By Dr. Dilip K. Sheth
Chartered Accountant
INTRODUCTION
United Nations General Assembly held a special
session in June 1998. At that session, a Political Declaration was adopted
which required the Member States to adopt national money-laundering
legislation.
On 17th January, 2001, the President
of India gave his assent to The Prevention of Money-Laundering Act, 2002
(“PMLA”). Enactment of PMLA is, thus, rooted in the U.N. Political Declaration.
EVOLUTION OF LAW
The preamble to PMLA shows that it is an “Act
to prevent money-laundering and to provide for confiscation of property derived
from, or involved in, money-laundering and for matters connected therewith or
incidental thereto”.
After PMLA was enacted, the Government had to
deal with various issues not adequately addressed by the existing legal
framework. Accordingly, the Government modified the legal framework from time
to time by amendments to PMLA. The amendments made in 2005, 2009, 2013 and 2016
helped the Government to address various such issues which were reflected in
the Statement of Objects and Reasons appended to each amendment.
JUDICIAL REVIEW
In addition to the issues addressed by the
amendments to PMLA, many more issues came up for judicial review before Courts.
The Supreme Court and various High Courts critically examined such further
issues and gave their considered view in respect of such issues.
In this article, the author has dealt with the
following dicey issues and explained the rationale underlying the conclusion
reached by the Court.
1) Does
possession of demonetised currency notes constitute offence of
money-laundering?
2) Whether
a chartered accountant is liable for punishment under PMLA?
3) Doctrine
of double jeopardy – whether applicable to PMLA?
4) Right
of cross-examination of witness.
5) Whether
the arrest under PMLA depends on whether the offence is cognisable?
6) Whether
the arrest under PMLA requires the officer to follow CrPC procedure?
(Registering FIR, etc.)
7) How
soon to communicate grounds of arrest?
1) Does possession of demonetised currency notes
constitute offence of money-laundering?
This issue was examined by the Supreme Court in a
recent decision in the
light of the following facts.
In November 2016, the Government announced
demonetisation of 1000 and 500 rupee notes. The petitioner conspired with a
bank manager and a chartered accountant (CA) to convert black money in old
currency notes into new currency notes. In such conspiracy, the CA acted as
middleman by arranging clients wanting to convert their black money. The CA
gave commission to the petitioner on such transactions.
The petitioner opened bank accounts in names of
different companies by presenting forged documents and deposited Rs. 25 crore
after demonetisation.
Statements of 26 witnesses were recorded.
However, the petitioner refused to reveal the source of the demonetised and new
currency notes found in his premises.
The abovementioned facts were viewed in the light
of the relevant provisions of PMLA and thereupon, the Supreme Court explained
the following legal position applicable to these facts.
Possession of demonetised currency was only a
facet of unaccounted money. Thus, the concealment, possession, acquisition or
use of the currency notes by projecting or claiming it as untainted property
and converting the same by bank drafts constituted criminal activity relating
to a scheduled offence. By their nature, the activities of the petitioner were
criminal activities. Accordingly, the activity of the petitioner was replete
with mens rea. Being a case of money-laundering, the same would fall
within the parameters of section 3 [The offence of money-laundering] and was
punishable u/s. 4 [Punishment for money-laundering].
The petitioner’s reluctance in disclosing the
source of demonetised currency and the new currency coupled with the statements
of 26 witnesses/petitioner made out a formidable case showing the involvement
of the petitioner in the offence of money-laundering.
The volume of demonetised currency and the new
currency notes for huge amount recovered from the office and residence of the
petitioner and the bank drafts in favour of fictitious persons, showed that the
same were outcome of the process or activity connected with the proceeds of
crime sought to be projected as untainted property.
The activities of the petitioner caused huge
monetary loss to the Government by committing offences under various sections
of IPC. The offences were covered in paragraph 1 in Part A of the Schedule in
PMLA [sections 120B, 420, 467 and 471 of IPC].
On the basis of the abovementioned legal
position, the Supreme Court held that the property derived or obtained by the
petitioner was the result of criminal activity relating to a scheduled offence.
The possession of such huge quantum of
demonetised currency and new currency in the form of Rs. 2000 notes remained
unexplained as the petitioner did not disclose their source and the purpose for
which the same was received by him. This led to the petitioner’s failure to
dispel the legal presumption that he was involved in money-laundering and the
currencies found were proceeds of crime.
2) WHETHER A CHARTERED ACCOUNTANT IS LIABLE TO
PUNISHMENT UNDER PMLA?
A chartered account can act as authorised
representative to present his client’s case u/s. 39 of PMLA.
In the event of the client facing charge under
PMLA, can his chartered account be also proceeded against and punished under
PMLA?
This topical issue was examined by the Supreme
Court in the undernoted decision.
In this case, CBI was investigating the charge of
corruption on mammoth scale by a Chief Minister which had benefitted his son –
an M. P. When CBI sought custody of the respondent chartered accountant, he
contended that he was merely a chartered accountant who had rendered nothing
more than professional service.
The Supreme Court rejected such contention having
regard to serious allegations against the chartered accountant and his nexus
with the main accused. The Supreme Court gave weight to the CBI’s allegation
that the chartered accountant was the brain behind the alleged economic offence
of huge magnitude. The bail granted to the chartered accountant by the Special
Court and the High Court was cancelled by the Supreme Court.
The ratio of this decision may be used by
CBI/Enforcement Directorate to rope in chartered accountants for their role in
the cases involving bank frauds and transactions which are economic offences
which are recently in the news.
3) DOCTRINE OF DOUBLE JEOPARDY- WHETHER
APPLICABLE TO PMLA
When a person facing criminal charge in a trial
is summoned under PMLA, can he raise the plea of double jeopardy in terms of
Article 20(2) of the Constitution?
This issue was examined by the Madras High Court
in the undernoted decision.
In this case, the charge-sheet was filed by
police to investigate the offences of cheating punishable under sections
419-420 of the Indian Penal Code. Under PMLA, these offences are
regarded as “scheduled offences”.
When summon under PMLA was issued to the
petitioner, she pleaded that the summon cannot be issued to her. According to
her, the summon was hit by double jeopardy as police had already filed
charge-sheet alleging the offence under the Indian Penal Code.
It was held by the Madras High Court that
issuance of summon under PMLA was merely for preliminary investigation to trace
proceeds of crime which did not amount to trying a criminal case. Hence, there
was no double jeopardy as envisaged under Article 20(2) of the Constitution.
The plea of double jeopardy was also raised in
another case.
In this case, the petitioner was acquitted from
criminal charges under the Indian Penal Code. After such acquittal,
however, the proceedings under PMLA continued. Hence, the petitioner claimed
the benefit of double jeopardy on the ground that the proceedings under PMLA
regarding seized properties cannot be allowed to continue after his acquittal
from criminal charges under the Indian Penal Code.
The Orissa High Court held that even when the
accused was acquitted from the charges framed in the Sessions trial, a
proceeding under PMLA cannot amount to double jeopardy since the procedure and
the nature of onus under PMLA are totally different.
4) RIGHT
OF CROSS-EXAMINATION OF WITNESS
Whether, at the stage when a person is asked to
show cause why the properties provisionally attached should not be declared
property involved in money-laundering, can he claim the right of
cross-examining a witness whose statement is relied on in issuing the
show-cause notice?
This was the issue before the Delhi High Court in
the under mentioned case.
The Delhi High Court observed that, prior to
passing of the Adjudication Order u/s. 8 of PMLA, it cannot be presumed that
the Adjudicating Authority will rely on the statement of the witness sought to
be cross-examined by the petitioner. On this ground, it was held that the
noticee did not have the right to cross-examine the witness at the stage when
he merely received the show-cause notice.
5) WHETHER
THE ARREST UNDER PMLA DEPENDS ON WHETHER THE OFFENCE IS COGNISABLE
The Bombay High Court has discussed this issue in
the undernoted decision.
The Court referred to the definition of ‘cognisable
offence‘ in section 2(c) of CrPC and observed 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 the person without warrant. The Court also
referred to the following classification of the offences under the ‘First Schedule’
of CrPC.
– ‘cognisable’ or ‘non-cognisable’;
– bailable or non-bailable
– triable by a particular Court.
Under Part II of the First Schedule of CrPC,
[‘Classification of Offences under Other Laws’], it is provided that ‘offences
punishable with imprisonment for more than three years would be cognisable and
non-bailable’.
The punishment u/s. 4 for the offence of
money-laundering is described in section 3. The punishment is by way of
imprisonment for more than three years and which may extend up to seven years
or even upto ten years. Therefore, in terms of Part II of the First Schedule of
CrPC, such offence would be cognisable and non-bailable.
In the opinion of the Bombay High Court, however,
for arresting a person, the debate whether the offences under PMLA are
cognisable or non-cognisable is not relevant.
The Court explained that section 19 of PMLA
confers specific power to arrest any personif three conditions specified in
section 19 existde hors the classification of offence as cognisable.
According to section 19, the following three
conditions need to exist for arresting a person.
Firstly, the authorised officer has the reason to believe
that a person is guilty of the offence punishable under PMLA.
Secondly, such reason to believe is based on the material
in possession of the officer.
Finally, the reason for such belief is recorded in
writing.
Section 19 nowhere provides that only when the
offence committed by the person is cognisable, such person can be arrested.
6) WHETHER THE ARREST UNDER PMLA REQUIRES THE
OFFICER TO FOLLOW CRPC PROCEDURE (REGISTERING FIR, ETC.)?
Section 19 of PMLA does not contemplate the
following steps before arresting the accused in respect of the offence
punishable under PMLA.
– registration of FIR on receipt of information relating to cognisable offence.
– obtaining permission of the Magistrate in case of non-cognisable offence.
According to the Court, when
there are no such restrictions on the ‘power to arrest’ u/s. 19 it does not
stand to reason that in addition to the procedure laid down in PMLA, the
officer authorised to arrest the accused under PMLA be required to follow the
procedure laid down in CrPC (viz., registering FIR or seeking Court’s
permission in respect of non-cognisable offence) for arrest of the accused.
The Court observed that if the provisions of
Chapter XII of CrPC (regarding registration of FIR and Magistrate’s permission)
are to be read in respect of the offences under PMLA, section 19 of PMLA would
be rendered nugatory. According to the Court, such cannot be the intention of
the Legislature. Thus, a special provision in PMLA cannot be rendered nugatory
or infructuous by interpretation not warranted by the Legislature.
7) HOW
SOON TO COMMUNICATE THE GROUNDS OF ARREST?
Whether the grounds of arrest must be informed or
supplied to the arrested person immediately or “as soon as possible” and
whether the same must be communicated in writing or orally.
The Bombay High Court addressed
this issue as follows.
Section 19(1) of PMLA does not provide that the
grounds of arrest must be immediately informed to the arrested person. The use
of the expression ‘as soon as may be‘ in section 19 suggests that the
grounds of arrest need not be supplied at the very time of arrest or
immediately on arrest. Indeed, the same should be supplied as soon as may be.
The Court observed that if the intention of the
Legislature was that the grounds of arrest must be mentioned in the Arrest
Order itself and that, too, in writing, the Legislature would have made clear
provision to that effect by using the word ‘immediately’ or ‘at the time of
arrest’. According to the Court, the fact that the Legislature has not done so
and instead, used the words ‘as soon as may be‘, is clear indication
that there is no statutory requirement that the grounds of arrest should be
communicated in writing and that also at the time of arrest or immediately
after the arrest. The use of the words ‘as soon as may be‘ implies that
the grounds of arrest should be communicated at the earliest.
SUMMATION
All the aforementioned dicey issues considered by
the Supreme Court and High Courts have significant relevance to chartered
accountants in practice while advising their clients on the matters concerning
PMLA.
As discussed in the Supreme Court’s decision in
the case of Vijay Sai Reddy, there is always a possibility that
the bail initially given to the chartered accountant by the Special Court or
High Court may be cancelled by the Supreme Court.
Hence, it is important for chartered accountants
to take a conservative view while giving their professional advice or view.
They must keep abreast of the important issues discussed in this article which
would enable them to give proper advice to their clients.
