The scourge of money laundering is an issue that has plagued society for ages now, carrying with it the potential to not only destabilise the international financial system, but has also having been instrumental in funding for terrorism, illicit drugs and trafficking among a few major issues which erode modern day society. The efforts of the international community as a whole to tackle this menace though, have been relatively recent. The formation of the Financial Action Task Force (FATF), as an international organisation to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, in the year 1989 was a major step forward in the battle against money laundering. From time to time the FATF has passed stringent recommendations to curb laundering of money. Though India joined the FATF comparatively late, in 2010, its efforts to tackle money laundering as a standalone issue had already commenced with the introduction of the Prevention of Money Laundering Bill, 1998 in the Lok Sabha on 4th August 1998 by the Government of the day, which was subsequently referred to the Standing Committee on Finance and subsequently upon receipt of its recommendations was passed by both Houses of Parliament and received the assent of the President on 17th January 2003, giving birth to the Prevention of Money Laundering Act, 2002 (PMLA)[1]. The PMLA contains stringent provisions to tackle money laundering, including but not limited to a broad definition of “proceeds of crime” [Section 2(1)(u)], which is the very basis for prosecution under the Act, attachment of property prior to conviction for money laundering (Section 5), freezing of bank accounts (Section 17) arrest of a person (Section 19) on the subjective satisfaction of the Enforcement Directorate (the agency tasked with the implementation of the Act) reverse burden of proof as to the legitimacy of the “proceeds of crime” (Section 24) and making admissible statements made before specified officials of the Enforcement Directorate (Section 50).
One of the most controversial provisions of the PMLA, the constitutionality of which has already been challenged before the different High Courts of the country[2], is Section 24, which places the burden upon the accused to dispel the presumption that the property in possession of an accused is not “proceeds of crime” and is untainted. The original provision at the time of passing of the enactment read as follows:
“24. Burden of Proof: When a person is accused of having committed the offence under Section 3, the burden of proving that proceeds of crime are untainted property shall be on the accused.”
The same was subsequently amended. The present article is not seeking to comment on the constitutional validity of Section 24 PMLA but to understand upon whom does Section 24 PMLA thrust the responsibility to prove a fact i.e. the prosecution or the accused and at what stage can it be invoked by the prosecution.
Section 24 PMLA, is a shift from the traditional responsibility/duty/obligation cast upon the prosecution to prove its case against an accused beyond reasonable doubt. The duty of the prosecution to prove its case beyond reasonable doubt is an integral part of the Fundamental Right of a person accused of having committed an offence to be presumed innocent until proven guilty.
The parliamentary debates at the time of introduction of the same show that the same was indeed a controversial provision, with jurists of the stature of no less than Mr. Fali S. Nariman (Senior Advocate & Ex-Member of Parliament) and Late Mr. Ram Jethmalani (Senior Advocate & Ex-Member of Parliament) having voiced reservations about incorporation of such a provision.
Mr. Fali S. Nariman stated[3] “...But what worries me is the burden of proof, that is, Section 24….”. The Late Mr. Ram Jethmalani in fact argued[4] that “When a person is accused of having committed an offence under Clause 3, the burden of proving that the proceeds of crime are untainted property shall be on the accused. The presumption is not arising from, at least, some fact having been proved. Merely because you accuse somebody, he has to prove it. Therefore, please understand that this presumption is totally unreasonable, irrational, and will create a lot of problems. It will not stand the test of constitutional validity at all.”
It is noteworthy that though the Courts have upheld the validity of provisions similar to Section 24 PMLA, however, they have at the same time held that in such statutes providing for such a reverse burden, it is incumbent for the prosecution to first prove the foundational facts beyond any reasonable doubt, which would in itself be subjected to greater scrutiny, before the presumption can be raised against an accused[5] . The Courts have further gone onto hold that even in such situations it is incumbent upon the prosecution to prove the guilt of the accused and it cannot be absolved of this responsibility[6]. Specifically in the context of Section 24 PMLA, various High Courts have held that the presumption contained therein is not to be interpreted that the property concerned is “proceeds of crime”, it can only be held so once it is proven by the prosecution, and it is only upon such proof can the same be taken to be involved in money laundering[7]. It has been further held that Section 24 PMLA does not contain a presumption as to the knowledge of the accused of the “proceeds of crime”, which still has to be demonstrated by the prosecution. In fact, the High Court of Kerala has gone a step further and held in Kavitha G. Pillai v. The Joint Director[8] (supra) that the presumption contained is only that the same are “proceeds of crime” and the question of whether the same are actually ill-gotten can only be determined upon the proof of the scheduled offence.
Considering the fact that Section 24 PMLA is nonetheless a very drastic provision, and prone to misuse and abuse by over-zealous and/or corrupt officials, Courts have to tread cautiously while proceeding with cases of money laundering. In the words of William Blackstone, in his commentaries on the Laws of England “It is better that ten guilty persons escape than that one innocent suffer”.The same would hold true even with respect to Section 24 PMLA, which is not a presumption as to guilt but a rebuttable presumption of a fact. Therefore, the question as to what stage the presumption kicks in, becomes pertinent. Does it apply at all stages even during a bail application? Does it apply during the stage of summoning an accused or framing charges? Or does it apply only at the final stages of the trial?
Owing to the fact that the unamended Section 24 PMLA as originally enacted was prone to abuse, arising out of the wide gamut of meanings which could be assigned to the word “ accused ” prevalent therein, Parliament deemed it fit to amend it vide the PMLA (Amendment) Act, 2012 and amended it as follows:
“24. Burden of proof—In any proceeding relating to proceeds of crime under this Act,—
(a) in the case of a person charged with the offence of money-laundering under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and
(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.”
(emphasis supplied)
A comparison of the unamended and amended Section 24 PMLA would show that the word “ accused ” has been replaced with the phrase “Charged with the offence of money laundering”. It would thus be necessary to interpret the latter phrase to arrive at a conclusion as to when the said presumption would operate against an accused .
Historically, the Courts had been hesitant to rely upon the Parliamentary Debates in aid of interpretation of a provision, as can be seen from decisions of the Supreme Court in State of Travancorev. Bombay Co. Ltd.[9] , State of West Bengal v. Union of India[10]. Subsequently, the Courts commenced placing reliance upon the Parliamentary Debates to decipher the intention of an ambiguous word/phrase appearing in a provision, as discernible from the debates surrounding the said provision. As recently as 2017, a 7-Judge Bench of the Supreme Court, in of Abhiram Singhv. C.D. Commachen[11] placed reliance upon Parliamentary Debates to understand the connotation of the word “his” appearing in Section 123(3) of the Representation of People Act, 1951. Thus, the Parliamentary Debates while amending Section 24 PMLA would be relevant to ascertain the meaning of the word “charged” appearing therein.
During the course of the Debates leading to the passing of the PMLA (Amendment) Act, 2012, Mr. P. Chidambaram, the then Finance Minister, indicated that “If you look at the original section in the parent Act, Section 24, when a person is accused of having committed the offence, the burden of proving that the proceeds of crime are untainted property shall be on the accused. This was a drastic provision. Simply by an accusation that he had committed an offence of money-laundering, the burden of proof was shifted to the accused. He may not even be charged at that time. This was what we found to be an onerous provision and an unfair provision……then, the question was asked that by using the word ‘charged’, whether we are shifting the burden of proof even at the stage of the report under 173(8). The answer is: obviously, no. Under 173(8), what is filed is a report after investigation. The word ‘charge’ occurs for the first time in the Criminal Procedure Code under Section 211, ‘Every charge under this Code shall state the offence with which the accused is charged.’ So, we borrow the language of 211 and say, replace the word ‘accused’ and say ‘when a person is charged with an offence, that is when the court frames a charge against him under Section 211’. Only at that stage, the burden shifts to him.” The same is a clear indication of the legislative intent that the presumption against a person is not to apply even at the stage of summoning a person or at the stage of deciding a bail application, but only to apply at the stage when charges are framed against the person.
Here it would be interesting to note that despite the legislative intent being to shield those people who are simply “ accused ” and have not yet been “charged” for the offence of Money Laundering, Courts no less than the Supreme Court have held Section 24 PMLA to be applicable even at the stage of bail. The Supreme Court in Gautam Kunduv. Directorate of Enforcement[12], Rohit Tandon v. Directorate of Enforcement[13], the Gujarat High Court in Pradeep Nirankarnath Sharmav. Directorate of Enforcement[14], Rakesh Manekchand Kothariv. Union of India[15], Jignesh Kishorebhaiv. State of Gujarat[16], the High Court of Bombay in Chhagan Chandrakant Bhujbalv. Union of India[17], the High Court of Madras in Farouk Irani v. The Deputy Director, Directorate of Enforcement[18] have all implicitly held Section 24 to be applicable at the stage of Bail. However, two facts become important to note here, first in none of the cases cited above did the Courts delve into the meaning of the phrase “Charged with the offence of money laundering” and second, most of the aforesaid decisions came at a time when Section 45 PMLA provided two conditions to be complied with before an accused person could be released on bail, one of them being the requirement of the accused to demonstrate that he is not guilty of the scheduled offence relating to the proceeds of crime. The twin conditions were subsequently held to be unconstitutional by the Supreme Court in Nikesh Tarachand Shah v. Union of India[19] being violative of Articles 14 and 21 of the Constitution of India. It is possible that the views of the Supreme Court and of the High Courts in the aforementioned decisions on Section 24 PMLA being applicable at the stage of bail were in light of the existence of the twin conditions against release on bail in Section 45 PMLA, requiring an accused to demonstrate his innocence, which is in essence a supplementary provision to Section 24 PMLA.
At the same time, it would be noteworthy there are also judgments which have held that Section 24 PMLA is inapplicable at the stage of bail, such as the decision of the Bombay High Court in Chhagan Chandrakant Bhujbalv. Assistant Director, Directorate of Enforcement[20] and the decision of the Gujarat High Court in Jignesh Kishorebhai Bhajiawala v. State of Gujarat[21] and the decision of the High Court of Delhi in Upendra Raiv.Directorate of Enforcement[22] , wherein the said Courts have implied that Section 24 PMLA would not apply at the stage of bail. It would be relevant to note that the said judgments were passed after the judgment passed by the Supreme Court in Nikesh Tarachand Shah (supra) and the said Courts took the same into consideration, which makes it safe to infer that the earlier decisions applying Section 24 PMLA even at the stage of bail could have been in view of the existence of the twin conditions against release of a person on bail as contained in Section 45 PMLA. Now with the twin conditions having been held unconstitutional and further in view of the clear intent of the legislators while amending Section 24 PMLA it can be said that Section 24 cannot be invoked at the stage of bail or till after the framing of charges by a competent court and hence the earlier judgments mentioned above, can no longer be considered as binding precedent on the aspect of applicability of Section 24 PMLA at the stage of bail.
The above legal question about burden of proof can be tackled in another manner. To rebut the presumption raised against him, an accused person would have to demonstrate that the property in question is not “proceeds of crime”. In order to do that he would, as has been correctly held by the High Court of Andhra Pradesh in B. Rama Raju v. Union of India (supra), the accused would have to show his income, earnings, assets to show how he has acquired the property in question. In Abdul Rashid Ibrahim Mansuriv. State of Gujarat[23], the Supreme Court while dealing with a case pertaining to NDPS Act held that the burden of proof cast on the accused under Section 35[24] of the said Act can be discharged through different modes. Firstly, the accused can rely on the materials available in the prosecution evidence. Secondly, he can elicit answers from prosecution witnesses through cross-examination to dispel any such doubt. Thirdly, he may also adduce other evidence when he is called upon to enter on his defence. At the first opportunity, “the accused can rely on the materials available in the prosecution evidence” is fraught with its own difficulties i.e. how do ensure the prosecution relies upon material which will favor the accused. It must also be kept in mind that it is not something alien to investigating agencies to place reliance upon only those materials which favor the prosecution and to either ignore or to keep from the Court the material favoring the accused. This has prompted the Courts to hold that in the interests of a fair trial, complete disclosure of materials in the possession of the investigating agencies has to be made to the accused so that he is in a position to effectively defend himself/ herself[25]. But here also there are limitations in terms of whether the un-relied upon documents are documents which were seized by the Investigating Officer under a seizure memo or the same are simply in his custody or it is a situation where the accused claims that he handed the said documents over to the Investigating Officer during the course of investigation, but the same have been neither seized by him nor are the same in his custody. In such situations whether the said documents can be summoned by a Court before framing of charges is debatable and therefore would it be fair to place a reverse burden of proving that the “proceeds of crime” are untainted upon an accused? The answer has to be a loud and resounding NO. To apply the reverse burden on an accused person in such situations would be violative of the right to fair trial as prescribed under the Constitution of India.
In fact, the Supreme Court has recently, in Mohan Lal v. State of Punjab[26], while dealing with a case involving the NDPS Act, 1985, held that in statutes providing a reverse burden, “…the onus will lie on the prosecution to demonstrate on the face of it that the investigation was fair, judicious with no circumstances that may raise doubts about its veracity. The obligation of proof beyond reasonable doubt will take within its ambit a fair investigation, in the absence of which there can be no fair trial. If the investigation itself is unfair, to require the accused to demonstrate prejudice will be fraught with danger vesting arbitrary powers in the police which may well lead to false implication also. Investigation in such a case would then become an empty formality and a farce…”
Likewise, in a prosecution for the offences punishable under Section 3 PMLA it is incumbent upon the prosecution to demonstrate its fairness otherwise the Court ought to be loathe to convict an accused based on an unfair prosecution.
Therefore, this presumption under Section 24 PMLA can be effectively discharged by an accused only during the course of Trial and not at the pre-charge stages, as normally the Courts do not permit reliance upon defence material before charges are framed. Therefore to invoke the presumption under Section 24 PMLA at a stage prior to framing of charges would be unfair, illegal and contrary to the legislative intent as discussed above.
*Advocates, practicing in Delhi on the criminal side for the last 16 and 4 years respectively. Authors specialise in white collar crimes. Regularly appearing before trial courts, appellate courts and Adjudicating Authorities in matters relating to Prevention of Corruption Act, Prevention of Money Laundering Act and other economic/white collar crimes.
[1] Prevention of Money Laundering Act, 2002
[2] B. Rama Raju v. Union of India, 2011 SCC OnLine AP 152 The said judgment is presently under challenge before Supreme Court as Special Leave to Appeal (C) No. 28394/2011 titled as B. Rama Raju v. Union of India and is pending for arguments along with a batch of other petitions and; Usha Agarwal v. Union of India, 2017 SCC OnLine Sikk 146 ; K. Sowbhagya v. Union of India, 2016 SCC OnLine Kar 282 . All the said judgments have upheld the constitutional validity of Section 24 PMLA.
[3] Rajya Sabha Debate dated 25.07.2002
[4] Rajya Sabha Debate dated 25.07.2002
[5] Hanif Khan v. Central Bureau of Narcotics, judgment dated 21.08.2019 passed by Supreme Court in Criminal Appeal No. 1206 of 2013; Babu v. State of Kerala, (2010) 9 SCC 189; Naresh Jain v. The Deputy Director, Directorate of Enforcement, judgment dated 12.09.2019 passed by Appellate Tribunal for Money Laundering in FPA-PMLA-1332/DLI/2016, FPA-PMLA-1333/DLI/2016, FPA-PMLA-1929/DLI/2017, MP-PMLA-3813/DLI/2017, FPA-PMLA-1930/DLI/2017, MP-PMLA-3816/DLI/2017, FPA-PMLA-1931/DLI/2017, MP-PMLA-3837/DLI/2017, FPA-PMLA-1952/DLI/
[6] State of Maharashtra v. Wasudeo Ramchandra Kaidalwar, (1981) 3 SCC 199
[7] Jafar Mohammed Hasanfatta v. Deputy Director, 2017 SCC OnLine Guj 2476; Kavitha G. Pillai v. The Joint Director, 2017 SCC OnLine Ker 10118; Tech Mahindra Limited v. Joint Director, Directorate of Enforcement, Hyderabad, judgment dated 22.12.2014 passed by Andhra Pradesh High Court in WP No. 17525/2014
[9] 1952 SCR 1112
[10] (1964) 1 SCR 371
[11] (2017) 2 SCC 629
[12] (2015) 16 SCC 1
[13] (2018) 11 SCC 46
[18] Judgment dated 05.05.2017 passed by Madras High Court in Criminal Original Petitions Nos. 20423, 20454 and 20581 of 2016
[19] (2018) 11 SCC 1
[23] (2000) 2 SCC 513
[24] Section 35 NDPS states as follows-
“35. Presumption of culpable mental state.–?(1) In any prosecution for an offence under this Act which requires a culpable mental state of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation.?In this section culpable mental state? includes intention, motive knowledge of a fact and belief in, or reason to believe, a fact.
(2) For the purpose of this section, a fact is said to be proved only when the court believes it to exist beyond a reasonable doubt and not merely when its existence is established by a preponderance of probability.”
[25] P. Gopalkrishnan v. State of Kerala, 2019 SCC Online SC 1532; V.K. Sasikala v. State, (2012) 9 SCC 771; Shashi Bala v. State, Govt. NCT of Delhi, 2016 SCC OnLine Del 3791; Ashutosh Verma v. CBI, 2014 SCC OnLine Del 6931
[26] (2018) 17 SCC 627
