By Udayan Tandan and R. Harikrishnan
Recently, the Supreme Court in P. Chidambaram v. Directorate of Enforcement (hereinafter ‘Chidambaram’), had the occasion to consider the scope of Sections 3 and 4 of the Prevention of Money Laundering Act, 2002 (hereinafter ‘PML Act’). To give a brief background of the case – In 2007, INX Media Pvt. Ltd. approached the Foreign Investment Promotion Board (FIPB) seeking approval for FDI up to 46.216 percent of the issued equity capital. While sending the proposal by INX Media to be placed before the FIPB, INX Media had clearly mentioned in it the inflow of FDI to the extent of Rs. 4, 62, 16,000/- taking the proposed issue at its face value. The FIPB in its meeting held on 18.05.2007 recommended the proposal of INX Media subject to the approval of the Finance Minister- Mr. Chidambaram. In the meeting, the Board did not approve the downstream investment by INX Media in INX News. In violation of the conditions of the approval, and the recommendation of FIPB INX Media deliberately made a downstream investment to the extent of 26% in the capital of INX News Ltd. without specific approval of FIPB which included indirect foreign investment by the same Foreign Investors. This generated more than Rs.305 crores of FDI in INX Media which is in clear violation of the approved foreign flow of Rs.4.62 crores by issuing shares to the foreign investors at a premium of more than Rs.800/- per share.
Later, on an investigation by the Income Tax authorities, INX Media justified its action saying that the downstream investment has been authorised and that the same was made in accordance with the approval of FIPB. It is alleged by the prosecution that in order to get out of the situation without any penal provision, INX Media entered into a criminal conspiracy with Sh. Karti Chidambaram, Promoter Director, Chess Management Services Pvt. Ltd. and Sh. Chidambaram. The FIR further states that, for the services rendered by Sh. Karti Chidambaram to INX Media through Chess Management Services in getting the issues scuttled by influencing the public servants of FIPB Unit of the Ministry of Finance, consideration in the form of payments were received against invoices raised on INX Media by ASCPL. This, it is alleged, was with a view to conceal the identity of Sh. Karti Chidambaram, who was the Promoter, Director of Chess Management Services whereas ASCPL was being controlled by him indirectly. It is alleged that the invoices approximately for an amount of Rs.3.50 crores were falsely got raised in favour of INX Media in the name of other companies in which Sh. Karti Chidambaram was having a sustainable interest either directly or indirectly. It is alleged that such invoices were falsely got raised for creation of acquisition of media content, a consultancy in respect of market research, acquisition of content of various genre of Audio Video etc. INX Media Group in its record has clearly mentioned the purpose of payment of Rs.10, 00,000/- to ASCPL as towards “management consultancy charges towards FIPB notification and clarification”. On these acts, the CBI registered offences under Sections 120B read with 420 IPC and Sections 8, 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 against the aforesaid accused and the Enforcement Directorate registered offences under Sections 3 and 4 of the PML Act, 2002.
The Law as it stood during the relevant time
As per the prosecution, the offences involved in this case were committed during 2007-08. At that time, Section 3 of the PML Act defined 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 proceeds of crime and projecting it as untainted property. Section 2 (u) defines “proceeds of crime” to mean 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. At the time of the commission of the alleged offences, sections 120B and 420 of IPC and Section 13 of the Prevention of Corruption Act, 1988 were not Scheduled Offences. Section 8 of the Prevention of Corruption Act, 1988 was the only Scheduled Offence at that time.
The Contention of the Appellant
The Appellant contended that there cannot be any retrospective operation criminal law. As the offences alleged were not Scheduled Offences at the relevant point of time, the test is not whether the appellant retained the proceeds of crime, but whether the acts constituted an offence at the time of its commission. The only scheduled offence of section 8 of the PC Act is not attracted by the allegations in the FIR. It was also contended that even assuming Section 8 of the Prevention of Corruption Act is made out, the amount allegedly paid to ASCPL was only Rs.10, 00,000/- whereas, Rs.30, 00,000/- was the amount then stipulated to attract Section 8 to be the Scheduled offence under Part A of the Schedule to the Act and therefore, there was no basis for offence against the appellant.
Per contra, the Enforcement Directorate contended that Money Laundering is an independent substantive offence and is distinct from the predicate offence. [Paragraph 18]
The Reasoning of the Court
On an analysis of the provisions of the PML Act, 2002, the Court observed that Scheduled Offence” is a sine qua non for the offence of money-laundering which would generate the money that is being laundered. [Paragraph 25]. The Court noticed that while Sections 120 B and 420 of IPC and Section 13 of the PC Act were not Scheduled Offences at the relevant time, Section 8 of the PC Act was a Scheduled Offence. It cannot, therefore, be said that the appellant is proceeded against in violation of Article 20(1) of the Constitution of India for the alleged commission of the acts which was not an offence as per law then in existence. The Court held that the questions whether Section 8 of the PC Act can be a predicate offence qua the appellant and whether the Enforcement Directorate had jurisdictional threshold under the PML Act cannot be gone into at the stage of considering anticipatory bail [Paragraphs 41 and 42].
An Analysis of the Court’s reasoning
A reading of the judgment would show that the Court has really sidestepped addressing the question of whether money laundering can be an independent substantive offence. This is understandable since the Court was only concerned with the issue of whether the accused was entitled to the privilege of anticipatory bail. [Paragraph 22]. Despite saying so, the Court goes on at length to discuss the statutory scheme of the PML Act [Paragraphs 23-39]. The Court was satisfied with the fact that the Scheduled Offence of Section 8 of the PC Act, 1988 was charged against the accused and it was, therefore, possible to hold that the offence of money laundering under Sections 3 and 4 of the PML Act would be maintainable against the accused. [Paragraph 41]. This finding appears to proceed with the reasoning given in paragraph 25 that a Scheduled Offence is a sine qua non for the offence of money-laundering which would generate the money that is being laundered. The said finding cannot be faulted with on a combined reading of Sections 2 (u) and 3 of the PML Act.
There is another aspect of the matter that could have been considered by the Court if it went on a detailed examination of the contention of the Enforcement Directorate that money laundering is an independent offence. PML Act was amended recently in August 2019 (page 70 onwards of the Finance (No. 2) Act, 2019) to clarify that money laundering is an independent offence. If this clarification is taken into consideration, it is possible to hold that the Legislature has always intended the offence of money laundering to be an independent offence. However, the Court sidestepped the said issue, presumably to avoid prolixity in an order concerning only with the issue of the accused’s right to get anticipatory bail. Nevertheless, when an issue was raised as to the nature of money laundering as an independent offence, the Court ought to have considered it to clarify the prevailing confusion.
[Udayan Tandan is a Delhi-based lawyer and was previously a legal consultant at the Enforcement Directorate.
R. Harikrishnan is a Kerala-based lawyer and was previously a law clerk to Justice (Retd.) A.K. Patnaik].