-Rushil Batra
Introduction
In 2022, the Supreme Court gave its much-awaited pronouncement in the case of Vijay Madanlal Chaudhary v Union of India on various aspects of the Prevention of Money Laundering Act, 2002 (PMLA)– inter alia the constitutionality of PMLA, conditions for bail, and the role of the Enforcement Case Information Report (ECIR). The judgement was rightly criticized on many grounds and some parts of it are already under review. However, a rather interesting but missed out finding is on the question of the relationship between predicate offences and PMLA proceedings. This is the focal point of this paper. While this question was answered in an earlier case and was in one sense only a reiteration of the past position, the jurisprudence on this remains hazy, to say the least. The Supreme Court has once again clarified that the presence of a predicate offence is a sine qua non for PMLA proceedings to exist and in case an accused is acquitted in the case involving the predicate offence, the state cannot proceed with PMLA proceedings.
Hence, this essay first, analyses the definition of ‘money laundering’ and the legislative intent and objectives behind the Act. Second, it highlights the conflicting jurisprudence on the issue of linking predicate offences with PMLA proceedings, the issues faced by courts over the years and discusses how the case of Madanlal clarified the position of law on this aspect. Third, it analyses cases decided post-Madanlal to argue that it is now settled that a predicate offense is a sine qua non for PMLA proceedings. Lastly, it concludes by arguing that notwithstanding other criticisms of Madanlal, the case rightly held that without the predicate offence, PMLA proceedings shall fail.
What Constitutes Money Laundering – A Textual Analysis
Section 3 of the PMLA Act provides for the definition of money laundering. It provides that,
“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.” (emphasis mine)
This definition is clearly quite broad. It would cover a situation where even though someone is not related to the scheduled offence, they could still be liable for concealing the proceeds of crime. A prime facie reading of this leads one to the conclusion that laundered property must be ‘proceeds of crime’ in order for the offense to be classified as money laundering. Essentially, this means that the trial of the scheduled offence must succeed. While there is a substantial amount of jurisprudence just on the question of what ‘proceeds of crime’ means, that is outside the scope of this paper. Rather, the question to be considered here is whether one can initiate money laundering proceedings without the existence of a predicate offense i.e., if the proceeds in question have not actually been proven to be ‘proceeds of crime’, can money laundering charges be framed?
Over the years, the definition of money laundering has been broadened by various amendments over the years. For example, mere possession of proceeds of crime, without it being projected as legal money would count as money laundering today. As discussed earlier, a prior crime or predicate offense is seemingly a sine qua non for there to exist ‘proceeds of crime’ and consequently, money laundering. These ‘predicate offenses’ which would render money as ‘proceeds of crime’ are listed in the Schedule. This list too has been broadened over the years by including various crimes, some of which have little to no transnational implication – which was the original reason for the enactment of the PMLA.
Hence, it is clear from a plain reading of the section that while money laundering is indeed an independent offence, it is also inextricably connected with the predicate offence. However, confusion arose when the government added an explanation to Section 44 by way of an amendment. While it was ostensibly brought in for ‘removal of doubts’ it stated that the jurisdiction of the Special Court or ED dealing with a PMLA offence ‘shall not be dependent upon any orders passed in respect of the scheduled offence…’
While this was claimed to have been introduced as a matter of abundant caution, if taken to its logical conclusion, it is an untenable position and would turn the legislative intent of the Act over its head. If interpreted textually, the explanation would indicate that the offence of money laundering can exist even if one has been acquitted of the predicate offense. Fortunately, this interpretation was eventually rejected by the Supreme Court in Vijay Madanlal Chaudhary, but not before a hazy jurisprudence developed on this issue which is analyzed in the next section.
Predicate Offences And PMLA – Conflicting Jurisprudence Before Madanlal
It is a well-settled position of law that money laundering is an independent offence in the sense that if one commits a predicate offence, they shall be liable for punishment for both the given offence and any money laundering done therein. However, the question before the courts was whether one can totally de-link the offence of money laundering and the predicate offence. For example, if a person was charged for offence X which is a predicate offense under the Schedule of the PMLA and acquitted, can the state still proceed against them for money laundering?
Abhinav Sekhri argues that PMLA is a parasitic law since the very definition of money laundering is pegged to the ‘proceeds of crime’ which in turn relies upon the existence of a scheduled offense. This interpretation is also in line with the legislative intent of the Act, as is evident by the parliamentary debates. In 2012, P. Chidambaram, the then finance minister (who ironically was jailed under the very same Act), while giving a speech regarding the 2012 Amendmentsaid –
“…firstly, we must remember that money-laundering is a very technically-defined offence. It is not the way we understand ‘money-laundering’ in a colloquial sense. It is a technically-defined offence. It postulates that there must be a predicate offence and it is dealing with the proceeds of a crime. That is the offence of money-laundering. It is more than simply converting black-money into white or white money into black. That is an offence under the Income Tax Act. There must be a crime as defined in the Schedule. As a result of that crime, there must be certain proceeds…The predicate offences are all listed in the Schedule. Unless there is a predicate offence, there cannot be an offence of money-laundering.” [emphasis mine]”
Hence, from a textual standpoint, this point of law seems clear. However, relying upon the explanation provided under Section 44, various High Courts had held that the offence of money laundering, being independent of the scheduled offence, will not ‘meddle’ with trial of each other. For example, the Bombay HC, relying on the explanation to Section 44, went further to say that even if the investigating agency has filed a closure report in the scheduled offence, it will not wipe out PMLA proceedings.
On the other hand, the Delhi HC– using the same logic that Sekhri espouses – held that the link between the scheduled offence and PMLA proceedings is inextricable.
This position was reiterated in other cases as well wherein it was held that the offence of money laundering cannot be viewed in isolation. Rather it was to be read in context of complimentary provisions and a ‘bare perusal’ of the same establishes the inextricable link between the scheduled offence and PMLA.
Due to the conflicting jurisprudence on the issue, the SC finally settled the position in 2019 by agreeing with the Delhi HC’s logic. The same question again came up in 2022, wherein the SC in Madanlal rightly held that in case one has been acquitted under the scheduled offence, then no question of money laundering, for the ‘proceeds’ are not ‘proceeds of crime’. In other words, the Supreme Court held that the presence of a scheduled offence is a sine qua non for the offence of money laundering.
Jurisprudence Post Madanlal and Lingering Questions
Since the judgement in Madanlal, there have been multiple cases that use the same logic of predicate offences being inextricably linked to money laundering proceedings. Cases decided post-Madanlal highlight that Madanlal is being understood in letter and spirit where the courts are now discharging the accused of PMLA proceedings where they are acquitted of the predicate offence. Recently, the Telangana HC took a rather interesting view to say that ideally, it would be in the interest of justice for the PMLA Court to await the conclusion of the case involving the scheduled offence before passing any judgement in the PMLA case.
Hence, the issue of one being acquitted and then not being charged for PMLA is no longer res-integra post Madanlal. However, some interesting questions did remain unanswered. For example, what happens if the acquittal is not on merits but on some breach of procedure? While arguably Madanlal does not directly answer this question, the Delhi HC has held that, by an extension of the same logic employed in Madanlal, whatever may be the reason for the scheduled offence being closed, PMLA proceedings cannot sustain. The same has been cited with approval by the Calcutta HC to say that even if a compromise is achieved between the parties, PMLA proceedings ought to stop.
But what if the person is charged for a PMLA offence but was not named as an accused in the predicate offence? This issue arose before the Madras HC. The court held that since the definition of money laundering is wide and covers indirect involvement as well (‘any activity connected with the proceeds of crime’), there is no need for the accused to be named in the predicate offence. This has been stayed by the SC and this question remains open as of today.
Conclusion
The aim of this paper was to analyse the conflicting jurisprudence on the scheme of PMLA and the issue of predicate offences therein. In almost all cases including Madanlal, the ED tried to argue that the predicate offence and PMLA are absolutely independent of each other. This was done by relying upon the explanation to Section 44(1)(d). On the other hand, the argument on the other side was that there is an inextricable link between the predicate offenses and PMLA. The former view has now been explicitly rejected by the Supreme Court to hold that a predicate offense is a sine qua non for PMLA proceedings to subsist. This is in line with Sekhri’s logic and Chidambram’s speech given in Parliament. The idea remains that a structure cannot remain standing when its foundations have been removed.
On analysing cases post Madanlal, in the six months that have lapsed, it was seen that High Courts have followed the judgement consistently. They have usually acquitted persons of PMLA proceedings if the scheduled offence could not be proven. This ratio of Madanlal has also been cited by the Supreme Court in other cases with approval as well. After a hazy line of jurisprudence on this issue, it is perhaps right to say that the issue is now finally settled.
[ Author is a second year law student at NLSIU, Bangluru]
