Taxmann's Your Queries on Law Relating to Prevention of Money Laundering

About the Editor

R.V. Easwar (Former Judge of the Delhi High Court, Senior Advocate) joined the Income Tax Appellate Tribunal (ITAT) in 1991. He was promoted as the President of the Tribunal in 2010. He was later elevated to the Delhi High Court from where he retired in the year 2014.

Post-retirement, Justice Easwar was appointed as the Chairman of the 10 Member Committee, set up by the Government of India, in the year 2015, to simplify the provisions of the Income-tax Act, 1961. He was Designated as a Senior Advocate by the Supreme Court of India in 2015.

About the Author

Aditya Ajgaonkar, Advocate, is a Legal Counsel practicing in the Courts at Mumbai and Delhi. He practices in the elds of Corporate Laws including Taxation and in the eld of Laws relating to Economic offenses. He has worked with and has been mentored by some of the leading lights in the Legal fraternity.  After graduation from N.M. College of Commerce and Economics and Law from Mumbai University, he studied for his LLM. at Cardiff University in Wales where he wrote his dissertation on money laundering laws.

From the Editor’s Desk

This work is entirely that of Aditya and my role is limited to editing the material placed before me in draft. He has chosen a law that is very much in the boil these days and therefore is of interest to the lawyers and chartered accountants. This by no means is a commentary or a treatise on the Prevention of Money Laundering Act (PML); however, I feel that it will be of immense assistance to those who seek capsulised and ready answers to queries that are thrown up on a quick reading of the law. It is also of great practical use, as Aditya has devoted quite a number of questions-answers relating to the powers and functions of the PMLA Tribunal, which is bound to interest the regular practitioners before this Tribunal.

Supervising and editing the material sent to me by Aditya was quite interesting. I found that he has taken a lot of pains in trying to demystify a law which has far-reaching effects on the economy. In the answers to the questions, we took care to include the pithy observations of the PMLA Tribunal, for the entire development of the law which is now at a nascent stage is due largely to the decisions of the Tribunal.

In short, the experience has given me a far better insight into the PMLA and this is solely due to the painstaking efforts of Aditya in preparing the book in question-answer form and covering almost all major topics. I feel privileged to be associated with this book.

Chennai,

February 2023

Justice (Retd.) R.V. Easwar

From the Author’s Desk

“The entire Community is aggrieved if the economic offenders who ruin the economy of the State are not brought to books. A murder may be committed in the heat of moment upon passions being aroused. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an even-handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest”

State of Gujarat v. Mohanlal Jitamalji Porwal (1987) 2 SCC 364/[1987]

1987 taxmann.com 612 (SC)

It is with these ringing words that the Supreme Court embarked upon a journey to declare that Economic Offenses were a class unto themselves. That was back in 1987, when the list of economic offenses itself was limited. It would be quite safe to say that the list is substantially longer now.

The Prevention of Money Laundering Act makes the news often. Originally designed as a ‘monster slayer’, it is acquiring quite the monstrous reputation itself. The definitions seem to deliberately cast a wide net for something meant to combat a very specific issue. A large quantity of literature has already been written on the subject. However the Question-Answer format has always been the most reader friendly in my opinion. I have identified two hundred questions on the subject and sought to shed some light on their answers. The compliance related chapters with regards to Banking and Financial Intermediaries are deliberately excluded. They deserve a separate publication of their own.

This book has taken over a year to complete and the answers have had to be changed far more times than I dare to count. My LLM dissertation written during my days as a student of Cardiff University was on the

FROM THE AUTHOR’S DESK

Prevention of Money Laundering laws. This book was a significant deep dive for me into the Indian Money Laundering Laws. The International Money Laundering Law framework has been deliberately left out for the sake of simplicity.

Taking a moment to acknowledge those who have in their own ways made this book possible, my Grandfather is the most significant. He remains my guiding force and also the provider of my office space. I would also like to acknowledge my father who prodded me in the general direction of the practice of law and then stood behind me like a rock. My mother has placed blind faith into my abilities, my brother and sister-in-law who go out of their way to help me with my work. Finally and most importantly my wife, who has made significant sacrifices to ensure that I write and made sure that I do not slack off! This book would not have been possible without her patience and support. I must also acknowledge my in-laws (Mother, Father and Sister) who have each helped and supported my professional journey and celebrated every milestone, no matter how small.

But what is a person without a Guru? I’ve been blessed to have the infinite support of my Seniors - R.V. Easwar (Former Judge of the Delhi High Court, Senior Advocate and the Editor of this book), Dr. K. Shivram (Senior Advocate), Mr. Shailesh Shah (Senior Advocate) and Mr. Sudeep Pasbola (Advocate) who have not only taught me everything I know, but also been indispensable guides on this professional journey. The activity of Money Laundering straddles the space between civil and criminal law. I’ve been lucky to have been trained by the best in their respective fields. A special acknowledgement to my colleagues and my research team Adv. Shipraa Tanna, Adv. Damini Joshi, Ms. Sruti Kalyanikar, Adv. Aryan Lukka, Adv. Soman Pandey, Adv. Sristi Nimodia, Mr. Mann Agrawal and Ms. Shriya Nandedkar. This book is as much a labour of their love as it is mine! Special thanks to Vidyut Shah from Mumbai who was instrumental in pushing me to write upon this Topic.

How to Use This Book

The questions in this book have been painstakingly framed from questions of law that have been raised by various litigants before the judicial and quasi judicial authorities. The questions are meant to not only point in the direction of the answers that are given but to assist professionals as well as the officers of the Directorate in formulating legal grounds for challenging actions by the Authorities under the Act and find case law that deals with them.

The law relating to the Prevention of Money Laundering is fast moving, dynamic and full of unique challenges. Great care has been taken to frame the answers, but there is a possibility that the answers to some of may have changed due to the further development of law. Due care is advised.

Pains have been taken to ensure that the text of the answer in the book stays true to the Judgment/Order from which they are distilled. Invariably, the text in the answers may coincide with the text in the Judgment. This is deliberate and in order to avoid confusion over interpretation. This is an effort to aid accurate research based on the ‘what you see is what you get’ formula.

This book is neither a commentary nor constitutes legal advice. It is strongly recommended that the readers peruse the Judgments/ orders cited before relying upon the same wherever they have doubts.

The most important aspect of this book is the question Index. It is designed to not only aid research but also give ideas. It is hoped that the Question Index gives rise to further questions which shall then be presented before the Courts to be answered!

The issues of compliance and Chapter IV “Obligations of Banking Companies, Financial Institutions and Intermediaries” are not covered in this book. This is deliberate as they deserve a separate

publication by themselves and do not lend themselves to the question answer format adopted in this book. Some inadvertent errors may have crept into the book. Any feedback on the same is most welcome!

In this book, the Prevention of Money Laundering Act stands for the Prevention of Money Laundering Act, 2002, Bankruptcy Code stands for the Insolvency and Bankruptcy Code, 2016, Code of Criminal Procedure stands for the Code of Criminal Procedure, 1973 and the Securitisation Act stands for the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

In this Book, references to ‘The Act’ shall, unless specified stands for the Prevention of Money Laundering Act, 2002 and ‘Directorate’ or ‘Enforcement Directorate’ is a reference to the Directorate of Enforcement.

1. What are ‘proceeds of crime’ as per the Prevention

2. Is the explanation added in 2019 to the definition of Proceeds of crime in the Prevention of Money Laundering Act prospective or retrospective?

3.

4. Whether the Explanation inserted into section 3 of the Prevention of Money Laundering Act that ‘clarifies’ the definition of the offense of money laundering when read with section 2(p) is retrospective in its application or prospective?

7. Can property derived indirectly or from further transactions carried out on the proceeds of crime be considered as proceeds of crime?

8. Can the expression ‘and’ in section 3 of the Prevention of Money Laundering Act be construed as an ‘or’ with regard to the requirement of ‘projecting or claiming’ tainted property as untainted to constitute an offense under the Act?

9. Will the offense of money laundering be triggered only upon the laundering of money? Is the Act Preventive or Penal? Can the giver of a bribe be prosecuted for the offense of money laundering?

10. Can amendments to Prevention of Money Laundering Act including the explanations added to section 3 and section 2(1)(u) of the Act be passed through a Money bill in the Parliament?

11. Whether the provisions of the Prevention of Money Laundering Act can be invoked in the case of a criminal complaint having being initiated on the basis of a civil commercial transaction having gone sour?

12. Does the Prevention of Money Laundering Act extend to scheduled areas in absence of a notification to that effect as envisaged by para 5 of the Vth Schedule to the constitution of India?

13. Can professional charges received from accused clients be considered proceeds of crime in the hands of the professionals? Can the issue of certificates by professionals based upon the documents furnished by clients lead to their prosecution?

14. Can property mortgaged to a bank prior to the commission of the alleged scheduled offence be considered proceeds of crime in the hands of the mortgagee bank?

15. Can attachment of properties suspected to be proceeds of crime mortgaged with a bank be made when the offenses involved the siphoning off of funds borrowed from the bank? Can any movable property obtained from loan money and hypothecated with the bank fall within the purview of definition of proceeds of crime under Prevention of Money Laundering Act?

ATTACHMENT

16. Whether the existence of a prosecution for a scheduled offence is a prerequisite for provisional attachment under section 5 of the Prevention of Money Laundering Act?

17. Whether a general recording a ‘reason to believe’ by the authorised officer of the Directorate of Enforcement is enough for provisional attachment under the Prevention of Money Laundering Act? Whether the Adjudicating Authority and the Directorate of Enforcement are required to give a detailed finding about the existence of ingredients of section 5(1) even if such issues were not raised?

13

14

15

18

22

23

18. What are the inbuilt statutory safeguards with regard to Provisional Attachment in the Prevention of Money Laundering Act? 27

19. Can the attachment of a property under the Prevention of Money Laundering Act continue if the reasons were not recorded in writing while making the attachment?

20. Will the duration of stay by a Court be excluded for computing the period of time for which provisional attachment can be made?

21. Does it automatically follow that the moment any person is found to be in possession of any proceeds of crime, provisional attachment must be made by presuming that the proceeds of crime are likely to be concealed, transferred or dealt with in a manner which may frustrate any proceedings for confiscation of the proceeds?

22. Whether a Writ Petition for quashing an order of provisional attachment can be moved directly before the High Court?

23. Can the attachment of assets over and above what are identified as proceeds of crime be made by the Enforcement Directorate?

24. Is it mandatory to issue a notice prior to provisional attachment under the Prevention of Money Laundering Act?

25. Whether attachment of proceeds of crime lapses in absence of non-filing of the charge-sheet within the statutory period prescribed by section 8(3)(a) of the Prevention of Money Laundering Act?

26. When the entire proceeds of crime are already secured with a Court, can other properties of the Accused be attached as proceeds of crime?

27. Can properties held by bona fide third parties be attached under Prevention of Money Laundering Act?

28. Can the properties of persons not named as accused under the Prevention of Money Laundering Act be attached under the provisions of Prevention of Money Laundering Act?

29. Whether provisional attachment can be made by the authorities without forwarding a report under section 173 of the Code of Criminal Procedure?

30. Can an attachment be made in India with regard to the commission of an offence in a foreign country corresponding to a scheduled offence?

31. Can property of ‘equivalent value’ in India be attached even if proceeds of crime are held in India?

32. Does the attachment under section 5 of Prevention of Money Laundering Act survive after the acquittal of the accused from a scheduled offense?

33. Whether the Provisional Attachment Order can be passed against the property of a family member of an individual accused of money laundering or a property transferred to a family member?

34. Can relatives of the Accused seek release of jewellery attached/ seized from them under the Prevention of Money Laundering Act?

35. Whether Enforcement Directorate can attach the property for ‘value equivalent’ of the proceeds of crime without considering the Reasonable Market Value as on the day of attachment?

36. Can the Directorate of Enforcement attach properties of ‘equivalent value’ as proceeds of crime without trying to trace the actual proceeds of crime?

37. Can a property that has been sold to a bona fide third party before the passing of the Provisional Attachment Order be attached by the Directorate?

38. Can a show cause notice under section 8 of the Prevention of Money Laundering Act be challenged under Article 226 of the Constitution of India? Can it be challenged in Appeal?

39. What are the procedural safeguards provided in the proceedings for confirmation of attachment before the Adjudicating Authority?

40. Is the Adjudicating authority required to furnish all the documents relied upon while coming to its ‘reason to believe’ that the properties sought to be attached are proceeds of crime?

41. Can the Adjudicating Authority ‘borrow reasons to believe’ from the complaint filed by the Enforcement Directorate?

42. What is the procedure for granting inspection of records and for giving a reasonable hearing to the parties, prior to passing of orders by the Adjudicating Authority?

43. Can the Adjudicating Authority take advantage of suo motu extension of limitation as ordered by the Supreme Court due to Covid pandemic to confirm the provisional attachment order after a period of 180 days has passed?

44. Whether a Show Cause Notice under section 8 of Prevention of Money Laundering Act can be quashed if such notice is issued by a bench of Adjudicating Authority not constituted correctly by the reason of it not having a Judicial member?

45. Whether the Adjudicating Authority is required to serve a notice to a financer/mortgagee/lien holder of a property which is suspected of being proceeds of crime and subject to proceedings under section 8 of the Act even though such financer/mortgagee/lien holder of a property may not be in possession of the same?

67

46. Whether mere Appearance before the Adjudicating Authority would imply that the jurisdiction of the Authority has been submitted to? 72

47. Whether the Office of the Adjudicating Authority becomes ‘functus officio’ with the expiry of 180 days’ time period from the date of passing the order of provisional attachment unless the Adjudicating Authority completes the adjudication and confirms the order of provisional attachment before such 180 days’ time period?

48. Whether an order of the Adjudicating Authority under section 8(3) of the Prevention of Money Laundering Act, merely affirms the provisional attachment order under section 5(1) and whether the two orders are interconnected or independent?

49. Whether provisional attachment can be quashed when the Notice under section 8 of Prevention of Money Laundering Act does not contain ‘reasons to believe that any person has committed an offense under section 3 or is in possession of the Proceeds of Crime’ but the said reasons stand incorporated in the Complaint under section 5(5) of the Act?

50. Whether the Scheme of section 8 of the Prevention of Money Laundering Act which may result in revealing the defense of the accused before the trial in the special Court starts, is violative of the protection conferred by Article 20(3) of the Constitution of India?

51. Whether confirmation of attachment proceedings by the Adjudicating Authority under section 8(3) of the Prevention of Money Laundering Act directly lead to possession of the property and transferring of money to the Directorate of Enforcement under section 8(4) of the Act ?

52. Whether attachment of a property of which the possession/title is disputed/under litigation can be confirmed without serving statutory notice under section 8(1) of the Prevention of Money Laundering Act to all the concerned parties?

53. Does the Adjudicating Authority have any power to review its orders under the Prevention of Money Laundering Act?

54. Can a bona fide third party whose properties are attached approach the Adjudicating Authority for release of attached property ?

55. Can the Adjudicating Authority confirm attachment of property mortgaged to a bank without serving the mandatory notice under section 8(1) or section 8(2) of the Prevention of Money Laundering Act to the bank and giving it an opportunity to be heard?

56. Can assets of a party allegedly connected to the activity of money laundering that have been provisionally attached be released upon furnishing of security?

73

75

76

78

79

83

84

85

85

86

57. Whether a purchaser of alleged ‘tainted’ property who is one of the accused in Economic Case Information Report is entitled to be supplied with a copy of the report and the recorded ‘reasons to believe’ for attachment?

58. Whether an accused under the Prevention of Money Laundering Act can be allowed to operate his pension account attached by Enforcement Directorate on humanitarian grounds?

59. Is it necessary that proceedings for the offence under Prevention of Money Laundering Act in terms of section 45 must be pending during confirmation of the provisional attachment under section 8(3) of the Act?

60. Whether the proceedings before Adjudicating Authority under Prevention of Money Laundering Act are civil proceedings or criminal proceedings?

61. Whether third parties can approach the Authorities claiming that they have no right and no title in the attached property in order to get their name deleted from Prevention of Money Laundering Act proceedings?

62. Can an order of the Adjudicating Authority confirming the provisional attachment that is silent on merits and quantum involved proceedings be sustained in Appeal?

63. Whether the passing of an order by the Adjudicating Authority without serving a copy of the rejoinder filed by the Directorate of Enforcement to the affected party is a violation of natural justice?

THE POWERS OF THE APPELLATE TRIBUNAL

64. Can a Petitioner move the High Court seeking a ‘no coercive action’ order through a Writ Petition when the Appeal is filed before the Appellate Tribunal under Prevention of Money Laundering Act but the Tribunal is not functioning?

65. Whether the Assistant/Deputy/Additional/Joint Director, Enforcement Directorate has the power to file an appeal under section 26(1) of the Act before the Tribunal though the section only mentions ‘Director’?

66. Can a person whose property has not been attached, challenge the order of the Adjudicating Authority before the Appellate Tribunal?

67. Does the Prevention of Money Laundering Act Tribunal have the power to grant stay on the confirmation of provisional attachment order of the Adjudicating Authority?

87

88

88

89

90

91

93

94

95

96

68. Can the Appellate Tribunal stay the notice under section 8(4) of the Prevention of Money Laundering Act without giving any reasons for the same?

69. Can the composition/qualification and the service conditions of the Authorities and Members of the Tribunal under the Prevention of Money Laundering Act be challenged in a court of law?

70. Does the procedure for service of the order of the Appellate Tribunal under the Prevention of Money Laundering Act affect the limitation for the Appeal to the High Court? Who must be served with the order of the Appellate Tribunal?

71. Does the Appellate Tribunal have the power to order release of attached property?

72. Can the Appellate Tribunal under the Prevention of Money Laundering Act entertain a Miscellaneous Application filed after a Final Order has been passed by it in an Appeal?

73. Whether a stay granted by the Appellate Tribunal automatically expires within a period of six months unless extended by a speaking order ?

74. Whether the possession post attachment of property by the Directorate can be lifted by the Appellate Tribunal when wife and children of the Accused under the Prevention of Money Laundering Act were residing in such property when the Directorate took possession?

75. Can the Attachment order passed by the Adjudicating Authority be sustained when the Accused in the money laundering proceedings fails to file his reply as he was in Judicial Custody?

76. Whether the Appellate Tribunal has the Jurisdiction to pass any appropriate orders for violation of Fundamental Rights of the affected parties with relation to search and seizure and retention of records and property under the Prevention of Money Laundering Act?

107

108

109

77. Whether delay in filing a Restoration of Appeal Application can be condoned by the Appellate Tribunal? 109

78. Whether the Appellate Tribunal can pass a decree for recovery of money from the Enforcement Directorate? 110

THE POWERS OF THE HIGH COURT

79. Can the High Court exercise the power as provided under section 407 of the Code of Criminal Procedure to transfer a case from the Special Court exercising powers under the Prevention of Money Laundering Act?

111

80. Can the High Court pierce the corporate veil while entertaining a Writ Petition under Article 226 of the Constitution of India challenging proceedings under the Prevention of Money Laundering Act?

81. Whether the Writ jurisdiction of a High Court can be invoked where the Appellate Tribunal refuses to allow the Petitioner to file documents and evidence not earlier produced before the Adjudicating Authority/Tribunal?

82. Whether a prayer for the use of properties attached by the Enforcement Directorate during the pendency of the trial before the Special court can be made in a Writ Petition before the High Court?

83. Can the High Court be directly approached in writ for stay on order of eviction of a property attached under the Act when an appeal before the Appellate Tribunal is dismissed for default and a restoration application is filed which is pending?

84. Whether the High Court may issue a writ of mandamus (Article 226) or exercise its supervisory jurisdiction (Article 227) to transfer/ consolidate multiple criminal proceedings in different cities arising out of the same cause of action?

85. Whether bona fide third parties can approach the High Court through a Writ Petition under Article 226 of the Constitution of India in order to lift attachment of property under Prevention of Money Laundering Act when such attachment has been confirmed without an opportunity to be heard?

86. What factors may be taken into consideration by the High Court while exercising its power under section 482 of the Code of Criminal Procedure in offences under Prevention of Money Laundering Act?

87. Whether the High Court can condone delay in filing of appeal against the order of the Tribunal beyond the period prescribed by Prevention of Money Laundering Act?

88. Can the High Court order money attached by the Enforcement Directorate in Prevention of Money Laundering Act proceedings against a financial institution or a corporate body to be released to the depositors or investors?

89. Can the High Court exercise its Writ Jurisdiction to quash a show cause notice under section 17(4) of the Prevention of Money Laundering Act issued by the Adjudicating Authority subsequent to a ‘Search and Seizure’ proceedings on the ground that the offence of money laundering was not made out and that the seized materials were in any manner related to the proceeds of crime?

90. Can the High Court be moved by a Petitioner for injunction against proceedings by the Enforcement Directorate based upon a ‘seizure memo’ even if the appellate remedy has already been exercised by the Petitioner?

112

113

114

115

116

117

118

122

123

124

125

91. Whether the High Court can appoint a Special Inquiry team to look into allegation of corruption and money laundering in a public interest litigation?

92. Whether the Doctrine of ‘Forum Non-Conveniens’ can be invoked when a Writ Petition is sought to be filed in New Delhi by an aggrieved Petitioner from outside Delhi, considering that both the Adjudicating Authority and the Appellate Tribunal are located in New Delhi?

93. If the complaint is filed by the Enforcement Directorate in one State and the trial is before the Special Court in that state while the properties attached are in another state, which High Court would have the Jurisdiction to hear a Petition challenging the Attachment?

94. Could the Adjudication of an Appeal without deciding of an application filed before the Adjudicating Authority be sufficient for a High Court to entertain a Writ Petition to challenge the order? Can a Writ lie directly from the order of the Adjudicating Authority?

95. Whether the Adjudicating Authority can ignore the order of quashing of attachment passed by a High Court on the basis that the Enforcement Directorate may challenge the same in the Supreme Court?

126

130

96. Can an Enforcement Case Information Report be sought to be quashed under Article 226/227 of the Constitution of India? 133

97. Is the term Investigation as contemplated under Prevention of Money Laundering Act similar in its scope and ambit to that used under the Code of Criminal Procedure?

98. Is the existence of ‘reasonable belief’ required for the commencement of investigation under the Prevention of Money Laundering Act?

99. Does the Enforcement Directorate or the Adjudicating Authority need to adjudicate upon its jurisdiction before issuing summons when such points are raised by the accused?

100. Is a Writ Petition maintainable against a Notice issued by the Directorate of Enforcement under section 50 of the Prevention of Money Laundering Act?

101. Can an Advocate be permitted to be present during the recording of the statement of a person under section 50 of the Act?

102. Can the copy of statement recorded under section 50 of the Prevention of Money Laundering Act be demanded by the Deponent?

136

137

103. Can an advocate/professional be summoned under section 50 of the Prevention of Money Laundering Act to give evidence upon a matter regarding clients?

104. Can the persons to whom the summons are issued under section 50 of Prevention of Money Laundering Act, claim the protection of the Right under Article 20(3) of the Constitution of India that states that no person accused of any offense shall be compelled to be a witness against himself?

105. What are the safeguards included in section 18 over and above those provided in section 17 of the Prevention of Money Laundering Act?

106. Can any action (Search and Seizure) under section 17(1) of the Prevention of Money Laundering Act, conducted by authorities without recording any ‘Reasons to believe’ be valid?

107. Does the absence of safeguards as provided by the Code of Criminal Procedure regarding the search and seizure without a formal First Information Report being filed or a complaint being filed under a scheduled offense make the scheme of section 17 unconstitutional?

108. Does the deletion of the first ‘proviso’ which required a report to be forwarded to a Magistrate or a complaint to be filed before a Magistrate as a precondition for Search to be conducted as per section 17 and section 18 make these sections Unconstitutional?

109. Whether retention of frozen property can continue even after expiry of 180 days after attachment even though no allegation of involvement in the scheduled offence or under the Prevention of Money Laundering Act is found?

110. Can accounts be frozen and can extension or retention of the same be allowed in the absence of search action under section 17 of the Prevention of Money Laundering Act?

111. Can the Retention Order for seized/frozen properties or documents passed by Adjudicating Authority be set aside if it is not a reasoned order considering the merits of case?

112. Whether the Adjudicating Authority has the Jurisdiction to extend the period of retention of records in second retention application after expiry of 180 days from date of first retention application?

113. Can the Adjudicating Authority direct the Directorate of Enforcement to file a fresh application for retention of seized property after the period prescribed by section 20(1) of the Prevention of Money Laundering Act is over and the earlier application for retention is not allowed?

114. What is an Enforcement Case Information Report under the Prevention of Money Laundering Act? How does it compare to a First Information Report?

147

149

150

151

152

152

153

115. Can the Enforcement Directorate withhold a copy of ‘complaint’ (Enforcement Case Information Report) made by the directorate on basis of the investigation from the accused?

116. What action can the Directorate of Enforcement take with regard to False information or failure to give information by a person under the prevention of the Money Laundering Act?

117. What is the procedure to be followed while passing orders of search and seizure/Inquiry/Attachment under the Prevention of Money Laundering Act, when letters of request are received under Chapter IX of the Act from a contracting state?

118. Can the investigation of offenses under the Prevention of Money Laundering Act be transferred to the Central Bureau of Investigation?

158

159

161

119. What were the observations of the Supreme Court on the opacity of the Enforcement Directorate manual? 162

7 ARREST AND BAIL

120. What are the inbuilt safeguards in section 19 of the Prevention of Money Laundering Act that provides for arrest of persons? 163

121. Would the arrest under section 19 of the Prevention of Money Laundering Act made by the authorised officers be ex facie manifestly arbitrary and unconstitutional on the ground that there is no formal complaint for the offense of money laundering filed for the offense of money laundering?

164

122. Whether bail can be granted for offences under the Prevention of Money Laundering Act? 166

123. What are the provisions concerning arrest and the procedural safeguards with respect to arrest as contained in the Prevention of Money Laundering Act?

167

124. Whether the Assistant Director of Enforcement has the authority to affect arrest of the accused? 168

125. Whether the accused arrested under the Prevention of Money Laundering Act needs to be informed about the grounds of his arrest prior to his arrest?

172

126. Whether anticipatory bail can be granted for offences under the Prevention of Money Laundering Act? 173

127. Whether bail can be granted under Prevention of Money Laundering Act without complying with the provisions of section 45(1) of Prevention of Money Laundering Act?

175

128. Whether the Judgment of the Supreme Court in Nikesh Tarachand Shah v. Union of India (2018) 11 SCC 1 has lost its significance in light of the amendment to section 45(1) of Prevention of Money Laundering Act?

129. On what reasoning did the Supreme Court in Vijay Madanlal Choudhary distinguish the view taken in Nikesh Tarachand Shah with regards to the Twin Conditions for bail?

130. Is a court required to arrive at a finding of fact that the twin conditions are being fulfilled for grant of bail under section 45(1) of the Prevention of Money Laundering Act?

131. Whether an accused is entitled to statutory bail under section 167(2) of Code of Criminal Procedure for offences under Prevention of Money Laundering Act?

132. Whether twin conditions would apply to an application for bail moved under section 436A of the Code of Criminal Procedure for offences under Prevention of Money Laundering Act?

133. Are the Twin Conditions as laid down in section 45(1) Prevention of Money Laundering Act applicable to the grant of anticipatory bail?

134. Whether section 45 of the Prevention of Money Laundering Act applies the twin conditions contained therein to the bail application of an Applicant not accused of committing a scheduled offence under the Act?

135. Whether the fact that a scheduled offence is cognizable or not would have an impact on the grant of bail under the Prevention of Money Laundering Act?

POWERS OF THE SPECIAL COURT

136. What Court shall have jurisdiction over the trial for offenses under the Prevention of Money Laundering Act?

137. What is the interplay between the proceedings before the Special Court and the proceedings before the authorities as prescribed by the Prevention of Money Laundering Act? Do the proceedings before the Prevention of Money Laundering Act authorities need to be completed before the Special Court proceeds with the prosecution?

138. If there are multiple special courts designated under the Prevention of Money Laundering Act would the special court already having taken cognizance of the offense of money laundering be competent to try the predicate offense or any other designated court?

177

184

186

187

188

190

191

194

195

197

139. Can a person arrested for offenses under the Prevention of Money Laundering Act be produced before a Magistrate as per section 19 of the Prevention of Money Laundering Act in those jurisdictions where the Special Court has already been constituted?

140. Can non-bailable warrants be issued by the Special Court to compel the appearance of accused in Court even when the accused have been cooperating with the investigative authorities and have duly appeared before the said authority?

141. Is the clubbing of trials for the Predicate offense and the offense under the Prevention of Money Laundering Act compulsory? Can such clubbing be done on an application made by an accused?

142. At what stage can the prosecution for the Scheduled offenses proceedings be clubbed with the proceedings in the special court under the Prevention of Money Laundering Act?

143. Is it necessary that all offenses made out as predicate offenses need to be ‘scheduled offenses’ for proceedings before the Special court under Prevention of Money Laundering Act?

144. Can the special court under Prevention of Money Laundering Act try predicate offenses including offenses under Prevention of Corruption Act and the Narcotic Drugs and Psychotropic Substances Act, 1985?

145. Are the trials under Prevention of Money Laundering Act and for the scheduled offense that are prosecuted together as committed to the Special Court joint trials?

146. Does an accused already in custody facing trial for a scheduled offense need to be produced before the Special court while taking cognizance of the offense under the Prevention of Money Laundering Act?

147. Can the Directorate of Enforcement file a Supplementary complaint before the Special Court under the Prevention of Money Laundering Act?

148. Is the authorisation under the second proviso to section 45(1) of the Prevention of Money Laundering Act required to be granted only in the name of the President of India?

9

THE ENFORCEMENT DIRECTORATE AND OTHER AGENCIES

149. Which are the agencies responsible for the administration and enforcement of the Prevention of Money Laundering laws in India?

150. Whether the Enforcement directorate has the Power to inquire or investigate about suspicious transactions relating to deposit of Indian currencies with financial intermediaries?

151. Do Police officers have co-extensive powers and can they take cognizance of/investigate a matter under Prevention of Money Laundering Act?

152. Whether the Authorities under Prevention of Money Laundering Act are required to follow the procedures laid down by the Code of Criminal Procedure for investigation by the police?

153. Whether the Enforcement Directorate is duty bound to provide the ‘reasons to believe’ while passing orders under section 17 or section 5(1) of the Prevention of Money Laundering Act, to the concerned parties?

154. Is the amendment to section 13(2) of the Prevention of Money Laundering Act which empowers the Director with the discretion to issue only a warning or impose fine prospective or retrospective?

155. What is the procedure to be followed by the Enforcement Directorate when letters of request are received under section 60 of the Act from a contracting state?

156. Can the local police of a state issue summons under section 160(1) of the Code of Criminal Procedure to the officers of the Enforcement Directorate outside the local jurisdiction of the Police station?

157. What is the procedure to be followed by the Enforcement Directorate while forwarding the ‘reasons to believe’ and the application under section 17(4) of the Prevention of Money Laundering Act to the Adjudicating Authority seeking continuation of the freezing orders and confiscation?

158. Whether the Enforcement Directorate ought to transmit all the documents, which are in its possession, to the Adjudicating Authority while sending the same in a sealed cover under Rule 8 of 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?

159. Can a parallel investigation be carried out for the scheduled offenses when investigation under the Prevention of Money Laundering Act is ongoing?

160. Can investigation under Prevention of Money Laundering Act be done when the primary offense is investigated by the Central Bureau of Investigation and the concerned state government has revoked the consent given to the Central Bureau of Investigation for carrying out investigation within the territory of that state?

219

220

222

223

225

226

227

161. Can the Enforcement Directorate freeze the bank accounts/attach property as an interim measure before recording reasons in writing that there is a ‘reason to believe’ that section 5(1) or section 17(1) of Prevention of Money Laundering Act is attracted to the facts of the case?

162. Can the Enforcement Directorate seek eviction from attached properties of the persons in possession before the statutory period of limitation for appeal before the Tribunal is over?

163. Does the competent authority under the Prevention of Money Laundering Act need to wait for the disposal of the appeal by the Tribunal before the confiscation of property under section 8 of the Prevention of Money Laundering Act?

164. Can the Enforcement Directorate ask the Tehsildar not to issue revenue extracts for properties that have not been attached under section 5 of the Prevention of Money Laundering Act?

165. Can the Enforcement Directorate file a complaint to the local police when it finds out that a scheduled offense has occurred?

166. Can the Directorate of Enforcement take cognizance of an offense of money laundering based on an offense that is not scheduled?

167. Can officers of the Directorate of Enforcement be Considered police officers?

168. Can private individuals file complaints for offenses under the Money Laundering Act with the Directorate of Enforcement like they can at a police station for scheduled offenses? If this is refused, can they move a Court seeking direction to be given to Enforcement Directorate to register an offense under the Prevention of Money Laundering Act?

169. Can the Directorate of Enforcement make a complaint to the police for a scheduled offense even if such complaint is not filed?

170. Does the Enforcement Directorate have the authority to attach any movable or any immovable property which is in the custody of a court without taking leave of the court?

171. Whether the Adjudicating Authority and Directorate of enforcement should give its own finding based on independent investigation rather than rely upon the calculation of another agency?

241

242 10

INTERPLAY WITH SCHEDULED OFFENCES

172. Can a person be prosecuted for the offense of money laundering even if he is found not guilty of the scheduled offenses? 243

173. Is the Directorate of Enforcement required to wait for results of the prosecution of the scheduled offenses in order to initiate proceedings under section 3 of Prevention of Money Laundering Act?

174. Can proceedings under Prevention of Money Laundering Act be initiated for an offense which was not scheduled at the outset, but was introduced through an amendment at a later point of time?

175. Does the prosecution for an offense under section 3 of Prevention of Money Laundering Act against a person who is not accused of a scheduled offense survive after the acquittal of the accused from a scheduled offense?

176. Would predicate offenses that were scheduled when the complaints were filed, but were subsequently removed from the schedule still attract the rigours of the Prevention of Money Laundering Act?

177. Can a complaint filed by the Enforcement Directorate in Prevention of Money Laundering Act proceedings be used in an application under section 482 of the Code of Criminal Procedure to quash proceedings regarding predicate offenses?

178. Can proceedings under the Prevention of Money Laundering Act be initiated for those predicate offenses that were committed before the Act came into operation?

179. Is the classification or the gravity of the Scheduled offense relevant for the purposes of the Prevention of Money Laundering Act?

180. Can properties acquired before the commission of the scheduled offense or prior to the Prevention of Money Laundering Act coming into force fall under the definition of “proceeds of crime” and be attached under the Act?

181. Is it necessary that a scheduled offense needs to be made out for Prevention of Money Laundering proceedings to be initiated? Will a predicate offense of a domestic law corresponding to a scheduled offense also attract the provisions of the Act?

INTERPLAY WITH OTHER STATUTORY LAWS

182. Whether offenses under the Prevention of Money Laundering Act are cognizable after the amendment of 2005?

183. What happens in case of a conflict between the provisions of Prevention of Money Laundering Act and Code of Criminal Procedure?

184. Are the Provisions of sections 41, 41A and other beneficial provisions of the Code of Criminal Procedure applicable to proceedings under the Prevention of Money Laundering Act?

252

253

256

257

259

262

265

266

185. Are sections 207 and 208 of the Code of Criminal Procedure applicable to Prevention of Money Laundering Act Proceedings? 267

186. Whether the Directorate of Enforcement is required to file the final form under section 173 of the Code of Criminal Procedure before the designated special court if no offense of money laundering is made out?

187. Whether all accused under Prevention of Money Laundering Act need to be charge sheeted under section 173 of the Code of Criminal Procedure for scheduled offenses under the Act?

188. Are the safeguards provided to women under the Code of Criminal Procedure available to women under section 50 of the Prevention of Money Laundering Act?

189. Do the provisions of Prevention of Money Laundering Act have an overriding effect on the Recovery of Debts and Bankruptcy Act, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act and Insolvency Code?

190. Is a sanction under section 197 of the Code of Criminal Procedure required to prosecute a public servant under the Prevention of Money Laundering Act?

191. Can the Enforcement Directorate oppose a scheme of amalgamation under the Companies Act on the grounds that if the same is allowed, the same may hamper the discovery of proceeds of crime/ money laundering?

192. Can compounding under Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000, be refused by the Reserve bank of India or by the Enforcement Directorate for offenses under Foreign Exchange Management Act only on the grounds that proceedings are initiated by the Enforcement Directorate under Prevention of Money Laundering Act?

271

273

280

280

193. What is the co-relation between the Fugitive Economic Offenders Act, 2018 and the Prevention of Money Laundering Act? 284

194. Does the Appellate Tribunal have jurisdiction to pass order for deletion of entry of declaration of the Appellant’s account as ‘Non-Performing Asset’ which has been done by the Bank due to the actions of the Directorate?

284

195. If a state brings about an Act that is in conflict with the provisions of Prevention of Money Laundering Act, which Act shall prevail? 285

196. Are the Provisions of section 205 of the Criminal Procedure Code which provides for dispensing with the personal appearance of the Accused applicable to proceedings under the Prevention of Money Laundering Act?

287

BURDEN OF PROOF

199. Does section 24 of the Prevention of Money Laundering Act that shifts the burden of proof onto the Accused apply to the attachment proceedings or proceedings before the special court? Is it a relevant consideration during the consideration of grant of bail by the Special Court?

200. Does section 24 of the Prevention of Money Laundering Act that shifts the burden of proof onto the accused stand the test of constitutionality?

290

292

295

CHAPTER

Proceeds of Crime 1

Q.1 What are ‘proceeds of crime’ as per the Prevention of

Money Laundering Act?

Ans. Section 2(1)(u) of the Prevention of Money Laundering Act defines the term ‘proceeds of crime’. It reads as follows :

“proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property [or where such property is taken or held outside the country, then the property equivalent in value held within the country [or abroad]]

Explanation.— For the removal of doubts, it is hereby clarified that “proceeds of crime” include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence;

The Supreme Court in Vijay Madanlal Choudhary v. Union of India

2022 SCC On Line SC 929/[2022] 140 taxmann.com 610 held that the definition of “proceeds of crime” in section 2(1)(u) of the Prevention of Money Laundering Act is common to all actions under the Act, namely, attachment, adjudication and confiscation being civil in nature as well as prosecution or criminal action. By further amendment vide Finance (No. 2) Act, 2019, Explanation has been added which is obviously a clarificatory amendment. That is evident from the plain language of the inserted Explanation itself. The fact that it also includes any property which may, directly or indirectly, be derived as a result of any criminal activity relatable to scheduled offence does not transcend beyond the original provision. In that, the word “relating to” (associated with/has to do with) used in the main provision is a present participle of word “relate” and the word “relatable” is only an adjective. The thrust of the original provision itself is to indicate that any property that is derived or obtained, directly or indirectly, as a result of criminal activity concerning the scheduled offence, the same be regarded as proceeds of crime. In other words, property in whatever form mentioned in section 2(1) (v), that is or can be linked to criminal activity relating to or relatable

to scheduled offence, must be regarded as proceeds of crime for the purpose of the Act.

Q.2 Is the Explanation added in 2019 to the definition of Proceeds of crime in the Prevention of Money Laundering Act prospective or retrospective?

Ans. In 2019, an Explanation was added to section 2(1)(u) of the Prevention of Money Laundering Act that states—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.

The Supreme Court in Vijay Madanlal Choudhary v. Union of India 2022 SCC On Line SC 929/[2022] 140 taxmann.com 610 (SC) held that the Explanation added in 2019 in no way travels beyond that intent of tracking and reaching upto the property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence. Therefore, the Explanation is in the nature of clarification and not to increase the width of the main definition “proceeds of crime”. The definition of “property” also contains Explanation which is for the removal of doubts and to clarify that the term property includes property of any kind used in the commission of an offence under the Prevention of Money Laundering Act or any of the scheduled offences.

The Court held that the Explanation inserted in 2019 is merely clarificatory and restatement of the position emerging from the principal provision [i.e., section 2(1)(u) of the Prevention of Money Laundering Act].

Q.3 What constitutes the offense of money laundering?

Ans. The Offense of money laundering is defined by section 3 of the Prevention of Money Laundering Act which states : 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 including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering.

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;

(b) or possession;

(c) or acquisition;

(d) or use;

(

e) or projecting as untainted property;

(

f) or 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.

The Supreme Court in Vijay Madanlal Choudhary v. Union of India 2022 SCC On Line SC 929/[2022] 140 taxmann.com 610 (SC) held that the expression “money-laundering”, ordinarily means the process or activity of placement, layering and finally integrating the tainted property in the formal economy of the country. However, section 3 of the Prevention of Money Laundering Act has a wider reach. The offence, as defined, captures every process and activity in dealing with the proceeds of crime, directly or indirectly, and not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money-laundering.

From the bare language of section 3 of the Act, it is amply clear that the offence of money-laundering is an independent offence regarding the process or activity connected with the proceeds of crime which had been derived or obtained as a result of criminal activity relating to or in relation to a scheduled offence. The process or activity can be in any form — be it one of concealment, possession, acquisition, use of proceeds of crime as much as projecting it as untainted property or claiming it to be so. The involvement in any one of such process or activity connected with the proceeds of crime would constitute offence of money-laundering. This offence otherwise has nothing to do with the criminal activity relating to a scheduled offence — except the proceeds of crime derived or obtained as a result of that crime.

The Supreme Court observed that it is only such property, derived or obtained, directly or indirectly, as a result of criminal activity relating

to a scheduled offence which can be regarded as proceeds of crime. The authorities under the Act cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum. The expression “derived or obtained” is indicative of criminal activity relating to a scheduled offence already accomplished.

Q.4 Whether the Explanation inserted into section 3 of the Prevention of Money Laundering Act that ‘clarifies’ the definition of the offense of money laundering when read with section 2(p) is retrospective in its application or prospective?

Ans. The Explanation stating that a person being involved in concealment, or possession or acquisition or use or projecting as untainted property or claiming as untainted property in any manner whatsoever shall be guilty of the offense of money laundering and also making the process or activity of Money laundering a continuing activity, has been inserted into the Act in 2019 (w.e.f. 1-08-2019).

The Rajasthan High Court in the case of Shyam Sundar Singhvi v. UOI 2020 SCC On Line Raj. 1981 held that a reading of section 3 of the Prevention of Money Laundering Act reveales that the offence of money laundering is an offence regarding the accused indulging in any process or activity connected with proceeds of crime including its concealment, possession, acquisition or use and further projecting and claiming the same to be untainted property. The definition given in section 3 of the Prevention of Money Laundering Act was later on clarified by adding Explanation and as such it did not change the basic ingredients which were required to be alleged against a person for committing an offence under section 3. The clarification which has been added was for removal of doubts perhaps due to the somewhat ambiguous definition inserted in the main provision of section 3. It was held that the Legislature if by way of amendment adds Explanation for removal of doubts, it cannot be said that a punitive provision has been inserted in the definition and the same has to be given effect from a prospective date. Therefore, the amendment would have a retrospective application.

In Vijay Madanlal Choudhary v. Union of India 2022 SCC On Line SC 929/[2022] 140 taxmann.com 610 (SC), the Supreme Court held that the Explanation as inserted in 2019 does not entail in expanding the purport

of section 3 of the Prevention of Money Laundering Act as it stood prior to 2019, but is only clarificatory in nature in as much as section 3 is widely worded with a view to not only investigate the offence of money laundering but also to prevent and regulate that offence. This provision plainly indicates that any (every) process or activity connected with the proceeds of crime results in the offence of money laundering. Projecting or claiming the proceeds of crime as untainted property, in itself, is an attempt to indulge in or being involved in money-laundering, just as knowingly concealing, possessing, acquiring or using of proceeds of crime, directly or indirectly. The Court held the inclusion of Clause (ii) in Explanation inserted in 2019 is of no consequence as it does not alter or enlarge the scope of section 3 at all as the existing provisions of section 3 of the Prevention of Money Laundering Act as amended until 2013 which were in force till 31.7.2019 have been merely explained and clarified by way of Explanation vide Finance (No. 2) Act, 2019.

Q.5 Can property involved in the commission of the scheduled offense be considered proceeds of crime?

Ans. The definition of “proceeds of crime” as contained in section 2(1)(u) of the Prevention of Money Laundering Act states that it “means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence.” It is therefore important that the phrase ‘proceeds of crime’ refers to property that is necessarily ‘derived or obtained’ ‘as a result’ from a criminal activity. This would indicate that property that is actually involved in the commission of the scheduled offense cannot be considered proceeds of crime as it would not be ‘derived or obtained as a result’ from a criminal activity. However, the property may still be considered as proceeds of crime as the definition of proceeds of crime is also extended to encapsulate “the value of any such property”. Therefore, property that is involved in the commission of the scheduled offense may very well indirectly fall into the definition of the term proceeds of crime.

The Supreme Court in Vijay Madanlal Choudhary v. Union of India 2022 SCC On Line SC 929/[2022] 140 taxmann.com 610 (SC) held that the term “proceeds of crime” needs to be construed strictly as it is one of the core of the ingredients constituting the offence of money-laundering. In that, all properties recovered or attached by the investigating agency in connection with the criminal activity relating to a scheduled offence under the general law cannot be regarded as proceeds of crime. There may be cases where the property involved in the commission of scheduled offence attached by the investigating agency dealing with that offence, cannot be wholly

or partly regarded as proceeds of crime within the meaning of section 2(1)(u) of the Prevention of Money Laundering Act - so long as the whole or some portion of the property has been derived or obtained by any person “as a result of” criminal activity relating to the stated scheduled offence. To be proceeds of crime, therefore, the property must be derived or obtained, directly or indirectly, “as a result of” criminal activity relating to a scheduled offence. To put it differently, the vehicle used in commission of scheduled offence may be attached as property in the concerned case (crime), may still not be proceeds of crime within the meaning of section 2(1)(u) of the Act. For being regarded as proceeds of crime, the property associated with the scheduled offence must have been derived or obtained by a person “as a result of” criminal activity relating to the concerned scheduled offence. This distinction must be borne in mind while reckoning any property referred to in the scheduled offence as proceeds of crime for the purpose of the Act.

Q.6 Can possession of unaccounted money be considered proceeds of crime?

Ans. The term proceeds of crime is defined in section 2(1)(u) of the Prevention of Money Laundering Act. This definition makes it clear that the definition of proceeds of crime with regard to the Prevention of Money Laundering Act is rooted in the commission of a scheduled offense as contemplated by the Act. The possession of unaccounted money simplicitor cannot by itself be considered proceeds of crime in the absence of the commission of a scheduled offense.

The Supreme Court in Vijay Madanlal Choudhary v. Union of India 2022 SCC OnLine SC 929/[2022] 140 taxmann.com 610 (SC) held that the possession of unaccounted property acquired by legal means may be actionable for tax violation and yet, will not be regarded as proceeds of crime unless the concerned tax legislation prescribes such violation as an offence and such offence is included in the Schedule of the Prevention of Money Laundering Act.

Q.7 Can property derived indirectly or from further transactions carried out on the proceeds of crime be considered as proceeds of crime?

Ans. The term “proceeds of crime” as contained in section 2(1)(u) of the Prevention of Money Laundering Act states that it “means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence.” Therefore, the statute

explicitly includes any property derived or obtained even indirectly as a result of criminal activity relating to a scheduled offense within the ambit of the term ‘proceeds of crime’.

The Supreme Court in Vijay Madanlal Choudhary v. Union of India 2022 SCC On Line SC 929/[2022] 140 taxmann.com 610 (SC) held that the definition clause in section 2(1)(u) of the Prevention of Money Laundering Act includes any property derived or obtained “indirectly” as well. This would include property derived or obtained from the sale proceeds or in a given case in lieu of or in exchange of the “property” which had been directly derived or obtained as a result of criminal activity relating to a scheduled offence. In the context of Explanation added in 2019 to the definition of expression “proceeds of crime”, it would inevitably include other property which may not have been derived or obtained as a result of any criminal activity relatable to the scheduled offence. As noticed from the definition, it essentially refers to “any property” including abroad derived or obtained directly or indirectly.

Q.8 Can the expression ‘and’ in section 3 of the Prevention of Money Laundering Act be construed as an ‘or’ with regard to the requirement of ‘projecting or claiming’ tainted property as untainted to constitute an offense under the Act?

Ans. Section 3 of the Prevention of Money Laundering Act states : 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 including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.

A bare perusal of the words used in the statute would suggest that the mere involvement of a person in any process of activity connected with the proceeds of crime including its concealment, possession, acquisition or use would not be sufficient for constituting an offense as contemplated by section 3 of the Act and that projecting or claiming the same as untainted property would be essential for the offense to be triggered. However, the Supreme Court in Vijay Madanlal Choudhary v. Union of India 2022 SCC On Line SC 929/[2022] 140 taxmann.com 610 (SC) held that if such an interpretation was to be accepted, it would follow that it is only upon projecting or claiming the property in question as untainted property, that the offence would be complete. This would undermine the efficacy of the legislative intent behind section 3 of the Act and also will be in disregard of the view expressed by the Financial Action Task

Force in connection with the occurrence of the word “and” preceding the expression “projecting or claiming” therein.

The Court held that it had no hesitation in construing the expression “and” in section 3 of the Act as “or”, to give full play to the said provision so as to include “every” process or activity indulged into by anyone, including projecting or claiming the property as untainted property to constitute an offence of money-laundering on its own. “The act of projecting or claiming proceeds of crime to be untainted property presupposes that the person is in possession of or is using the same (proceeds of crime), is also an independent activity constituting offence of money-laundering”. In other words, it is not open to read the different activities conjunctively because of the word “and”. If that interpretation is accepted, the effectiveness of section 3 of the Act can be easily frustrated by the simple device of one person possessing proceeds of crime and his accomplice would indulge in projecting or claiming it to be untainted property so that neither is covered under section 3 of the Act.

Q.9 Will the offense of money laundering be triggered only upon the laundering of money? Is the Act Preventive or Penal? Can the giver of a bribe be prosecuted for the offense of money laundering?

Ans. The Scheme of the Act clearly shows that the Prevention of Money Laundering Act does not merely purport to punish the offense of money laundering but also to prevent it. It would therefore be incorrect to assume that the offense of money laundering would be triggered upon the laundering of money. In fact, section 3 of the Act makes even the possession of proceeds of crime a part of the offense of money laundering. The Supreme Court has held that the giver of a bribe can be prosecuted for the offense of money laundering.

The Supreme Court in Vijay Madanlal Choudhary v. Union of India 2022 SCC On Line SC 929/[2022] 140 taxmann.com 610 (SC) held that since the initial strokes of drafting the Act, the intention was always to have a preventive Act and not simply a money laundering (penal) Act. The Court observed that if one dives deep into the financial systems, anywhere in the world, it is seen that once a financial mastermind integrates illegitimate money into the bloodstream of an economy, it is almost indistinguishable. In fact, the money can be simply wired abroad at one click of the mouse. It is also well known that once this money leaves the country, it is almost impossible to get it back. The Court refused to accept the argument and take a view that section 3 of the Prevention of

Your Queries on Law

Relating to PREVENTION OF MONEY LAUNDERING INVESTIGATION | CONFISCATION |

PROSECUTION

AUTHOR : R.V. EASWAR , ADITYA AJGAONKAR

PUBLISHER : TAXMANN

DATE OF PUBLICATION : FEBRUARY 2023

EDITION : 2023 Edition

ISBN NO : 9789356226715

NO.OF PAGES : 334

BINDING TYPE : PAPERBACK

DESCRIPTION

Rs. 700 USD 38

This book presents the question(s) of law on the Prevention of Money Laundering Act (PMLA), raised before judicial & quasi-judicial authorities in question & answer format. This book is a curated & practical handbook that is helpful for professionals, the Directorate of Enforcement and litigants.

The Present Publication is the latest 2023 Edition and has been amended up to 31st January 2023. This book has been authored by Aditya Ajgaonkar and edited by Justice R.V. Easwar, with the following noteworthy features:

• [Comprehensive Question & Answer Format] has been adopted that addresses' the question(s) of law' raised before the Courts, with the following objective:

• Assist professionals & officers of the Directorate in formulating legal grounds for challenging actions

• Find Case Laws

• [Comprehensive Reliance on Case Laws] from the Supreme Court, High Courts and Tribunals set up under the PMLA. This book ensures that the text of the answers stays true to the Judgement/Order from which they are derived

• [Question Index] has been incorporated in this book that is designed to not only aid the research but also to give ideas

ORDER NOW