The short answer is that the sweep of Section 5(1) of the PMLA Act is not limited to the accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime. Such a person besides facing the consequence of provisional attachment order, may end up in being named as accused in the complaint to be filed by the authorised officer concerning offence under Section 3 of the 2002 Act.
The short answer is that the sweep of Section 5(1) of the PMLA Act is not limited to the accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime. Such a person besides facing the consequence of provisional attachment order, may end up in being named as accused in the complaint to be filed by the authorised officer concerning offence under Section 3 of the 2002 Act.
This is explained in detail below:
Section 3 of the PMLA Act deals with the money laundering, and it states that whoever directly or indirectly attempts to indulge or knowingly assist or knowingly is a party or is actually involved in any process or activity connected it as untainted property shall be guilty of money laundering. 1
Section 4 of the PMLA Act deals with the punishment of money laundering.
Section 22 of the PMLA Act discusses presumption regarding records or property in certain cases, asserting if any properties for records or discovered in the possession or control of an individual during a survey or search, it is presumed such records or properties belong to that person, and the contents therein are deemed value.
Section 24 of the PMLA Act discusses the burden of proof, indicating that if an individual is charged with the offence of money laundering under Section 3, it is presumed that the person is involved in money laundering unless proven otherwise.
Section 44 of the PMLA Act addresses offence triable by Special Courts, stating that notwithstanding anything contained in the Code of Criminal Procedure, a Special Court under sub-Section 1(b) can take cognizance of offence under Section 3 without the accused being committed to it for trial.
Section 70 of the 2002 Act deals with offence by company and Explanation 2 to the said provision clarifies that a company can be prosecuted irrespective of whether the prosecution or conviction of any juridical person if contingent upon the prosecution or conviction of any individual.
Section 202 of Cr.PC pertains to the postponement of issuance of process, mandating that the Magistrate shall postpone the issuance of process against an accused, who is residing beyond his jurisdiction, and shall enquire himself or direct the investigation for the purpose of residing whether or not, there is sufficient ground for proceeding.
In the case of Pavana Dibbur –vs- The Directorate of Enforcement in Crl.A No.2779/2023 (DD 29.11.2023), the Hon’ble Supreme Court interpreted Section 3 of the Act, 2002 establishing that the offence under Section 3 can occur subsequent to the commission of a schedule offence. It was elucidated that an individual, regardless of his connection to the scheduled offence, is deemed guilty under Section 3, if he is knowingly assisting in concealing the proceeds of the crime or facilitating the use of proceeds.
In the case of T.D. Sonia –vs- Deputy Director – 2022 SCC OnLine Mad 8182, the Hon’ble Supreme Court ruled that even if the accused was not directly engaged in criminal activity responsible for generating the proceeds of the crime, his involvement in any capacity with the proceeds of such crime renders him liable under Section 3.
The Hon’ble Supreme Court in the case of Vijay Madanlal Choudhary –vs- Union of India – 2022 SCC OnLine SC 929 at paras-251, 295 has held as follows:
“251. The “proceeds of crime” being the core of the ingredients constituting the offence of money-laundering, that expression needs to be construed strictly. In that, all properties recovered or attached by the investigating agency in connection with the criminal activity relating to a scheduled offence under the general law cannot be regarded as proceeds of crime. There may be cases where the property involved in the commission of scheduled offence attached by the investigating agency dealing with that offence, cannot be wholly or partly regarded as proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act — so long as the whole or some portion of the property has been derived or obtained by any person “as a result of” criminal activity relating to the stated scheduled offence. To be proceeds of crime, therefore, the property must be derived or obtained, directly or indirectly, “as a result of” criminal activity relating to a scheduled offence. To put it differently, the vehicle used in commission of scheduled offence may be attached as property in the concerned case (crime), it may still not be proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act. Similarly, possession of unaccounted property acquired by legal means may be actionable for tax violation and yet, will not be regarded as proceeds of crime unless the concerned tax legislation prescribes such violation as an offence and such offence is included in the Schedule of the 2002 Act. For being regarded as proceeds of crime, the property associated with the scheduled offence must have been derived or obtained by a person “as a result of” criminal activity relating to the concerned scheduled offence. This distinction must be borne in mind while reckoning any property referred to in the scheduled offence as proceeds of crime for the purpose of the 2002 Act. Dealing with proceeds of crime by way of any process or activity constitutes offence of money-laundering under Section 3 of the Act. 295. As aforesaid, in this backdrop the amendment Act 2 of 2013 came into being. Considering the purport of the amended provisions and the experience of implementing/enforcement agencies, further changes became necessary to strengthen the mechanism regarding prevention of moneylaundering. It is not right in assuming that the attachment of property (provisional) under the second proviso, as amended, has no link with the scheduled offence. Inasmuch as Section 5(1) envisages that such an action can be initiated only on the basis of material in possession of the authorised officer indicative of any person being in possession of proceeds of crime. The precondition for being proceeds of crime is that the property has been derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence. The sweep of Section 5(1) is not limited to the accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime. Such a person besides facing the consequence of provisional attachment order, may end up in being named as accused in the complaint to be filed by the authorised officer concerning offence under Section 3 of the 2002 Act.”
In the case of Balvir Singh (supra), the Apex Court with reference Section 106 of the Evidence Act has ruled that Section 101 with its illustration (a) lays down the general rule that in a criminal case, the burden of proof is on the prosecution and Section 106 is certainly not intended to relieve it of that duty. On the contrary, it is designed to meet certain exceptional cases in which it would be impossible or at any rate, disproportionately difficult for the prosecution to establish the facts, which are especially within the knowledge of the accused, and which he can prove without difficulty or inconvenience.
The Karnataka High Court in the case of Kunal Bahl, Chief Executive Officer and Director of Jasper Infotech Private Limited and another –vs- State of Karnataka, represented by Drugs Inspector (Intelligence)-2 Regional – 2021 SCC OnLine Karnataka 15706 determined that if an accused maintain an office, branch office, corporate office, sales office or similar establishment within the jurisdiction of the Magistrate where the offence was committed or continues to be committed, there is no necessity of conducting an enquiry under Section 202 of Cr.PC. However, it is imperative for the Magistrate to record in the order the rationale behind not conducting an enquiry under Section 202 of Cr.PC.
The High Court of Gujarat in the case of Santhosh Nayak –vs- Deputy Director (Crl.RP No.1175 – 1177 of 2017 (DD 23.2.2018) at para-26 has held as follows:
“26. Therefore, in absence of prima facie and sufficient evidence as discussed by the Hon’ble Supreme Court in above para, it cannot be said that there is sufficient material before the Trial Court/Special Court to proceed further against anyone/everyone who is even remotely connected with prime accused for Scheduled offence under the Act. For the sake of argument, the assumption can be made that if section is read in the way in which the respondents have acted in filing complaint against numbers of persons, it seems that probably all the counsel who are appearing for prime accused who have committed Schedule offences or any other accused in such connected cases may also be terms as a co-accused because they would certainly receive legal fees from such accused who would have paid it from some money which is alleged to be the money transacted for illegal purpose by illegal means since that is the basic ingredient of PMLA. In that case, probably wherever such accused spent some money which may be for petrol, grocery, clothes, traveling and transportation etc., basically every money spent by such accused is to be termed as tainted money and everyone has to prove that they have not used such tainted money for any illegal act. However, it can certainly be argued by respondents that if such accused travel by the help of the tainted money so as to continue the offence and commit the offence then, such traveler helps the accused in doing his illegal activity. Though this may be an extreme example and not possible to be considered as such, the fact remains that the provisions of the Act and its interpretation of the respondent certainly lead to the such situation, which is described herein in above as an illustration.”
The Hon’ble Supreme Court in the case of Cheminova India Ltd. (supra) ruled that the Magistrate, while taking cognizance, need not record the statement of such a public servant who has filed a complaint in discharge of official duty.
To sum up, what is apparent from reading of Section 3, and the legal precedent established by the Court of Law with reference to the said provision is as follows:
i) An individual, even if not directly involved in the criminal activity that generated the proceeds of the crime, can face prosecution for the offence under Section 3, and be punished under Section 4, if he knowingly participates in concealing or utilizing the proceeds of the crime.
ii) In case under the PMLA, an accused need not necessarily be implicated in the scheduled offence, he can still be prosecuted under the PMLA as long as the scheduled offence exists.