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PMLA-Interplay Between Scheduled Offence And Money-Laundering Offence


SEPTEMBER 15, 2022

By L Venkateswara Rao

IN this article, it is proposed to examine the impact of Hon'ble Supreme Court decision in the matter of Vijay Madan Lal Choudhary Vs. Union of India reported in 2022-TIOL-60-SC-PMLA-LB on the following Sections of the Prevention of Money Laundering Act (PMLA) viz. (i) Section 8(3)(b)of PMLA - that the order of the adjudicating authority confirming the provisional attachment of property will become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58B or sub-section (2A) of Section 60 by the Special Court and (ii) Section 44 -whether Money-Laundering trial should await the outcome of the scheduled offence trial.

2. The transactions constituting money-laundering, under the provisions of the PMLA contemplate two sets of proceedings: - (a) prosecution for the offence of money-laundering defined in Section 3 with punishment provided in Section 4 of PMLA and (b) attachment, adjudication and confiscation of the "Proceeds of Crime". Apart from the above, there will be prosecution on the person for the commission of the scheduled offence. On proof of guilt and conviction of the offence of money-laundering, the punishment in Section 4 of the PMLA would follow after a trial by the Special Court, which is empowered with the exclusive jurisdiction under Section 44 of the Act. The prosecution, trial and conviction for the offence of money-laundering are the criminal punishments stipulated under the PMLA. The second set of proceedings viz. adjudication and confiscation of properties derived as a result of criminal activity relating to scheduled offence viz.the proceeds of crime are civil in nature. Thus, the prosecution under the PMLA, attachment and confiscation proceedings of properties involved in money-laundering are distinct proceedings. These two types of proceedings can be initiated against the same person, if he is accused of the offence of money-laundering. Even a person who is not so accused, the property in his possession can be attached and confiscated subject to the satisfaction of the competent authority that such property constitutes proceeds of crime.

3. Section 3 of the PMLA defines the offence of Money-Laundering as - 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 1["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. "Proceeds of Crime" (POC) is defined under section 2(1)(u) of 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 2 [or where such property is taken or held outside the country, then the property equivalent in value held within the country 3 [or abroad] and Section 2(1)(v) of the PMLA defines Property as "any property or assets of every description whether corporeal or in incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located.  "Property includes" property of any kind used in the commission of an offence under the PMLA.

4. 4 Section 5(1) of the PMLA provides for provisional attachment of the property involved in money-laundering by an officer of the Enforcement Directorate (ED) not below the rank of Deputy Director, if he has reason to believe (the reason for such believe to be recorded in writing), on the basis of material in his possession: - (a) that any person is in possession of any proceeds of crime; and (b) such proceeds of crime are likely to be concealed,transferred or dealt with in any manner which may result in frustrating any proceeding relating to confiscation of such proceeds of crime.

5. Section 8(1) of PMLA postulates that on receipt of a complaint under sub-section (5), if the adjudicating authority has reason to believe that any person has committed an 5 [offence under Section 3 or in possession of proceeds of crime], he may serve a notice on such person calling upon him to indicate the sources of his income, earnings or assets, out of which or by means of which he has acquired the property attached and to show cause as to why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government. The adjudicating authority after considering the reply to the notice and hearing the aggrieved person and the authorised person of Enforcement Directorate, may by an order confirm the attachment of property.All the rights and title in the property vests in the Central Government under Section 9 of PMLA subject to an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58B or sub-section (2) of Section 60 by the 6 [Special Court].Anterior to the period 15.02.2013, i.e.,prior to the amendment of Section 8(3)(b), the adjudicating authority's order shall become final after the guilt of the person is proved in the trial court and order of trial court becomes final.By the above amendment, the twin conditions viz. a) proving the guilt of the person in the trial court and b) the order of the trial court to become final were removed. Thus, the Law was amended to make confiscation independent of conviction. Therefore,the outcome of the scheduled offence trial will have no bearing on the Money - Laundering trial and both these offences were construed as Standalone Offences.

6. In the light of the above facts, attention is drawn to the Hon'ble Supreme Court observations made while interpreting the definition of Proceeds of Crime and analysing it's ambit with reference to section 3 of the PMLA at para 33 of the order in the matter of Vijay Madanlal Choudhary & Ors. Vs. Union of India & Ors. reported - 2022-TIOL-60-SC-PMLA-LB, which are reproduced herein- below for ease of reference: -

"Similarly, in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the criminal case (scheduled offence) against him/her, there can be no action for money-laundering against such a person or person claiming through him in relation to the property linked to the stated scheduled offence. This interpretation alone can be admitted or acceptable or possible countenanced on the basis of the provisions of the 2002 Act, in particular Section 2(1)(u) read with Section 3. Taking any other view would be rewriting of these provisions and disregarding the express language of definition clause "proceeds of crime", as it obtains as of now."

In the above-mentioned observation, the Supreme Court made it clear that there can be no action for money-laundering against a person in relation to the property linked to the scheduled offence in case the person is acquitted or / discharged by the competent court of such scheduled offence.The above observations of the Hon'ble Supreme Court prima-facie gives an impression that the same rendered the provisions of Section 8(3)(b) of the PMLA redundant by making the outcome of money-laundering offence dependent on the outcome of scheduled offence trial.

7. In this context, it would be desirable to peruse the following observations of the supreme court made while distinguishing "Crime Proceeds" and "Proceeds of Crime" :- (i) the offence of money-laundering is dependent on the wrongful and illegal gain of property "as a result of criminal activity' relating to a scheduled offence. Nevertheless, it is concerning the process or activity connected with such property, which constitutes offence of money-laundering; (ii) the property must qualify the definition of "proceeds of crime" under Section 2(1)(u) of the 2002 Act; (iii) all or whole of the crime property linked to scheduled offence need not be regarded as proceeds of crime, but all properties qualifying the definition of "proceeds of crime" under Section 2(1)(u) will necessarily be crime properties;(iv)Indeed,in the event of acquittal of the person concerned or being absolved from allegation of criminal activity relating to scheduled offence, and if it is established in the court of law that the crime property in the concerned case has been rightfully owned and possessed by him, such a property by no stretch of imagination can be termed as crime property and ex-consequenti proceeds of crime within the meaning of Section 2(1)(u) as it stands today and (v) on the other hand, in the trial in connection with the scheduled offence, the Court would be obliged to direct 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.[ Para 52 of order]

(a) By the above observation, the Hon'ble Court clarified in clear terms that all the crime property linked to scheduled offence need not be regarded as ‘Proceeds of Crime' but all ‘Proceed of Crime' are necessarily crime properties; that the crime properties which are rightfully owned and possessed by a person, cannot be regarded as ‘Proceeds of Crime' and the competent court conducting the trial in such cases would be obliged to direct return of such property belonging to such person. It is axiomatic that confiscation of property under PMLA is possible when it relates to "Proceeds of Crime' as defined under section 2(1)(u) of PMLA , ie property derived or obtained , directly or indirectly as a result of criminal activity resulting from a scheduled offence. The Hon'ble court's observation that there can be no action for money- laundering against a person if he is absolved by way of discharge from the criminal case (scheduled offence)by the competent court is limited to the property linked to that scheduled offence only since such property is not proceeds of crime. .The above view finds strength from the observations of the Apex Court , at para 53 of the above cited Judgement, wherein the Hon'ble Supreme Court also observed that the Authorised Officer under PMLA to prosecute any person for offence of Money-Laundering only, if, there exists ‘Proceeds of Crime' within the meaning of Section 2(1)(u) of the 2002, Act and it is involved in any process or activity relating to money-laundering. Thus,it can be inferred that attachment and confiscation is only limited to properties derived or obtained as a result of criminal activity relating to a scheduled offence.

(b). The above observations would make it amply clear that prosecution proceedings under money-laundering gets triggered only in case ‘Proceeds of Crime' exists and in the absence of existence of ‘Proceeds of Crime, the authorities cannot initiate prosecution proceedings.

8. We may now examine the provisions relating to PMLA trial. Section 44 of PMLA, 2002postulates that an offence punishable under Section 4 and any scheduled offence connected to the offence shall be triable by the special court. 7 If the court which has taken cognizance of the scheduled offence is other than special court which has taken cognizance of the complaint of the offence of money-laundering, it shall, on an application by the authority authorised to file a complaint commit the case relating to the scheduled offence to the special court and the special court shall on receipt of such case proceed to deal with from stage at which it is committed. [Section 44(1)(c)]. It was also clarified that the trial of both sets of offences viz. scheduled offence and money-laundering offence shall not be construed as joint trial.

9. It is, therefore, evident that the Special Court will conduct the trial of both the scheduled offence (on an application filed by the competent officer of the Enforcement Directorate to commit the case to Special Court) and money-laundering offences simultaneously and that the Special Court while trying the scheduled offence or the offence of money-laundering offences shall hold trial in accordance with Code of Criminal Procedure.In view of the above legal provision, let us assume a situation where a Special Court, conducting the trials pertaining to the scheduled offence and money-laundering offences under section 44 of PMLA, adjudicated the money-laundering offence first and on conclusion of trial holds that an offence of money-laundering has been committed and orders for confiscation of properties and convicted the person under Section 4 of PMLA. Subsequently, the same Special Court adjudicated the scheduled offence and on conclusion of trial pertaining to scheduled offence discharges/ acquit the said person. In such a situation, the findings of the Special Court in respect of offence of money-laundering would become infructuous in view, of the observations of the Hon'ble Supreme Court highlighted at para 6 above.The above, cited findings of the Hon'ble Supreme Court necessitates the authorities to await the verdict of the scheduled offence before filing the complaint in the Special Court for initiating the trial pertaining to money-laundering offence.This can be done in two ways- to await the trial court verdict pertaining to scheduled offence by deferring filing of application before the PMLA court for committing the case to Special Court, or praying the Special Court to decide the scheduled offence first. Therefore, it can be concluded that the trial of scheduled offence should precede the money-laundering for the above cited reasons.

10. Further, the Hon'ble Supreme Court in the case of Parvathi Kollur Vs. State by Directorate of Enforcement 2022 Live Law (SC) 688 = 2022-TIOL-72-SC-PMLA relied upon the Hon'ble Supreme Court decision of Vijay Madanlal Choudhary & Ors. Vs. Union of India & Ors. reported in 2022-TIOL-60-SC-PMLA-LB reiterated that a person acquitted of scheduled offence cannot be prosecuted under Prevention of Money-Laundering Act, 2002.

11.Thus, we can conclude that the Judgement of Hon'ble Supreme Court in the matter of Vijay Madanlal& others Vs Union of India has no impact on on Section 8(3)(b) of PMLA and Section 44. However, it can beinferred that the trial of money-laundering should await the outcome of scheduled offence trial in view of Hon'ble Supreme Courts observations mentioned above. The above observations of the Supreme Court attained finality as review of the said observation was not accepted.

[The author is Commissioner of Customs & Indirect Taxes (Retd) and the views expressed are strictly personal.]

1. Substituted for "Proceeds of Crime and project projecting" by the prevention of Money-Laundering (Amdt.) Act, 2012 (2 of 2013), dt. 03.01.2013 w.e.f. 15.02.2013, vide 50 343 (E) at 08.02.2013.

2. Inserted by Finance Act 2015 w.e.f. 14.05.2015.

3. Inserted by Finance Act, 2018 (Act of 13 of 2018) dt. 29.03.2018 w.e.f. 19.04.2018 vide USR 383(E) dt. 19.04.2018.

4. Substituted by the Prevention of Money-Laundering (Amdt.), Act 2012 (2 of 13), dt. 03.01.2013 w.e.f. 15.02.2013 vide 50 343(E) dt. 08.02.2013.

5. Substituted for "offence under Section 3" by the Prevention of Money-Laundering (Amdt.) Act of 2009 (21 of 2009) dt. 06.03.2009 w.e.f. 01.06.2009.

6. Substituted for "Adjudicating Authority" by Finance Act, 2015, w.e.f. 14.05.2015.

7. Inserted by the Prevention of Money-Laundering (Amdt.) Act, 2012 (2 of 2013), dt. 03.01.2013. w.e.f. 15.02.2013.


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