Introduction:
A recent decision rendered by the Madras High Court in S. Srinivasan v. The Assistant Director, Directorate of Enforcement, Chennai[1], has held that being in possession of the proceeds of crime and claiming it to be untainted property can independently be perceived as money laundering under Section 3 of the Prevention of Money Laundering Act, 2002 (“PMLA”).
Although the said decision is in line with the principles previously enunciated by various courts while interpreting the PMLA provisions, such a simple interpretation may possibly lead to unintended situations. The primary reason being that anyone who is merely in possession of proceeds of crime without any genuine knowledge or any involvement therein can be prosecuted under PMLA. This perspective may prove to be counterproductive to the principle of presumption of innocence in criminal law.
This article seeks to examine the decision of the Madras High Court, elucidating the brief facts, issues involved and the ratio. It also seeks to examine the import and consequence of the decision against the backdrop of previous important decisions and provisions relating to PMLA.
Brief facts of the case:
A discharge petition under Section 397, read with Section 401 of Criminal Procedure Code, 1973, was filed by S. Srinivasan (“Petitioner”) before the Madras High Court, praying for discharge in an alleged money laundering offence. It was alleged by the prosecution that the Petitioner, who was the General Secretary of the All-India Overseas Bank Employee Union Trust had conspired and colluded with the trust President, Mr. L. Balasubramanian, to use the trust property for unauthorised commercial activity. They used such money, collected on behalf of the trust, for personal gains and also portrayed the proceeds of crime as untainted. This, according to the prosecution, fulfilled the ingredients for the offence of money laundering under PMLA. Later, an enforcement case information report was registered by the Enforcement Directorate (“ED”), basis the first information report registered by the Central Bureau of Investigation.
Issue Involved:
The Madras High Court inter alia was looking into whether any prima facie materials are made available against the Petitioner in the complaint filed or not, for the purpose of deciding a discharge petition.
Brief Arguments:
On behalf of the Petitioner, it was contended that he was neither involved in any unauthorised activities nor was he involved in the collection of money. Money was collected by Balasubramanian on behalf of the trust. It was further contended that he was not actively associated with the administration of the trust. He asserted that he neither possessed nor used any property purchased by the trust. It was submitted that the essential ingredients of Section 3 of PMLA to constitute a money laundering offence were clearly missing, i.e., “knowingly assist” or “knowingly is a party” or “is actually involved in any processes of activity connected with the proceeds of crime and projecting it as untainted property”.
It was contended by the Special Public Prosecutor appearing for the ED, that the prosecution complaint was sufficient to showcase that a prima facie case was made out against the Petitioner and clearly sheds light on his role in orchestrating the unauthorised utilisation of the trust money and property.
Decision of the Madras High Court:
The Madras High Court concurred with the submissions made on behalf of the ED. It opined that the learned trial court had taken into consideration the averments and allegations made out in the prosecution complaint and took a view that the Petitioner had failed to make out a prima facie case for discharge from the alleged money laundering offence. The Madras High Court found no infirmity with the order of the learned trial court and thus dismissed the discharge petition filed by the Petitioner.
The court further observed that money laundering generally equates to placing, layering, and integrating tainted property in the formal economy. The provisions of PMLA have a wide import, to the effect that it would even include every activity dealing with proceeds of crime, directly or indirectly and is not limited to the final clear offence being committed by the concerned person(s).
It was discussed that showcasing the proceeds of crime as untainted property is a sign of presupposition of the possession of the same and that the burden of proof is on the accused. The relevant portion in Section 3 of PMLA reads as “is actually involved in any processes of activity connected with the proceeds of crime and projecting it as untainted property”. The court was of the opinion that possession of proceeds of crime and projecting it as untainted cannot be read conjunctively, because then the impact and import of the section would be defeated, as any accused or his accomplice may try to shun their liability.
Analysis:
In Vijay Madanlal Choudhary v. Union of India[2], the Supreme Court had observed that an offence of money laundering can be made out even if the accused did not attempt to misrepresent the proceeds of crime as untainted. It was further observed that projecting or claiming proceeds of crime as untainted property is not an essential ingredient to constitute an offence of money laundering under PMLA. This would imply that any person who is in possession of proceeds of crime without any actual knowledge of the same or any involvement in the crime of money laundering can be prosecuted under the provisions of PMLA.
Under the criminal law jurisprudence, it is normally up to the prosecution to prove that the accusation is true. As per Section 24 of the PMLA, the accused must disprove the allegation against them instead. In our view, the reversed burden of proof may be violative of the right to liberty guaranteed under the Constitution of India.
The courts have cautioned, keeping in view the burden of proof being put upon the accused by a statute. Under PMLA, the accused, must disprove the allegation made against him by the prosecution. In such cases, it is even more important that the prosecution must first prove the facts constituting the ingredients of an offence beyond any reasonable doubt before a presumption can be raised against any accused[3]. Several High Courts have held that the reversed presumption does not necessarily lead to the inference that the property concerned is proceeds of crime. It can only be so once it is showed by the prosecution, and it is only upon such proof can the same be taken to be involved in money laundering[4]. Thus, the presumption under the PMLA does not necessarily infer the knowledge of a person with regard to proceeds of crime. Further, the Bombay High Court in a case[5] had pertinently observed that “45. ………….The authorities under the 2002 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.”
The decision of the Madras High Court may alarmingly ensnare persons who bona-fidely and unknowingly receive money, within the contours of the PMLA Act. However, this may also be interpreted or understood to mean that one must be aware of the source of income/ money, which is either coming to him or to the entity one is deeply connected with and has control over.
Conclusion:
In view of the aforesaid, it can be foreseen that while the High Court in the specific facts and circumstances (where there was prima facie material against the petitioner) came to the conclusion that mere possession of proceeds of crime and upholding such proceeds as untainted would be sufficient to invoke the provisions of PMLA, however, the ratio of the said judgment may have the potential to have an unintended fallout in a different set of facts. Depending on the facts of the case, such an interpretation may include persons who might have no genuine knowledge and connection with the predicate offence and/ or the tainted money circulated by the actual accused persons and may have to go through the rigours of trial for no fault. A balanced pragmatic interpretation/ view of the provisions of the Act would help in minimising instances where there is an element of no genuine/ actual knowledge. While the Supreme Court in Vijay Madanlal (supra) judgment interprets Section 3 in a manner to conclude that knowledge may not be a necessary ingredient, however, the said view may not be entirely correct in certain circumstances. Mens rea is a critical ingredient for any criminal offence and therefore requires its presence in any action or consequence which arises out of or in relation to an offence. It is important that to prosecute someone for mere possession of purported proceeds of crime, there should be an equal burden on the prosecution to prove at least a prima facie link to the proceeds of crime as defined under the Act.
For further information, please contact:1
Ankoosh Mehta, Partner, Cyril Amarchand Mangaldas
ankoosh.mehta@cyrilshroff.com
[1] CRL. R.C. No. 1153 of 2023 and CRL. M.P. No. 9042 of 2023.
[2] (2023) 21 ITR-OL 1.
[3] Hanif Khan v. Central Bureau of Narcotics, (2020) 16 SCC 709; Babu v. State of Kerala, (2010) 9 SCC 189.
[4] Kavitha G. Pillai v. The Joint Director, 2017 SCC OnLine Ker 10118; Tech Mahindra Limited v. Joint Director, 2014 SCC OnLine Hyd 1575.
[5] Anil Vasantrao Deshmukh v. State of Maharashtra, 2022 SCC OnLine Bom 3150.
