code of Criminal Procedure.”

Both the above constitutional bench judgements queried whether the authorised officer under the specific Acts had
the power to file a charge-sheet under section 173 of CrPC to decide the primary question whether the officer is a
police officer for the purpose of section 25 of the Evidence Act. The answer to these questions were in the negative,
and hence it was concluded that since the authorised officer did not have the power to file the charge-sheet in terms
of section 173 of CrPC, they will not be considered as “police officers” for the purpose of section 25 of the Evidence
Act.
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Under the PMLA, as stated above, the power to file a charge-sheet is vested with the Authority and therefore there
is no reason for not treating the officials of the Authority as “police officers”. One could argue that under the PMLA
the Authority files a “compliant” under section 44 of the Act and not a Report as envisaged under section 173 of
CrPC. However, in pith and essence; there is little difference between a report filed under CrPC and a complaint
under the PMLA. Both are filed pursuant to an investigation. The test laid down by the Supreme Court in decisions
above is not whether the report filed is a charge-sheet or a complaint. The test is whether the Authority, “is invested
with all the powers of a police officer qua investigation of an offence including the power to submit a report under
Section 173 CrPC.” In the PMLA, the Authority is invested with all the powers of a police officer qua investigating an
offence of money-laundering and therefore there is little justification in not treating officers of Authority as “police
officers” for the purpose of section 25 of the Evidence Act.

Another important case that examined the question of who is a Police officer is Raj Kumar Karwal v UOI,88 where
the Supreme Court after going through the scheme and purpose of the NDPS Act and CrPC, held that there is
nothing in the NDPS Act that would indicate that all the powers under Chapter XII CrPC, including the power to file
a report under section 173 have been expressly conferred on the officers who are invested with the powers of an
officer-in-charge of a police station under section 53, for the purpose of investigation of offences under the Act. The
court also noted that the important attribute of police officer is not only to have the power to investigate but also the
power to prosecute the offender by filing a report or charge-sheet and, therefore; the DRI officers cannot be called
police officers.89 Again this decision further confirms our view that the Authority under PMLA, should be treated as a
police officer because unlike the DRI under the NDPS Act, “the person arrested or the article seized” does not have
to be forwarded to “the officer-in-charge of the nearest police station.” The Authority under the PMLA is vested with
the power to prosecute the offender and is also empowered to file a complaint (which is in the nature of a charge-
sheet) before the Special Court and, therefore; it should be treated as police officers for the purpose of section 25 of
the Evidence Act.

In 2001, the Supreme Court in Abdul Rashid v State of Bihar,90 observed that the Superintendent of Excise under
the Bihar & Orissa Excise Act, 1915, cannot be treated as a police officer, for the purposes of section 25 of the
Evidence Act. The court held:

“It may be noted that the judgment of this Court in Raja Ram was a Bench of 3-learned Judges whereas the Judgment of
this Court in Badaku Joti was a judgment of 5-learned Judges. The later judgment of the 5-Judge Bench never disapproved
the law laid down by this Court in Raja Ram and on the other hand was of the opinion that in view of the provisions
contained in the Bihar and Orissa Excise Act, 1915 more particularly Sub-section (3) of Section 78 and the provisions
contained in Section 21(2) of the Central Excises and Salt Act which confers power on the Officer of the Central Excise
Department, even though the Central Excise Officer may while making the enquiries for the purpose of Act exercises
powers of an Officer-in-Charge of a Police Station he does not thereby become a Police Officer even if the broader
meaning to those words in Section 25 of the Evidence Act is given.”

The Delhi High Court’s judgment in Vakamulla Chandrashekhar (supra) has observed that the officers of ED are not
police officers and therefore section 25 of the Evidence Act will not apply.91 The High Court by relying on the
decisions of the Supreme Court in Badku Joti Savant (supra), Raj Kumar Karwal (supra), Romesh Chandra Mehta
(supra) and Illias (supra), observed that since the provisions of the PMLA were pari materia with the provisions of
the special statutes mentioned in those decisions, the officers of ED cannot be held to be police officers. This
reasoning is fragile. Firstly, as stated above, the decisions in Badku Joti Savant (supra), Raj Kumar Karwal (supra),
Romesh Chandra Mehta (supra), and Illias (supra) have held that the power to file a complaint by the officers of
Customs and DRI was different from the power of police officer to file a charge-sheet under section 173 of CrPC.
However, under the PMLA, the complaint filed by the Authority under section 44 of the PMLA is like a charge sheet
filed pursuant to an investigation and has been held to be:

“akin to a report under Section 173 in as much as a report under Section 173 of the Code of Criminal Procedure is
submitted after the investigation is completed. So is the prosecution/ complaint under Section 44 of the PMLA”.92

Secondly, similar to the powers of a police officer, the ED also is vested with the power to investigate, conduct
searches, arrest and seek remand of an accused as provided for in Chapter XII of CrPC. Under section 65 of the
PMLA, provisions of CrPC shall apply “in so far as they are not inconsistent with the provisions of the Act, to arrest,
search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings” which clearly
would mean that section 173 of CrPC would apply. Nothing in the PMLA is contrary to any provision under section
173 of CrPC. It would be difficult to pin point even a single power which the police would be able to exercise which
is not available to the Authority under the PMLA. Also, one must not lose sight of the fact that if the Authority under
 Page 21 of 63
4.1 Introduction

the PMLA is allowed to arrest and take an accused on remand under section 167 of CrPC, then it is very much
acting in the capacity of a police officer as referred to in Chapter XII of CrPC, and therefore there is every reason to
provide the protection of section 25 of the Evidence Act to the accused for the statements recorded under section
50(3) of the PMLA. Thirdly, the PMLA under section 54(f) specifically states that police officers can assist the
authorities in the enforcement of the Act. A bizarre situation would arise if the accused makes a confession before
the police officer assisting the Authority as that would not be admissible but the same confession made before the
Authority would be admissible. Fourthly, the test in Raja Ram Jaiswal case which has not been considered in by the
Delhi High Court in Chandrashekhar Vakamullah (supra) “whether the powers are such as would tend to facilitate
the obtaining by [the officer] of a confession from a suspect or a delinquent”. On this test the Authority would
squarely fall within the ambit of a police officer for the purpose of section 25 of the Evidence Act.
4.1.7 Whether provisions of Chapter XII of Code of Criminal Procedure, 1973 apply to the Prevention of
Money-Laundering Act, 2002?

The issue whether the provisions of Chapter XII of CrPC (section 154 to section 176) should be followed by the
Authorities under the PMLA has been a point of contention in a number of petitions filed before various courts
throughout the country. Chapter XII of CrPC sets out the entire procedure to be followed by a police officer when he
undertakes an investigation into a cognizable or non-cognizable offence and culmination of the investigation on
submission of a report to Magistrate in section 173.

These petitions have challenged the arrests made by the ED on the ground that the provisions of Chapter XII of
CrPC were not complied with by the ED while making the arrest under section 19 of the PMLA.93 The ED has
argued that the PMLA is a self contained code and by virtue of its provisions contained in sections 65 and 71, it is
not bound to follow the procedure of CrPC. In furtherance, to these arguments, reliance is also placed on sections 4
and 5 of CrPC to state that that the offence under a special statute should be investigated or inquired into or tried
according to the provisions of CrPC only where the special law which creates the offence provides no special
procedure. Another ground raised for not following procedure prescribed in CrPC in relation to the arrest made
under the PMLA is that since Chapter XII is titled “Information to the Police and their Powers to Investigate”, it is
only applicable to the “police” and not to the Authorities under the PMLA. The Authority under the PMLA not being
police cannot avail the recourse provided under Chapter XII of the Code.

Interestingly, the ED seems to contradict its own argument that sections of Chapter XII is for the investigations
carried on by the police officer. In a number of cases the ED has invoked the provisions of Section 167 of CrPC,
which is a part of Chapter XII of CrPC, to seek remand of arrested persons from the Special Court by filing an
application under section 167 of CrPC read with section 65 of the PMLA. This practise of cherry-picking certain
provisions of Chapter XII of CrPC and ignoring the rest may be arbitrary.
4.1.7.1 Procedure prescribed in Chapter XII of the Code of Criminal Procedure, 1973

The law relating to criminal procedure applicable to all the criminal proceedings in India (except those in the States
of Jammu and Kashmir and Nagaland the tribal areas in Assam) is contained in the CrPC. It is procedural in nature
and prescribes the procedure to be followed by the investigating agencies while dealing with the penal provisions
contained in the Indian Penal Code and in other special statutes, provided the special statutes do not contain its
own procedure. CrPC also prescribes hierarchy of criminal courts and defines the contours of their territorial
division. For the purposes of PMLA, we are concerned with Chapter XII of CrPC which lays down the procedure to
be followed by the police for investigation of a cognizable or a non-cognizable offence.

Chapter XII of CrPC is titled as “Information to the Police and their Powers to Investigate” and consists of section
154 to section 176. Chapter XII of CrPC can be broadly dissected into two categories i.e. information in cognizable
offences (section 154) and information as to non-cognizable offences (section 155).

Some of the relevant provisions from Chapter XII are discussed below:
4.1.7.1.1 Section 154—Information in case of Cognizable Offence

Section 154 of CrPC requires that every information relating to the commission of a cognizable offence, if given
orally to an officer in charge of a police station, shall be reduced in writing by him or under his direction. The
information once written must be read over to the informant; and every such information, and signed by the
informant. The section further requires that the substance thereof must be entered in a book kept by such officer in
such form as the State Government may prescribe in this behalf.94

Section 156 of CrPC is “Police officer’s power to investigate cognizable cases”. It empowers the officer in charge of
a police station to investigate a cognizable case without the order of the Magistrate.
4.1.7.1.2 Section 155—Information in case of Non-Cognizable Offence
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4.1 Introduction

Section 155 of CrPC comes into play once the information is given to an officer – in charge of a police station of the
commission of non-cognizable offences. Sub-Section (1) requires that the police officer shall enter or cause to be
entered the substance of the information in a book to be kept by such officer in such form as the State Government
may prescribe in this behalf, and refer, the informant to the Magistrate. In terms of section 155(2), no police officer
can investigate a non-cognizable case without the order of a Magistrate having power to try such case or commit
the case for trial. Upon receiving such order, the police officer may exercise same powers in respect of the
investigation as in cognizable cases. However, no police officer has the power to arrest any person in the non-
cognizable offence unless he has the warrant to arrest.
4.1.7.1.3 Procedure for Investigation of the cognizable offence

(i) Section 157—Procedure for investigation

Section 157 of CrPC establishes the procedure to be followed for investigation in cognizable cases and in non-
cognizable cases (once the police officer receives order from the Magistrate to proceed with investigation). It sets
forth the investigation in the commission of an alleged offence.95 The provision states that if, upon receiving the
information, the police in charge has reason to suspect the commission of an offence which he has power to
investigate under section 156, he shall forthwith send a report of the same to a Magistrate (who is empowered to
take cognizance) and shall proceed in person or depute an officer (not being below such rank as the State
Government may by general or special order prescribe in this behalf) to proceed to the spot, to investigate the facts
and circumstances of the case and if, necessary, to take measures for the discovery and arrest of the offender. The
report is sent to the Magistrate as to keep him informed of the investigation into a cognizable offence. The
expression “forthwith send a report” means that the report has to be sent without any unreasonable delay.

The section in its proviso further provides that where there is information of the commission of any offence which is
not of serious nature, the police officer need not proceed to carry out investigation on the spot. Also, if it appears to
the police officer that there no sufficient ground for entering on an investigation, he shall not investigate the case.

(ii) Section 158—Report how submitted

The report referred to in section 157 is to submitted to the Magistrate in accordance to section 158, which requires
that the, “every report sent to a Magistrate under Section 157 shall if, the State Government so directs, be
submitted through such superior officer of police as the State Government, by general or special order, appoints in
that behalf.” Section 158 further provides that the superior officer may give instructions to the officer in charge of the
police station as he thinks fit, and shall, after recording such instructions on such report, transmit the same without
delay to the Magistrate.

(iii) Section 159—Power to hold investigation or preliminary inquiry

Section 159 empowers the Magistrate to hold investigation or preliminary enquiry. It states that a Magistrate, on
receiving such report, may direct an investigation, or, if he thinks fit, at once proceed, or depute any Magistrate
subordinate to him to proceed, to hold a preliminary inquiry into, or otherwise to dispose of, the case in the manner
provided in CrPC.

(iv) Section 160—Police officer’s power to require attendance of the witnesses

Sub-Section (1) of section 160 provides that any police officer making an investigation under this chapter may, by
order in writing, require the attendance before himself of any person being within the limits of his own or any
adjoining station who, from the information given or otherwise, appears to be acquainted with the facts and
circumstances of the case; and such person shall attend as so required.

As per the proviso to this sub-section, no male person under the age of fifteen years or above the age of sixty-five
years or a woman or a mentally or physically disabled person shall be required to attend at any place other than the
place in which such male person or woman resides.

Sub-section (2) provide that the State Government may, by rules made in this behalf, provide for the payment by
the police officer of the reasonable expenses of every person, attending under Sub-Section (1) at any place other
than his residence.

(v) Section 161—Examination of witness by police

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4.1 Introduction

Sub-section (1) of this provision requires that any police officer making an investigation under this chapter, or any
police officer not below such rank as the State Government may, by general or special order, prescribe in this
behalf, acting on the requisition of such officer, may examine orally any person supposed to be acquainted with the
facts and circumstances of the case.

Sub-section (2) of section 161 provides that a person who is being examined shall be bound to answer truly all
questions relating to such case put to him by such officer, other than questions the answers to which would have a
tendency to expose him to a criminal charge or to a penalty or forfeiture. Further, sub-section (3) provides that the
police officer may reduce into writing any statement made to him in the course of an examination under this section;
and if he does so, he shall make a separate and true record of the statement of each such person whose statement
he records. There is now a provision to record the statement under this sub-section by audio-video electronic
means.

Section 162 of CrPC provides that no statements given to the police officer during the course of an investigation
under this chapter, shall, if reduced to writing, be signed by the person making it; nor shall any such statement or
any record thereof, whether in a police diary or otherwise, or any part of such statement or record, be used for any
purpose, save as hereinafter provided, at any inquiry or trial in respect of any offence under investigation at the time
when such statement was made.

The exception to this sub-section is that when any witness is called by the prosecution in such inquiry or trial whose
statement has been reduced into writing as aforesaid, any part of his statement, if duly proved, may be used by the
accused, and with the permission of the court, by the prosecution, to contradict such witness in the manner
provided by section 145 of the Indian Evidence Act and when any part of such statement is so used, any part
thereof may also be used in the re-examination of such witness, but for the purpose only of explaining any matter
referred to in his cross-examination.

Section 163(1) of CrPC provides that no police officer or other person in authority shall offer or make, or cause to
be offered or made, any such inducement, threat or promise as is mentioned in section 24 of the Indian Evidence
Act, 1872. Sub-section (2) of section 163 states that no police officer or other person shall prevent, by any caution
or otherwise, any person from making in the course of any investigation under this chapter any statement which he
may be disposed to make of his own free will and that nothing in this sub-section shall affect the provisions of sub-
section (4) of section 164.

(vi) Section 165—Search by police officer

Sub-section (1) of section 165 provides that whenever an officer in charge of police station or a police officer
making an investigation has reasonable grounds for believing that anything necessary for the purposes of an
investigation into any offence which he is authorised to investigate may be found in any place within the limits of the
police station of which he is in charge, or to which he is attached, and that such thing cannot in his opinion be
otherwise obtained without undue delay, such officer may, after recording in writing the grounds of his belief and
specifying in such writing, so far as possible, the thing for which search is to be made, search, or cause search to
be made, for such thing in any place within the limits of such station.

Sub-section (2) requires that a police officer proceeding under sub-section (1), shall, if practicable, conduct the
search in person. Sub-section (3) states that if he is unable to conduct the search in person, and there is no other
person competent to make the search present at the time, he may, after recording in writing his reasons for so
doing, require any officer subordinate to him to make the search, and he shall deliver to such subordinate officer an
order in writing, specifying the place to be searched, and so far as possible, the thing for which search is to be
made; and such subordinate officer may thereupon search for such thing in such place.

Sub-section (4) states that the provisions of this Code as to search-warrants and the general provisions as to
searches contained in section 100 shall, so far as may be, apply to a search made under this section.

As per sub-section (5), copies of any record made under sub-section (1) or sub-section (3) shall forthwith be sent to
the nearest Magistrate empowered to take cognizance to the offence, and the owner or occupier of the place
searched shall, on application, be furnished, free of cost, with a copy of the same by the Magistrate.

(vii) Section 167—Procedure when the investigation cannot be completed in twenty-four hours

Sub-section (1) of section 167 provides that whenever any person is arrested and detained in custody and it
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4.1 Introduction

appears that the investigation cannot be completed within the period of twenty-four hours as prescribed in section
57 of CrPC, and there are grounds for believing that the accusation or information is well-founded, the officer in
charge of the police station or the police officer making the investigation (if he is not below the rank of sub-
inspector) shall forthwith transmit to the nearest Judicial Magistrate a copy of the entries in the diary hereinafter
prescribed relating to the case, and shall at the same time forward the accused to such Magistrate.

Further, sub-section (2) of this provision states the Magistrate to whom an accused person is forwarded under this
section may, whether he has or has no jurisdiction to try the case, from time to time, authorise the detention of the
accused in such custody as such Magistrate thinks fit, for a term not exceeding fifteen days in the whole; and if he
has no jurisdiction to try the case or commit it for trial, and considers further detention unnecessary, he may order
the accused to be forwarded to a Magistrate having such jurisdiction: Provided that—

96(a) the Magistrate may authorise the detention of the accused person, otherwise than in the custody of
the police, beyond the period of fifteen days; if he is satisfied that adequate grounds exist for doing so, but
no Magistrate shall authorise the detention of the accused person in custody under this paragraph for a
total period exceeding,—
(i) ninety days, where the investigation relates to an offence punishable with death, imprisonment for life
or imprisonment for a term of not less than ten years;
(ii) sixty days, where the investigation relates to any other offence, and, on the expiry of the said period of
ninety days, or sixty days, as the case may be, the accused person shall be released on bail if he is
prepared to and does furnish bail, and every person released on bail under this sub- section shall be
deemed to be so released under the provisions of Chapter XXXIII for the purposes of that Chapter;]
97(b) no Magistrate shall authorise detention in any custody under this section unless the accused is
produced before him.
5(c) no Magistrate of the second class, not specially empowered in this behalf by the High Court, shall
authorise detention in the custody of the police.

Sub-section 2A98 provides that notwithstanding anything contained in sub-section (1) or sub-section (2), the officer
in charge of the police station or the police officer making the investigation, if he is not below the rank of a sub-
inspector, may, where a Judicial Magistrate is not available, transmit to the nearest Executive Magistrate, on whom
the powers of a Judicial Magistrate or Metropolitan Magistrate have been conferred, a copy of the entry in the diary
hereinafter prescribed relating to the case, and shall, at the same time, forward the accused to such Executive
Magistrate.

Sub-section 2A further requires that the such Executive Magistrate, may, for reasons to be recorded in writing,
authorise the detention of the accused person in such custody as he may think fit for a term not exceeding seven
days in the aggregate; and, on the expiry of the period of detention so authorised, the accused person shall be
released on bail except where an order for further detention of the accused person has been made by a Magistrate
competent to make such order; and, where an order for such further detention is made, the period during which the
accused person was detained in custody under the orders made by an Executive Magistrate under this sub-section,
shall be taken into account in computing the period specified in paragraph (a) of the proviso to sub-section (2).

Proviso to this sub-section states that before the expiry of the period aforesaid, the Executive Magistrate shall
transmit to the nearest Judicial Magistrate the records of the case together with a copy of the entries in the diary
relating to the case which was transmitted to him by the officer in charge of the police station or the police officer
making the investigation, as the case may be.

Sub-section (3) further requires that the Magistrate authorise to grant detention in the custody under this section,
shall record his reasons for doing so. Sub-section (4) states that the any Magistrate other than the Chief Judicial
Magistrate making such order shall forward a copy of his order, with his reasons for making it, to the Chief Judicial
Magistrate.

Sub-section (5) and (6) deals with cases triable by a Magistrate as summons case.

(viii) Section 170—Cases to be sent to Magistrate when evidence is sufficient

Section 170(1) provides that if, upon an investigation under this chapter, it appears to the officer in charge of the
police station that there is sufficient evidence or reasonable ground as aforesaid, such officer shall forward the
accused under custody to a Magistrate empowered to take cognizance of the offence upon a police report and to try
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4.1 Introduction

the accused or commit him for trial. The section also provides that if the offence is bailable and the accused is able
to give security, the officer in charge of the police station shall take security from him for his appearance before
such Magistrate on a day fixed and for his attendance from day to day before such Magistrate until otherwise
directed.

Section 170(2) states that when the officer in charge of a police station forward an accused person to a Magistrate
or takes security for his appearance before such Magistrate under this section, he shall also send to such a
Magistrate any weapon or other article which it may deem necessary to produce before him, and shall require the
complainant (if any) and so many of the persons who appear to such officer to be acquainted with the facts and
circumstances of the case as he may think necessary, to execute a bond to appear before the Magistrate as
thereby directed and prosecute or give evidence (as the case may be) in the matter of the charge against the
accused.

(viii) Section 172—Diary of proceeding in investigation

This provision requires every police officer making an investigation under this chapter shall day by day enter his
proceedings in the investigation in a diary, setting forth the time at which the information reached him, the time at
which he began and closed his investigation, the place or places visited by him, and a statement of the
circumstances through his investigation. Sub-section (1A)99 requires that the statements of witnesses recorded
during the course of investigation under section 161 shall be inserted in the case diary. Further, in sub-section
(1B)100 of section 172 states that the diary referred to in sub-section (1) shall be a volume and duly paginated.

Sub-section (2) of section 172 provides that any criminal court may send for the police diaries of a case under
inquiry or trial in such court, and may use such diaries, not as evidence in the case, but to aid it in such inquiry or
trial.

Sub-section (3) of section 172 further provides that neither the accused nor his agents shall be entitled to call for
such diaries, nor shall he or they be entitled to see them merely because they are referred to by the court; but, if
they are used by the police officer who made them to refresh his memory, or if the court uses them for the purpose
of contradicting such police officer, the provisions of section 161101 or section 145,102 as the case may be, of the
Indian Evidence Act shall apply.

(ix) Section 173—Diary of proceeding in investigation

Section 173 empowers a police officer to submit a charge sheet after the completion of investigation before the
Magistrate. The charge-sheet is to include a copy of FIR, statement of the complainant, witnesses, panchnama,
dying declaration, etc.

Therefore, the entire chapter XII of CrPC deals with the powers of the police to investigate into cognizable and non-
cognizable offences. The Supreme Court in Lalita Kumari v Government of UP,103 has explained the procedure for
investigation in a cognizable offence in the following manner:

“[...] conducting an investigation into an offence after registration of FIR under Section 154 of the Code is the “procedure
established by law” and, thus, is in conformity with Article 21 of the Constitution.

[...]

95. The police is required to maintain several records including case diary as provided under section 172 of the Code. [...]
Moreover every information received relating to commission of a non-cognizable offence also has to be registered under
section 155 of the Code.

[...]

96....Sec. 157(1) deploys the word “forthwith”. Thus, any information received under section 154(1) or otherwise has to be
duly informed in the form of a report to the Magistrate. Thus, the commission of a cognizable offence is not only brought to
the knowledge of the investigating agency but also to the subordinate judiciary.”104

4.1.7.2 Procedure for Arrest under the PMLA

Section 19 of the PMLA empowers the Director, Deputy Director, Assistant Director, or any other officer, authorised
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4.1 Introduction

in this behalf by the Central Government by general or special order in this behalf, to arrest a person, if he has
reasons to believe that such a person is guilty of the offence of money laundering.

Section 19 is reproduced as follows—

19. Power to arrest.—(1) If the Director, Deputy Director, Assistant Director, or any other officer authorised in this behalf
by the Central Government by general or special order, has on the basis of material in his possession reason to believe
(the reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under this
Act, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.

(2) The Director, Deputy Director, Assistant Director or any other officer shall, immediately after arrest of such person under
sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the
Adjudicating Authority, in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall
keep such order and material for such period, as may be prescribed.

(3) Every person arrested under sub-section (1) shall within twenty-four hours, be taken to a [Special Court or] Judicial
Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction:

Provided that the period of twenty-four hours shall exclude the time necessary for the journey from the place of arrest to the
[Special Court or] Magistrate’s Court.

PMLA in section 19 provides for the power to arrest a person who is guilty of committing an offence of money
laundering. Section 19(1) requires that the person can however only be arrested by the Director, Deputy Director,
Assistant Director, or any other officer authorised by the Central government in this behalf by a general or a special
order, if he has reason to believe (the reason for such belief to be recorded in writing) that such a person has
committed an offence under this Act, i.e. offence of money-laundering. Section 19(1) further provides that as soon
as such person is arrested, the officer must inform of the grounds for such arrest.

Sub-section (2) of section 19 provides that the Director, Deputy Director, Assistant Director, or any other officer,
shall immediately after the arrest of such person under sub-section (1), forward the a copy of the order, along with
the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in
the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such
period as may be prescribed.

The sub-section (3) of section 19 requires that every person arrested under sub-section (1) shall within twenty-four
hours, be taken to a Special Court or Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having
jurisdiction.

This section is to be read with the Prevention of Money-Laundering (the Forms and the Manner of forwarding a
copy of order of arrest of a person along with material to the Adjudicating Authority and its period of detention)
Rules, 2005 (‘PML Arrest Rules, 2005’). These rules relate to the, “...Forms, the manner of forwarding a copy of the
order of arrest of a person along with the material to the Adjudicating Authority and the period of retention thereof
by the Adjudicating Authority.”105
4.1.7.2.1 Procedure for Arrest under the PML Arrest Rules, 2005

The relevant provisions of the PML Arrest Rules, 2005 are as follows:

“Rule 2. Definitions

...

(c) “Arresting Officer” means the Director, Deputy Director, Assistant Director, or any other officer, authorised in this behalf
by the Central Government by general or special order to exercise the power to arrest any person under sub-section 91) of
Section 19 of the Act;

(g) “material” means any information or material in possession of the Director, Deputy Director, Assistant Director, or any
other officer, authorised officer, as the case may be, on the basis of which he recorded reasons under sub-section (1) of
Section 19 of the Act.

Rule 3. Manner of forwarding a copy of the order of arrest and the material to the Adjudicating Authority.—
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4.1 Introduction

(1) The Arresting Officer shall prepare an index of the copy of the order and the material in possession and sign each page
of such index of the copy of the order and the material and shall also write a letter while forwarding such index, order and
the material to the Adjudicating Authority in a sealed envelope.

(2) The Arresting Officer shall place an acknowledgement slip in Form-I appended to these rules inside the envelope before
sealing it.

(3) The Arresting Officer shall indicate a reference number and date of despatch on the sealed envelope.

(4) The sealed envelope shall be marked “Confidential” and “To be opened by the addressee only”, the complete address
of the Adjudicating Authority including his name shall be mentioned on the sealed envelope with the official seal.

(5) The Arresting Officer shall place the sealed envelope inside an outer envelope, along with an acknowledgement slip in
Form-II appended to these rules.

(6) The outer envelope shall be sealed and complete address of the Adjudicating Authority shall be mentioned on the
sealed outer envelope.

(7) The Arresting Officer shall maintain registers and other records such as acknowledgement slip register, dak register for
the purposes of this rule and shall ensure that necessary entries are made in the register immediately as soon the copy of
the order and the material are forwarded to the Adjudicating Authority.

Rule 4. Acknowledgment if receipt of the copy of the order of arrest and the material by the Adjudicating
Authority.—(1) On receipt of the outer sealed envelope along with Form-II, the Adjudicating Authority or in his absence,
the designated officer of the office of Adjudicating Authority shall forward Form-II duly filled in, signed and his name legibly
written below his signature. The seal of the office of the Adjudicating Authority shall be affixed before forwarding the Form-II
to the Arresting Officer as a token of receipt of the sealed envelope.

(2) The Adjudicating Authority shall, on opening of the sealed envelope, forward Form-I duly filled in, signed and his name
legibly written below his signature. The seal of the office of the Adjudicating Authority shall be affixed before forwarding the
Form-I to the Arresting Officer as a token of receipt of the copy of order of the arrest and the material.

(3) The Adjudicating Authority shall maintain registers and other records such as acknowledgement slip register, dak
register, and register showing details of receipt of the copy of the order of the arrest along with the material for the purposes
of this rule and shall ensure that necessary entries are made in the registers immediately on receipt of such order and the
material.”

A reading of the above mentioned rules in its entirety shows that it only deals with the procedure which the arresting
officer must follow in order to forward the arrest order along with the material to the Adjudicating Authority (as
provided in sub-section (2) of section 19).

Section 44 and section 45 of the PMLA provide for “Offences triable by Special Courts” and “Offences to be
cognizable and non-bailable” respectively. As discussed above, section 44(1)(a) simply states that the offence
punishable under section 4 of the PMLA and any schedule offence connected to the offence under that section
shall be triable by the Special Court constituted for the area in which the crime has been committed. Section
44(1)(b) states that a Special Court may upon a complaint by the Authority in this behalf under this Act take
cognizance of offence under section 3, without the accused being committed to the trial. Proviso to this sub-section
provides that the after conclusion of investigation, if no offence of money laundering is made out requiring filing of
such a complaint, the said authority shall submit a closure report before the Special Court.

However, at this stage it would be relevant to revisit the Explanation appended to section 45 vide Finance (No 2)
Act, 2019 which states that:

“For the removal of doubts, it is clarified that the expression “Offences to be cognizable and non-bailable” shall mean and
shall be deemed to have always meant that all offences under this Act shall be cognizable offences and non-bailable
offences notwithstanding anything to the contrary contained in Code of Criminal Procedure, 1973 (2 of 1974), and
accordingly the officers authorized under the Act are empowered to arrest an accused without warrant, subject to the
fulfillment of conditions under Section 19 and subject to the conditions enshrined under this section.”
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4.1 Introduction

This shows that that officers authorised to arrest is required to follow the conditions prescribed under section 19 and
section 45, before arresting the accused.

A conjoint reading of the conditions that need to be fulfilled by the arresting officer before arresting an accused
under section 19, PML Arrest Rules, 2005, section 44 and section 45 of the PMLA are as follows:

(a) That the arresting officer must have a reason to believe (the reason for such belief to be recorded in
writing) that the person to be arrested has been guilty of an offence punishable under this Act (i.e. offence
of money-laundering), (section 19(1));
(b) Upon the arrest of such a person, the arresting authority, as soon as may be, inform the arrestee of the
grounds for such arrest, (section 19(1));
(c) The arresting officer, shall, immediately after arrest of such person, forward a copy of the order, along with
the material in his possession, referred to the Adjudicating Authority in a sealed envelope and the
Adjudicating Authority shall keep such order and material for such period, as may be prescribed, (section
19(2));
(d) Every person arrested shall within twenty-four hours, be taken to a Special Court or Judicial Magistrate or a
Metropolitan Magistrate, as the case may be, having jurisdiction, (section 19(3));
(e) Upon conclusion of investigation, if no offence of money laundering is made out requiring filing of such
complaint, the authorities under the Act shall submit a closure report before the Special Court, (Proviso to
section 44(1)(b)).

It is imperative to highlight here that the section 65 read with section 71 of the PMLA gives an overriding effect to
the provisions of the PMLA over other statutes. However, this overriding effect would not extend to the Rules
appended to the Act.
4.1.7.3 Procedure prescribed in the Code vis-a-vis the PMLA

A comparison between the procedures laid down in these two enactments, CrPC and the PMLA shows that to a
large extent the procedure prescribed in CrPC has not been provided in the Act and is conspicuously missing. The
procedure laid down in Chapter XII as described above, is largely absent in the PMLA. Therefore, in most cases the
question of inconsistency would not arise between CrPC and the PMLA. On the contrary, by virtue of section 65 of
the PMLA, the provisions of the Chapter XII would apply unless they are “inconsistent” with the provisions of the
PMLA. Therefore, for any provision of CrPC to not apply it has to be inconsistent with the provision of the PMLA
and mere absence of a provision in the PMLA cannot be treated as a case of inconsistency.

The following table sets out a comparative chart between the procedure mentioned in the Code and whether there
is a corresponding provision in the PMLA:

Procedure Under the Code of Criminal Under the Prevention of Money

Procedure, 1973 Laundering Act, 2002
Registration of the case Filing of the First Information Report Filing of the Enforcement Case
(FIR). Information Report (ECIR).

Unlike CrPC, the PMLA does not contain

any section which seeks the registration
of the ECIR

Power to arrest in a cognizable case Yes. Yes.

The police has the power to arrest under The ED has the power to arrest under
section 41 of CrPC. section 19 of the Act.

Preparing and submitting a Report Yes. No.

before initiating the investigation
As per section 157, a police officer is to The procedure of investigation in the
prepare a report if upon receiving the commission of an alleged offence of
information; he has reason to suspect money-laundering and preparing and
the commission of an offence and under submitting a report of the nature
section 158 is required to submit the prescribed in sections157 and 158 of
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4.1 Introduction

Procedure Under the Code of Criminal Under the Prevention of Money

Procedure, 1973 Laundering Act, 2002
said report to the Magistrate (who is CrPC is missing from the scheme of the
empowered to take cognizance). Act.

Maintaining a Case diary Yes. No

Under section 172 the police is required No such provision in the PMLA or the
to maintain a case diary PML Arrest Rules, 2005.

Filing of Charge Sheet Yes. Yes.

Section 173 empowers a police officer to Now after the recent amendment of
submit a charge sheet after the 2019, proviso to section 44(1)(b) is
completion of investigation before the inserted which states that upon
Magistrate. The charge-sheet is to conclusion of investigation, if no offence
include a copy of FIR, statement of the of money laundering is made out, then
complainant, witnesses, panchnama, the ED is required to submit a closure
dying declaration, etc. report before the Special Court. This is
also akin to a report under section 173 of
CrPC.

The above comparison reveals that certain procedures laid down in Chapter XII is missing from the scheme of the
PMLA read with the PML Arrest Rules, 2005, therefore; in view of section 65 and section 71 of the PMLA read with
sections 4 and 5 of the Code, the procedure prescribed in the Code should apply to the PMLA in such instances
where the corresponding provision of the Code is missing in the PMLA.
4.1.7.4 Judicial Pronouncements—Applicability of the Code of Criminal Procedure, 1973 to Special Statutes

The courts have often been confronted with the issue whether Chapter XII of CrPC will apply to proceedings
emanating from the application of special laws, such as Customs Act and NDPS Act.

In Directorate of Enforcement v Deepak Mahajan,106 the issue before the Supreme Court was as regards the
applicability of the provisions of section 167(1) and section 167(2) of CrPC, when a person is arrested under
Special Act like section 35(1) of FERA or section 104(1) of the Customs Act and the accused is produced before
the Magistrate under section 35(2) or section 104(2) thereof. The Supreme Court held that the provisions of section
167(2) of CrPC shall be applicable with regards to the persons arrested under the under the provisions of section
35 of FERA and section 104 of Custom Act. The court thus observed:

“136. In the result, we hold that sub-sections (1) and (2) of Section 167 are squarely applicable with regard to the
production and detention of a person arrested under the provisions of Section 35 of FERA and 104 of Custom Act and that
the Magistrate has jurisdiction under Section 167(2) to authorise detention of a person arrested by any authorised officer of
the Enforcement under FERA and taken to the Magistrate in compliance of Section 35(2) of FERA.”

Although, the court agreed with the case of the ED under the Customs Act that the registration of a case and the
production of a case diary was not mandatory for the arrest of a person under FERA, however it did observe:

“113. Though an authorised officer of Enforcement or Customs is not undertaking an investigation as contemplated under
Chapter XII of the Code, yet those officers are enjoying some analogous powers such as arrest, seizures, interrogation etc.
Besides, a statutory duty is enjoined on them to inform the arrestee of the grounds for such arrest as contemplated under
Article 22(1) of the Constitution and Section 50 of the Code. Therefore, they have necessarily to make records of their
statutory functions showing the name of the informant, as well as the name of the person who violated any other provision
of the Code and who has been guilty of an offence punishable under the Act, nature of information received by them, time
of the arrest, seizure of the contraband if any and the statements recorded during the course of the detection of the
offence/offences.”

The full bench of the Supreme Court in Om Prakash v UOI,107 held that the provisions of CrPC; especially sections
154 to 173 of CrPC, are applicable even in a case where the power of arrest is exercised by the Excise Officer or
Customs Officer. In this case the Supreme Court even held that, in respect of non-cognizable offence, a Police
Officer and in the said case, an Excise Officer will have no authority to make an arrest without obtaining a warrant
for the said purpose.
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In the case of Rakesh Manekchand Kothari (supra), the Division Bench of the Gujarat High Court, upheld the arrest
under section 19 of the PMLA on the ground that, “... there is no failure in adhering procedure laid down under
section 19(1) of the P.M.L. Act and further no breach to the guidelines laid down in the case of D.K. Basu (supra)
and it cannot be said that the petitioners are detained or confined illegally warranting issuance of writ of Habeas
Corpus…”

The corollary reading of the judgment therefore suggests that the Court is in of the opinion that the principle of D K
Basu v State of West Bengal,108 is to be mandatorily followed by the ED at the time of making arrests under section
19(1) of the PMLA.

In Karam Singh (supra), the Punjab and Haryana High Court held that the procedure of the Code need not apply to
the PMLA as it is a self contained statute with the entire procedure prescribed. The court observed:

“59. Thus, from the above, it would be apparent that a complete procedure has been prescribed under the Act and the said
Rules are not subject matter of challenge. In the absence of any challenge raised and in view of the detailed procedure
prescribed and in view of the provisions of the Act, the argument which is sought to be raised that the officers of the E.D.
are acting without any jurisdiction in an arbitrary manner and without any authority is without any basis. The statute has
given ample power to the authorities and methodology has been prescribed which prima facie goes on to show that
sufficient safeguards are in place and the adjudicating authority is to monitor the investigation and the arrest can only be on
the basis of reasons to be recorded in writing. Neither any reference had been made to the rules by the petitioner and
neither it had been complained that the said rules have been violated in any manner. Due to the lack of any challenge being
raised to the same, we are of the opinion that the argument raised that the principles laid down in D.K. Basu’s case (supra)
have been violated is without any basis.”

However, in the case of Gurucharan Singh (supra), the Delhi High Court observed that it is mandatory for the ED to
follow the procedure prescribed under CrPC in absence of any inconsistent provision under the PMLA concerning
investigation, arrest and other proceedings, failing which the rights of the person arrested under Article 21 of the
Constitution stands violated. The petitioners in this case were enlarged on bail upon fulfilment of certain conditions
imposed by the court.

It was observed that:

“38. However, it is mandatory for the respondents to follow the procedure prescribed under the Code of Criminal Procedure
in the absence of any inconsistent provision under the PMLA concerning investigation, arrest and or other proceedings.
Prima facie we are of the view that it was mandatory for the respondents to comply with the provision of Sections 155,
177(1) and 172 of the Code of Criminal Procedure in case the offence is non-cognizable. However, should this Court reach
a conclusion that the offence under PMLA is held to be cognizable, the respondents were bound to follow and comply with
Sections 154, 157 of the Code of Criminal Procedure.

39. In the absence of procedure having been followed, rights of the petitioners under Article 21 of the Constitution of India
stand violated. The personal liberty of a person cannot be deprived of except after following the procedure established by
law…”

In Chhagan Chandrakant Bhujbal (supra), the petitioner had approached the Bombay High Court with a writ of
habeas corpus seeking his forthwith release from the custody by setting aside impugned arrest order and the
consequent remand orders. The petitioner argued that the provisions, which are required to be followed by the
concerned authorised officer while effecting the arrest, as laid down in chapter XII of CrPC from sections 154 to
173, are not at all complied with by the ED. The petitioner further argued that these are the mandatory procedural
safeguards, which were required to be followed by the Investigating Agency; whether the Investigating Agency is
the Enforcement Directorate or the Police Officer; especially, when it pertains to the personal liberty of the
Petitioner, which is guaranteed under the Constitution of India. The reliance was also placed on section 65 of the
PMLA which allows the incorporation of the provisions of CrPC to the PMLA. The petitioner further argued that as
per the law laid down by the Apex Court in the case of Lalita Kumari (supra), conducting an investigation into an
offence after registration of FIR under section 154 of CrPC is the “procedure established by law” and, thus, is in
conformity with Article 21 of the Constitution, and since the ED did not follow the “procedure established by law” the
arrest becomes illegal and without authority.

The ED argued that the provisions of the PMLA lay down a complete procedure to be followed for the purpose of
effecting arrest. Section 19 of the PMLA gives certain powers to the authorised officers to effect the arrest, when
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4.1 Introduction

such officer has reason to believe, on the basis of the material in its possession, that any person has been guilty of
an offence punishable under the said Act. This section does not contemplate lodging of FIR, before effecting the
arrest. In pith and essence in view of section 71 of PMLA, section 19 will have an overriding effect on the provisions
of chapter XII of CrPC.

The court while dismissing the petition held that none of the contention raised by the petitioner holds merit. The
court with respect to the issue at hand, observed that:

“131. At the costs of repetition also, it has to be stated that Section 19 of the PML Act does not contemplate either
registration of FIR, on receipt of information relating to cognizable offence or of obtaining permission of the Magistrate in
case of non-cognizable offence before taking cognizance or before effecting arrest of the accused in respect of any offence
punishable under this Act. The only conditions, which are laid down under Section 19 of PML Act, pertain to the reasonable
belief of the authority, which is on the basis of the material in its possession. As a result, when there are no such
restrictions on the “power to arrest”, as laid down under Section 19 of PML Act, it cannot be accepted that the officer
authorized to arrest under the PML Act was, in addition to the procedure laid down in PML Act, expected to follow the
procedure laid down in the Code also, of registering FIR or seeking permission of the Court in respect of non-cognizable
offence for arrest of the accused under this Act. If those provisions of Chapter XII of the Code are to be read even in
respect of these offences, then, it follows that Section 19 of PML Act would be rendered nugatory and that cannot be the
intention of the Legislature. The Court cannot make any special provision in the Act as nugatory or infructuous by giving the
interpretation which is not warranted by the Legislature. As a matter of fact, the endeavour of the Court should always be to
ensure that the provisions enacted by the Legislature are not rendered nugatory in any way.

132. It is pertinent to note that Section 19 also contains the same safeguards, like the arrested person being produced
before the Magistrate within twenty-four hours, excluding the time necessary for journey from the place of arrest to the
Magistrate’s Court. The said safeguard and provision is apparently complied in this case and there is no violation of it in any
way.”

The problem with this judgement is that it overlooked that Chapter XII does not merely contain provisions that
entails arresting a person and producing him before the Magistrate. The court did not take into account that the
chapter contains provisions that also involve preparing and submitting a report to the Magistrate at the pre-
investigation stage, maintaining of a case diary and submitting it to the Magistrate (who is empowered to take
cognizance of the offence) and these provisions are conspicuously missing from the PMLA.

Soon after the Bombay High Court judgment, the application of section 167(2) of CrPC to the proceedings under
PMLA was considered by the Supreme Court in Ashok Munilal Jain v Assistant Director, Directorate of
Enforcement.109 The facts of this case are that an ECIR was registered by the ED essentially against the appellant.
He was arrested by the ED against which he filed a bail application under section 439 CrPC. During the pendency
of the bail application, the appellant also preferred a statutory bail by invoking section 167(2) of CrPC as the period
of sixty days of judicial custody prescribed in the provision was over and yet no complaint was filed by the ED. The
trial court rejected the statutory bail application on the ground that the provisions of section 167(2) of CrPC are not
applicable to cases arising out of the PMLA. Being aggrieved by the order of the trial court, the appellant
approached the High Court of Madras. The High Court in agreement with the finding of the trial court affirmed the
order of the trial court and dismissed the bail application. The appellant then approached the Supreme Court in the
present matter.

The Supreme Court noted that on one hand there is section 4(2) of CrPC which states that the procedure contained
therein applies in respect of special statutes as well, unless the applicability of the provisions is expressly barred.
On the other hand, there is sections 44 to 46 under the PMLA which specifically incorporate the provisions of CrPC
to certain proceedings relating to the PMLA. The court, therefore; observed that:

“...not only that there is no provision in the PMLA Act excluding the applicability of Code of Criminal Procedure, on the
contrary, provisions of Code of Criminal Procedure are incorporated by specific inclusion. Even Section 65 of the PMLA Act
itself settles the controversy beyond any doubt in this behalf...”

The court while relying on Directorate of Enforcement v Deepak Mahajan,110 held that:

“...as no complaint was filed by the ED within sixty days from the date when the appellant was taken into custody, he was
entitled to statutory bail in view of the provisions contained in Section 167(2) of Code of Criminal Procedure.”
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Although the Supreme Court was specifically referring to a question of applicability of section 167(2) of CrPC (from
Chapter XII of CrPC) to the PMLA it cannot be lost sight that the Supreme Court observed that firstly, sections 44 to
46 of the PMLA specifically incorporates the provisions of CrPC. Secondly, there was no provision in the PMLA
excluding the applicability of CrPC and thirdly, the Supreme Court was categorical that section 65 of PMLA settled
the controversy.111

After, this decision the question whether Chapter XII of CrPC would apply to the PMLA is no longer res integra. To
this extent the decisions of the Punjab & Haryana High Court in Karam Singh (supra), the Bombay High Court in
Chhagan Chandrakant Bhujbal (supra) and the Jharkhand High Court in Hari Narain Rai (supra), cannot come in
the way of applicability of Chapter XII of CrPC to the PMLA.

Pursuant to Ashok Munilal Jain (supra), the Delhi High Court in Vakamulla Chandrashekhar’s case was faced with
an application seeking restraint against the ED (respondents) from taking any coercive steps (such as arrest)
against the petitioner during the course of proceedings under section 50(2) and section 50(3) of the PMLA. The
court when confronted with the question as to whether Chapter XII of CrPC would apply to proceedings under the
PMLA held that since the Chapter XII of CrPC deals with the aspect of “Information to police and their powers to
investigate” and since the officers of the ED are not police officers, these provisions would have no application to
investigation done by the ED under the provisions of the PMLA.

In this context, the court in Vakamulla Chandrashekhar’s case observed:

“...Chapter XII of the Code deals with the aspect of “Information to police and their powers to investigate”. The provisions of
Chapter XII of the Code, in our view, would have no application to an investigation done under the provisions of the PMLA,
since Chapter XII deals with the powers and duties of the police to register a cognizable case and carry out investigation in
respect of the cognizable offence i.e. in respect of an offence of which the police is empowered, authorised and duty bound
to act, without any requirement of obtaining any orders of the concerned Magistrate...”

It would be important to highlight that the Delhi High Court did not make any reference to the decision laid down by
the Supreme Court in Ashok Munilal Jain (supra). This was duly observed by another coordinate bench of the Delhi
High Court in Rajbhushan Omprakash Dixit (supra). The Delhi High Court, relying on Ashok Munilal Jain (supra)
held that provisions of Chapter XII of CrPC will apply to the proceedings in the case arising out of the PMLA.

The court in Rajbhushan Omprakash Dixit (supra) observed:

“41. It appears to this Court that there is no alternative to the DOE but to follow the CrPC, except where there are specific
provisions in the PMLA that provide an alternative procedure. Given the mandate of Articles 21 and 22 of the Constitution of
India the powers under the PMLA in relation to the offences under the PMLA, have to be governed by the CrPC, if not by
the PMLA. This is expressly recognised and acknowledged by Section 65 PMLA. It is, therefore, not open to the DOE to
choose to not follow the CrPC in an area where the PMLA is silent. Here again, therefore, this Court is unable to subscribe
to the contrary conclusion reached by the co-ordinate Division Bench of this Court in Vakamulla Chandrashekhar (supra).

...

59. The Court finds that the Petitioner has made out a prima face case as explained in detailed in the above order. He has
prima facie demonstrated that his arrest on 25th January 2018 was contrary to Section 19 PMLA. Further he has prima
facie shown that the procedure adopted qua him by the DOE was not inconsonance with the Chapter XII of CrPC.”

However, the Delhi High Court referred this question, “Do the provisions of Chapter XII CrPC apply to PMLA insofar
as the offences under the PMLA are concerned and if so, to what extent?” to a larger bench, which is now pending
adjudication before the Supreme Court.112
4.1.7.4.1 Right to seek automatic bail under Section 167(2) of CrPC

As discussed above, CrPC provides that whenever an accused is arrested and detained in custody by the police
during investigation and it appears that the investigation cannot be completed within twenty four hours as given by
section 57 of CrPC, the accused person must be forwarded to the Magistrate under section 167 of CrPC. The
Magistrate to whom the accused is so forwarded may from time to time authorise detention of the accused in such
custody, as such magistrate may deem fit, for a term not exceeding 15 days in the whole.

If further detention of the accused person becomes necessary for the completion of the investigation, the Magistrate
may authorise the detention of the accused person otherwise than in custody of the police. It must be noted that the
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4.1 Introduction

total period of detention in such a case (including the period of 15 days) shall not exceed 90 days where the
investigation relates to an offence punishable with death, imprisonment for life or imprisonment for a term of ten
years or more, and such period of detention shall not exceed 60 days where the investigation relates to any other
offence (for example money-laundering).

On the expiry of this period of 60 or 90 days, as the case may, the accused person shall be released on bail if he is
prepared to and does furnish bail; and every person so released on bail shall be deemed to be so released under
the provisions of Chapter XXXIII of CrPC for the purposes of that chapter.113 The accused, however; cannot avail
the bail guaranteed under the proviso to section 167 of CrPC when he makes the applications on submission of the
report after the prescribed period.114 If the application seeking bail is made after the prescribed period of 60 days (or
90 days, as the case may be), but before the submission of the report, the accused shall be granted bail.115 In
computing the 60 days statutory period, the day of remand is to be included.116

We have seen from the cases discussed above, that the ED takes recourse to section 167 (2) of CrPC read with
section 65 of the PMLA to seek remand of the persons arrested. Moreover, the Supreme Court in Ashok Munilal
Jain (supra) has upheld the application of provisions of section 167 of CrPC to the PMLA. Therefore, it cannot be
that the Authorities under the PMLA on one hand seek refuge of section 167(2), part of Chapter XII for seeking
remand and then in the very same case, contradict its stand and state the since the provisions of Chapter XII of
CrPC only apply to the police officers, it cannot be applied on the proceedings under the PMLA. The application of
section 167(2) cannot be sought to the exclusion of other provisions of CrPC.
4.1.8 Whether the person arrested under section 19(1) is entitled to receive a copy of the grounds of arrest?
If so, then at what stage should the grounds be served?

In the previous issue, while addressing the issue of applicability of the procedure of CrPC to the PMLA, section 19
of the PMLA was discussed at length.

As discussed above, section 19 empowers the Director, Deputy Director, Assistant Director, or any other officer
authorised by the Central government in this behalf by a general or a special order, if he has reason to believe (the
reason for such belief to be recorded in writing) that such a person has committed an offence of money-laundering,
he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.

The section requires the arresting officer to “inform” the grounds of arrest to the person arrested “as soon as may
be”. This provision is, thus; in line with Article 22 of the Constitution, which provides that the ground of arrest must
be informed to the person arrested. However, the expressions such as “inform” and “as soon as may be”, being
ambiguous allows scope for confusion and misuse.

In a number of cases, persons arrested have alleged that they were either orally informed of the grounds of arrest
or the grounds of arrest were not communicated to them at all at the time of arrest. In either situation the
communication was insufficient to enable the arrestee to take proper recourse under the law. The response taken
by the ED in court to this is that as per section 19(1) of the PMLA the grounds of arrest are to be “informed” to the
persons arrested and the written communication of the grounds is not mandatory. According to the ED, section 19
uses the words “as soon as may be” which does not mandate the arresting officer to inform the grounds of such
arrest to the arrestee simultaneously on the arrest. Therefore, the non-supply of grounds of arrest to the arrestee
does not render the arrest illegal. Mere information satisfies the requirement of the provision.117

The question that arises is whether the person arrested under sub-section (1) of section 19 is entitled to receive the
copy of the grounds of arrest? If so, then at what stage should the grounds of arrest be provided?118

To deep dive into this issue, it would be pertinent to look at the intention of the legislature while implementing the
PMLA, PML Arrest Rules, 2005, and the requirement of communication of the grounds of arrest under CrPC.
4.1.8.1 PML Bill, 1999

The Notes on Clauses accompanying the PML Bill, 1999 clarified what was intended as follows:119

“Clause 18 proposes to empower the Director, the Deputy Director, the Assistant Director or any other authorized officer to
arrest a person if he has reason to believe that the person is guilty of an offence under the proposed legislation. Necessary
safeguards such as furnishing the grounds of arrest and production before the Judicial Magistrate or a Metropolitan
Magistrate within twenty-four hours are also sought to be provided.”

4.1.8.2 PMLA, 2002

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A reading of section 19 (1) shows that to exercise the power of arrest under Section 19 of the PMLA, it is essential
for the arresting officer to firstly, have the material in his possession on the basis of which he forms a reasonable
belief; secondly, he should have reasons to believe (such reasons of belief must be recorded in writing) that the
person has been “guilty” of an offence punishable under the PMLA; and thirdly, he may arrest such person, and;
fourthly, he shall, as soon as may be, inform him of the grounds for such arrest.
4.1.8.3 PML Arrest Rules, 2005

The PML Arrest Rules, 2005 defines “order” in rule 2(1)(h) as the, “order of arrest of a person and includes the
grounds for such arrest under sub-section (1) of Section 19 of the Act”.

The PML Arrest Rules, 2005 further in rule 6 viz. “Forms of records” states that the Arresting Officer while
exercising powers under sub-section (1) of section 19 of the Act shall sign the Arrest Order in Form III appended to
the said Rules. Form III provides with the performa of the arrest order.

The Form III is reproduced here:

FORM III

(See Rule 6)

ARREST ORDER

WHEREAS, I ....................... Director/ Deputy Director / Assistant Director / Officer authorised in this behalf by the
Central Government, have reason to believe that ........... [name of the person arrested] resident of ..........................
has been guilty of an offence punishable under the provisions of the Prevention of Money Laundering Act, 2002 (15
of 2003);

Now, THEREFORE, in exercise of the powers conferred on me under sub-section (1) of section 19 of the
Prevention of Money Laundering Act, 2002 (15 of 2003), I hereby arrest the said ...................... [name of the person
arrested] at ............ hours on ........and he has been informed of the grounds for such arrest.

Dated at ....... on this ........ day of ..................... Two thousand ...........................

Arresting Officer

Signature with Seal

To

............................................

............................................

[Name and complete address of the person arrested]

A glance at Form III shows that the Arrest Order is to be furnished to the person arrested under sub-section (1) of
section 19. The Form does not specifically state that the grounds of arrest are to be communicated to the person
arrested, but by virtue of rule 2(h) of the PML Arrest Rules, 2005 it is imperative that the grounds of arrest are an
integral part of the Arrest Order. Without the grounds of arrest, the order of arrest is incomplete.

Therefore, the conjoint reading of the definition of “arrest” under rule 2(1)(h) with rule 6 and Form III would go on to
show that arresting authorities as per the PMLA and PML Arrest Rules, 2005, are required to not only inform the
grounds of the arrest but also furnish a copy of the Arrest Order to the person arrested. Further, these Rules also
entails that the Arrest Order must be furnished to the person arrested at the time of arrest only, and not anytime, as
the arresting authorities may please.
4.1.8.4 Code of Criminal Procedure, 1973

The Code contains various provisions that make it mandatory for the arresting officer to communicate the arrested
person of the grounds of arrest, irrespective of whether the offence is cognizable or non-cognizable. This is one of
the safeguards provided to the arrestee and helps the arrestee to know the reason behind his arrest so to enable
him to seek appropriate legal help. Some of the provisions are:
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Section 50 of CrPC states, “every police officer or other person arresting any person without warrant shall forthwith
communicate to him full particulars of the offence for which he is arrested or other grounds for such arrest...”

As per section 55 of CrPC, when a subordinate officer is deputed by a senior police officer to arrest a person, such
subordinate officer shall, before making the arrest, notify to the person to be arrested the substance of the written
order given by the senior police officer specifying the offence or other cause for which the arrest is to be made.
Non- compliance with this provision will render the arrest illegal.

In case of arrest to be made under a warrant, section 75 of CrPC provides that “the police officer or other person
executing a warrant of arrest shall notify the substance thereof to the person to be arrested, and if so required, shall
show him the warrant.” If the substance of the warrant is not notified, the arrest would be unlawful. Further, section
60A of the Code provides that “no arrest shall be made except in accordance with the provisions of this Code or any
law for the time being in force provided for arrest”.

A conjoint reading of these provisions entail that it is mandatory for the arresting officer to communicate the
arrested person of the grounds of arrest forthwith, failing which the arrest would be rendered illegal.
4.1.8.5 Article 22 of the Constitution of India– right to be informed the grounds of arrest

The Constitution of India has conferred the “right to be informed” the status of the fundamental right guaranteed
under Article 22 of the Constitution of India. Article 22 of the Constitution of India reads:

“(1) No person who is arrested shall be detained in custody without being informed, as soon as may be, of the grounds for
such arrest nor shall he be denied the right to consult, and to be defended by, a legal practitioner of his choice.

(2) Every person who is arrested and detained in custody shall be produced before the nearest magistrate within a period of
twenty four hours of such arrest excluding the time necessary for the journey from the place of arrest to the court of the
magistrate and no such person shall be detained in custody beyond the said period without the authority of a magistrate.

(3) Nothing in clauses (1) and (2) shall apply (a) to any person who for the time being is an enemy alien; or (b) to any
person who is arrested or detained under any law providing for preventive detention.

(4) No law providing for preventive detention shall authorise the detention of a person for a longer period than three months
unless (a) an Advisory Board consisting of persons who are, or have been, or are qualified to be appointed as, Judges of a
High Court has reported before the expiration of the said period of three months that there is in its opinion sufficient cause
for such detention:

(5) When any person is detained in pursuance of an order made under any law providing for preventive detention, the
authority making the order shall, as soon as may be, communicate to such person the grounds on which the order has
been made and shall afford him the earliest opportunity of making a representation against the order.

(6) Nothing in clause (5) shall require the authority making any such order as is referred to in that clause to disclose facts
which such authority considers to be against the public interest to disclose

(6) Parliament may by law prescribe:

(a) the circumstances under which, and the class or classes of cases in which, a person may be detained for a period
longer than three months under any law providing for preventive detention without obtaining the opinion of an
Advisory Board in accordance with the provisions of sub clause (a) of clause (4);
(b) the maximum period for which any person may in any class or classes of cases be detained under any law
providing for preventive detention; and

(c) the procedure to be followed by an Advisory Board in an inquiry under sub clause (a) of clause (4) Right against
Exploitation.”

Article 22(1) of the Constitution creates an obligation on the arresting officer to inform the person arrested and
detained in custody, as soon as may be, of the grounds for such arrest. Article 22(5) of the Constitution casts an
obligation on the state to “communicate” to the person detained in pursuance of an order made under any law
providing for preventive detention, the grounds on which he has been detained. This is to afford the accused an
opportunity of making representation against the order.
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The Delhi High Court in Moin Akthar Qureshi v UOI,120 a writ petition seeking habeas corpus; decided the issue
whether the grounds of arrest is to be furnished to the arrestee at the time of his arrest. It was argued by the ED
that the definition of the expression “order” in the PML Arrest Rules shows that the order is distinct from the grounds
of arrest under sub-section (1) of section 19 of the Act. It was also contended by the ED that the obligation on the
arresting officer is only to “inform” the arrestee of the grounds of arrest, and it is not essential that the “order” of
arrest is served on the arrestee under section 19 of PMLA.121 The Delhi High Court upheld the arguments of the ED
and held:

“70. Pertinently, Section 19 of the PMLA also uses the expression “informed of the grounds of such arrest” - as used in
Article 22(1), and does not use the expression “communicate the grounds of such arrest”. The Legislature has consciously
used the expression “informed”, which is also used in Article 22(1), since Section 19 deals with the power of arrest. The
Scheme of Section 19 engrafts an additional safeguard against misuse of the power of arrest by the Competent Authority,
by stipulating in sub-Section (2) thereof, that the Competent Authority shall “immediately after arrest of such person under
sub-Section (1) ... ... ...” forward a copy of the order of arrest, along with the material in his possession - on the basis of
which the reasonable belief is formed that the person is guilty of an offence punishable under the Act, in a sealed envelope
to the Adjudicating Authority, which the Adjudicating Authority is obliged to keep under his custody.

71.We may also observe that the obligation cast on the Competent Authority under Section 19(1) is to inform the arrestee,
“as soon as may be” of the grounds of such arrest. Section 19(1) does not oblige the Competent Authority to inform/serve
the order of arrest, or the grounds for such arrest to the arrestee simultaneously with his arrest. In the present case, the
petitioner was informed of the grounds of his arrest at the time of his arrest itself.

72. In the facts of the present case, the petitioner, in any event, came to be informed of the reasons for his arrest when a
detailed application was moved before the learned Special Judge on 26.08.2017, i.e. the day following his arrest, setting
out the materials which also virtually contain the grounds of his arrest. The said application was, admittedly, served upon
the petitioner on 26.08.2017. [...]”

The Court also differentiated between the terms “arrest” and “detention” in reference to Article 22 of the Constitution
of India, in the following manner:

“63. Article 22 of the Constitution deals with the aspect “Protection against arrest and detention in certain cases”. The
scheme of Article 22 shows that, on the one hand, it deals with the aspect of arrest - which would, obviously, relate to a
possible offence/crime in which the arrestee may be suspected to be involved and, on the other hand, it deals with the
aspect of preventive detention. Article 22 itself draws a distinction between the manner in which the aforesaid two situations
would be dealt with. The safeguards provided to the arrestee/ detenue in the case of his arrest/preventive detention are
distinct, and it may not be advisable to interpret the scope and extent of the safeguards provided in respect of arrest, or
preventive detention - as the case may be, while interpreting the scope and extent of the safeguards provided for the other.

64. The Constitution consciously uses the expression “informed” in sub-Article (1) of Article 22 in contradistinction with the
expressions “communicate” used in sub-Article (5) of Article 22 of the Constitution. This distinction in the usage of the two
expressions has to be viewed in the context in which they are so used. When a person is arrested and detained in custody,
he is entitled to know as to why he is so arrested, so that he is able to remove any mistake, misapprehension or
misunderstanding in the mind of the arresting authority and to know exactly what the accusation against him is. This right of
the arrestee is enables him to exercise his right to consult a legal practitioner of his choice and his right to be defended by
the legal practitioner of his choice.”

The problem with this line of reasoning is that it adopts a very narrow approach in interpreting the words “inform”
and “as soon as may be”.122 The court failed to appreciate that Article 22 (1) of the Constitution embodies a rule
which has always been regarded as vital and fundamental for safeguarding personal liberty in all legal systems
where the Rule of Law prevails. The Supreme Court in Madhu Limaye’s case123 observed that the two requirements
of clause (1) of Article 22 are meant to afford the earliest opportunity to the arrested person to remove any mistake,
misapprehension or misunderstanding in the minds of the arresting authority and, also to know exactly what the
accusation against him is so that he can exercise the second right, namely of consulting a legal practitioner of his
choice and to be defended by him. It is for this reason that CrPC under section 50 states that every police officer
“shall forthwith communicate to him [the accused] full particulars of the offence for which he is arrested or other
grounds for such arrest.” There is no justifiable reason for not requiring communication of grounds of arrest
forthwith in a PMLA case where an arrest can be affected without warrant. On the contrary, an arrest under the
PMLA can only be made by the Authority once they have “reason to believe (the reason for such belief to be
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recorded in writing) that such a person has been guilty of an offence of money laundering”. The officer cannot make
an arrest on mere suspicion but has to have reasons which would indicate that the accused is “guilty of money
laundering”. As we have argued in chapter 2, there is a difference between merely possessing and using proceeds
of crime and being involved in money laundering. The officer, therefore; should have reasons recorded in writing
which should show that the accused is not merely using or possessing proceeds of crime but is involved in money
laundering. The power to arrest is only in those limited cases where the material and reasons are so strong that
they make out a very strong case of money laundering against the accused. Therefore, in a PMLA case the
justification to provide grounds of arrest is that much more important as the Act does not allow for making an arrest
in a casual manner. In Rajbhsuhan Omprakash Dixit (supra), the court therefore rightly questioned:

“52. Further, in the present case, the grounds of arrest enclosed with the short affidavit of the DOE, filed in response to the
writ petition, runs into four pages. It is not the case of the DOE that anything in the grounds of arrest is covered by the
Official Secrets Act or any such law prohibiting it from being communicated. The basic idea is for the Petitioner to know why
he has been arrested. How could he be expected to apply for bail or oppose a request of the DOE for extending his remand
without knowing the grounds of his arrest? How would the object of Section 19 (1) PMLA be served if the four page grounds
of arrest are merely read out to him or offered for inspection without providing a copy thereof? Why the DOE should feel
shy of providing the Petitioner the grounds of arrest to the Petitioner at the time of his arrest is not clear at all.”

Not surprisingly, the court also refused to conform to the views expressed by a coordinate bench in Moin Quershi
(supra), and took a contrary view.124 The court rendered the arrest of the petitioner illegal as the Authorities did not
provide him with any grounds of arrest. The High Court also held that this would be in violation to the guidelines laid
down by the Supreme Court in DK Basu (supra) which applies with equal force to “other governmental agencies”
which expressly includes the Authorities under the PMLA. The Delhi High Court also relied on decision of the
Constitution Bench of the Supreme Court in CB Gautam v UOI,125 in the context of the Income Tax Act, 1961 the
obligation to record reasons and convey the same to the party concerned was declared as a deterrent against
possible arbitrary action by the quasi-judicial or the executive authority invested with judicial powers.
4.1.9 Bail provision under Section 45

4.1.9.1 Bail under PMLA

Section 45(1) of the PMLA is the provision for bail under the Act. After implementation, the provision was for the first
time amended by the Amendment Act (No 20) of 2005 which omitted clause (a) of sub-section (1) of section 45.
The provision was again amended in the year 2018 after the landmark decision of Supreme Court in Nikesh
Tarachand Shah v UOI.126 Further in 2019, an explanation was appended to the section. The First amendment in
2005 has been discussed as Issue 1 (above). Post the amendment of 2005 but before the 2018 amendment,
section 45(1) read as under:

“45. Offences to be cognizable and non-bailable.—(1) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), no person accused of an offence punishable for a term of imprisonment of more than three
years under Part A of the Schedule shall be released on bail or on his own bond unless—
(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and

(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for
believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:

Provided that a person who is under the age of sixteen years or is a woman or is sick or infirm, may be
released on bail, if the special court so directs:

Provided further that the Special Court shall not take cognizance of any offence punishable under section 4
except upon a complaint in writing made by—
(i) the Director; or

(ii) any officer of the Central Government or State Government authorised in writing in this behalf by the Central
Government by a general or a special order made in this behalf by that Government.”

The PMLA contained two conditions under section 45(1) for grant of bail where an offence punishable for a term of
imprisonment of more than 3 years under Part A of the Schedule to the Act is involved.127 The conditions required
that the public prosecutor must be given an opportunity to oppose any application for release on bail and the court
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4.1 Introduction

must be satisfied, where the public prosecutor opposes the application, that there are reasonable grounds for
believing that the accused is, “…not guilty of such offence, and that he is not likely to commit any offence while on
bail”.

These twin conditions enumerated in sub-section (1) of section 45 were struck down and declared unconstitutional
by the Supreme Court in Nikesh Tarachand Shah v UOI128 on the count of being violative of Articles 14 and 21 of
the Constitution of India.
4.1.9.1.1 Decision of the Supreme Court in Nikesh Tarachand Shah v UOI

The petitioner in this case had challenged the constitutional validity of section 45(1) PMLA, insofar, as it imposed
two additional conditions (enumerated above) for the grant of bail for a person accused of an offence punishable for
a term of imprisonment of more than three years under Part A of the Schedule appended to the PMLA. It was
argued that the twin conditions imposed were manifestly arbitrary, discriminatory and violative of the fundamental
rights guaranteed under Article 14 read with Article 21 of the Constitution.

It was argued by the petitioner that when the Prevention of Money-Laundering Bill, 1998 was tabled before the
Parliament, section 44 which corresponds to section 45 of the present Act provided that the twin conditions for
release on bail would apply only insofar as the offences “under the Act” itself are concerned. The Act, however,
unlike the Bill did not refer to offences “under the Act”, i.e. offence of money laundering mentioned under sections 3
and 4 of the Act. Instead, it referred to offences under Part A of the Schedule to the Act which lists a number of
offences under various statutes including but not limiting to the Indian Penal Code, 1860, Wildlife (Protection) Act,
1972, Customs Act, 1962, etc. The Supreme Court in Nikesh Tarachand Shah thus while holding the twin
conditions to be unconstitutional observed that, “…this fundamental difference between the Bill and the Act has a
great bearing on the constitutional validity of Section 45(1) with which we are directly and immediately concerned.”

The twin conditions laid down in section 45 did not relate to an offence under the PMLA (Section 3 or 4) at all, but
only to a separate and distinct offence found under Part A of the Schedule. Thus, in the case of Nikesh Tarachand
Shah the Supreme Court observed:

“Obviously, the twin conditions laid down in Section 45 would have no nexus whatsoever with a bail application which
concerns itself with the offence of money laundering, for if section 45 is to apply, the Court does not apply its mind to
whether the person prosecuted is guilty of the offence of money laundering, but instead applies its mind to whether such
person is guilty of the scheduled or predicate offence.”

The court further observed that:

“54. Regard being had to the above, we declare Section 45(1) of the Prevention of Money-Laundering Act, 2002, insofar as
it imposes two further conditions for release on bail, to be unconstitutional as it violates Articles 14 and 21 of the
Constitution of India. All the matters before us in which bail has been denied, because of the presence of the twin
conditions contained in Section 45, will now go back to the respective courts which denied bail. All such orders are set
aside, and the cases remanded to the respective courts to be heard on merits, without application of the twin conditions
contained in Section 45 of the 2002 Act. Considering that the persons are languishing in jail and that personal liberty is
involved, all these matters are to be taken up at the earliest by the respective courts for fresh decision. The writ petitions
and the appeals are disposed of accordingly.”

4.1.9.1.2 Amendment to section 45 (1) PMLA vide Finance Act (No 13), 2018

However, soon after this judgment of Nikesh Tarachand Shah (supra), the government introduced an amendment in
section 45(1) of the PMLA by way of the Finance Act (No13) of 2018 in Part XIV “Amendments to the Prevention of
Money-Laundering Act, 2002”.129

The newly amended section 45(1) reads as follows:

“45. Offences to be cognizable and non-bailable.—(1) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), no person accused of an offence under this Act shall be released on bail or on his own bond
unless—
(i) the Public Prosecutor has been given a opportunity to oppose the application for such release; and

(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for
believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:
 Page 39 of 63
4.1 Introduction

Provided that a person, who, is under the age of sixteen years, or is a woman or is sick or infirm, or is
accused either on his own or along with other co-accused of money-laundering a sum of less than
one crore rupees may be released on bail, if the Special Court so directs:

Provided further that the Special Court shall not take cognizance of any offence punishable under section 4
except upon a complaint in writing made by—
(i) the Director; or

(iii) any officer of the Central Government or a State Government authorised in writing in this behalf by the Central
Government by a general or special order made in this behalf by that Government.

(emphasis supplied)”

The legislature substituted the words “under this Act” in place of “punishable for a term of imprisonment of more
than three years under Part A of the Schedule”. The reading of the amended section 45(1) in its entirety would thus
reveal that in cases where the accused has been charged with money laundering the twin conditions will apply.
Prior to the amendment the twin conditions would only apply if the accused person charged with the offence of
money-laundering was also charged for an offence punishable for a term of imprisonment of more than three years
under Part A of the schedule.

The twin conditions in their new avatar are far more draconian than they were before the amendment. This is
because, in cases where an accused has only been charged with (i) money laundering and not charged for the
scheduled offence, or (ii) charged with money laundering and for a scheduled offence with an imprisonment for less
than 3 years or for an offence which is not under Part A, will also now have to satisfy the twin conditions before the
grant of bail while before the amendment such a person only charged with money laundering and not a Part A
scheduled offence would not have to pass the rigours of the twin conditions as previously the twin conditions did not
apply to offences “under the” act but only to Part A offences with an imprisonment of more than 3 years.

The question that now arises is whether this amendment can restore the validity of the twin conditions and will an
accused charged with an offence under the Act still have to satisfy the rigours of the “twin condition”
notwithstanding the judgment of the Supreme Court in Nikesh Tarachand Shah?

The ED may argue that this amendment may cure the defect that, the twin conditions laid down in Section 45 would
have no nexus whatsoever with a bail application which concerns itself with the offence of money laundering, which
was highlighted by the Supreme Court while declaring these twin conditions as unconstitutional.

The twin conditions in their new avatar one could argue now have a nexus to the offence of money laundering.
However, the problem with this argument is that it completely ignores the fundamental problem with the twin
conditions which allows curtailment of liberty of the accused as it requires an accused to satisfy the court that there
are reasonable grounds to believe that the person is “not guilty” of such offence and that he is “not likely” to commit
any offence while on bail. It was due to this reason that the Supreme Court had frowned upon the twin conditions
specifically because these conditions inverted the presumption of innocence as contrary to the principle of criminal
jurisprudence.130

Another anomaly with reviving and imposing the “twin conditions” is that they only apply for bail and there are no
such restrictions when one seeks anticipatory bail. This would yet again, leave the finding of the Supreme Court in
Nikesh Tarachand Shah on the issue of anticipatory bail unanswered.131 The amendment does not save the twin
conditions as the reasons for declaring it unconstitutional was that amongst other reasons it inverted the
presumption of innocence.

Merely tweaking the provision so that it refers to offences “under the act” does not temper the severity of section
45(1) of the PMLA and its potential to violate the fundamental rights of an accused.
4.1.9.2 Effect of the Amendment vide Finance Act (No 13), 2018 on the law of bail under PMLA

Whether the amendment introduced vide the Finance Act (No 13), 2018, revived the twin conditions under section
45(1) of the PMLA was first addressed by the Bombay High Court in Sameer M Bhujbal v Assistant Director,
Directorate of Enforcement.132 The court while addressing the bail application of Sameer M Bhujbal held that the
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4.1 Introduction

original section 45(ii) of the PMLA has not been revived or resurrected by the said Amending Act. The Court also
observed that both the parties have conceded to this fact. In this regard, the Court held:

“9. It is to be noted here that, after effecting amendment to Section 45(1) of the PMLA Act the words “under this Act” are
added to Sub Section (1) of Section 45 of the PMLA Act. However, the original Section 45(1)(ii) has not been revived or
resurrected by the said Amending Act. The learned counsel appearing for the applicant and the learned Additional Solicitor
General of India are not disputing about the said fact situation and in fact have conceded to the same. It is further to be
noted here that, even Notification dated 29.3.2018 thereby amending Section 45(1) of the PMLA Act which came into effect
from 19.4.2018, is silent about its retrospective applicability. In view thereof, the contention advanced by the learned A.S.G.
cannot be accepted. It is to be further noted here that, the original Sub- Section 45(1)(ii) has therefore neither revived nor
resurrected by the amending Act and therefore, as of today there is no rigor of said two further conditions under original
Section 45(1)(ii) of PMLA Act for releasing the accused on bail under the said Act.”

Similar views were expressed by the Gujarat High Court in Pradeep Nirankarnath Sharma v Directorate of
Enforcement,133 and the Madhya Pradesh High Court in a case titled as Vinod Bhandari v Assistant Director,
Directorate of Enforcement.134

Relying on these two judgments, the Delhi High Court in Upendra Rai v Directorate of Enforcement,135 also held
that the perusal of the Amending Act suggests that the words “under this Act” would not revive the twin conditions
imposed by section 45(1) of the PMLA. Discarding the argument of the ED that the twin conditions ought to be
fulfilled before granting bail to the person, the Court observed that while granting bail several factor are to be taken
into consideration such as prima facie material available to fortify the commission of offence, gravity of the offence,
severity of the punishment, chances of the petitioner not being available for trial or tampering with the evidence or
the witnesses.136

The Supreme Court (three judges bench) in Serious Fraud Investigation Office (SFIO) v Nittin Johari,137 set aside
the bail order granted by the High Court order and remanded back the bail application to the High Court for fresh
consideration and directed the respondent to continue to remain in custody. Although this matter pertains to section
212(6) of the Companies Act (which contains twin conditions for bail and analogous to the erstwhile section 45 of
the PMLA), it gains relevance for the purpose of the PMLA because it records the stand of the Authority in relation
to section 45 of the PMLA. The court records:

“Learned Solicitor General also referred to Nikesh Tarachand Shah v Union of India, (2018) 11 SCC 1, wherein this Court
had struck down Section 45 of the Prevention of Money Laundering Act, 2002 (for short “the PMLA”), another provision
analogous to Section 212(6) of the Companies Act. It was contended that this decision was irrelevant to the present case,
since the classification because of which the provision was held to be unconstitutional had been done away with. This was
because when the said judgment was passed, Section 45 of the PMLA imposed the twin conditions for bail only for
offences found in Schedule A of the PMLA (i.e., ‘predicate offences’ found in other penal statutes) which were punishable
with imprisonment for three years or more, and this Court had struck down this provision as unconstitutional mainly on the
ground that the aforesaid classification did not seem to have a rational nexus to the object of that legislation. However, the
Parliament had subsequently amended Section 45 of the PMLA, imposing the twin conditions for bail for offences under the
PMLA itself, and not for offences found in Schedule A. It was further submitted that after the said amendment, Section 45 of
the PMLA had become in parimateria with Section 212(6) of the Companies Act, as the latter section also imposed the twin
conditions for offences under Section 447 of the Companies Act itself.”

The submission of the Authority in SFIO v Nittin Johari’s case (supra) reflects that the twin conditions for bail
according to the Authority are still applicable for the offence under section 3 of the PMLA.

After the judgment of the Supreme Court in SFIO v Nittin Johari (supra) on September 12, 2019, the Delhi High
Court heard and reserved the bail application of Mr D K Shivakumar in the matter of DK Shivakumar v Directorate
of Enforcement138 on 17 October 2019. The Delhi High Court pronounced the order on 23 October 2019 and
granted bail to Mr DK Shivakumar. The petition was filed under section 439 of CrPC read with section 65 of the
PMLA. The court granted bail to Mr DK Shivakumar on the ground that he cannot tamper with the evidence as the
documents are with the investigating agencies. The ED had opposed his bail plea saying he was an influential
person and he could tamper with evidence and influence witnesses if released.

In reference to the twin conditions, in section of the 45 of the PMLA, the petitioner argued that these conditions
continue to be struck down as being unconstitutional in view of the judgment of the Supreme Court in Nikesh
Tarachand Shah (supra). It was further argued that the amendment in section 45 by the Finance Act (No 13), 2018
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4.1 Introduction

is only with respect to substituting the term “offence punishable for 3 years” with “offence under this Act”. The said
amendment does not revive the twin conditions already struck down by the Supreme Court. The order granting bail
does not record any objection or submission of the ED to the reference of the twin conditions mentioned in section
45 of the PMLA. In this regards, the court observed:

“13. Since the twin conditions for bail in section 45 of the PML Act have been struck down by the Hon’ble Supreme Court
and the same are neither revived nor resurrected by the Amending Act therefore, as of today there is no rigor of said two
conditions under original Section 45(l)(ii) of the PML Act for releasing the Petitioner on bail. The provisions of section 439 of
CrPC and the conditions therein will only apply in the case of the Petitioner for grant of bail.”139

Interestingly, the stand of the government on the twin conditions under section 45(1) of the PMLA which was
argued by SFIO in SFIO v Nittin Johari (supra) arising from the bail provision under Companies Act, was also not
adopted or even discussed once in the case of P Chidambaram v Directorate of Enforcement140 which pertains to
the PMLA.141 The Supreme Court allowed and granted bail to Mr Chidambaram, against the order of the Delhi High
Court which had rejected his bail application preferred under section 439 of the Code.142 The arguments of the ED
in opposing the application have mainly been focussed on the gravity of offence. The court while recording the
argument of the ED, observed:

“18. While opposing the contention put forth by the learned Senior Counsel for the appellant that the learned Judge of the
High Court ought not to have travelled beyond the consideration on the triple test and holding it in favour of the appellant,
the learned Solicitor General would contend that the gravity of the offence and the role played by the accused should also
be a part of consideration in the matter of bail. It is contended by the learned Solicitor General that the economic offences is
a class apart and the gravity is an extremely relevant factor while considering bail. In order to contend that this aspect has
been judicially recognised, the decisions in the case of State of Bihar & Anr. v Amit Kumar, (2017) 13 SCC 751 [LNIND
2017 SC 223]; Nimmagadda Prasad v CBI, (2013) 7 SCC 466 [LNIND 2013 SC 515]; CBI v Ramendu Chattopadhyay, Crl.
Appeal No.1711 of 2019; Serious Fraud Investigation Office v Nittin Johari & Anr., (2019) 9 SCC 165; Y.S. Jagan Mohan
Reddy v CBI, (2013) 7 SCC 439 [LNIND 2013 SC 491]; State of Gujarat v Mohanlal Jitamalji Porwal, (1987) 2 SCC 364
[LNIND 1987 SC 319] are relied upon. Perusal of the cited decisions would indicate that this Court has held that economic
offences are also of grave nature, being a class apart which arises out of deep-rooted conspiracies and effect on the
community as a whole is also to be kept in view, while consideration for bail is made.”

Thus, it may be seen that the ED though relied on the decision of SFIO v Nittin Johar (supra), it does not make any
mention of the twin conditions being resurrected back to section 45 of the PMLA by way of the amendments
brought in 2018.

Per AS Bopanna J speaking for the bench, granted bail to Mr Chidambaram, and held:

“23. Thus from cumulative perusal of the judgments cited on either side including the one rendered by the Constitution
Bench of this Court, it could be deduced that the basic jurisprudence relating to bail remains the same inasmuch as the
grant of bail is the rule and refusal is the exception so as to ensure that the accused has the opportunity of securing fair
trial. However, while considering the same the gravity of the offence is an aspect which is required to be kept in view by the
Court. The gravity for the said purpose will have to be gathered from the facts and circumstances arising in each case.
Keeping in view the consequences that would befall on the society in cases of financial irregularities, it has been held that
even economic offences would fall under the category of “grave offence” and in such circumstance while considering the
application for bail in such matters, the Court will have to deal with the same, being sensitive to the nature of allegation
made against the accused. One of the circumstances to consider the gravity of the offence is also the term of sentence that
is prescribed for the offence the accused is alleged to have committed. Such consideration with regard to the gravity of
offence is a factor which is in addition to the triple test or the tripod test that would be normally applied. In that regard what
is also to be kept in perspective is that even if the allegation is one of grave economic offence, it is not a rule that bail
should be denied in every case since there is no such bar created in the relevant enactment passed by the legislature nor
does the bail jurisprudence provides so. Therefore, the underlining conclusion is that irrespective of the nature and gravity
of charge, the precedent of another case alone will not be the basis for either granting or refusal of bail though it may have
a bearing on principle. But ultimately the consideration will have to be on case to case basis on the facts involved therein
and securing the presence of the accused to stand trial.”

The Supreme Court followed the principles of bail under section 439 of CrPC as it has evolved over the past few
decades without any reference to the twin conditions.

It is therefore not surprising that the Delhi High Court in Dr. Shivinder Mohan Singh v Directorate of Enforcement143
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4.1 Introduction

while allowing the bail application of the petitioner in reference to the issue of whether the twin conditions have
been revived or not after the decision of Nikesh Tarachand Shah (supra), observed:

“Although there has been an amendment to section 45 after the above judgment, there is no subsequent decision of the
Supreme Court holding the said two conditions to be constitutionally valid, even when brought back by way of the
amendment. Accordingly this court must treat the said two conditions as invalid and struck-down.”

The issue of the twin conditions mentioned in section 45 which is similar to the twin condition mentioned under the
Companies Act [section 212(6)(ii)] was again raised in Nittin Johari v SFIO.144 The Delhi High Court (single judge) in
reference to the twin conditions, observed that,

“Ld. Sr. Counsel has further relied upon Nikesh Tarachand Shah’s case (supra), wherein Hon’ble Supreme Court has held
that Section 45(1) of the Prevention of Money Laundering Act 2002 so far as it imposes twin conditions for release on bail
are unconstitutional as it violates Article 14 and 21 of the Constitution of India. The said authority does not help the
petitioner for the reason that Hon’ble Supreme Court vide its order dated 12.09.2019 has specifically directed this court to
reconsider the bail application keeping in mind the scope and effect of the twin mandatory condition for grant of bail laid
down in Section 212(6)(ii) of the Companies Act, 2013.” (para 17)

Various petitions are now pending challenging the constitutional validity of section 212(6)(ii) as it imposes the twin
conditions similar to section 45 of the PMLA in relation to bail. The Supreme Court in some of those cases has
given interim protection to the accused from being arrested till the pendency of the petition. As discussed above,
the spirit of the decision in Nikesh Tarachand Shah (supra) case cannot be curtailed by merely amending the Act
and bringing in a more draconian condition than what existed before. The narrative in the judgement indicates the
right to bail being an essential part of our criminal jurisprudence and right to liberty.
4.1.9.3 Annulling a Judgement of Court by Subsequent Legislation

Another question that may arise here is does the legislature has the power to revive an already repealed law by
way of an amendment?

The Supreme Court in a catena of cases has held that the legislature cannot directly annul a judgment of a court. In
this context, we engage with the decision of the Supreme Court in ST Sadiq v State of Kerala.145 One of the main
contentions of this petition was that the legislature in order to directly nullify the judgments of the Supreme Court
brought in an Amendment Act without changing the basis of the law.146 While giving the verdict on this issue, per
RF Nariman J speaking for the bench comprising of per Ranjan Gogoi J and himself, observed:

“12. [...] It is settled law by a catena of decisions of this Court that the legislature cannot directly annul a judgment of a
court. The legislative function consists in “making” law [see: Article 245 of the Constitution] and not in “declaring” what the
law shall be [see: Article 141 of the Constitution]. If the legislature were at liberty to annul judgments of courts, the ghost of
bills of attainder will revisit us to enable legislatures to pass legislative judgments on matters which are inter-parties.
Interestingly, in England, the last such bill of attainder passing a legislative judgment against a man called Fenwick was
passed as far back as in 1696. A century later, the US Constitution expressly outlawed bills of attainder [see: Article 1
Section 9].

It is for this reason that our Constitution permits a legislature to make laws retrospectively which may alter the law as it
stood when a decision was arrived at. It is in this limited circumstance that a legislature may alter the very basis of a
decision given by a court, and if an appeal or other proceeding be pending, enable the Court to apply the law
retrospectively so made which would then change the very basis of the earlier decision so that it would no longer hold good.
However, if such is not the case then legislation which trenches upon the judicial power must necessarily be declared to be
unconstitutional.”

After going through a series of judgments of the Supreme Court, and hearing the arguments of the parties, the
Court held that:

“Further, Section 6 is aimed only at directly upsetting a final judgment of a final court namely the Supreme Court of India.
This is clear from two things – (1) the non obstante clause wiping out “any judgment” and (2) the reference to the schedule
of the Amendment Act which contains only the 10 cashew factories that were ordered to be handed back by a final
judgment of this Court dated 10.3.1995. It is clear, therefore, that Section 6 directly seeks to upset a final judgment inter-
parties and is bad on this count and is thus declared unconstitutional.(para 12)”
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Some of judgments cited by the Supreme Court in support of the proposition that the legislature cannot directly
annul a judgment of a court without changing the basis of the law are also discussed below.

In 1970, the Supreme Court in State of Tamil Nadu v M Rayappa Gounder,147 stuck down section 7 of the Madras
Entertainments Tax Act, 1939” as it attempts to validate invalid assessments without removing the basis of its
invalidity”. The court held:

“3. The question as to the power of the assessing authority to reassess the receipts that had escaped assessment under
the Madras Entertainments Tax Act, 1939, had come up for consideration before the High Court of Madras in R.
Sundararaja Naidu v Entertainment Tax Officer, [ WP No. 513 of 1963 (Madras)]. Therein the High Court of Madras held
that there was no power to reassess under that Act. Thereafter the State Legislature enacted the Act. The Act among other
provisions contains Section 7, a provision relating to validation of assessment and collection of certain taxes. That section
reads:

“Notwithstanding anything contained in this Act or in the principal Act or in any judgment, decree or order of any Court no
assessment or reassessment or collection of any tax due on any payment for admission to any entertainment or any
cinematograph exhibition which has escaped assessment to tax, or which has been assessed at a rate lower than the rate
at which it is assessable, under Section 4 or 4-A of the principal Act, made at any time after the date of the commencement
of the principal Act and before the date of the publication of this Act in the Fort St. George Gazette shall be deemed to be
invalid or ever to have been invalid on the ground only that such assessment or reassessment or collection was not in
accordance with law and such tax assessed or reassessed or collected or purporting to have been assessed or reassessed
or collected, shall, for all purposes, be deemed to be and to have been always validly assessed or reassessed or collected
and accordingly—
(a) all acts, proceedings or things done or taken by the State Government or by any officer of the State Government
or by any other authority in connection with the assessment or reassessment or collection of such tax, shall, for all
purposes, be deemed to be and to have always been done or taken in accordance with law;
(b) no suit or other proceeding shall be maintained or continued in any court against the State Government or any
person or authority whatsoever for the refund of any tax so paid; and,

(c) no Court shall enforce any decree or order directing the refund of any tax so paid.”

4. The reassessments with which we are concerned in these cases were made prior to the coming into force of the Act.
Therefore all that we have to see is whether those reassessments are validly protected by Section 7. The High Court of
Madras allowed the writ petitions and quashed the reassessments on the ground that the power to reassess under Section
7(B) introduced by the Act is incomplete and not exercisable in the absence of prescription as to limitation contemplated by
the section and hence Section 7 of the Act fails to validate the assessments in question. We do not propose to go into that
question as in our opinion Section 7 of the Act is invalid insofar as it attempts to validate invalid assessments without
removing the basis of its invalidity.”

Similarly, in D Cawasji and Co Mysore v The State of Mysore,148 the Supreme Court struck down an Amending Act
holding that it was implemented to nullify the judgment of a court.149 It was held (at page 841-842):

“In the instant case, the State instead of remedying the defect or removing the lacuna has by the impugned amendment
sought to raise the rate of tax from 6.1/2% to 45% with retrospective effect from the 1st April 1966 to avoid the liability of
refunding the excess amount collected and has further purported to nullify the judgment and order passed by the High
Court directing the refund of the excess amount illegally collected by providing that the levy at the higher rate of 45% will
have retrospective effect from 1st of April, 1966, The judgment of the High Court declaring the levy of sales tax on excise
duty, education cess and health cess to be bad become conclusive and is binding on the parties. It may or may not have
been competent for the State Legislature to validly remove the lacuna and remedy the defect in the earlier levy by seeking
to impose sales tax through any amendment on excise duty, education cess and health cess; but, in any event, the State
Government has not purported to do so through the Amending Act. As a result of the judgment of the High Court declaring
such levy illegal, the State became obliged to refund the excess amount wrongfully and illegally collected by virtue of the
specific direction to that effect in the earlier judgment. It appears that the only object of enacting the amended provision is
to nullify the effect of the judgment which became conclusive and binding on the parties to enable the State Government to
retain the amount wrongfully and illegally collected as sales tax and this object has been sought to be achieved by the
impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna but merely raises
the rate of duty from 6.1/2% to 45% and further proceeds to nullify the judgment and order of the High Court. In our opinion,
the enhancement of the rate of duty from 6.1/2% to 45% with retrospective effect is in the facts and circumstances of the
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case clearly arbitrary and unreasonable. The defect or lacuna is not even sought to be remedied and the only justification
for the steep rise in the rate of duty by the amended provision is to nullify the effect of the binding judgment. The vice of
illegal collection in the absence of the removal of the illegality which led to the invalidation of the earlier assessments on the
basis of illegal levy, continues to taint the earlier levy. In our opinion, this is not a proper ground for imposing the levy at the
higher rate with retrospective effect. It may be open to the Legislature to impose the levy at the higher rate with prospective
operation but levy of taxation at higher rate which really amounts to imposition of tax with retrospective operation has to be
justified on proper and cogent grounds. This aspect of the matter does not appear to have been properly considered by the
High Court and the High Court in our view was not right in holding that “by the enactment of Section 2 of the impugned Act
the very basis of the complaint made by the petitioner before this Court in the earlier writ petition as also the basis of the
decision of this Court in Cawasji’s case that the State is collecting amounts by way of tax in excess of what was authorised
under the Act has been removed.” We, accordingly, set aside the judgment and order of the High Court to the extent it
upholds the validity of the impugned amendment with retrospective effect from 1st of April, 1966 and to the extent it seeks
to nullify the earlier judgment of the High Court. We declare that Section 2 of the impugned amendment to the extent that it
imposes the higher levy of 45% with retrospective effect from the 1st day of April, 1966 and Section 3 of the impugned Act
seeking to nullify the judgment and order of the High Court are invalid and unconstitutional.” (para 16)

The court has, thus; held that the state cannot bring in any amending act or a statute with a sole purpose to nullify
the judgment or a decision of a court which is binding on the parties without actually remedying or rectifying the
defect or cause which gave rise to the dispute in the first place. This principle has been settled by the Supreme
Court in a number of subsequent cases.150

Now, in view of the law propounded in these decisions, the question whether the amendment to section 45(1) by
way of the Finance Act (No 13), 2018 has been introduced to nullify the decision of the Supreme Court in Nikesh
Tarachand Shah (supra), will depend on the one critical question viz., did the legislature remedy or change the
basis on which the Supreme Court declared the twin conditions under section 45 (1) unconstitutional.

As discussed above, it is reiterated that the Supreme Court in Nikesh Tarachand Shah (supra), struck down the
twin conditions under section 45 (1) as unconstitutional for being manifestly arbitrary, discriminatory and unjust,
mainly due to the following reasons:

(i) The twin conditions imposed under section 45 have no nexus whatsoever with the bail application which
concerns itself with the offence under the Act, i.e. the offence of money laundering, for if section 45 is to
apply, the court does not apply its mind to whether the person prosecuted is guilty of the offence of money
laundering, but instead applies to mind to whether such person is guilty of the scheduled or a predicted
offence. This would lead to a manifestly arbitrary, discriminatory and unjust result which would invalidate
the section.
(ii) Further, section 45 classifies the predicate offence under Part A of the Schedule on the basis of
sentencing. This classification based on the sentencing of the imprisonment of more than three years of an
offence contained in Part A of the Schedule, which is a predicate offence, have no rationale to the grant of
bail for the offence of money laundering and even to object of attaching and bringing back into the
economy large amounts by way of proceeds of crime.
(iii) There is no provision of anticipatory bail in the PMLA, so therefore, an anticipatory bail may be granted to a
person who is prosecuted for the offence of money laundering together with offence under Part A of the
Schedule, which may last throughout the trial. In such a case, the person need not undergo the rigours of
the twin conditions of section 45, as it applicable only upon an arrest of a person under section 19 of the
PMLA. However, the court considered an example where a person who has been prosecuted under the
same offences, but gets arrested under section 19, will have to satisfy the twin conditions of section 45 of
the PMLA. This leads to an extremely anomalous situation and would be violative of Articles 14 and 21 of
the Constitution of India.
(iv) Section 45 imposes twin conditions which state that the court must be satisfied that there are reasonable
grounds to believe that the person is not guilty of such offence and that he is not likely to commit any
offence while on bail. These conditions are unlike the conditions specified for grant of an ordinary bail. In
fact, presumption of innocence, which is attached to any person being prosecute of an offence, is inverted
by the twin conditions under section 45 of the PMLA. The Court further observed that a pre-trial detention
on the ground that the person arrested is likely to commit future crimes, is unconstitutional in the US and
unless pre-trial bail is preserved, the presumption of innocence secured after centuries of struggle would
lose its meaning.
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4.1 Introduction

(v) Section 45 is a drastic provision which turns on its head the presumption of innocence which is
fundamental to a person accused of any offence. The provisions akin to section 45 have only been upheld
on the ground that there is a compelling State interest in tackling crimes of an extremely heinous nature.
Further, the restriction of the Court to grant bail should not be pushed too far and the statute should not be
interpreted in a manner as would lead to absurdity.

The amendment to section 45 by way of the Finance Act (No 13), 2018 substitutes the words “under this Act” in
place of “punishable for a term of imprisonment of more than three years under Part A of the Schedule”. This
therefore remedies a limited portion of the judgment encapsulated in clauses (i) and (ii) mentioned above. However,
the amendment does not save the twin conditions as one the reasons for declaring it unconstitutional was that it
inverted the presumption of innocence. Merely tweaking the provision so that it refers to offences “under the act”
does not temper the severity of section 45(1) of the PMLA and its potential to violate the fundamental rights of an
accused.151

Further, even if the legislature intended to revive or resurrect the twin conditions by way of the amending act, the
amending act would be unconstitutional in view of the principle laid down in ST Sadiq (supra).

It would also not be out of place to mention that the POCA (money laundering legislation of the UK) does not have
any such twin conditions. Nor such twin conditions have been recommended by any, either the UN Convention or
the FATF.
4.1.10 Whether the provisions reversing the burden of proof under the Prevention of Money-Laundering
Act, 2002 are unreasonably restrictive and excessively disproportionate?

The doctrine of presumption of innocence is a cornerstone of the criminal justice system. According to this principle,
it is the duty of the state to prove the allegation against an accused beyond any reasonable doubt before any
adverse action can be taken against the accused. This principle is premised on the notion that every person
charged with a crime has a right to be presumed innocent until proven guilty.152 “Presumption of innocence and the
duty of the prosecution to prove the guilt of the person accused of an offence is the golden thread in criminal law
jurisprudence.”153 In criminal law, the onus is on the prosecution to prove any charges made against an accused
beyond a reasonable doubt. This doctrine ensures that the accused shall enjoy the “status of being innocent” till the
proven guilty.154 When the burden of proof is shifted to the accused to prove his innocence, it is then called “reverse
burden”.155 Today there are various special statutes, including the PMLA that contains “reverse burden” provisions.
4.1.10.1 Sections 23 & 24 of the PMLA

Section 23 of the PMLA provides that where money laundering involves two or more interconnected transactions,
proving that one or more of such transactions is involved in money laundering raises a rebuttable presumption that
the rest of the transactions form part of such interconnected transactions. Whereas, section 24 of the PMLA states
that the burden of proving that proceeds of crime are untainted property is on the person accused of having
committed the offence under section 3 of the PMLA. The sections read as under:

“Section 23: Presumption in inter-connected transactions.—Where money-laundering involves two or more inter-
connected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the
purposes of adjudication or confiscation 156[under section 8 or for the trial of the money-laundering offence, it shall unless
otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court], be presumed that the remaining
transactions form part of such inter-connected transactions.

Section 24: Burden of proof.—157[In any proceedings relating to proceeds of crime under this Act,—

(a) in the case of a person charged with the offence of money-laundering under section 3, the Authority or Court
shall, unless the contrary is proved presume that such proceeds of crime are involved in money-laundering; and

(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in
money-laundering.]”

A bare reading of these provisions shows that the PMLA inverts the law of presumption of innocence and instead
puts the burden on the accused. Section 24 raises a presumption against the person prosecuted for the crime of
money laundering and has no application to the scheduled offence.158

In a number of cases courts have considered the reverse burden provision to be necessary to combat crimes such
as money laundering. The Supreme Court in UOI v Hassan Ali Khan,159 reversed the bail granted to the respondent
by the Bombay High Court on the ground that in terms of section 24 of the PMLA, he could not establish that his
 Page 46 of 63
4.1 Introduction

total income for the assessment years 2001-02 to 2007-08 which was assessed to be at Rs. 110, 412,68,85,303 by
the Income Tax Department was neither proceeds of crime nor untainted property.160

In Rohit Tandon v Enforcement Directorate,161 the Supreme Court while deciding a bail application observed:

“18. The consistent view taken by this Court is that economic offences having deep-rooted conspiracies and involving huge
loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as
a whole and thereby posing serious threat to the financial health of the country. Further, when attempt is made to project
the proceeds of crime as untainted money and also that the allegations may not ultimately be established, but having been
made, the burden of proof that the monies were not the proceeds of crime and were not, therefore, tainted shifts on the
accused persons under Section 24 of the Act of 2002.”

However, in the Report of the Standing Committee of Finance on the PML Amendment Bill, 2011, the Committee
specifically expressed its concern by observing, “that the onus of proof that property is not proceeds of crime being
on accused is rather stringent.”162 The Committee also sought clarification from the Ministry whether the act can
distinguish between the bona fide and mala fide transactions, so that the innocent persons who end up with any
property are not penalised. The Ministry clarified this concern by stating that, “Section 8 of PMLA adequately
safeguards the interests of persons who are not found to be involved in money laundering.”163 As we have argued
in Chapter 3 in detail, there is no such safeguard under Section 8 of PMLA and therefore the recommendation of
the Committee that the reversal of burden provision “should be subject to adequate safeguard to protect the
innocent” should be considered seriously.164 A bona fide purchaser for value who has paid adequate consideration
for any property that he may have acquired should not be subjected to the rigours of sections 23 and 24 of PMLA.
The impetus to incorporate a reversal of burden provision in the PMLA stems from the Vienna Convention which
under Article 5(7) requests Member countries to consider reverse burden provisions to the extent it is consistent,
“with the principle of its domestic law”.165 In the UK, under section 10 of POCA, 2002, certain rebuttal assumptions
can be made against the accused only once such accused has already been declared by the court of law to have a
“criminal lifestyle”. Therefore, the court has to reach this determination without reversing the burden of proof on the
accused. Once the determination has been arrived at, it is only then that certain assumptions are made against the
accused, for example, that any property held by the defendant at any time after the date of the conviction was
obtained by him as a result of his general criminal conduct.166 Therefore, it is important to highlight that the
assumptions against the accused under UK’s POCA is only made after conviction in order to determine whether the
assets of the accused should be confiscated or not.167 The approach under the POCA, therefore balances the right
of the accused to require the prosecution to prove its charges beyond reasonable doubt against the accused and
on the other hand the state’s interest to ensure that “the accused does not cleverly pass off the property to
someone to avoid confiscation”.168

In B Rama Raju,169 the petitioner amongst other provisions challenged the constitutional validity of these two
sections. The challenge to section 23 was made on the ground that the presumption enjoined under the said
provision in respect of inter-connected transactions is unduly restrictive of the right to property; is a disproportionate
burden and is not in consonance with legitimate Governmental interests in targeting proceeds of crime involved in
money-laundering, for eventual confiscation. Whereas, section 24 was challenged as arbitrary as it is only
applicable to the trial of an offence under section 3 and not the proceedings for attachment and confiscation of
property under Chapter III; and alternatively as not applicable to proceedings for attachment and confiscation of
property of a person not accused of an offence under section 3.

The Andhra Pradesh High Court after hearing the parties formulated the following issues with respect to these two
provisions:

“19. On the basis of rival pleadings, contentions and the material on record, the following issues are formulated for
consideration.

ISSUES:

[...]

(E) Whether the presumption enjoined by Section 23 is unreasonably restrictive, excessively disproportionate and thus
invalid?; and
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4.1 Introduction

(F) Whether shifting/imposition of the burden of proof, by Section 24 is arbitrary and invalid; is applicable only to the trial of
an offence under Section 3; not to proceedings for attachment and confiscation of property under Chapter-III; and in any
case not in respect of a person not accused of having committed the offence under Section 3 ?”

With respect to the challenge to section 23, it was held:

“122. [...] since Section 23 enjoins a rule of evidence and a rebuttable presumption considered essential and integral to
effectuation of the purposes of the Act in the legislative wisdom; a rebuttable and not an irrebuttable presumption, we are
not persuaded to conclude that the provision is unduly harsh, oppressive or arbitrary. After-all a legislative remedy must
correspond to the social pathology it professes to regulate.”

Similarly, with respect to section 24, the Court observed that the provisions of the PMLA are inter-twined, delineate
the provisions of each other and operate in tandem to effectuate one of the two substantial purposes of the Act viz.,
attachment for the purposes of eventual confiscation, of proceeds of crime involved in money-laundering, whether
in the ownership, control or possession of a person accused of the offence under section 3 or not. The court
rejecting the argument of the petitioner that the provision of section 24 only applies to the trial of offence under
section 3 of the PMLA, held:

“125. [...] Since camouflage and deceit are strategies inherent and integral to money-laundering operations and may involve
successive transactions relating to proceeds of crime and intent to project the layered proceeds as untainted property,
effectuation of the legislative purposes is achieved only where the burden is imposed on the accused to establish that
proceeds of crime are untainted property. This is the legislative purpose and the justification for Section 24 of the Act.

126. [...] Where the property is in the ownership, control or possession of a person not accused of having committed an
offence under Section 3 and where such property/proceeds of crime is part of inter-connected transactions involved in
money-laundering, then and in such an event the presumption enjoined in Section 23 comes into operation and not the
inherence of burden of proof under Section 24. This is in our considered view the true and fair construction of the provisions
of Section 24.

127. Clearly, therefore a person other than one accused of having committed the offence under Section 3 is not imposed
the burden of proof enjoined by Section 24. On a person accused of an offence under Section 3 however, the burden
applies, also for attachment and confiscation proceedings.”

An interesting take on section 24 of the PMLA was reflected in a decision of the Gujarat High Court in the case of
Jafar Mohammed Hasanfatta v Deputy Director.170 In that case, the ED relied on conjoint reading of section 24 with
section 3 to argue that that mere assistance in handling proceeds of crime even without knowledge would attract
offence of money laundering, and burden would shift on the accused to prove that he is not involved in money
laundering. The ED further contended that it shall be presumed that the accused persons being adult and being
aware of the knowledge of right and wrong had knowingly allowed the use of their bank accounts and knowingly
involved themselves in this activity having full knowledge of the purpose and intent of the transactions and helped in
the process of layering.

The court rejected this argument and observed:

“42. [...] In fact this Section 24 clearly indicates that even a person in possession or connected with any proceeds of crime
may or may not be charged with the offence of money laundering. Whether a person shall be charged with money
laundering or not shall thus depend only upon satisfying the requirements of Section 3 of PMLA as already explained
above.

43. In the instant case, neither there is anything to raise a presumption of fact or law that any of the petitioners was aware
that the monies received in their bank accounts through banking channels were ‘proceeds of crime’ derived from any
‘scheduled offence’, nor is there anything to further presume that the petitioners were intentionally projecting or claiming
any proceeds of crime as untainted one. In absence of the same, merely because the petitioners are close relatives of Shri
Afroz and had banking transaction with him or at his instance would not attract offence of money laundering under Section
3 of PMLA even on prima facie basis.”

The Gujarat High Court, referring to section 24 of the PMLA held that the prosecution must raise a valid
presumption against the accused which would then be rebutted. However, if there is no valid reason for such a
presumption, there is no question of rebutting it by the accused.
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4.1 Introduction

The Delhi High Court in Upendra Rai (supra) in context of section 24 seems to indicate that the reversal of burden
of proof only takes place at the stage of trial:

“A bare perusal of Section 24 reveals that in the case of a person charged with the offence of money laundering, the
authority or the Court shall presume that such proceeds of crime are involved in money laundering unless the contrary is
proved. The stage of raising the presumption or for the accused to rebut the said presumption would be during the course
of trial. Even if assuming that at the stage of bail this Court is required to consider that the accused is prima facie required
to rebut the presumption, the same would not have to be beyond reasonable doubt but on the basis of broad probabilities.
(para 25)”

Whether the accused should adduce evidence beyond reasonable doubt or should merely prove his innocence by
preponderance of probability is not clear and is left to the discretion of the court.

The justifications in support of the presence of reverse burden clauses in statutes are many. The main one being
that in serious and complex crimes it is difficult to prove that certain facts and presumption of those facts is needed.
This is justified seeing the rapid rise of increase in cases, the offenders cannot and should not be let scot free only
because of lack of evidence. The role of presumptions on the part of the court, thus; comes handy. However, even
in such cases the initial burden to prove the crucial facts must be on the prosecution. The harshness of the reverse
burden clause must be toned down by the bringing a delicate balance between the case of the prosecution and the
presumption on the accused.171 The doctrine of presumption of innocence is a cornerstone of the criminal justice
system, which must be protected and upheld at all times to protect the rule of law. Though not a fundamental right,
but has been accepted as a human right.172

1 The expression “special law” has been defined under section 41 of the Indian Penal Code (‘IPC’) as a law applicable to
a particular subject.
2 The scheme of the PMLA, though discussed in the previous chapters, is being reproduced here as well. The Act
consists of ten (X) chapters. Chapter I is the Preliminary chapter which also consists of definitions, and chapter II
discusses the Offence of money-laundering and its Punishment. Chapter III deals with Attachment, Adjudication and
Confiscation. It contains section 5 that empowers the ED to provisionally attach the alleged proceeds of crime if it has
reasons to believe that the said property is involved in money-laundering. Section 8, of this chapter, provides for a
mechanism for the adjudication of attached (section 5) or seized properties (section 17/18), along with their confiscation
by the Special Court. Section 11 of this chapter grants power to the ED regarding summons, production of documents
and evidences, etc. Other provisions of chapter III provides for constitution of the Adjudicating Authority and
mechanism for the management of confiscated properties. Chapter IV is the Obligations of the Banking Companies,
Financial Institutions and Intermediaries that entails the functioning of the banks to report suspicious trade to curb
money-laundering. Chapter V is another very important chapter of the Act titled as “Summons, Searches and Seizures,
etc.” The chapter empowers the ED to carry out: survey (section 16), search and seizure (section 17), search of
persons (section 18), arrest (section 19), retention of property (section 20), retention of records (section 21). The
remaining chapter deals with the presumption of guilt in inter-connected transactions (section 23) and burden of proof
(section 24), that puts the onus to prove the innocence on the accused itself. Then comes chapter VI which deals with
the Appellate Tribunal and its composition. It also consists of section 42 that provides for an appeal to the High Court
from the order of the Appellate Tribunal. Chapter VII deals with Special Courts. Section 43 discusses the designation of
the Special Courts by the Central Government in consultation with the Chief Justice of the High Court for the trial of
offence of money-laundering and the scheduled offence. Section 44 states the offences triable by Special Courts.
Section 44(b) states that, a Special Court may, upon a complaint made by an authority authorised in this behalf under
the Act take [cognizance of offence under section 3, without the accused being committed to it for trial]. This provision
also clarifies that trial of both sets of offences, i.e. the offence of money-laundering and scheduled offence, by the same
court shall not be construed as a joint trial. Section 45 of this chapter declares the offences of money-laundering as
cognizable and non-bailable offences. This provision also lays down twin conditions that must be fulfilled before the
Special Court can grant bail. Section 46 of this chapter allows the application of the provisions of CrPC on the
proceedings before the Special Court. Chapter VIII is the “Authorities” and contains provisions that provides for
appointment of authorities, classes of officers, designated as officers of ED who are empowered to exercise the powers
and discharge the duties conferred or imposed under the Act. Section 50 under this chapter empower the Director,
Joint Director, Deputy Director or Assistant Director to summon any person whose attendance he considers necessary
whether to give evidence or to produce any records during the course of any investigation or proceeding under this Act.
Chapter IX discusses Reciprocal Arrangement for assistance in certain matters and procedure for attachment and
confiscation of property between India and other contracting State. Chapter X contains miscellaneous provisions.
Section 62 of this chapter provides that any authority or officer exercising powers under this Act or any rules made
thereunder, searches or causes to be searched any building or place, or detains or searches or arrests any person,
without recorded reasons in writing, then he shall be liable for a conviction for imprisonment for a term which may
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4.1 Introduction

extend to two years or fine, which may extend to fifty thousand rupees or both. The chapter consists of section 65
which allows the application of the Code of Criminal Procedure, 1973 (CrPC) upon the provisions of the PMLA, in so far
as they are not inconsistent with the provisions of the PMLA, to arrest, search and seizure, attachment, confiscation,
investigation, prosecution and all other proceedings under it. Section 71 of this chapter clarifies that the provisions of
this Act shall have effect notwithstanding anything inconsistent with any other law for the time being in force. In addition
to these provisions, the legislature has also framed various Rules (mentioned above), from time to time, laying down
the procedure for implementation of the provisions of PMLA.
3 Section 2(k) of FEMA defines, “Director of Enforcement” as “… the Director of Enforcement appointed under sub-
section (1) of section 36.” And, section 36 of FEMA provides for the appointment of the ED. The Section reads as
follows:
36. Directorate of Enforcement.—(1) The Central Government shall establish a Directorate of Enforcement with a
Director and such other officers or class of officers as it thinks fit, who shall be called officers of Enforcement, for the
purposes of this Act.

(2) Without prejudice to provisions of sub-section (1), the Central Government may authorize the Director of
Enforcement or an Additional Director of Enforcement or a Special Director of Enforcement or a Deputy Director of
Enforcement to appoint officers of Enforcement below the rank of an Assistant Director of Enforcement.
(3) Subject to such conditions and limitations as the Central Government may impose, an officer of Enforcement may
exercise the powers and discharge the duties conferred or imposed on him under this Act.
4 On the official website of the Enforcement Directorate (https://enforcementdirectorate. gov.in/ about_ed.
html?p1=1207151597485010781) (last accessed in September 2020), the Directorate of Enforcement is said to be a
specialised financial investigation agency under the Department of Revenue, Ministry of Finance, Government of India,
which enforces the laws under Foreign Exchange Management Act,1999 (FEMA) (A Civil Law, with officers empowered
to conduct investigations into suspected contraventions of the Foreign Exchange Laws and Regulations, adjudicate,
contraventions, and impose penalties on those adjudged to have contravened the law.) and Prevention of Money
Laundering Act, 2002 (PMLA) (A Criminal Law, with the officers, empowered to conduct investigations to trace assets
derived out of the proceeds of crime, to provisionally attach/confiscate the same, and to arrest and prosecute the
offenders found to be involved in Money-Laundering.)
5 Section 54 of the PMLA—
Certain officers to assist in inquiry etc.—The following [officers and others] are hereby empowered and required to
assist the authorities in the enforcement of this Act, namely:—

...

(g) officers of enforcement appointed under sub-section (1) of section 36 of the Foreign Exchange Management Act,
1999 (40 of 1999).
6 The Delhi High Court in Vakamulla Chandrashekhar v Enforcement Directorate, Writ Petition (Cr) No 852 of 2017,
decided on date 8 May 2017, referred to sub-section (f) of Section 54, which provides “officers of police” as officers to
assist the authorities in the enforcement of this Act and observed that:
“...The fact that the authorities for the purposes of the Act are not police officers is evident from the aforesaid
provisions, which provide that the investigation to collect evidence under the Act shall be conducted by authorities
under the Act, and not by a police officer, and inter alia, police officers are empowered and required to assist the
authorities under the Act in the enforcement of the Act. If the authorities under the Act—who are authorised to carry out
investigation under the Act, were considered by the Parliament to be police officers, there was no need to empower and
oblige the officers of police to assist the authorities under the Act in the implementation of the Act. ...” An appeal from
the order of the Delhi High Court is pending before the Supreme Court in SLP (Crl) No. 121 of 2018 wherein the
impugned order has been stayed.
For a detailed discussion on whether a police officer can be authorities under the PMLA, refer to section 4.1.6 of this
chapter.
7 This has been recorded as the contentions of the parties in the judgment of Virbhadra Singh v Enforcement Directorate,
Writ Petition (Cr) 856 of 2016, decided on date 3 July 2017, in para 20 as:
“20. The document in the nature of Enforcement Case Information Report (ECIR) is concededly not prescribed by law
contained in PMLA or rules framed there under. The respondents, however, seek to refer to it as “an internal document
of Directorate of Enforcement for proper identification of a particular case”. It was submitted at the hearing that this
document is official report of the Enforcement Directorate setting the process of investigation under the special law into
motion. From this perspective, it appears, though not so described explicitly or required under the law, to be akin to a
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4.1 Introduction

First Information Report (FIR) that is ordinarily registered by the police respecting a cognizable offence under Section
154 CrPC or a non- cognizable offence under Section 155 CrPC.”
8 See, Youth Bar Association of India v UOI, AIR 2016 SC 4136 [LNINDORD 2016 SC 11396]: (2016) 9 SCC 473
[LNINDORD 2016 SC 11396] : 2017 (6) SCJ 503 : (2017) Cr LJ 1093, decided on date 7 September 2016, where the
Supreme Court of India in Para 12 has held that:

“12. Having heard learned counsel for the parties, we think it appropriate to record the requisite conclusions and,
thereafter, proceed to issue the directions:- (a) An accused is entitled to get a copy of the First Information Report at an
earlier stage than as prescribed under Section 207 of the CrPC (b) An accused who has reasons to suspect that he has
been roped in a criminal case and his name may be finding place in a First Information Report can submit an
application through his representative/agent/parokar for grant of a certified copy before the concerned police officer or
to the Superintendent of Police on payment of such fee which is payable for obtaining such a copy from the Court. On
such application being made, the copy shall be supplied within twenty-four hours. (c) Once the First Information Report
is forwarded by the police station to the concerned Magistrate or any Special Judge, on an application being filed for
certified copy on behalf of the accused, the same shall be given by the Court concerned within two working days. The
aforesaid direction has nothing to do with the statutory mandate inhered under Section 207 of the CrPC. (d) The copies
of the FIRs, unless the offence is sensitive in nature, like sexual offences, offences pertaining to insurgency, terrorism
and of that category, offences under POCSO Act and such other offences, should be uploaded on the police website,
and if there is no such website, on the official website of the State Government, within twenty-four hours of the
registration of the First Information Report so that the accused or any person connected with the same can download
the FIR and file appropriate application before the Court as per law for redressal of his grievances. It may be clarified
here that in case there is connectivity problems due to geographical location or there is some other unavoidable
difficulty, the time be extended up to forty-eight hours. The said 48 hours can be extended maximum up to 72 hours
and it is only relatable to connectivity problems due to geographical location. (e) The decision not to upload the copy of
the FIR on the website shall not be taken by an officer below the rank of Deputy Superintendent of Police or any person
holding equivalent post. In case, the States where District Magistrate has a role, he may also assume the said
authority. A decision taken by the concerned police officer or the District Magistrate shall be duly communicated to the
concerned jurisdictional Magistrate. (f) The word ‘sensitive’ apart from the other aspects which may be thought of being
sensitive by the competent authority as stated hereinbefore would also include concept of privacy regard being had to
the nature of the FIR. The examples given with regard to the sensitive cases are absolutely illustrative and are not
exhaustive. (g) If an FIR is not uploaded, needless to say, it shall not ensure per se a ground to obtain the benefit under
Section 438 of the CrPC. (h) In case a copy of the FIR is not provided on the ground of sensitive nature of the case, a
person grieved by the said action, after disclosing his identity, can submit a representation to the Superintendent of
Police or any person holding the equivalent post in the State. The Superintendent of Police shall constitute a committee
of three officers which shall deal with the said grievance. As far as the Metropolitan cities are concerned, where
Commissioner is there, if a representation is submitted to the Commissioner of Police who shall constitute a committee
of three officers. The committee so constituted shall deal with the grievance within three days from the date of receipt of
the representation and communicate it to the grieved person. (i) The competent authority referred to hereinabove shall
constitute the committee, as directed herein-above, within eight weeks from today. (j) In cases wherein decisions have
been taken not to give copies of the FIR regard being had to the sensitive nature of the case, it will be open to the
accused/his authorized representative/ parokar to file an application for grant of certified copy before the Court to which
the FIR has been sent and the same shall be provided in quite promptitude by the concerned Court not beyond three
days of the submission of the application. (k) The directions for uploading of FIR in the website of all the States shall be
given effect from 15th November, 2016.”
9 See, Bhajan Singh v State of Haryana, AIR 2011 SC 2552 [LNIND 2011 SC 566]: 2011 (7) SCC 421 [LNIND 2011 SC
566] : (2011) 7 SCR 1 [LNIND 2011 SC 566] : 2011 (6) SCALE 630 [LNIND 2011 SC 566], where the Supreme Court
has elaborately dealt with the issue of sending the copy of the FIR to the Illaqa Magistrate and after placing reliance
upon a large number of judgments including Shiv Ram v State of UP, AIR 1998 SC 49 : (1998) 1 SCC 149 : (1998) Cr
LJ 76 : 1997 (6) SCALE 466, decided on date 21 October 1997 and Arun Kumar Sharma v State of Bihar, (2010) 1
SCC 108 [LNIND 2009 SC 1866] : (2009) 14 SCR 1023 [LNIND 2009 SC 1866] : (2010) Cr LJ 428 : 2009 (13) SCALE
124 [LNIND 2009 SC 1866], decided on date 5 October 2009, the court came to the conclusion that CrPC provides for
internal and external checks: one of them being the receipt of a copy of the FIR by the Magistrate concerned. It serves
the purpose that the FIR be not ante-timed or ante-dated. The Magistrate must be immediately informed of every
serious offence so that he may be in a position to act under section 159 of CrPC, if so required. The object of the
statutory provision is to keep the Magistrate informed of the investigation so as to enable him to control the
investigation and, if necessary, to give appropriate direction.
10 See, section 157 of the CrPC which casts a duty upon the Investigating officer to forthwith send the report of the
cognizable offence to the concerned Magistrate. Also see, Sawai Ram v State of Rajasthan, (1997) 2 Crimes 148 (Raj)
: (1997) 1 RLW 193 (Raj), decided on date 6 January 1997.
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11 This has been observed by the Delhi High Court in the case of Virbhadra Singh (supra, footnote 7), in context of the
person named in the ECIR being summoned under section 50 of the PMLA for investigation. The contention being that
since the person has been a named accused in the ECIR, he cannot be summoned by the ED to give his statements
under section 50 of the PMLA, as it would be violative of doctrine of self incrimination guaranteed under Article 20(3) of
the Constitution of India. The High Court of Delhi rejecting this argument observed (in para 143) that:
“…The powers conferred on the enforcement officers for purposes of complete and effective investigation include the
power to summon and examine “any person”. The law declares that every such person who is summoned is bound to
state the truth. At the time of such investigative process, the person summoned is not an accused. Mere registration of
ECIR does not make a person an accused. He may eventually turn out to be an accused upon being arrested or upon
being prosecuted. No person is entitled in law to evade the command of the summons issued under Section 50 PMLA
on the ground that there is a possibility that he may be prosecuted in the future.”
12 Subs. by Act 2 of 2013, sec. 21(i), for clause (a) (w.e.f. 15-2-2013, vide S.O. 343(E), dated 8-2-2013). Clause (a) before
substitution, stood as under:
(a) the scheduled offence and the offence punishable under section 4 shall be triable only by the Special Court
constituted for the area in which the offence has been committed:

Provided that the Special Court, trying a scheduled offence before the commencement of this Act, shall continue
to try such scheduled offence; or
13 The words “upon perusal of police report of the facts which constitute an offence under this Act or” omitted by Act 20 of
2005, section 6 (w.e.f. 1-7-2005).
14 Subs. by Act 2 of 2013, section 21 (ii), for “cognizance of the offence for which the accused is committed to it for trial”
(w.e.f. 15-02-2013, vide S.O. 343(E), dated 8-2-2013).
15 Ins. by the Finance (No 2) Act, 2019, section 199(i) (w.e.f. 1-8-2019).
16 Ins. by the Act 2 of 2013, section 21(iii) (w.e.f. 15-2-2013, vide S.O. 343(E), dated 8-2-2013).
17 Ins. by the Finance (No 2) Act, 2019, section 199(i) (w.e.f. 1-8-2019).
18 See, Nikesh Tarachand Shah v Union of India, AIR 2017 SC 5500 : (2018) 11 SCC 1 : 2017 SC 1279 : 2017 (13)
SCALE 609, decided on date 23 November 2017.
19 Explanation (ii) appended to section 44 of the Act. This Explanation was inserted by the Finance (No 2) Act, 2019,
section 199(ii) (w.e.f. 1-8-2019).
20 Proviso to section 44(1)(b) inserted by the Finance (No 2) Act, 2019.
21 A charge-sheet is a police report filed by a police officer to the Magistrate under section 173 of CrPC recommending
prosecution against the named accused persons. After questioning the accused and hearing the arguments, the
Magistrate frames charges on the accused for which he is tried. In K Veeraswami v UOI, (1991) 3 SCC 655 [LNIND
1991 SC 320] : (1991) 3 SCR 189 [LNIND 1991 SC 320] : 1991 Cr LR 677 : 1991 (2) SCALE 150, decided on date 25
July 1991, the Supreme Court as observed that:
“…He just collects material from all sides and prepares a report, which he files in the court as charge-sheet.

82. The chargesheet is nothing but a final report of police officer under Section 173(2) of the CrPC. … that the statutory
requirement of the report under Section 173(2) would be complied with of the various details prescribed therein are
included in the report. This report is intimation to the magistrate that upon investigation into a cognizable offence the
Investigation Officer has been able to procure sufficient evidence for the court to inquire into the offence and the
necessary information is being sent to the court. In fact, the report under Section 173(2), purports to be an opinion of
the Investigating Officer that as far as he is concerned he has been able to procure sufficient material for the trial of the
accused by the Court. The report is complete if it is accompanied with all the documents and statements of witnesses
required by Section 175(5). Nothing more need be stated in the report of the Investigating Officer. It is also not
necessary that all the details of the offence must be stated. The details of the offence are required to be proved to bring
home the guilt to the accused at a later stage i.e. in the course of the trial of the case by adducing acceptable
evidence.”
22 Hari Narayan Rai v UOI, (2010) 2 All Jhar R 692, decided on date 26 March 2010.
23 Yogesh Mittal v Enforcement Directorate, (2017) 243 DLT 680 : 2017 (IV) CCR 462 (DEL), decided on date 14
September 2017. This order was challenged before the Supreme Court in SLP No. SLP 7326 of 2017 (tagged along
with Writ Petition (Crl.) No.67of 2017, Nikesh Tarachand Shah v UOI). The Supreme Court while allowing the writ in the
lead matter did not interfere with this finding of the Delhi High Court. Also see, footnote 92 of this Chapter.
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24 In Adani Enterprises Ltd v UOI, (2020) 1 Bom CR (Cr) 54, decided on date 17 October 2019, it was stated by the
petitioner (in para 6).
“Section 4 of the Code which deals with both the offences under IPC as well as offences under special laws, what is
eminent is the segregation of two clauses contained in section 4; Section 4(1) deal only with offences under the penal
code and 4(2) deal exclusively with the offences under the special laws”.

The appeal from the decision of the Bombay High Court is pending before the Supreme Court in SLP (Crl) No. 10683 of
2019.
25 The import of section 4(2) of CrPC was discussed by the Supreme Court in Vishwa Mitter of Vijay Bharat Cigarette
Stores, Dalhousie Road, Pathankotv OP Poddar, AIR 1984 SC 5 [LNIND 1983 SC 277]: 1983 4 SCC 701 [LNIND 1983
SC 277] : (1984) 1 SCR 176 : (1984) Cr LJ 1, decided on date 30 September 1983, where (SCC p 704, para 4), it
stated that:
... Sec. 190 thus confers power on any Magistrate to take cognizance of any offence upon receiving a complaint of facts
which constitute such offence. It does not speak of any particular qualification for the complainant. Generally speaking,
anyone can put the criminal law in motion unless there is specific provision to the contrary. This is specifically indicated
by the provision of sub-sec. (2) of Sec. 4 which provides that all offences under any other law meaning thereby law
other than the Indian Penal Code shall be investigated, inquired into, tried and otherwise dealt with according to the
provisions in the Code of Criminal Procedure but subject to any enactment for the time being in force regulating the
manner or place of investigating, inquiring into, trying or otherwise dealing with such offences. It would follow as a
necessary corollary that unless in any statute other than the Code of Criminal Procedure which prescribes an offence
and simultaneously specifies the manner or place of investigating, inquiring into, trying or otherwise dealing with such
offences, the provisions of the Code of Criminal Procedure shall apply in respect of such offences and they shall be
investigated, inquired into, tried and otherwise dealt with according to the provisions of the Code of Criminal Procedure.
(Para 3)
Also see, AR Antulay v Ramdas Sriniwas Nayak, AIR 1984 SC 718 [LNIND 1984 SC 42]: (1984) 2 SCC 500 [LNIND
1984 SC 42] : (1984) 2 SCR 914 : (1984) Cr LJ 647, decided on date 16 February 1984, a Constitution Bench of the
Supreme Court while examining the similar question with regard to applicability of section 4 with reference to the
Prevention of Corruption Act has laid down the law thus: (SCR p 935 : SCC p 517, para 16).
“In the absence of a specific provision made in the statute indicating that offences will have to be investigated, inquired
into, tried and otherwise dealt with according to that statute, the same will have to be investigated, inquired into, tried
and otherwise dealt with according to the Code of Criminal Procedure. In other words, Code of Criminal is the parent
statute which provides for investigation, inquiring into and trial of cases by criminal courts of various designations. (Para
20)”
26 In reference to sections 4 & 5 of the Code, the Supreme Court in Directorate of Enforcement v Deepak Mahajan, AIR
1994 SC 1775 [LNIND 1993 SC 656]: (1994) 3 SCC 440 : (1994) 1 SCR 445 : 1994 (1) SCALE 294, decided on date
31 January 1994, has observed:
“To sum up, Section 4 is comprehensive and that Section 5 is not in derogation of Section 4(2) and it only relates to the
extent of application of the Code in the matter of territorial and other jurisdiction but does not nullify the effect of Section
4(2). In short, the provisions of this Code would be applicable to the extent in the absence of any contrary provision in
the special Act or any special provision excluding the jurisdiction or applicability of the Code. In fact, the second limb of
Section 4(2) itself limits [t]he application of the provisions of the Code reading ......but subject to any enactment for the
time being in force regulating the manner or place of investigating, inquiring into, trying or otherwise dealing with such
offences”. (Para 128).
27 As observed by the Supreme Court in Deepak Mahajan (supra, footnote 26).
28 This provision which incorporates the provision of CrPC to the special law only in case where the procedure is missing
from that law is seen in other statutes as well. Some of these statutes are The Customs Act, 1962, The Income Tax
Act, 1961, The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act), The Central Excises and Salt Act,
1944, the now repealed Foreign Exchange Regulation Act, 1973 (FERA). These statutes also contain provisions that
entail the statutory scheme of the special law would prevail over the general procedural law prescribed in CrPC.
29 See, Chhagan Chandrakant Bhujbal v UOI, 2016 BHC 1766 : (2017) 1 Bom CR (Cr) 300, decided on date 14
December 2016 (Bombay High Court) Para116 & 117.
30 PMLA was passed by the Parliament in 2002, it became operational from 1 July 2005.
31 The Statement of Objects and Reasons to the PML Amendment Bill, 2005, inter alia noted in para 2(c) that one of the
purposes for the amendment was to omit clause (a) of sub-section (1) of Section 45 of the Prevention of Money-
Laundering Act, 2002, which provides that every offence punishable under that Act shall be cognizable.
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4.1 Introduction

32 The Delhi High Court in Rajbhushan Omprakash Dixit v UOI, 2018 III AD (Delhi) 65 decided on date 19 February 2018,
interpreted the statement of the Finance Minister qua the said amendment to Section 45(1)(a) of the PMLA in a
different light from that of the decision of the Delhi High Court in Chandrashekhar Vakamullah (supra, footnote 6),
where the court had observed that: “Though, at first blush, the exclusion of clause (a) from Section 45(1) as it earlier
existed does given an impression that the Parliament intended to relax the power of arrest under the PMLA, a perusal
of the statement made by the Finance Minister in Parliament while introducing the Prevention of Money Laundering
(Amendment) Bill, 2002 brings out the purport of the said amendment.” (Para 27). The appeal from the Delhi High Court
decision in Rajbhushan Omprakash Dixit (supra) pending in the Supreme Court in SLP (Crl) (Diary) No 9365 of 2018
and has been tagged along with the matter of UOI v Vijay Madanlal Choudhary, SLP (Crl.) No 5444 of 2018.
33 Ins. by Act 20 of 2005, section 7 (w.e.f. 1-7-2005).
34 The other grounds which were common to these habeas corpus petitions against the arrests made by the authorities
under the PMLA, inter alia, were that the procedure under Chapter XII of CrPC was not followed, and grounds of arrest
were not communicated to the detainee. These grounds have been discussed in sections 4.1.7 and 4.1.8 of this
chapter.
35 Karam Singh v UOI, (2016) 4 RCR (Cr) 8, decided on date 22 December 2015 in the High Court of Punjab and
Haryana [Civil Writ Petition No 3317 of 2015 (O and M)].
36 Rakesh Manekchand Kothari v UOI, 2015 GHC 1113, decided on date 16 January 2015. The order passed by the
Gujarat High Court was challenged before the Supreme Court, but the petition was dismissed as withdrawn vide Order
dated 07 July 2015.
37 Gurucharan Singh v UOI, 2017 (355) ELT 95 (Del), decided on date 27 April 2016. The State approached the Supreme
Court vide SLP (Cr) No 000163 - 000165/2017 which was dismissed vide Order dated 05 January 2017.
38 The petitioner in this case also argued that the arrest was in complete violation of the principle laid down by the
Supreme Court (three Judges) in Om Prakash v UOI, AIR 2012 SC 545 [LNIND 2011 SC 2553]: 2011 (14) SCC 1
[LNIND 2011 SC 2553] : (2012) Cr LJ 779 : 2011 (11) SCALE 310 [LNIND 2011 SC 2553], decided on date 30
September 2011, where it was clearly held that the procedure envisaged under chapter XII of CrPC is mandatorily
required to be followed by Customs or Excise Officer regarding contravention of the provisions pertaining to the
Customs Act, 1962 and Central Excise Act, 1944 and such observations are parimateria as well as mutatis mutandis
applicable to the case of the petitioners under PMLA. This issue has been discussed later in this chapter.
39 Chhagan Chandrakant Bhujbal (supra, footnote 29), an appeal against decision of the Bombay High Court pending
before the Supreme Court of India in SLP (Cr) No 2780 of 2018.
40 This ground has been dealt in section 4.1.8 of this Chapter.
41 See discussion on section 4(2) and section 5 of CrPC above.
42 Vakamulla Chandrashekhar v Enforcement Directorate (supra, footnote 6).
43 Virbhadra Singh v Enforcement Directorate (supra, footnote 7).
44 Rajbhushan Omprakash (supra footnote 32), interpreted the statement of the Finance Minister qua the said amendment
to Section 45(1)(a) of the PMLA in a different light from that of the decision of the Delhi High Court in Chandrashekhar
Vakamullah (supra footnote 6) where the court observed that: “Though, at first blush, the exclusion of clause (a) from
Section 45(1) as it earlier existed does given an impression that the Parliament intended to relax the power of arrest
under the PMLA, a perusal of the statement made by the Finance Minister in Parliament while introducing the
Prevention of Money Laundering (Amendment) Bill, 2002 brings out the purport of the said amendment.” (Para 27). The
appeal from the Delhi High Court decision is pending in the Supreme Court in SLP (Crl) (Diary) No 9365 of 2018.
45 This issue has been dealt with section 4.1.7 of the chapter.
46 Moin Akhtar Qureshi v UOI, Writ Petition (Cr) No 2465 of 2017, decided on date 01 December 2017.
47 See, section 4.1.7 of this Chapter.
48 See, section 4.1.8 of this Chapter.
49 See, Rajbhushan Omprakash Dixit, supra, footnote 32 (para 56).
50 This matter has been registered as SLP No 004634 of 2014. It is a batch matter containing various petitions, including
the matter of Rajbhushan Omprakash Dixit which is registered as TC No 3 of 2018. These matters are at present
pending before the Supreme Court of India.
51 See, discussion on the passing of the Amendments to the PMLA as Finance Acts under section 1.7 of Chapter 1.
52 See, Rajbhushan Omprakash Dixit (supra, footnote 32), where the Delhi High Court in para 40 and 41 has observed
that:
“40. If the correct legal position is that Chapter XII of the CrPC would apply to the PMLA, then whether the offences
under the PMLA are cognizable or non-cognizable, the CrPC has to be followed. As explained in State of Haryana v
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4.1 Introduction

Bhajan Lal (supra) and Lalita Kumari v Govt. of Uttar Pradesh (supra), if it is a cognizable offence, then the procedure
of entering the substance of the information in a book under Section 154 CrPC, forwarding a report to the Magistrate as
mandated by Section 157 CrPC, maintaining a case diary as mandated by Section 172 CrPC and producing such case
diary before the Magistrate upon arrest of the accused as mandated by Section 167 CrPC has to be followed. If the
offence is non-cognizable the procedure under Sections 155, 167 (1) and 172 CrPC would have to be followed. The law
in this regard has further been made clear in the decisions of the Supreme Court in Deepak Mahajan (supra) and Om
Prakash v Union of India (supra) and of this Court in Asmita Agarwal v Enforcement Directorate (supra).
41. It appears to this Court that there is no alternative to the DOE but to follow the CrPC, except where there are
specific provisions in the PMLA that provide an alternative procedure. Given the mandate of Articles 21 and 22 of the
Constitution of India the powers under the PMLA in relation to the offences under the PMLA, have to be governed by
the CrPC, if not by the PMLA. This is expressly recognised and acknowledged by Section 65 PMLA. It is, therefore, not
open to the DOE to choose to not follow the CrPC in an area where the PMLA is silent. Here again, therefore, this
Court is unable to subscribe to the contrary conclusion reached by the co-ordinate Division Bench of this Court in
Vakamulla Chandrashekhar (supra).”
53 Nandini Satpathy v Dani (P L), AIR 1978 SC 1025 : 1978 (2) SCC 424 [LNIND 1978 SC 607] : (1978) 3 SCR 608 : 1978
Cr LJ 968, decided on date 7 April 1978.
54 Saumya Saxena, “Right against Self-incrimination in India”, ipleaders blog (published on 18 May 2019) (can be
accessed at https://blog.ipleaders.in/right-against-self-incrimination/) [last accessed in September 2020]).
55 This was observed by the Andhra Pradesh High Court in Dalmia Cement (Bharat) Ltd v Assistant Director of
Enforcement Directorate, 2016 (4) ALD 47, decided on date 29 February 2016.
56 In Dalmia Cements Bharat Limited case (supra, footnote 55), the petitioners argued that the second petitioner who was
summoned by the ED was also the accused in the CBI case, and by virtue of the impugned summons he can be
compelled and forced to give a statement against the petitioners (accused in the scheduled offence) which would have
a material bearing on the CBI case as well as on the money laundering case. The petitioners, further; contended that
section 50 which empowers the ED to summon any person to give evidence and produce documents, does not include
an accused person involved in any scheduled offence, as it would be ultra vires of Article 20(3) of the Constitution of
India and therefore sought for a writ of mandamus seeking quashing of the impugned summons. The ED argued that it
is empowered under section 50 of the PMLA to issue summons to any person whose attendance is considered
necessary to give evidence or to produce records during the course of investigation or proceeding under PMLA. The
ED further argued that the investigations have been initiated to trace the proceeds of the crime and the trail of the
money laundered, as there are sufficient reasons to believe that money-laundering has been resorted to in this
particular case based on the FIR registered by CBI. It was also argued that the proceedings initiated by the ED are
judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code and the petitioners were
obliged to appear. The High Court dismissed the petitions with a finding that no good case was made out for reading
down section 50 of PMLA observing, inter alia, that mere registration of ECIR would not render any person an accused
of the offence of money-laundering, the purpose of investigation being to collect evidence, issuance of summons
requiring a person to appear and make a statement not being violative of the Constitutional protection and guarantee
under Article 20(3). The court further held that the stages of investigation, adjudication and criminal prosecution under
PMLA were three separate stages and the case was still at the initial stage of investigation, and thus; the petitioners
were obliged under the law to appear in compliance with the summons.
57 See, section 4.1.6.3 below as to who is a “Police Officer” for the purposes of section 25 of the Evidence Act, 1872.
58 See, discussion on this judgment later in this chapter.
59 This has been observed by the Supreme Court in State of Punjab v Barkat Ram, AIR 1962 SC 276 [LNIND 1961 SC
288]: (1962) 3 SCR 338 [LNIND 1961 SC 288] : 1962 Cr LJ 217, decided on date 30 August 1961.
60 See, Pavan Narang, Do officers of the ED under PMLA have the power to seek remand? Bar and Bench, 21 April 2018
(can be accessed at https://www.barandbench.com/columns/pmla-officers-ed-remand) last accessed in September,
2020).
61 See, Raja Ram Jaiswal v State of Bihar, AIR 1964 SC 828 [LNIND 1963 SC 94]: (1964) 2 SCR 752 [LNIND 1963 SC
94] : (1964) Cr LJ 705, decided on date 4 April 1963.
62 As extracted from the dissent of Subba Rao J in State of Punjab v Barkat Ram (supra, footnote 59).
63 As extracted in State of Punjab v Barkat Ram, (supra, footnote 59), at para 35 (Per Subba Rao J).
64 Queen v Hurribole Chunder Ghose, (1876) ILR 1 Cal 207, decided on date 10 April 1876.
65 See, Abhinav Sekhri, Confessions, Police Officers and §25 of the Indian Evidence Act, 7 NUJS L. The author has
observed that “the judgment of Garth C.J. still forms the starting point for any analysis by subsequent courts on how to
construe the term police officer present in Section 25.”
66 Hurribole (supra, footnote 64).
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67 Queen-Empress v Babulal, (1884) ILR 6 All 509 (FB), decided on date 27 June 1884.
68 Nanoo Sheikh Ahmed v Emperor, AIR 1927 Bom 4 : ILR (1927) 51 BOM 78, decided on date 31 August 1926.
69 Radha Kishun Marwari v King Emperor, (1933) ILR 12 Pat 46 : 34 Cr LJ 1 (SB), decided on date 2 September 1932.
70 See, Abhinav Sekhri, Confessions, Police Officers and Section 25 of the Indian Evidence Act, 7 NUJS L. In reference to
the approaches adopted by the courts, the author has observed:

“Thus, in applying §25 to the entirety of the organised police force, courts adopted an inherently formalist approach in
answering the underlying definitional question. Even though Excise and Abkari officers had powers of investigation and
arrest, they were not considered ‘police officers’. The Bombay High Court deviated from this formalist approach in
Nanoo Sheikh Ahmed v Emperor (‘Nanoo Sheikh’) [...] thereby holding excise officers to be police officers since they
possessed the same powers of investigation as an officer in-charge of a police station.
The tussle between the formalist and functional approaches was now gaining prominence. After Nanoo Sheikh, two full
bench decisions, one of the Patna High Court and the other from the Calcutta High Court, considered the same issue
but adopted contrasting approaches to interpret the term ‘police officer’”.
71 Fazl Ali J gave a dissenting judgment. He held:
“.....delivered a separate opinion, highlighting the distinction between a person who is nothing but a police officer and
one who is primarily not a police officer but merely invested with the powers of a police officer. As per him, bringing the
latter within the fold of section 25 would unduly enlarge its scope, and blur distinctions between the police and other
officials such as revenue officers. It might also lead the judiciary down a seemingly endless road, deciding inherently
ambiguous questions such as what minimum functions are necessary to make a police officer.”
72 Ameen Shariff v Emperor, AIR 1934 Cal 580 : 61 Cal 607 (FB), decided on date 21 February 1934.
73 Public Prosecutor v Paramasivam,AIR 1953 Mad 917, decided on date 2 March 1953.
74 Fernandez. v State, AIR 1953 Cal 219 [LNIND 1952 CAL 167], decided on date 28 August 1952 (Calcutta High Court).
75 Gopal Dass Labhu Ram Saini v State, AIR 1959 P&H 113 : (1959) Cr LJ 365, decided on date 19 September 1958
(Punjab & Haryana High Court).
76 Issa Yacub Bichara v State of Mysore, AIR, 1961 KANT R 7 : (1961) Cr LJ 106, decided on date 25 September 1959
(Karnataka High Court).
77 State of Punjab v Barkat Ram (supra, footnote 59).
78 The case of the prosecution is that on 8 June 1957, the Superintendent, Land Customs, Amritsar, received information
that some gold would be smuggled from Pakistan to India by the engine crew of the train coming to Amritsar from
Lahore that evening. On enquiry by the Customs officials, the engine crew stated that 100 tolas of gold was kept hidden
underneath the coal in the tender of the engine. After recovering the said gold, Barkat Ram, the respondent, who was
the driver of the engine, was arrested and taken to the Customs office for interrogation. On interrogation, it was
disclosed that the gold was for delivery to one Ghulam Mohd. Two days later Ghulam Mohd was also arrested at
Amritsar. During the enquiry, Barkat Ram and Ghulam Mohd made statements before the Customs officials on different
occasions admitting their guilt. In due course, the Assistant Collector, Land Customs, Amritsar filed a complaint against
the said two persons before the Additional District Magistrate Amritsar, and the said Magistrate convicted and
sentenced them under section 23 of the Foreign Exchange Regulation Act, 1947 (FERA) and also under section
167(81) of the Sea Customs Act, 1878. He was convicted by the Magistrate. On appeal, the Additional Sessions Judge,
Amritsar, confirmed the said order of conviction and sentence. However, the said conviction was set aside on revision
by the High Court which held that the Customs Officers were police officers within the meaning of that expression in
section 25 of the Evidence Act, and the statement made before them would be inadmissible in evidence for being
confessional statements, and that the statements were excluded from consideration, there was no other evidence to
sustain the conviction. The State of Punjab had filed this appeal against the acquittal order.
79 This comparison has been extracted from decision of the Supreme Court of India in Illias v Collector of Customs,
Madras, AIR 1970 SC 1065 [LNIND 1968 SC 329]: (1969) 2 SCR 613 [LNIND 1968 SC 329] : (1970) Cr LJ 998,
decided on date 31 October 1968.
80 Justice Subba Rao held that, “I cannot bring myself to hold that, while a confession made by an accused to a police
officer is not admissible in evidence in a Court of law, the same if made, under exactly similar circumstances, to a
customs officer can be relied and acted upon. The reasons for excluding the one from evidence would equally apply to
the other.”
81 Raja Ram Jaiswal v State of Bihar (supra, footnote 61).
82 Badku Joti Savant v State of Mysore, AIR 1966 SC 1746 [LNIND 1966 SC 68]: (1966) 3 SCR 698 [LNIND 1966 SC 68]
: (1966) Cr LJ 1353, decided on date 1 March 1966.
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83 See, Abhinav Sekhri, Confessions, Police Officers and Section 25 of the Indian Evidence Act, 7 NUJS L. Rev 1 (2014).
The author in reference to the “shift” in the approach of the Courts pursuant to the decision of Badku Joti Savant case
(supra, footnote 82) states that:

“The subtle shift, from looking at “powers of investigation” to specifically, the power to file a charge-sheet, provided an
easy way to apply a thumb-rule to determine the issue of whether an officer was a police officer for Section 25. The
court’s position was cemented by two five-judge bench decisions of 1969 concerned with applicability of Section 25 to
confessions made before Customs Officers rendered within a span of 10 days from each other.”
84 Romesh Chandra Mehta v State of West Bengal, AIR 1970 SC 940 [LNIND 1968 SC 317]: (1969) 2 SCR 461 [LNIND
1968 SC 317] : 1970 Cr LJ 863, decided on date 18 October 1968.
85 Illias v Collector of Customs, AIR 1970 SC 1065 [LNIND 1968 SC 329]: (1969) 2 SCR 613 [LNIND 1968 SC 329] :
(1970) Cr LJ 998, decided on date 31 October 1968.
86 Ramesh Chandra Mehta (supra, footnote 84).
87 Illias (supra, footnote 85).
88 Raj Kumar Karwal v UOI, AIR 1991 SC 45 [LNIND 1990 SC 171]: (1990) 2 SCC 409 [LNIND 1990 SC 171] : (1990) 2
SCR 63 [LNIND 1990 SC 171] : 1990 (1) SCALE 509, decided on date 21 March 1990.
89 The Supreme Court has held that:
“19. ... ... These provisions found in Chapter V of the Act show that there is nothing in the Act to indicate that all the
powers under Chapter XII of the Code, including the power to file a report under Section 173 of the Code have been
expressly conferred on officers who are invested with the powers of an officer-in-charge of a police station under
Section 53, for the purpose of investigation of offences under the Act.
…

21. .........The important attribute of police power is not only the power to investigate into the commission of cognizable
offence but also the power to prosecute the offender by filing a report or a chargesheet under Section 173 of the Code.
That is why this Court has since the decision in Badku Joti Savant, AIR 1966 SC 1746 [LNIND 1966 SC 68]: 1966 Cri L
J 1353 accepted the ratio that unless an officer is invested under any special law with the powers of investigation under
the Code, including the power to submit a report under Section 173, he cannot be described to be a ‘police officer’
under Section 25, Evidence Act....
20. The Act was enacted for the control and regulation of operations relating to narcotic drugs and psychotropic
substances. Under Sections 41, 42, 43, 44 and 49 of the Act certain powers of arrest, search and seizure have been
conferred on certain officers of different departments. If the arrest or seizure is made pursuant to a warrant issued
under Section 41(1), the person arrested or the article seized has to be forwarded to the Magistrate with despatch. If
the arrest or seizure is made under Section 41(2), 42, 43 or 44 the person arrested or the article seized has to be
forwarded to the officer-in-charge of the nearest police station or the officer empowered under Section 53 of the Act.
Special procedure has been prescribed for the disposal of narcotic drugs and psychotropic substances having regard to
the factors set out in Section 52-A. The role of the officers effecting arrest or seizure, except in the case of a police
officer, ends with the disposal of the person arrested and the article seized in the manner provided by Sections 52 and
52-A of the Act. Section 57 obliges the officer making the arrest or seizure to report the same to his superior within 48
hours. These powers are more or less similar to the powers conferred on Customs Officers under the Customs Act,
1962. 22. For the offences under the Act, the investigation is entrusted to officers in whom powers of an officer-in-
charge of a police station are vested by a notification issued under Section 53 of the Act by the concerned government.
Thus a special investigating agency is created to investigate the commission of offences under the Act. There is no
doubt that the Act creates new offences, empowers officers of certain departments to effect arrest, search and seizure,
outlines the procedure therefore, provides for a special machinery to investigate these offences and provides for the
constitution of Special Courts for the trial of offences under the Act, notwithstanding anything contained in the Code...
The decision in Raj Kumar Karwal (supra, footnote 88), was subsequently followed by the Supreme Court in Ram Singh
v Central Bureau of Narcotics, AIR 2011 SC 2490 [LNIND 2011 SC 469]: (2011) 11 SCC 347 [LNIND 2011 SC 469] :
(2011) 5 SCR 967 : 2011 (6) SCALE 243 [LNIND 2011 SC 469], decided on date 28 April 2011 where it held that
officers of the Central Bureau of Narcotics of the NDPS Act are not police officers within the meaning of sections 25
and 26 of the Evidence Act and, hence; confessions made before them are admissible in evidence.
90 Abdul Rashid v State of Bihar, AIR 2001 SC 2422 : (2001) 9 SCC 578 : (2001) Cr LJ 373 : 2001 (3) SCALE 546,
decided on date 11 January 2001.
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91 Even though this judgment of Vakamulla Chandrasekhar (supra, footnote 6), had been referred to a larger bench by the
Delhi High Court in Rajbhushan Omprakash Dixit (supra, footnote 32), the issue whether the Authorities are police
officers or not within the meaning of section 25 of the Evidence Act, has not been referred.
92 See, the Delhi High Court decision in Yogesh Mittal v Enforcement Directorate, (2017) 243 DLT 680, decided on date
14 September 2017 (Bail Application No 1165 of 2017), where in para 41 it was observed that:
“...Needless to state here that the prosecution/complaint referred to in Section 44 of the PMLA is akin to a report under
Section 173 in as much as a report under Section 173 of the Code of Criminal Procedure is submitted after the
investigation is completed. So is the prosecution/complaint under Section 44 of the PMLA. After the filing of the
predicate offences and registration of the ECIR, investigations are held and the prosecution/complaint under Section 44
is only a culmination of the investigation. ...

The bail application was dismissed in this case. Being aggrieved, the petitioner approached the Supreme Court vide
SLP 7326/2017, which was tagged and decided along with the Writ
Petition (Criminal) No 67 of 2017 (Nikesh Tarachand Shah’s case). In Nikesh Tarachand Shah (supra), the Supreme
Court vide Order dated 23 November 2017 declared section 45 (1) of PMLA in so far as it imposes two further
conditions for release on bail to be unconstitutional being violative of Articles 14 and 21 of the Constitution of India and
remanded the matter back to the respective Courts for the bail applications to be heard on merits without application of
the twin conditions contained in section 45 of PMLA. Since the Delhi High Court in Order dated 14 September 2017,
dismissed the bail application despite considering the illegality in remand, the Petitioner (Yogesh Mittal) filed an
application for clarification before the Supreme Court in Cr Appeal No 2012/2017 wherein the Supreme Court vide
order dated 11 December 2017 set aside the Delhi High Court order, “in as much, as after recording in paras 76 and 77
that the applicant was remanded for more than 15 days in one go and that a clear/specific endorsement was necessary
and without that having been recorded, the remand was illegal, yet the Court went on to state that for the fault of the
Court, the prosecution cannot be made to suffer.” It is important to note here that the Supreme Court did not give any
finding on para 41 of the Delhi High Court decision. The Petitioner, again approached the Delhi High Court by way of a
fresh bail application bearing No. 1165 of 2017 titled as “Yogesh Mittal v Enforcement Directorate”. This was decided
by the Delhi High Court vide Order dated 16 January 2018. The Delhi High Court in its order dated 16 January 2018
while coming to the conclusion that a supplementary complaint can be filed under the PMLA relied on various
decisions, including the decision of the Division Bench of the High Court of Himachal Pradesh at Shimla in Khekh Ram
v Narcotics Central Bureau, 2017 SCC Online HP 1808, where it has been held that:
“35. From the conspectuous of the aforesaid discussion, we have no hesitation to conclude even though there exists no
specific provision in the Code of Criminal Procedure to file supplementary complaint in a complaint case, however, if on
further investigation and with the express leave of the court, the culpability and the complicity of any other person is
established the supplementary complaint be filed.”
The court again looked at the code to determine whether a supplementary chargesheet can be filed to come to the
conclusion that a supplementary complaint can be filed.
93 It is to be noted that the petitions filed prior to the Amendment of Finance Act (No 2) of 2019, which appended an
Explanation to section 45 stating that that the offences of money laundering shall be cognizable and non-bailable
offences, the main ground of challenge was that the requisite to arrest in a non-cognizable cases were not complied
with by the ED. Alternatively, it was also argued that the provisions of Chapter XII must be followed by the ED,
irrespective whether the offence is cognizable or not.
94 This written information which is entered in the book, is called the First Information Report (FIR). FIR is not defined in
CrPC. However, it is very crucial as it sets the criminal jurisprudence in motion to initiate investigation for the alleged
offence.
95 In Kari Choudhary v Most. Sita Devi, AIR 2002 SC 441 [LNIND 2001 SC 2826]: (2002) 1 SCC 714 [LNIND 2001 SC
2826] : (2002) Cr LJ 923 : 2001 (8) SCALE 445 [LNIND 2001 SC 2826], decided on date 11 December 2001, the
Supreme Court held that the object of investigation is to find out whether the alleged offence has in fact been
committed, and, if so, who have committed them.
96 Substituted by Act 45 of 1987, section13(a), for paragraph (a) (w.e.f. 18-12-1978).
97 Inserted by Act 10 of 1990, section 2 (w. e. f 19- 2- 1990).
98 Substituted by Act 45 of 1978, section 13(c) (w.e.f. 18-12-1978).
99 Inserted by Act 5 of 2009, section 15 (w.e.f. 31-12-2009).
100 Inserted by Act 5 of 2009, section 15 (w.e.f. 31-12-2009).
101 Section 161 in The Indian Evidence Act, 1872—
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Right of adverse party as to writing used to refresh memory.—Any writing referred to under the provisions of the
two last preceding sections must be produced and shown to the adverse party if he requires it; such party may, if he
pleases, cross-examine the witness thereupon.
102 Section 145 of the Indian Evidence Act, 1872—
Cross-examination as to previous statements in writing.—A witness may be cross-examined as to previous
statements made by him in writing or reduced into writing, and relevant to matters in question, without such writing
being shown to him, or being proved; but, if it is intended to contradict him by the writing, his attention must, before the
writing can be proved, be called to those parts of it which are to be used for the purpose of contradicting him.
103 Lalita Kumari v Government of UP, AIR 2014 SC 187 [LNIND 2013 SC 983]: (2014) 2 SCC1 : (2014) Cr LJ 470 : 2013
(13) SCALE 559 [LNIND 2013 SC 983], decided on date 12 November 2013.
104 The issue which was raised for consideration in Lalita Kumari (supra), was, “whether a Police Officer is bound to
register an FIR upon receiving any information relating to commission of a cognizable offence under section 154 of
CrPC or the Police Officer has the power to conduct a preliminary inquiry in order to test the veracity of such
information before registering the same?”
105 Preamble of the PML Arrest Rules, 2005.
106 Directorate of Enforcement v Deepak Mahajan (supra, footnote 26).
107 Om Prakash v UOI, AIR 2012 SC 545 [LNIND 2011 SC 2553]: (2011) 14 SCC 1 [LNIND 2011 SC 2553] : (2012) 3
SCC (Cr) 1249 : (2011) 11 SCALE 310 [LNIND 2011 SC 2553], decided on date 30 September 2011.
108 D K Basu v State of West Bengal, Cr MP No 13566 of 2011 in No 16086 of 2008 in No 4201 of 1997 in WP (Cr) No 539
of 1986, decided on date 5 August 2014.
109 Ashok Munilal Jain v Assistant Director, Directorate of Enforcement, (2018) 16 SCC 158, decided on date 22 March
2017.
110 Deepak Mahajan (supra, footnote 26).
111 This has been observed by the Delhi High Court in Rajbhushan Omprakah Dixit (supra, footnote 32).
112 As discussed before in this Chapter, this question, has been referred by the Delhi High Court to a larger bench for
consideration. These questions are now pending adjudication before the Supreme Court of India in a batch matter titled
as Vijay Madanlal Choudhary (supra, footnote 32).
113 Paragraph (a) to proviso to section 167(2).
114 Nawal Sahni v State of Bihar, 1989 Cr LJ 733 (Pa) : 1988 PLJR 565, decided on date 4 May 1988.
115 Gurmit Kaur v State of Haryana, 1989 Cr LJ 1609 (P&H) : I L R (1988) 2 P&H 347, decided on date 7 January 1988
(Punjab & Haryana High Court).
116 Recently, the Bombay High Court in Kapil Wadhawan v Directorate of Enforcement & Anr. LDVC Bail No. 400 of 2020
(Connected Matter—Dheeraj Wadhawan v Directorate of Enforcement, LDVC Bail No. 401 of 2020), decided by a
common order passed on date 23 July 2020, invoked section 167 of CrPC to grant mandatory default bail to the
applicants charged with the offence of money laundering. The main question that the Bombay High Court addressed
was “Whether in computing the period of 90 days or 60 days as contemplated in Section 167(2)(a) of CrPC, the day of
remand is to be included or excluded”. The ED had argued that 60 days period from the date of remand should be
computed by excluding the date of first remand. The Special Court also rejected the bail applications and observed that
the computation of the period of 60 days would not include the date of first remand. The High Court set aside the
impugned order passed by the Special Court and held that the day of remand is to be included in calculating the
statutory period of 60 days or 90 days within which an investigation is to be completed and charge sheet must be filed.
The court further held “The mandatory default bail is a sequel to non-filing of the charge-sheet/challan within the period
set out by clause (i) and (ii) as the case may be of Section 167(2) (a) of the Code." Although the issue before the High
Court was in relation to the computation of the statutory period of 60 days or 90 days and whether the date of remand is
included in it or not, but the fact that the High Court invoked the provision of Section 167 of the CrPC to grant bail to an
accused in the case of money laundering, goes on to show that provisions of Chapter XII of the CrPC would apply to
the proceedings under PMLA. This order granting bail has been challenged by the ED before the Supreme Court, as
Enforcement Directorate v Kapil Wadhawan & Anr. in SLP (Crl.) No. 3941-3942 of 2020. The Supreme Court vide
Order dated 03 September 2020 has passed “interim order of stay on the impugned order”.
117 See, Chhagan Bhujbal v UOI (supra, footnote 29), Moin Akhtar Qureshi (supra, footnote 46), Rajbhushan Omprakash
Dixit (supra, footnote 32).
118 As discussed before in this Chapter, this question, has been referred by the Delhi High Court to a larger bench for
consideration. These questions are now pending adjudication before the Supreme Court of India in a batch matter titled
as Vijay Madanlal Choudhary (supra, footnote 32).
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119 This extract has been taken from the decision of the Delhi High Court in Rajbhushan Omprakash Dixit (supra, footnote
32).
120 Moin Akhtar Qureshi (supra, footnote 46). An appeal against the decision in Moin Akhtar Qureshi (supra, footnote 46) is
pending before the Supreme Court.
121 Ibid para 59.
122 Also see Chhagan Bhujbal (supra, footnote 29), the High Court of Bombay has held that it is clear from the language of
the Act that the grounds of arrest are not to be supplied at the time of arrest itself or immediately on arrest but “as soon
as may be”. There is no violation of any statutory safeguards as the oral communication of grounds of arrest is not only
substantial, but also in proper compliance with the PMLA provision.
123 Madhu Limaye v State of Maharashtra, AIR 1969 SC 1014 : (1969) Cr LJ 1440.
124 Rajbhushan Omprakash Dixit (supra, footnote 32) the court stated (para 53):
“In the considered view of the Court, the interpretation placed on Section 19 (1) PMLA by the Division Bench of this
Court in Moin Akhtar Qureshi (supra) does not appear to be consistent with the constitutional requirement as spelt out
in Articles 21 and 22 of the Constitution of India and, therefore requires reconsideration.”
125 CB Gautam v UOI, (1993) 1 SCC 78 [LNIND 1992 SC 833] : (1993) 199 ITR 530 [LNIND 1992 SC 833] (SC) : 1992 (3)
SCALE 138 [LNIND 1992 SC 833], decided on date 17 November 1992.
126 Nikesh Tarachand Shah v UOI (supra, footnote 18).
127 It is important to note that the time of implementation of the PMLA, Part A of the Schedule was very sparsely populated,
in that it comprised of two paragraphs only consisting of two offences under the IPC and 9 offences under the NDPS
Act. These offences were considered extremely heinous by the legislature and were, therefore, classified apart from
offences under Part B, which dealt with certain other offences under the IPC and offences under the Arms Act, 1959,
Wildlife (Protection) Act 1972, Immoral Traffic (Prevention) Act, 1956 and the Prevention of Corruption Act, 1988.
However, pursuant to the Amendment Act, 2012, all the offences of Part B were incorporated into Part A of the
Schedule, resulting in offences of almost twenty six acts, together with many more offences under the IPC, all being put
under Part A.
128 Nikesh Tarachand Shah v UOI (supra, footnote 18).
129 Section 208 (e) of the Finance Act (No 13) of 2018 stated,
(e) in Section 45, in sub-section (1),—
(i) for the words “punishable for a term of imprisonment of more than three years under Part A of the Schedule”, the
words “under this Act” shall be substituted;
(ii) in the proviso, after the words “sick and infirm”, the words “or is accused either on his own or along with other co-
accused of money laundering a sum of less than one crore rupees” shall be inserted.
130 The Supreme Court specifically reminded us by quoting the great dissent of Justice Marshall with whom Justice
Brennan agreed in United States v Anthony Salerno and Vincent Cafaro that, “…at the end of the day the presumption
of innocence protects the innocent; the shortcuts we take with those whom we believe to be guilty injure only those
wrongfully accused and, ultimately ourselves.” The warning implicit in these words reminds us of the much talked about
2G scam case, where all accused were eventually found not guilty notwithstanding the gruelling media trial, they were
all subjected to and the prejudice that it had created in our minds. Had the Supreme Court not granted them bail and
clarified the law on bail in Sanjay Chandra v CBI, AIR 2012 SC 830 [LNIND 2011 SC 1179]: (2012) Cr LJ 702 : 2011
(13) SCALE 107 [LNIND 2011 SC 1179], decided on date 23 November 2011, the accused persons would have spent
many years languishing in jail for a crime which they had not committed.
131 The Supreme Court had (in para 35) observed:
If pre-trial arrest bail is granted to Mr. X, which ensures throughout the trial, for an offence under Part A of the Schedule
and Section 4 of the 2002 Act, such person will be out on bail without his having satisfied the twin conditions of Section
45. However, if in an identical situation, Mr. Y is prosecuted for the same offences, but happens to be arrested, and
then applies for bail, the twin conditions of section 45 will have first to be met. This again leads to an extremely
anomalous situation showing that Section 45 leads to manifestly arbitrary and unjust results and would, therefore,
violate Articles 14 and 21 of the Constitution.
132 Sameer Magan Bhujbal v Assistant Director, Directorate of Enforcement, Cr Application No 1451 of 2018 in Cr Bail
Application No 286 of 2018, decided on date 6 June 2018. Also see Dr Jagdeesh Sagar v Assistant Director Directorate
of Enforcement, 2019 MPHC 010, decided on date 14 January 2019 (Miscellaneous Cr Case No 52566 of 2018) under
paras 13 and 14.
133 Pradeep Nirankarnath Sharma v Directorate of Enforcement, Cr Miscellaneous Application No 809 of 2018, decided on
date 26 February 2018 In this case the Gujarat High Court observed that:
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4.1 Introduction

“...It is pertinent to note that when the rigors of Section 45 of the PML Act is now not applicable, the accused though
facing charges under the provisions of PML Act requests for release on bail during the pendency of trial, the case is
required to be dealt with according to the principles laid down by the Hon’ble Supreme Court in various decisions. An
appeal was preferred against this decision before the Supreme Court in SLP (Crl) No. 005502 of 2018 and the same
was disposed of vide Order date 01 February 2019.
134 Vinod Bhandari v Assistant Director, Directorate of Enforcement, MCrC No 34201/2018, decided on date 29 August
2018.
135 Upendra Rai v Directorate of Enforcement, (2019) 262 DLT 382 : (2019) 4 RCR (Cr) 504, decided on date 09
September 2019. The decision in Upendra Rai was challenged by way of an SLP (Cr) No2598 of 2020 where the
Supreme Court was pleased to stay the operation of the decision passed by the Delhi High Court.
136 Ibid, para 22 and 27.
137 Serious Fraud Investigation Office v Nittin Johari, AIR 2019 SC 4380 : (2019) 9 SCC 165 : 2019 (12) SCALE 316
[LNINDU 2019 SC 199], decided on date 12 September 2019.
138 D K Shivakumar v Directorate of Enforcement, (2019) 264 DLT 586, decided on date 23 October 2019. The order
granting bail to Mr. D K Shivakumar was challenged by the ED before the Supreme Court in SLP (Cr) No 010164 of
2019. However, the Supreme Court dismissed the SLP and the order granting bail was upheld.
139 The SLP against this order has been dismissed by the Supreme Court.
140 P Chidambaram v Directorate of Enforcement, (2019) SCC OnLine SC 1549 decided on date 04 December 2019 (Cr
Appeal No. 001831/2019).
141 Soon after this decision of Nittin Johari (supra, footnote 137), the Supreme Court (three-judge bench) decided the bail
application of the former Finance Minister, Mr P Chidambaram who was arrested by the ED for the charges of money
laundering.
142 P Chidambaram (supra, footnote 140).
143 Dr. Shivinder Mohan Singh v Directorate of Enforcement, Bail Application No.1353 of 2020, decided on date 23 July
2020. This order granting bail to Dr. Shivinder Singh was challenged by the ED in the Supreme Court in SLP (Crl.) No.
3474 of 2020. The Supreme Court while hearing the challenge on 31 July 2020, observed “Until further orders, status
quo with respect to release from jail be maintained and impugned judgment not to be treated as a precedent for any
other case”.
144 Nittin Johari v Serious Fraud Investigation Office, Bail Application No 1971 of 2019, decided on date 27 January 2020.
This case was filed by Mr. Nittin Johari pursuant to the decision of the Supreme Court in SFIO v Nittin Johari (dated 12
September 2019), where the Supreme Court canceled the bail granted to Mr. Johari and remanded back the matter to
the High Court for reconsideration. The Delhi High Court rejected the bail application filed by Mr Johari. This bail
application was filed pursuant to the directions of the Supreme Court in Order dated 12 September 2019 in SFIO v
Nittin Johari (supra). The Supreme Court while overturning the bail granted by the High Court had stated.
“In the interest of justice, we deem it fit to remand the matter to the High Court to reconsider Bail Application No.
1971/2019 filed by Respondent No.1 in light of the principles governing the grant of bail under Section 439 of the CrPC,
while also keeping in mind the scope and effect of the twin mandatory conditions for grant of bail laid down in Section
212(6)(ii) of the Companies Act. Needless to say, Respondent No. 1 shall continue to remain in custody subject to the
order of the High Court in the said bail application.” (para 16)
It is also pertinent to note that being aggrieved by the order dated 27 January 2020 of the Delhi High Court, Mr Johari
preferred a SLP bearing SLP (Cr) No 2539 of 2020 before the Supreme Court. The Supreme Court did not interfere
with the Impugned Order and dismissed the SLP to that regards. However, the court issued notice “restricted to the
question of interpretation of Section 212(6)(ii) of the Companies Act, 2013”.
145 ST Sadiq v State of Kerala, AIR 2015 SC 1306 [LNIND 2015 SC 68]: (2015) 4 SCC 400 [LNIND 2015 SC 68] : 2015
(1) Supreme 452 : 2015 (2) SCALE 69 [LNIND 2015 SC 68], decided on date 4 February 2015 (Civil Appeal No 3963 of
2007).
146 The rest of the arguments raised in the said case are not pertinent for the purposes of this chapter.
147 State of Tamil Nadu v M Rayappa Gounder, AIR 1971 SC 231 [LNIND 2011 MAD 1729]: 1971 (2) SCC 1 [LNIND 1971
SC 213], decided on date 21 October 1970.
148 D Cawasji and Co Mysore v The State of Mysore, AIR 1984 SC 1780 [LNIND 1984 SC 358]: (1984) S SCC 490 : 1985
(1) SCR 825 : 1984 (2) SCALE 545, decided on date 26 September 1984.
149 The appellants in the instant case were Excise Contractors who had secured the excise privilege of retail sale of Toddy,
Arrack or Special Liquor. The State Government had the monopoly of the first sale of Arrack which is country liquor
other than Toddy. The manufacture of Arrack by distillation is done in the State under State control and the entire
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quantity manufactured in the State is sold to the State Government which in turn supplies it to the bonded depots.
Under the Mysore Excise Act, Arrack is liable to excise duty at rates prescribed by the Government. The State does not
collect excise duty from the distillers. From the distillery arrack is transferred to Bonded Depots and excise duty
together with cesses thereon is collected from the contractors who are given the privilege or right to effect retail sales of
Arrack. However, w.e.f. 1-4-1966, the State Government started collecting sales tax computed on the sale price of
Arrack (country made liquor) together with excise duty and cesses payable thereon under the Mysore Act. The
computed Sales Tax came to about 24 paise a litre which was collected alongwith the price of the Arrack sold to the
licensees. The validity of the collection of the sales tax on the aforesaid basis was challenged before the High Court.
The High Court allowed the writ petition and held that holding that the State Government could not under S.19 of the
Sales Tax Act, collect sales tax on excise duty which is not a part of the selling price of Arrack. (D Cawasji and
Company v State of Mysore,[1969 (1) Mys LJ461)]. Being aggrieved by the said order, the State Government preferred
an appeal to the Supreme Court but it was eventually withdrawn. As the liability of the States to refund the amount
collected as sales tax in excess amounted to lacs of Rupees, and with the object of avoiding the liability of refund by the
State Government of the excess amount so collected, the State passed Ordinance No 3 of 1969 on 17 July 1969 which
was replaced by the Mysore Sales Tax (Amendment) Act, 1969 on 19 July 1969. The validity of this Amending Act was
challenged by the appellants on the ground that the Amending Act was unreasonable and arbitrary but the High Court
dismissed the writ petition. The appellants challenged the order of the High Court before the Supreme Court which is
being discussed here. The validity of the Amending Act was challenged on the ground it increased the rate of sales tax
from 6½ % to 45% with retrospective effect is clearly arbitrary and unreasonable for if, any particular provision of the
statute is for some lacuna or defect in the statute declared unconstitutional or invalid, it is open to the Legislature to
pass a Validating Act with retrospective effect so that the State may not be saddled with liability of refund or other
consequences which may arise as a result of the particular provision being declared invalid. It was also argued that the
Amending Act was unreasonable and that it did not seek to rectify or remove the defect or lacuna on the basis of which
the collection of the excess sales tax had been set aside by the High Court. It was also argued by the appellants that
the Amending Act The respondents on the other hand argued that by way of the enactment of the impugned Act the
very basis of the complaint made by the appellants in the earlier writ petitions that the State was collecting amounts by
way of tax in excess of what was authorised under the Act had been removed.
150 State of Tamil Nadu v M Rayappa Gounder, AIR 1971 SC 231 [LNIND 2011 MAD 1729]: (1971) 3 SCC 1 (paras 3 &
4); Madan Mohan Pathak v UOI, AIR 1978 SC 803 [LNIND 1978 SC 64]: 1978 (2) SCC 50 [LNIND 1978 SC 64] :
(1978) 3 SCR 334, State of Haryana v Karnal Co-op Farmers’ Society Ltd, (1993) 2 SCC 363 [LNIND 1993 SC 190]
(paras 37 & 38); In Re Cauvery Water Disputes Tribunal, 1993 Supp (1) SCC 96 (para 76); SR Bhagwat v State of
Mysore, (1995) 6 SCC 16 [LNIND 1995 SC 904] (paras 17 & 18); Delhi Cloth & General Mills Co Ltd v State of
Rajasthan, (1996) 2 SCC 449 [LNIND 1996 SC 2966] (para 15–17); Virender Singh Hooda v State of Haryana, AIR
2005 SC 137 [LNIND 2004 SC 1104]: 2004 (12) SCC 588 [LNIND 2004 SC 1104] : 2004 (9) SCALE 120 [LNIND 2004
SC 1104], and State of Tamil Nadu v State of Kerala, AIR 2014 SC 2407 [LNIND 2014 SC 636]: (2014) 12 SCC 696
[LNIND 2014 SC 636] : 2014 (7) SCJ 524 [LNIND 2014 SC 636] : 2014 (6) SCALE 380 [LNIND 2014 SC 636]. The
Supreme Court has settled the law holding the Amendment Acts would be bad in law if it seeks to directly nullify the
judgments of the courts without changing the basis of the law.
151 See, Abhimanyu Bhandari, Notes on PMLA Act : Section 45 and the “twin conditions” post amendment, Bar & Bench,
23 July 2018. (https://www.barandbench.com/columns/pmla-act-section-45-post-amendment) (last accessed in
September 2020).
152 Woolmington v DPP, [1935] UKHL 1; Also see, Golbar Husain v State of Assam, (2015) 11 SCC 242 [LNIND 2015 SC
291], and Vinod Kumar v State of Haryana, AIR 2015 SC 1032 [LNIND 2015 SC 17]: (2015) 3 SCC 138 [LNIND 2015
SC 17] : (2015) Cr LJ 1250 : 2015 (1) SCALE 121.
153 See, 268th Law Commission Report (can be accessed at http://lawcommissionof india.nic.in/reports/Report268.pdf).
(last accessed in September 2020).
154 The principles of burden of proof of guilt were not developed until 1935, when the House of Lords of England (five judge
bench) in Woolmington v DPP, [1935] AC 462, at p 481, settled the rule of evidence holding that the burden of proving
the guilt of the accused is always on prosecution and only under exceptional pre-recognized situations the rule can be
relaxed, thereby meaning that in every criminal trial the accused shall be presumed to be innocent till the guilt is proved
and there cannot be any presumption of guilt or presumption of existence of any in criminating circumstances. This
decision in Woolmington was acknowledged by the Indian courts and soon there evolved a jurisprudence on the right of
the accused to be presumed as innocent till the guilt is proved.
155 See, K Pattabhi Rama Rao and Veena Bharti, Reverse Burdens: A Threat to Presumption of Innocence, NPA Criminal
Law Review, vol 3, No1 of 2016, pp 47 and 49.
156 Substituted by the Prevention of Money-laundering (Amendment) Act, 2012 (No 2 of 2013) w.e.f. 15-02-2013 for the
following, “under section 8, it shall, unless otherwise proved to the satisfaction of the Adjudicating Authority”
157 Substituted by the Prevention of Money-laundering (Amendment) Act, 2012 (No. 2 of 2013) w.e.f. 15-02-2013 for the
following: “When a person is accused of having committed the offence under section 3, the burden of proving that
proceeds of crime are untainted property shall be on the accused.”
158 See, Nikesh Tara Chand Shah (supra, footnote 18).
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4.1 Introduction

159 UOI v Hassan Ali Khan, (2011) 11 SCR 778 [LNIND 2011 SC 964] : (2012) Cr LJ 630 : 2011 (11) SCALE 302 [LNIND
2011 SC 964], decided on date 30 September 2011.
160 Ibid. The arguments led by the ED were:

“...enormous sums of money held by Shri Hassan Ali Khan in foreign accounts in Switzerland, United Kingdom and
Indonesia and the transactions in respect thereof, prima facie indicated the involvement of the Respondent No. 1 in
dealing with proceeds of crime and projecting the same as untainted property, which was sufficient to attract the
provisions of Section 3 of the PML Act, 2002. The learned ASG submitted that under Section 24 of the aforesaid Act,
when a person is accused of having committed an offence under Section 3, the burden of proving that the monies
involved were neither proceeds of crime nor untainted property, is on the accused. It was urged that once a definite
allegation had been made against Shri Hassan Ali Khan on the basis of documents seized, that the monies in his
various accounts were the proceeds of crime, the burden of proving that the money involved was neither the proceeds
of crime nor untainted, shifted to him and it was upto him to prove the contrary. The learned ASG submitted that Shri
Hassan Ali Khan had failed to discharge the said burden and hence the large sums of money in the several accounts of
the Respondent No. 1 would have to be treated as tainted property, until proved otherwise. The learned ASG submitted
that the Respondent No. 1 had himself made certain statements which were recorded under Section 50 of the PML Act,
parts whereof were not hit by the provisions of Section 27 of the Indian Evidence Act. (para 12).
161 Rohit Tandon v The Enforcement Directorate, AIR 2017 SC 5309 [LNIND 2017 SC 2901]: (2018) 11 SCC 46 [LNIND
2017 SC 2901] : 2017 SC 1254 : 2017 (13) SCALE 385 [LNIND 2017 SC 2901], decided on date 10 November, 2017.
162 See, Para X of the Standing Committee of Finance on the PMLA Amendment Bill, 2011.
163 Ibid.
164 See, section 3.4 of Chapter 3 of this Book.
165 See, Article 5(7) of the Vienna Convention which states that, “...7. Each Party may consider ensuring that the onus of
proof be reversed regarding the lawful origin of alleged proceeds or other property liable to confiscation, to the extent
that such action is consistent with the principles of its domestic law and with the nature of the judicial and other
proceedings.”
166 See, https://www.forthsonline.co.uk/the-relevant-day-in-proceeds-of-crime-cases. (last accessed in September 2020).
167 However, see, https://www.rahmanravelli.co.uk/ expertise/confiscation/ confiscation-the- proceeds-of-crime-act-2002/
(last accessed in September 2020) where the assumptions under the POCA, 2002 are also termed as harsh.
168 See, Para 6 of the Standing Committee of Finance on the PMLA Amendment Bill, 2011.
169 B Rama Raju v UOI, Ministry of Finance, Department of Revenue,Writ Petition No 10765, 10769 and 23166 of 2010
decided on date 04 March 2011 - APHC. This matter is now pending adjudication before the Supreme Court in SLP(C)
No 028394/2011.
170 Jafar Mohammed Hasanfatta v Deputy Director, Cr Revision Application No 926 of 2016, decided on date 16 February
2017. In this case, the petitioners invoked Revisionary Jurisdiction of the Court, to challenge the Order dated 18.7.2014
issued by the Special Court for PMLA at Ahmadabad, issuing summons against them by taking cognizance of the
offence under section 3 alleged in a Complaint dated 18 July 2014, punishable under section 4 of PMLA. It was the
case of the petitioners that the impugned Order was passed despite there being no prima facie ground and absolute
lack of any material evidence qua any of the petitioners to satisfy the necessary pre-requisites for invoking section 3 of
PMLA against them and essential for taking cognizance and proceeding against each of the petitioners. It was also
contended that none of the petitioners were arraigned as accused in the Scheduled Offences in which after
investigations Charge Sheet has been filed. Therefore, trial of each of these accused petitioners was sought only on the
alleged commission of the offence of money laundering as prescribed under section 3 of PMLA. The ED argued that
the scheduled offence relates to the commission of crime whereas investigation under PMLA, 2002 is related to the
proceeds of crime generated as a result of commission of the scheduled offence. The proceeds of crime may be found
in the possession of any person who may not have committed the scheduled offence. The ED also contended that it is
difficult to believe that the petitioners were not aware and had no knowledge of the purpose and intent of the
transactions as they have willingly allowed the use of their accounts for the purpose of laying the proceeds of crime with
an intention to conceal the source of the funds and thus the provisions of sections 23 and 24 of the PMLA, 2002 will
apply.
171 See, K Pattabhi Rama Rao and Veena Bharti, Reverse Burdens: A Threat to Presumption of Innocence, NPA Criminal
Law Review, vol 3, No 1 of 2016, pp 47 and 71:
In Shamlal v State of Haryana, AIR 1997 SC 1830 [LNIND 1996 SC 2103], the Supreme Court has laid down the rules
as to when presumption under section 113B of the Evidence Act can be drawn, thereby slightly restricting the scope
and the strength of the presumption. Though it is not expressly stated, the apex court has read down the rigour of the
mandatory presumption under section 113B of the Evidence Act. Therefore, even with regard to the facts, proof of
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4.1 Introduction

which is difficult, there is no need of reverse burden clause and perhaps it is enough if the law allows drawing of
presumption only when all other relevant facts are proved.
172 The Supreme Court in Krishna Janardhan Bhat v Dattatreya G Hedge, AIR 2008 SC 1325 [LNIND 2008 SC 55]: (2008)
4 SCC 54 [LNIND 2008 SC 55] : 2008 Cr LJ 1172 : 2008 (1) SCALE 421 [LNIND 2008 SC 55], decided on date 11
January 2008 has asserted that the presumption of innocence is a human right and therefore, reverse burden clauses
shall be delicately balanced. In Noor Aga v State of Punjab, (2010) 3 SCC (Cr) 748 : (2008) 10 SCR 379 : 2008 (6) SCJ
18 : 2008(9) SCALE 681 [LNIND 2008 SC 1363], decided on date 9 July 2008, the Supreme Court, reading the
provisions of international instruments into Indian Law held that:

“Placing persuasive burden on the accused persons must justify the loss of protection which will be suffered by the
accused. Fairness and reasonableness of trial as also maintenance of the individual dignity of the accused must be
uppermost in the courts.” (para 69).

End of Document