I.INTRODUCTION
The Prevention of Money Laundering Act, 2002 (“PMLA”) is a law enacted in India to combat money laundering and related crimes. The PMLA allows for the arrest and detention of individuals suspected of the offence of money laundering and also provides for the grant of bail, after the fulfilment of certain circumstances.
In this article, we will discuss the arrest and bail provisions under the PMLA.
II. BACKGROUND
According to Section 3 of the PMLA, in order to commit the offence of “money laundering”, a person must have: a) attempted to engage ‘directly’ or ‘indirectly’; b) ‘knowingly’ assisted; c) ‘knowingly been a party to’; or d) ‘actually participated’ in any process or activity involving proceeds of crime, including concealing, possessing, acquiring, or using them, as well as projecting or claiming them to be untainted property.
“Proceeds of Crime” is defined under Section 2(u) of the PMLA as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad”.
Additionally, Scheduled Offences (predicate) refer to those offences listed in Parts A, B, and C of the Schedule to the PMLA.
III. ARREST IN CRIMINAL CASE vs. ARREST UNDER PMLA
The word ‘arrest’ is derived from the French word ‘Arreter’ meaning “to stop or stay” and signifies the restraint of a person. The question of whether a person is under arrest or not depends not on the legality of the arrest, but on whether he has been deprived of his personal liberty to go where he pleases.[1] An arrest starts with the arrester taking a person into his custody by actions or words restraining him from moving anywhere beyond the arrester’s control and it continues until the person so restrained is either released from custody or, having been brought before a Magistrate, is remanded in custody by the Magistrate’s judicial act.[2]
An arrest can be made under Section 41 of the Code of Criminal Procedure (“CrPC”) if the police have ‘reasonable suspicion’ that the person has committed an offence punishable with imprisonment. The police may or may not need a warrant for arrest from the Magistrate, depending upon whether the offence is non-cognizable or cognizable in nature.
Arrest under PMLA can be made under Section 19 if the Enforcement Directorate has reasons to believe (on the basis of material in possession) that a person has committed an offence of money laundering under Section 3. However, the PMLA is a specific statute and officials of the Enforcement Directorate are not police officers. In Shri Kancharla Srihari Babu vs Directorate of Enforcement[3], the court held that Section 41 of the CrPC is not applicable while making arrests under Section 19 of the PMLA.
The primary distinction between an arrest by police made pursuant to Section 41 of the CrPC and an arrest made pursuant to Section 19 of the PMLA is that the former may be made on “mere suspicion,” whereas the latter, which has been given a higher priority by the Legislature, requires sufficient proof to establish a “reason to believe” that the person is guilty of the money laundering offence.
IV. INTERDEPENDENCE OF ‘PREDICATE OFFENCES’ WITH ‘MONEY LAUNDERING’
Understanding Predicate Offences
As per the Black’s Law Dictionary, the term predicate is defined as “that which is said concerning the subject in a logical proposition”. For eg- in the phrase “the law is the perfection of common sense.,” “Perfection of common sense,” is the predicate.
Therefore, a predicate offense is an offense on the basis of which an offence of money laundering can be made out. The ‘Schedule’ of the PMLA includes a list of offences which fall under the category of predicate offenses. Unless there is a predicate offence, there cannot be an offence of money laundering. Typically, a predicate offence is a crime that is undertaken to enhance a broader criminal objective, such as money laundering, drug trafficking, or financing terrorism.
In P. Chidambaram v Directorate of Enforcement[4], the Supreme Court held that although the crime of money laundering is designated as an independent offence, it is still dependent on the underlying predicate offence to the extent that the proceeds of crime were obtained through criminal activity connected to or associated with the scheduled offence.
Is Money Laundering a Standalone offence?
The Supreme Court in Vijay Madanlal Chaudhary v UOI[5] observed that indeed, money laundering is a standalone offence. The court observed that in the event of acquittal of the person concerned or being absolved from the allegation of criminal activity relating to a scheduled offence, and if it is established in the court of law that the suspected property in the concerned case has been rightfully owned and possessed by him, then such property by no stretch of imagination can be termed within the meaning of ‘proceeds of crime’. On the other hand, in the trial in connection with the scheduled offence, the Court would be obliged to direct the return of such property as belonging to him. It would be then paradoxical to still regard such property as proceeds of crime despite such adjudication by a Court of competent jurisdiction. It is well within the jurisdiction of the concerned Court trying the scheduled offence to pronounce on that matter.
Therefore, the established position of law after the Vijay Madanlal[6] judgement is that in case the accused is acquitted in the predicate offence, proceedings under the PMLA cannot continue.
V. ‘ARREST’ UNDER PMLA FOR MONEY LAUNDERING
Section 19 of the PMLA provides for the arrest of a person accused of the offense of money laundering (Section 3).
The prerequisites for a valid arrest are as follows:
- The Director, Deputy Director, Assistant Director or any other authorized officer
- On the basis of material in possession
- Has reason to believe (Such reason to believe must stem from the fact that the Officer has material or evidence in their possession that points towards the guilt of an accused).
- General or Special Order for Arrest
- Arrest
- Immediately ‘Inform Grounds of Arrest’ to the person accused.
After following all these prerequisites, the authorized officer can make a valid arrest.
Immediately after the arrest, the officer must forward a copy of the ‘arrest order’ and ‘material in possession’ to adjudicating authority in ‘sealed cover’.
Finally, the arrested person must be presented before the Judicial or Metropolitan Magistrate within 24 hours of making the arrest. (While calculating the stipulated time of 24 hours, the time necessary for the journey from the place of arrest to the Magistrate’s court is excluded).
In Vijay Madanlal Chaudhary v UOI[7], the Supreme Court held that the power of ED to arrest, without there being a formal complaint filed is valid and has a reasonable nexus with the purposes and objects sought to be achieved by the PMLA of prevention of money laundering and confiscation of proceeds of crime involved in money laundering, including to ensure that the proceeds of crime are not dealt with in a manner which can result in frustrating any proceedings relating to confiscation.
Grounds for Arrest
If on the basis of the survey, search or seizure conducted upon the proceeds of the Accused, the Director, Deputy Director, Assistant Director or any other officer has reason to believe that an offense of money laundering has been committed, the ED may authorize an officer for arrest of the Accused.
In the case of Rajeev Saxena v Directorate of Enforcement[8], the Delhi High Court observed that arrest under the PMLA must be based on (a) credible information and (b) the grounds for such arrest must be recorded in writing (herein, ‘grounds for arrest’ is synonymous to ‘recording the reasons to believe in writing’ as required under Section 19). Furthermore, the court also held that (c) the rights of the accused must be protected while making the arrest; the accused must not be subjected to any harassment while making such an arrest.
Procedure for Arrest
The procedure for making an arrest has been prescribed in Section 3 of the “Prevention of Money-Laundering (the Forms and the Manner of Forwarding a Copy of Order of Arrest of a Person along with the Material to the Adjudicating Authority and its Period of Retention) Rules, 2005.”
As per Section 3, the officer making an arrest for an offence of money laundering must:
- mandatorily prepare an INDEX of the order copy and all the evidence/material they have in their possession.
- Sign every page of such index of the order copy.
- Draft and send a letter to the Adjudicating Authority in a sealed envelope along with all the material in possession.
- Officer must submit a ‘slip of acknowledgement’ in the format given.
- Reference number and date of dispatching the envelope must be mentioned on the sealed envelope before sending it.
- The envelope must be marked as ‘Confidential’, and the words “to be opened by the addressee only” must be written on it.
- The sealed envelope must be further kept inside an outer envelope, accompanied by an acknowledgement slip. This envelope must also have the name and complete address of the AA along with the seal.
- The officer arresting the accused must also compulsorily maintain the necessary registers and records, including the dak register, acknowledgement slip registration, etc.
In the case of Vakamulla Chandrashekhar vs ED & Anr.[9], the petitioner sought an “order of restraint” on the ED’s power to arrest. The Delhi High Court rejected such an application and held that the power given to ED officers under Section 19 is valid, and any arrest made thereunder must also conform to Sections 40 and 41A of the CrPC. The Court further held that the intensity and risk associated with the crime of money laundering and further efforts to track and destroy evidence are extremely high. Therefore, the power given under Section 19 was upheld.
Further, in the case of Chhagan Chandrakant Bhujbal v. UOI[10], it was held that the fact of whether the offence under PMLA was cognizable or not does, not affect the power of arrest under Section 19. An arrest under PMLA by an arresting officer is valid when the grounds of such arrest were informed to the accused in writing, and the officer followed the necessary procedure of submitting the arrest order to the Adjudicating Authority the next day. The Court also held that even if there was any non-compliance with the procedure of arrest, it would not make the arrest under PMLA null and void wholly.
VI. BAIL IN PMLA
Section 45 of the PMLA provides for bail to the persons arrested under PMLA for the offence of money laundering.
Further, persons apprehending arrest under PMLA can also apply for anticipatory bail (pre-arrest bail) before the High Court of competent jurisdiction.
Regular Bail:
As per Section 45, the twin conditions mentioned therein must be fulfilled for the grant of bail. The conditions are as follows:
- “The public prosecutor must be given an opportunity to oppose any application for release on bail.
- The court must be satisfied, where the public prosecutor opposes the application, that there are reasonable grounds for believing that the accused is “…not guilty of such offence, and that he is not likely to commit any offence while on bail”.
The twin conditions stipulated in Section 45 require an arrested person (not proven guilty) to prove his innocence before being granted bail which goes against the commonly understood principle of Indian jurisprudence being that ‘any person is innocent until proven guilty.’
The Supreme Court in Nikesh Tarachand Shah v UOI[11] held that Section 45 is a drastic provision which ‘turns on its head’ the presumption of innocence which is fundamental to a person accused of any offence. Such drastic inroads to a person’s fundamental right can only be made if there is a compelling state interest involved, which the Legislature intends to protect. It was held that in the absence of any such compelling state interest, the twin conditions under Section 45 were declared arbitrary, discriminatory, and therefore, unconstitutional.
However, this position was altered in the Vijay Madanlal Chaudhary v UOI[12] judgement which held that although the twin conditions provided under Section 45 restricted the right of an accused to grant of bail, it is not an absolute restraint on the grant of bail. Holding the same, the court observed that considering the gravity of the offence of money laundering, the discretion has been vested with the courts to grant bail under Section 45 only after the fulfilment of the twin conditions mentioned therein.
Procedure and Grounds for seeking Regular Bail
As per the established position of law, the arrested person would move an application under Section 45 for a grant of bail. Firstly, the Prosecution will be provided with an opportunity to oppose the bail plea. Secondly, after hearing the prosecution, the court must be satisfied that the arrested person has not committed the offence of money laundering and that he will not commit any offence while being released on bail.
The following grounds can be administered by the arrested persons in their bail application :
- Available throughout the Investigation Process[13]
- Extended full and proper cooperation in Investigation proceedings.[14]
- Provided all documents required for investigation.
- Disclosed all sources of income (no illicit proceeds)[15]
- Arrest was not made during the investigation process.
- The officer did not warrant arrest during the Investigation.
- No offence of money laundering has been committed.
- No further offence will be committed.
Main Arguments for Rejection of Regular Bail:
The main arguments that the Prosecution can advance for rejection of a bail application under Section 45 are:
- Firstly, the Prosecution will argue that the twin conditions are not bieng satisfied.
- The accused was evasive of the questions.[16]
- The gravity of offence necessitates arrest.
- Although the arrested person co-operated in all investigation processes, he did not ‘physically surrender.’[17]
- In case bail is granted, there is scope for proceeds of crime being transferred, or being otherwise dealt with.
Anticipatory Bail
Section 65 of the PMLA provides that provisions of CrPC shall apply insofar as they are not inconsistent with the provisions of this Act. The PMLA does not contain any express provision regarding anticipatory bail, and therefore, Section 438 of the CrPC can be utilized in obtaining anticipatory bail.
General Rule for Grant of Anticipatory Bail
In P. Chidambaram v Directorate of Enforcement[18], the Supreme Court had observed that grant of anticipatory bail at the stage of investigation:
- ‘may frustrate the investigating agency in interrogating the Accused’ and ‘in collecting the useful information and also the materials which might have been concealed.’
- Success in such interrogation would elude if the Accused knew that he is protected by the order of the court.
- Grant of anticipatory bail, particularly in economic offences would hamper the effective investigation.
Holding that grant of bail at the pre-arrest stage can severely hamper the effective investigation of the case, the Supreme Court held that anticipatory bail can be granted in exceptional circumstances where the entire case of the Prosecution is frivolous and built on baseless grounds. Further, the court also held that the grant of anticipatory bail can only be based on the facts and circumstances of each case.
Grounds for Seeking Anticipatory Bail
In case a person is apprehending arrest in a money laundering case, he can apply for anticipatory bail in the High Court of competent jurisdiction u/s 438 of the CrPC.
The person can establish that the prosecution’s case is devoid of any merit and is merely a means to harass the accused.
The person can make a declaration on affidavit that he will properly co-operate and be available for all investigation proceedings and provide all necessary documents when required.
In case there are other ‘similar pending cases,’ the person can plead that another PMLA case is registered as an offshoot of the similar scheduled offence.
In case the cause of action has occurred at a location different from where the complaint has been filed, the accused person can plead the same in his application for a grant of anticipatory bail.[19]
CONCLUSION
The PMLA has been instrumental in preventing money laundering and confiscating assets obtained through illegal means. However, the arrest and bail provisions under the Act have been critiqued by many for being harsh against the accused.
Critics argue that the burden of proving innocence lies with the accused, which is against the principles of natural justice. They also argue that the high threshold for granting bail under the PMLA makes it difficult for the accused to defend themselves.
On the other hand, proponents of the Act argue that stringent provisions are necessary to prevent money laundering and to ensure that those who have committed financial crimes are held accountable for their actions.
In conclusion, while the PMLA has been effective in preventing money laundering and confiscating illegal assets, there is a need to strike a balance between the rights of the accused and the need to prevent financial crimes.
[1] AIR 1994 SC 1775
[2] 1990 Cr Lj 2201
[3] Criminal Petitions Nos. 9825, 9846 & 10021 of 2021
[4] (2019) 9 SCC 24
[5] 2022 SCC OnLine SC 929
[6] Supra 5
[7] W.P. (C) 5294/2020 & C.M APPL. 19120/2020
[8] WP (CRL) 852/2017
[9] Criminal Writ Petition 3931 of 2016
[10] Writ Petition (Criminal) No. 67/2017
[11] Supra 5
[12] [2022/DHC/005170]
[13] Bail Appln. 2354/2014, Delhi High Court
[14] 2000 IIIAD Delhi 369
[15] (2017) 9 SCC 714
[16] Ibid 16
[17] Ibid 4
[18] [ABLAPL No. 710/2022]