The Prevention of Money Laundering Act (PMLA), 2002 was formally passed in January of 2003. The Act, together with the Rules made under it, became operational on July 1st, 2005. Section 3 of the Prevention of Money Laundering Act (PMLA) defines the offence of money laundering as anyone who directly or indirectly attempts to engage in or knowingly assists or is involved in any process or activity related to the proceeds of a crime, and presents it as clean property, will be guilty of the offence of money laundering. This regulation mandates banking institutions, financial organisations, and intermediaries to verify and keep records of the identity of their clients, as well as all transactions. They are also required to provide information about these transactions in the specified format to the Financial Intelligence Unit-India (FIU-IND). The Director of FIU-IND has the authority to levy fines on banking companies, financial institutions, or intermediaries if they or any of their officers fail to comply with the terms of the Act mentioned above.
The Prevention of Money Laundering Act (PMLA) grants specific authority to officers of the Directorate of Enforcement to conduct investigations in instances related to the crime of money laundering. These officials are also authorised to seize and confiscate the property engaged in money laundering. The PMLA proposes the establishment of an Adjudicating Authority to exercise the jurisdiction, power, and authority granted by it, primarily to validate the attachment or order the confiscation of properties that have been attached. Additionally, it plans to establish an Appellate Tribunal to adjudicate appeals against the rulings of the Adjudicating Authority and other entities such as the Director of FIU-IND.
The Prevention of Money Laundering Act (PMLA) allows for the establishment of Special Courts, which are designated sessions courts, to handle cases including violations punishable under the PMLA as well as charges that can be brought against the accused under the Code of Criminal Procedure 1973 in the same trial. The PMLA grants the Central Government the authority to establish a partnership with foreign governments to enforce the provisions of the PMLA, exchange information to prevent any offence under the PMLA or the equivalent law in that country, and investigate cases related to offences under the PMLA.
1. Rana Kapoor v. ED; 2022/DHC/005170. (Delhi High Court)
Background:
Mack Star Marketing Pvt. is a joint venture created by Ocean Deity Investment Holding Ltd. (ODIL), a firm based in Mauritius, and Housing Development and Infrastructure Ltd. (HDIL). Limited The Wadhawans brothers were responsible for the day-to-day management of Mack Star. As to the Articles of Association of Mack Star, the company is not allowed to borrow more than 20 lakhs without obtaining authorization from ODIL.
Nevertheless, amidst HDIL's financial problems, Mack Star managed to secure a loan of 200 crores from Yes Bank without ODIL's authorization and subsequently transferred the funds to HDIL. ODIL was oblivious to this fact as auditors conspired with the Wadhawans and concealed the information.
Upon discovering this, ODIL's investors promptly notified Yes Bank. Nevertheless, Yes Bank persisted in granting loans to Mack Star's account. Yes Bank has been accused of issuing these loans without fulfilling a criteria stated in its sanction letter, which mandated the acquisition of Non-Disposal Undertakings (NDUs) from investors. Although NDUs were acquired from the Wadhawans, the bulk of investors (ODIL) were not contacted, suggesting an effort to conceal the transaction from them.
Following that, the Central Bureau of Investigation (CBI) filed a First Information Report (FIR) under sections 120B, 409, and 420 of the Indian Penal Code (IPC), and sections 13(2) and 13(1)(d) of the Prevention of Corruption (PC) Act against the Wadhawans, two directors of HDIL, a chartered accountancy business, two private people, and unidentified public officers and private individuals. The Enforcement Directorate (ED) initiated an Enforcement Case Information Report (ECIR) based on the First Information Report (FIR). The ECIR was lodged under sections 3 and 4 of the Prevention of Money Laundering Act (PMLA). Subsequently, Rana Kapoor, the managing director of Yes Bank, was detained. Following that, Kapoor submitted a bail application.
Judicial Decision::
The court approved the bail request because the ED had not started the trial within a period of two years. Meanwhile, Mr. Kapoor, the Applicant, has already completed 73% of the minimum penalty required by the applicable law. The judge observed:
"The Enforcement Directorate (ED) consistently opposes bail applications but does not take any proactive measures to proceed with trials, as required by section 44(1)(c) of the Prevention of Money Laundering Act (PMLA), especially when the accused is an undertrial prisoner. Similarly, in numerous other cases, the Court has repeatedly instructed the ED to adhere to the true intent and requirements of section 44(1)(c) of the PMLA."
The court further noted that the remaining accused persons were not apprehended, and those who were apprehended had already been granted bail. The Judge enumerated 11 cases under the Prevention of Money Laundering Act (PMLA) involving 17 convicts awaiting trial since 2019. In these cases, the Enforcement Directorate (ED) has not initiated any actions to transfer the cases pertaining to the underlying offences to the PMLA court. As a result, the court strongly criticised the ED when granted bail to the Applicant in this matter.
2. Rana Ayyub v. ED; Writ Petition (Criminal) No. 12 of 2023. (Supreme Court)
Background:
In this instance, the petitioner Rana Ayyub launched a crowdfunding campaign on the web platform "Ketto." As a result, the Mumbai Zonal Office of the Enforcement Directorate began an investigation into the petitioner under the Foreign Exchange Management Act, 1999 ("FEMA"). Following that, a First Information Report (FIR) was filed against the petitioner at the Indirapuram Police Station in Ghaziabad. The FIR was filed under sections 403, 406, 418, and 420 of the Indian Penal Code (IPC), along with provision 66D of the Information Technology (Amendment) Act, 2008, and section 4 of the Black Money Act. The Delhi Zone-II Office of the Directorate of Enforcement filed a complaint in ECIR against the petitioner in relation to the FIR. The petitioner contested the authority of any legal procedures in the special court of PMLA that are conducted outside the state of Maharashtra. The petitioner argued that the trial for the scheduled offence and the Prevention of Money Laundering Act (PMLA) should be conducted separately in the jurisdiction where the money laundering offence took place. Hence, any legal actions pertaining to the planned crime and the Prevention of Money Laundering Act (PMLA) shall be restricted to the state of Maharashtra.
Judicial Decision:
According to Section 44(1)(a) of the PMLA, the norm for territorial jurisdiction is established. It states that any offence that can be punished under section 4 of the PMLA, along with any related scheduled offence, must be tried by the Special Court in the region where the offence took place.
According to section 44(1)(c) of the scheme, if the Court that has started the legal proceedings for the scheduled offence is different from the Special Court that has started the legal proceedings for the money laundering offence, the former should transfer the case related to the scheduled offence to the latter. This transfer should happen when an application is filed by the authorised authority.
The court concluded that the territorial jurisdiction of the special court should be based on the location where the proceeds of crime were acquired, possessed, concealed, and utilised. The geographical region in which each of these locations is situated will be deemed as the jurisdiction where the act of money laundering took place. Therefore, the petitioner's claim that her bank account was in Navi Mumbai cannot be considered, as the court lacks factual knowledge of any potential money laundering activities outside of Maharashtra. An investigation is necessary, and the facts presented during the Trial Court proceedings will ultimately determine this. As a result, the court dismissed the petition and allowed Rana Ayyub the freedom to bring up the matter of territorial jurisdiction in front of the Trial Court.
The Supreme Court reaffirmed a similar line of reasoning in the case of KA Rauf v. ED1, stating that:
The Special Court established under the PMLA has the authority to trial scheduled offences, as stated in section 44(1)(a) and section 44(1)(c) of the PMLA. This jurisdiction remains intact even if another court takes notice of the scheduled offence. If such situations arise, the alternative court is obligated to refer the case to the Special Court upon request from the relevant authority.
According to Section 44(1)(a) of the PMLA, the crime of money laundering can only be tried by the Special Court established in the jurisdiction where the crime took place. Hence, the Special Court in each jurisdiction has the authority over regions where the profits of the criminal activity were hidden, owned, approved, utilised, presented as clean assets, or declared as clean assets.
3. Y Bala ji v. Karthik Desari; SLP (Cri.) Nos. 12779-12781 of 2023. (Supreme Court)
Background:
In November 2014, the Metropolitan Transport Corporation released a notice inviting applications for multiple positions, such as Drivers, Conductors, Junior Tradesmen (Trainee), Junior Engineers (Trainee), and Assistant Engineers (Trainee). Interviews were carried out, and a roster of chosen candidates was publicised.
Later, it was disclosed that the jobs had been given in return for financial considerations, resulting in many legal problems, including difficulties linked to the Prevention of Money Laundering Act (PMLA).
It has been alleged that the present case goes against the concept set forth in the Vijay Madan Lal Chaudhry v. Union of India2 decision. It has been contended that the Enforcement Directorate (ED) commenced investigations and summoned the accused without initially determining the profits from the illegal activity or the assets that constitute those profits, as required by section 3 of the Prevention of Money Laundering Act (PMLA). This identity is an essential prerequisite that establishes the jurisdiction.
Furthermore, it has been argued that, since a notice has been issued in a review petition regarding the Vijay Madan Lal Choudhary case, it is crucial for the highest court to delay the hearing of these matters until a decision is made in the review petition and other associated petitions.
Judicial Decision:
The court concluded that the act of producing profits from illegal activities is enough to establish the crime of money laundering. The statement explains that when a person accepts a bribe, they obtain money or assets that are the result of criminal action, which can be considered as engaging in a "acquisition" activity. Therefore, the accused has been proven to have engaged in money laundering by receiving money in exchange for the job.
The court determined that the issuance of a notice in a review petition in the Karti P. Chidambaram v. The Directorate of Enforcement3 case against the Vijay Madan Lal Case does not invalidate or reduce its significance as a precedent. Doing so would compromise the standards of judicial discipline and the theory of stare decisis.
4. Kewal Krishna Kumar v. ED; Bail Application 3575/2022, 24 February 2023. (Delhi High Court)
Background:
This case involves a bail application made by a 70-year-old man who is seeking bail on medical reasons, as allowed by section 45 of the PMLA. The defendant was charged of deliberately hiding the actual financial condition of the group firms from the lending banks, deceiving them into granting credit facilities and loans. Afterwards, the banks' released monies were supposedly redirected to group firms for purposes different than what was originally intended, leading to the claimed act of deceiving the banks. The defendant was additionally charged with channelling borrowed monies through affiliated firms and fictitious entities to obtain different assets. Consequently, he faced charges under sections 3 and 4 of the PMLA.
Judicial Decision:
The court determined that it is not required to present arguments regarding the merits of the case while requesting bail based on medical reasons. The court's function is to evaluate the medical state of the defendant, which includes reviewing the report provided by the medical board.
Moreover, the court underscored that the act of being admitted to a hospital for medical treatment does not inherently entitle an accused individual to bail. The court must assess the gravity of the disease and determine if it can be managed within the confines of custody or if treatment at government facilities is necessary. The term "sickness" mentioned in the proviso pertains to a possible peril or threat to the life of the accused. The phrase "infirm" in section 45(1) proviso does not exclusively refer to old age, but rather includes a handicap that hinders the individual from carrying out routine duties.
Upon examination of the medical board's findings, the court determined that the accused does not meet the criteria for being considered "ill" as there is no presence of a life-threatening condition. Given the applicant's medical background, which includes a history of seizure disorders, modest behavioural problems, and being at an old age, the court recognised the necessity of having a carer to help with everyday tasks. The presence of these circumstances demonstrated the severity of the applicant's illnesses, thereby classifying him as "infirm." As a result, the court approved bail for the defendant.
5. Govind Prakash Pandey v. Directorate of Enforcement, Govt of India; Bail Application 1943 of 2023, 20 February 2023. (Allahabad High Court)
Background:
In the present matter, the individual named Govind Prakash Pandey is accused of being involved in a substantial case of mishandling, deceit, and falsification connected to the National Rural Health Mission (NRHM). The issue was forwarded to the Central Bureau of Investigation (CBI), which commenced a preliminary investigation in accordance with a directive from the Allahabad High Court. Following that, the Central Bureau of Investigation (CBI) lodged a First Information Report (FIR) against the Applicant under section 420 of the Indian Penal Code (IPC) and sections 13(2) read with section 13(1)(d) of the Prevention of Corruption (PC) Act. The Enforcement Directorate (ED) has also filed an Enforcement Case Information Report (ECIR) against the Applicant.
The Applicant willingly collaborated with the investigation agency and delivered his statement in accordance with section 50 of the PMLA. Furthermore, upon being summons, he promptly presented himself before the trial court, where he was subsequently arrested and detained. His temporary and permanent bail applications were subsequently denied. Consequently, the Applicant submitted a bail application to the Hon'ble High Court.
Judicial Decision:
Referring to the cases of Aman Preet Singh v. CBI4 and Satender Kumar Antil v. CBI, the court noted that it is not always necessary to arrest a person in every case. Instead, the court emphasised the importance of considering the relevant facts and circumstances before restricting the freedom of an accused individual. In this particular case, the court determined that there was no need to take the accused into custody as he willingly appeared before the trial court in response to the summons that was issued. The court emphasised that the accused consistently adhered to the legal procedures and fully cooperated during the investigation. The Investigating Agency never found it necessary to arrest him under section 19 of the PMLA, even though he appeared before the ED twice to provide his statement under section 50 of the PMLA.
Moreover, the ED did not make any request to the trial court for the arrest of the defendants. Therefore, the court determined that the Trial Court had assumed custody of the accused without following the established legal norms established by the Supreme Court. Consequently, the bail application was approved.
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