Money Laundering Act: Arrest And Bail

Introduction

Money laundering is a
serious offence which poses a threat not only to the financial systems of a
country but also to its integrity and sovereignty. To curb this offence of
money laundering, India passed the Prevention of Money Laundering Act,
2002 (“the Act”). It is an Act which has assumed great significance in
the recent times. Several economic offences, such as, insider trading, under
the Prevention of Corruption Act, copyright infringement, cheating, forgery,
fraudulently preventing creditors, etc., have been added to the list of
scheduled offences under the Act and now the Act has been used as a weapon in
the fight against financial crimes. The Act is also important since it has
arrest provisions. The matter of bail in respect of an arrest under the Act is
something which has attracted great attention. Let us examine some of these
crucial provisions.

Money Laundering

The offence of Money
Laundering is dealt with by section 3 of the Act. The essential limbs of the
charging section are as under :

(i)   Whosoever
directly or indirectly

(ii)  attempts
to indulge or knowingly assists or knowingly is a party or is actually involved
in any process or activity connected with

(iii)  the
proceeds of crime and projecting it as untainted property

(iv) shall
be guilty of offence of money-laundering.

Under section 3 of the Act,
the categories 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. The entire section revolves around the term “proceeds
of crime”.

The term “proceeds of
crime” has been defined by section 2(1) (u) to mean any property
derived or obtained, directly or indirectly, by any person as a result of
criminal activity relating to a scheduled offence or the value of any such
property or where such property is taken/held outside India, then the property
equivalent in value held within India. It is also relevant to note that not
only must there be proceeds of crime but the accused must either project it or
claim it to be as untainted property in order that it is an offence of money
laundering.

The Schedule to the Act
lays down a list of crimes such as drug trafficking, murder, homicide,
extortion, robbery, forgery of a valuable security, will or authority to make
or transfer any valuable security or to receive any money, counterfeiting of  currency, illegal trafficking in arms and
ammunition, poaching, etc. Thus, any proceeds from these crimes is covered by
the definition of proceeds of crime. As the Schedule is exhaustive only those
crimes which are covered by the Schedule and no other offences would fall
within its purview.  The Act divides the
offences under the Schedule into three Parts: Part A, Part B and Part C.  Part A offences are treated as money
laundering no matter howsoever small the amount involved in the offence,
whereas Part B offences are treated as money laundering, if and only if, the
amount involved exceeds Rs.1 crore.  
Part C relates to offences covered under Part A or against property
under the Indian Penal Code which have cross-border implications. An important
addition to Part C is an offence of wilful attempt to evade any tax, penalty or
interest under the Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015.   

The term “property”
is defined by section 2(1)(v) to mean 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. It may be noted that
section 3 even covers indirect usage of laundered money. Thus, even if the
money is converted into some other asset, the provisions of section 3 would
apply. U/s. 24, the burden of proving that 
proceeds of crime are untainted property shall be on the accused.

Offences

Whoever commits the offence
of money-laundering shall be punishable with rigorous imprisonment for a term
from 3 years to 7 years and fine. In case of any offence specified under
paragraph 2 of Part A of the Schedule, maximum term is 10 years.

Further, u/s.45, in case of
a scheduled offence specified under Part A of the Schedule to the Act for which
the term is more than 3 years, the accused cannot be released on bail unless
two cumulative conditions are satisfied -the Public Prosecutor has been given
an opportunity to oppose such release and once he opposes, the Court is
satisfied 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. This provision for granting bail overrides anything contained to
the contrary in the Code of Criminal Procedure, 1973 which applies to
procedures relating to arrest, bail, confiscation, investigation, prosecution, etc.  It is this bail provision which has garnered
maximum attention.

The Supreme Court in Gautam
Kundu vs. Directorate of Enforcement (Prevention of Money-Laundering Act),
(2015) 16 SCC 1, without going into the Constitutional validity of
section 45, held that the conditions specified u/s. 45 of the Act were mandatory
and needed to be complied with which was further strengthened by the provisions
of section 65 and also section 71 of the Act. Section 65 required that the
provisions of the Criminal Procedure Code should apply in so far as they were
not inconsistent with the provisions of this Act and section 71 provided that
the provisions of the Act had overriding effect notwithstanding anything
inconsistent contained in any other law for the time being in force. The Act
had an overriding effect and the provisions of the Code would apply only if
they were not inconsistent with the provisions of the Act. Therefore, the
conditions enumerated in section 45 of PMLA had to be complied with even in
respect of an application for bail made u/s.439 of the Code. That coupled with
the provisions of section 24 provided that unless the contrary was proved, the
Court presumed that proceeds of crime were involved in money laundering and the
burden to prove that the proceeds of crime were not involved, was on the
appellant. The same view was followed by the Supreme Court in Rohit
Tandon vs. The ED, Cr. A 1878-1879/2017.

Evolution of the Act

Before analysing the
aforesaid section 45, it would be interesting to understand how the Act has
evolved from 2002 to its present form. When the Act was enacted, there were two
categories of scheduled offences – Part A and Part B of the Schedule to the
Act. Part A offences were treated as money laundering no matter howsoever small
the amount of offence involved, whereas Part B offences were treated as money
laundering, if and only if, the amount involved exceeded Rs. 30 lakh. Part A at
that time contained only two offences – Paragraph 1 contained sections 121 and
121A of the Indian Penal Code, which dealt with waging or attempting to wage
war or abetting waging of war against the Government of India and conspiracy to
commit such offences and  Paragraph 2
dealt with offences under the Narcotic Drugs and Psychotropic Substances Act,
1985. Except for these two serious offences, all other offences were listed
under Part B of the Schedule.

Thus, as originally
enacted, the Act provided that the twin conditions applicable u/s. 45(1) would
only be in cases involving waging of war against the Government of India and
offences under the Narcotic Drugs and Psychotropic Substances Act. For all
offences under Part B, these conditions were not applicable.

The 2009 Amendment
increased offences under Parts A and B of the Schedule. In Part A, offences
under the Indian Penal Code, relating to counterfeiting, offences under the
Unlawful Activities (Prevention) Act, 1967, etc., were added. In Part B,
offences from the Indian Penal Code, Securities and Exchange Board of India Act
1992, Customs Act 1962, CopyrightAct 1957, Trademarks Act 1999, Information
Technology Act, etc., were added.

By the Amendment Act of
2012, a major change was made by which the entire Part B offences were
incorporated in Part A of the Schedule. Thus, the monetary limit of Rs. 30 lakh
no longer applied to these offences which were now made a part of Part A.

By the Finance Act of 2015,
the monetary limit of Rs.30 lakh under the Part B of the Schedule was raised to
Rs.1 crore and Part B of the Schedule incorporated one solo entry, pertaining
to false declarations and false documents under the Customs Act, 1962. Thus,
only in respect of this offence is there a monetary threshold. 

Bail Provisions Challenged

It was in this backdrop
that the constitutional validity of the twin conditions laid down u/s. 45(1)
for granting bail to an accused under the Act were challenged before the
Supreme Court in Nikesh Tarachand Shah vs. UOI, WP(Cr.) 67/2017 (SC).
The Supreme Court considered four alternative scenarios in which bail was
sought by a person arrested under the Act:

The Court observed that the
likelihood of the accused getting bail in the first three situations was far
greater than in the fourth illustration, merely because he was being prosecuted
for a Schedule A offence which had imprisonment for over 3 years, a
circumstance which had no nexus with the grant of bail for the offence of money
laundering. This was something which could not by itself lead to grant or
denial of bail. It also observed that if an accused was tried for a scheduled
offence independently without the added tag of money laundering, then he could
easily get bail under the Code of Criminal Procedure but if was tried along with
section 3 of the Act, then the twin conditions of section 45 got attracted.
This was unfair,

It further observed that
section 45 requires the Court to decide whether it has reasonable grounds for
believing that the accused is not guilty of an offence under Part A. Thus,
while the accused has been arrested for an offence of money laundering, bail
would be denied on grounds germane to the scheduled offence, whereas the person
prosecuted would ultimately be punished for a completely different offen ce –
namely, money laundering. This, was laying down of a condition which had no
nexus with the offence of money laundering at all. Further, a person who may
prove that there were reasonable grounds for believing that he was not guilty
of the offence of money laundering may yet be denied bail, because he was
unable to prove that there were reasonable grounds for believing that he was
not guilty of the scheduled offence.

It held that the Act was
enacted so that property involved in money laundering may be attached and
brought back into the economy, as also that persons guilty of the offence of
money laundering must be brought to book. A classification based on sentence of
imprisonment of more than 3 years of an offence contained in Part A of the
Schedule, had no rational relation to the object of attaching and bringing back
into the economy large amounts by way of proceeds of crime. When it came to
Section 45, it was clear that a classification based on sentencing qua a
scheduled offence had no rational relation with the grant of bail for the
offence of money laundering.

The Court also observed
that certain similar offences were either incorporated or not incorporated
under Part A and hence, for some twin conditions for bail applied but not so
for the other. For instance, while counterfeiting of Government stamps was
included in the Act as a scheduled offence, counterfeiting of Indian coins was
not. Both were punishable with the same term under the Criminal Procedure Code,
but bail conditions would apply differently for each of them.

Another anomaly pointed out
by the Court was that while granting of bail required fulfilment of twin
conditions in respect of a specific situation, granting of anticipatory bail
did not attract any conditions for the very same situation. Thus, if pre arrest
bail was granted, which continued throughout the trial, for an offence under
Part A of the Schedule and money laundering, such a person would be out on bail
without him having satisfied the twin conditions of section 45. However, if in an
identical situation, he was prosecuted for the same offences, but was arrested,
and then he applied for bail, the twin conditions of section 45 would have
first to be met. 

Accordingly, for the above
reasons, the Apex Court held that section 45(1) was extremely unjust,
manifestly arbitrary and discriminatory and would directly violate the
fundamental rights of the accused under the Constitution of India. It also held
that the earlier Supreme Court decisions on section 45 of the Act proceeded
onthe footing that section 45 was constitutionally valid and then went on to
apply section 45 to the facts of those cases. Hence, they were not of any
assistance in the case under question where its constitutional validity itself
was challenged.

Ultimately, the Apex Court
declared that section 45(1) of the Act insofar as it imposed two further
conditions for release on bail, was unconstitutional as it violated Articles 14
and 21 of the Constitution of India. All the matters in which bail had been
denied, because of the presence of the twin conditions contained in section 45,
were sent back to the respective Courts which denied bail.

Conclusion

This is a very important
decision since it deals with bail which is a basic right of an accused who is
imprisoned. The Supreme Court, in an old case of Gurbaksh Singh Sibbia
vs. State of Punjab, (1980) 2 SCC 565, had laid down that bail is the
rule and refusal an exception and that a presumably innocent person must have
his freedom to enable him to establish his innocence.This decision has given
strength to the old adage, presumed innocent until proven guilty, otherwise the
section required an accused to demonstrate his defence at the bail stage
itself! _