On November 29, a significant judgment was delivered by the Supreme Court wherein it was held that criminal conspiracy, punishable under Section 120-B of the Indian Penal Code, will be treated as a scheduled offence under the Prevention of Money Laundering Act (PMLA), 2002, only if the same is to commit an offence included in the Schedule to the Act and not otherwise. In other words, the Court has clarified that the alleged conspiracy will only be deemed to be a scheduled offence if it is directed towards committing an offence specifically included in the schedule of the PMLA.
In its judgment, the court held that “An offence punishable under section 120-B will become a scheduled offence only if the conspiracy alleged is of committing an offence specifically included in the schedule.” (Para 27)
The Supreme Court also laid down that a person accused of an offence under Section 3 of the Prevention of Money Laundering Act (PMLA), which captures all processes and activities linked to the proceeds of crime- whether directly or indirectly, need not necessarily be shown as an accused in the scheduled offence. The judgment clarified that a person, unconnected to the scheduled offence but knowingly assisting in the concealment of the proceeds of crime, can be held guilty of committing an offence under Section 3 of the PMLA.
“It is not necessary that a person against whom the offence under Section 3 of the PMLA is alleged must have been shown as the accused in the scheduled offence. What is held in paragraph 270 of the decision of this Court in the case of Vijay Madanlal Choudhary supports the above conclusion. The conditions precedent for attracting the offense under Section 3 of the PMLA are that there must be a scheduled offense and that there must be proceeds of crime in relation to the scheduled offence as defined in clause (u) of subsection (1) of Section 3 of the PMLA,” the Supreme Court bench held. (Para 15)
The Supreme Court bench comprising Justices Abhay S. Oka and Pankaj Mithal pronounced the aforementioned judgment in an appeal against a judgment of the Karnataka High Court which refused to quash the proceedings in a case pending before Special Judge, Bengaluru for the offence of money laundering against the appellant under PMLA. The Supreme Court bench quashed and set aside the order of the High Court and quashed the complaint pending before the Special Court, Bengaluru.
The present case:
On March 7, 2022, a complaint had been filed by the Enforcement Directorate (ED) against the former Vice-Chancellor of Alliance University, Pavana Dibbur. The ED has charged her under sections 44 and 45 of the Prevention of Money Laundering Act (PMLA), citing offenses defined under section 3 read with sections 8(5) and 70, which are punishable under section 4 of PMLA.
The allegations suggested that during her tenure as VC of Alliance University from 2014 to 2016, the appellant acquainted with Madhukar Angur (Accused no.1), conspired to execute a sham and nominal sale deed without any consideration, involving properties belonging to Alliance University. It was further claimed that she facilitated Accused No. 1 in using her bank accounts to conceal money siphoned from the university. Here, the FIR in the predicate offence were registered under Sections 143 (unlawful assembly), 406 (Criminal breach of trust, 407 (Criminal breach of trust by carrier), 408 (Criminal breach of trust by clerk or servant), 409 (Criminal breach of trust by public servant, or by banker, merchant or agent.), 149 (common object of unlawful assembly) of the IPC.
On March 17, 2022, the Special Court for PMLA cases in Bengaluru took cognizance of the allegations made against Dibbur and the Special Judge proceeded with the case. In response to the same, the petitioner approached the Karnataka High Court, seeking to quash the proceedings under Section 482 of the Criminal Procedure Code (CrPC).
However, the High Court dismissed the petition for quashing the complaint moved by Dibbur. The High Court relied on the judgment declared by the Supreme Court in Vijay Madanlal Choudhary v. Union of India & Ors., and emphasized that the phrase used by the Court in its judgment is “any person” and not “any accused.” Therefore, one need not be accused in the principal offense to be subject to proceedings under the Act. The court further held that even assisting in the process or activity constitutes a part of the crime of money laundering.
The present appeal was filed by the appellant in the Supreme Court against the said judgment of the High Court.
Submissions by the parties:
Appellants: During the hearings, it was argued by Senior Advocate Meenakshi Arora, representing the appellant, that her client was neither named in the FIR nor in the subsequent charge sheet. As provided by the counsel, the appellant had only been arraigned as an accused for the first time in a complaint under sections 44 and 45 of PMLA.
It was further submitted by advocate Arora that proceeds of crime must be derived from criminal activity related to a scheduled offence. For this, the counsel had relied on the judgment delivered in the Vijay Madanlal Chowdhury case. The third argument that was raised by advocate Arora was that Section 120-B of the IPC cannot stand alone, emphasizing the need for a conspiracy to commit an illegal act mentioned in the scheduled offences under Section 2(y) of PMLA. Through this, the counsel had brought forth the question on whether Section 120-B of the IPC can be utilized independently by authorities under PMLA for investigation or if it must be read together with other scheduled offenses. Based on the aforementioned submissions, it was urged by advocate Arora that the complaint against the appellant deserved to be quashed.
Respondents- the Additional Solicitor General SV Raju was representing ED in the present hearings. It was contended by him that the PMLA is an independent code, and a person who is not named in the FIR can be arraigned as an accused. Further, the ASG submitted that a person can be held guilty of the commission of a money laundering offence under Section 3 of the PMLA even if they are not shown as an accused in the predicate offence.
As provided in a report of LiveLaw, during the hearing, the Court had posed a hypothetical scenario to the ASG and asked “If there is a theft of 100 crores and there is no scheduled offense other than 120-B, then will the authorities under PMLA have the power to initiate the prosecution?” to the same, the ASG had responded by stating that the authorities would rightfully have the power to investigate the offense, citing Section 120-B as a scheduled offense under Section 2(y) of the PMLA Act.
What are the scheduled offences annexed to the PMLA?
The PMLA has listed scheduled offence in the Schedule annexed to it. The Schedule comprises Part A, Part B and Part C.
Part A enlists numerous offences under the IPC, Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985 and other statutes. Certain serious offences such as those connected with waging war against the Nation, circulation of Fake Indian Currency Notes, etc. have been included in this.
Part B of the Schedule includes only one offence under Section 132 of the Customs Act, 1962. The offence under Section 132 of the Customs Act, of making a false declaration, etc., becomes a scheduled offence in view of the sub-clause (ii) of clause (y) of sub-section (1) of Section 2 of the PMLA only if the total value involved in the offence is ₹1 crore or more.
Part C of the Schedule provides that any offence specified in Part A having cross-border implications becomes a part of Part C.
In the present case, ASG Raju argued that even though the charge involved a criminal conspiracy to commit an offence not covered by the Schedule, the offence became scheduled because Section 120¬B of the IPC is included in Part A of the PMLA Schedule.
Observations by the Supreme Court:
On scheduled offences: The Supreme Court bench rejected the argument of the ED that the “scheduled offence” under Section 120B (criminal conspiracy) would apply even if there were no other scheduled offences in the charge sheet, deeming it a violation of the legislative intent behind the PMLA. The bench held that if the aforementioned argument of the ED were to be accepted by the Court, the Schedule to the PMLA would become redundant and meaningless. The Bench also warned that the interpretation suggested by the ED may attract the vice of unconstitutionality for being manifestly arbitrary.
“If we accept such an interpretation, the statute may attract the vice of unconstitutionality for being manifestly arbitrary,” stated the court in para 25 of the judgment.
Upon this, the Bench pointed out that many offences under Chapter XVII (offence against property) of the IPC are not included in Parts A and B of the PMLA Schedule. They become scheduled offences, the Bench noted in para 22 of the judgement, only if they have cross-border implications.
“As stated earlier, many offences under Chapter XVII of the IPC are not included in Parts A and B. They become scheduled offences only if the same have cross-border implications. Thus, the offences of dishonest misappropriation of property or criminal breach of trust or theft can become a scheduled offence, provided they have cross-border implications.”
The bench then cited an example to highlight the fallacy of the ED’s argument “If the argument of the learned Additional Solicitor General is accepted, if there is a conspiracy to commit offences under Section 403 or Section 405, though the same have no cross-border implications, the offence under Section 120B of conspiracy to commit offences under Sections 403 and 405 will become a scheduled offence,” the Bench stated in Para 22 of the judgment. In other words, the bench stated that as per the argument of ED, any offence is not included in Parts A, B and C of the Schedule but if the conspiracy to commit the offence is alleged, the same will become a scheduled offence.
In furtherance to this, the Bench gave another illustration to emphasise the effect that the argument of the ED will have on the working of PMLA. The Bench noted that a crime punishable under Section 132 of the Customs Act is made a scheduled offence under Part B, provided the value involved in the offence is ₹1 crore or more. But if Section 120B of IPC is applied, if the ED’s argument were to be accepted, one who commits such an offence having a value of even ₹1 lakh can be brought within the purview of the PMLA.
The bench then observed that “By that logic, a conspiracy to commit any offence under any penal law which is capable of generating proceeds can be converted into a scheduled offence by applying Section 120B of the IPC, though the offence is not a part of the Schedule,” (Para 22)
Interpretation of the PMLA in this manner could not be the intention of the legislature, the Bench thus held.
On Section 120 B of the IPC not being an aggravated offence- Further in the judgment, in regards to Section 120B of the IPC, the divisive bench opined that merely because there is a conspiracy to commit an offence, the same does not become an aggravated offence.
“If we look at the punishments provided under Section 120B, it becomes evident that it is not an aggravated offence. It only incorporates the principle of vicarious liability.” (Para 25)
Furthering this, the bench stated that interpretation suggested by the ED will defeat the legislative object of making only a few selected offences as scheduled offences and held “If no specific punishment is provided in the statute for conspiracy to commit a particular offence, Section 120B treats a conspirator of the main accused as an abettor for the purposes of imposing the punishment,” the Bench said.
Decision of the Supreme Court:
The bench of the Supreme Court then observed that the conditions precedent for attracting the offense under Section 3 of the PMLA is that it requires the presence of a scheduled offense and the existence of proceeds of crime related to the scheduled offense, which were absent in the present case. Hence, the Court held that the appellant cannot be prosecuted for the offenses punishable under Section 3 of the PMLA.
It is crucial to highlight here that the bench also made an essential observation and held that that if the prosecution for the scheduled offense concludes with the acquittal or discharge of all the accused, or if the proceedings of the scheduled offense are entirely quashed, the scheduled offense ceases to exist. In such cases, individuals cannot be prosecuted for the offense punishable under Section 3 of the PMLA since there would be no proceeds of crime.
However, the court made it clear that an accused in a PMLA case, who becomes involved after the commission of the scheduled offence by assisting in the concealment or use of proceeds of crime, does not need to be an accused in the scheduled offence. Such individuals can still be prosecuted under the PMLA as long as the scheduled offense exists.
“Even if an accused shown in the complaint under the PMLA is not an accused in the scheduled offence, he will benefit from the acquittal of all the accused in the scheduled offence or discharge of all the accused in the scheduled offence. Similarly, he will get the benefit of the order of quashing the proceedings of the scheduled offence,” the Court observed.
Thus, the court concluded that while they rejected the contention that Section 120B would apply even if there were no other scheduled offences in the charge sheet it concluded, the submission that the appellant needed not necessarily be an accused in the scheduled offense was upheld. The judgment clarified that a person, unconnected to the scheduled offence but knowingly assisting in the concealment of the proceeds of crime, can be held guilty of committing an offence under Section 3 of the PMLA.
The complete judgment can be read here: