Recent Updates Regarding the Prevention of Money Laundering Act (PMLA)

Table of Contents

1. What is ‘AML’ and Why is it Relevant?
2. The Prevention of Money Laundering Act, 2002 – Act 15 of 2003
3. Why is the PMLA considered Draconian?
4. Offence of Money – Laundering and it’s Explanation (Section-3)
5. The Schedule of Offenses
6. Proceeds of crime (Section 2(u)
7. Punishment for Money Laundering
8. Institutional Framework Agencies
9. 3rd May Notification
10. 9th May Notification
11. Obligation of Reporting Entities
12. Circular of 17.07.2023
13. The FATF 40 Recommendations
14. Important Judgments
15. PMLA v. IBC

1. What is ‘AML’ and Why is it Relevant?

• The Financial Action Task Force (FATF) is a global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
• FATF has developed 40 FATF Recommendations, which ensure a co-ordinated global response to prevent organised crime, corruption and terrorism. They help authorities go after the money of criminals dealing in illegal drugs, human trafficking and other crimes. There are more than 200 countries and jurisdictions committed to implementing the Recommendations.
• FATF reviews money laundering and terrorist financing techniques and continuously strengthens its standards to address new risks, such as the regulation of virtual assets, which have spread as cryptocurrencies gain popularity. FATF monitors countries to ensure they implement the FATF Standards fully and effectively by a process of Mutual Evaluation Reviews and holds countries to account that do not comply.
• In consultation with members of the accounting profession, FATF has issued various recommendation publications including relating to the Risk Based Approach for Accountants.

2. The Prevention of Money Laundering Act, 2002 – Act 15 of 2003

• An Act to prevent money-laundering and to provide for confiscation of property derived from or involved in money-laundering and for matters connected therewith or incidental thereto.
• It is being realised, world over, that money-laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty.  (Statement of Objects and Reasons).
• It is presumed that when the reward for crime is taken away, crime itself may reduce.

3. Why is the PMLA considered Draconian?

• Though money laundering is a menace and needs to be dealt with an iron fist, the provisions of the PMLA 2002 are known to be quite draconian.
• Getting Bail after being accused of PMLA is notoriously difficult.
• The infamous twin conditions of Bail in PMLA.
• In some cases, PMLA proceedings exact a heavier toll than the primary offense – Eg. Section 419 of the Cr.P.C. – Cheating by personation – Punishment is three years and offense is bailable.  PMLA punishment is not less than three years – may extend to seven and offenses are non bailable.

4. Offence of Money – Laundering and it’s Explanation (Section-3)

• 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 including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering.
• For the removal of doubts, it is hereby clarified that a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:—

1. 1. Concealment; or possession; or acquisition or use; or projecting as untainted property; or claiming as untainted property – in any manner whatsoever,
   2. The process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.

5. The Schedule of Offenses

• Various Acts under IPC, NDPS Act, Explosive Substances Act, UAPA Act, Arms Act, Wildlife protection, Immoral Traffic (Prevention) Act, Prevention of Corruption Act, Explosives Act, Antiques and Art treasures Act, Customs Act, Bonded Labour, Child Labour, Juvenile Justice, Emigration, Passports, Foreigners, Copyrights, Trademarks, Biological Diversity, Protection of plant varieties and farmer’s rights, Copyright Act, Environment protection Act, Water/Air pollution control, Unlawful Acts against safety of maritime navigation and fixed platforms on continental shelf, etc.
• SEBI Act offenses – against manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.
• Companies Act – Fraud.
• Information Technology Act – Breach of confidentiality and privacy.

6. Proceeds of crime (Section 2(u)

• “Proceeds of Crime” means 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 [or where such property is taken or held outside the country, then the property equivalent in value held within the country [or abroad]
• [Explanation.—For the removal of doubts, it is hereby clarified that “proceeds of crime” include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence;]

7. Punishment for Money Laundering

• Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years, but which may extend to seven years and shall also be liable to fine.
• Provided that where the proceeds of crime involved in money-laundering relate to any offence specified under the NDPS Act, the provisions of this section shall have effect as if for the words “which may extend to seven years“, the words “which may extend to ten years” has been substituted.

8. Institutional Framework Agencies

• The Directorate of Enforcement was established in the year 1956 with its Headquarters at New Delhi. It is responsible for enforcement of the Foreign Exchange Management Act, 1999 (FEMA) and certain provisions under the Prevention of Money Laundering Act. Work relating to investigation and prosecution of cases under the PMLA has been entrusted to Enforcement Directorate. The Directorate is under the administrative control of Department of Revenue for operational purposes; the policy aspects of the FEMA, its legislation and its amendments are within the purview of the Department of Economic Affairs. Policy issues pertaining to PML Act, however, are the responsibility of the Department of Revenue.
• Financial Intelligence Unit – India (FIU-IND) was set up by the Government of India vide O.M. dated 18th November 2004 as the Central National Agency responsible for receiving, processing, analysing and disseminating information relating to suspicious Financial Transactions. FIU-IND is also responsible for coordinating and strengthening efforts of National and International Intelligence, Investigation and Enforcement Agencies in pursuing the global efforts against money laundering and related crimes. FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.

9. 3rd May Notification

The notification of 3rd May 2023 of the ministry of finance now includes certain financial transactions carried out by a professional (relevant person) on behalf of a client, in course of his or her profession to be an activity for the purposes of section 2(1) (sa). These transactions are:

1. Buying and selling of any immovable property; managing of client money, securities or other assets;
2. Management of bank, savings or securities accounts;
3. Organization of contributions for the creation, operation, or management of companies;
4. Creation, operation, or management of companies, limited liability partnerships or trusts, and
5. Buying and selling of business entities.

9.1 “persons covered” (includes)

• An individual who obtained a certificate of practice under section 6 of the Chartered Accountants Act, 1949 (38 of 1949) and practicing individually or through a firm, in whatever manner it has been constituted;
• An individual who obtained a certificate of practice under section 6 of the Company Secretaries Act, 1980 (56 of 1980) and practicing individually or through a firm, in whatever manner it has been constituted;
• An individual who has obtained a certificate of practice under section 6 of the Cost and Works Accountants Act, 1959 (23 of 1959) and practicing individually or through a firm, in whatever manner it has been constituted

9.2 “person carrying on designated business or profession.”

The notification of 3rd May 2023 of the ministry of finance now includes certain financial transactions carried out by a professional (relevant person) on behalf of a client, in course of his or her profession to be an activity for the purposes of section 2(1) (sa). These transactions are:

1. Buying and selling of any immovable property;
2. Managing of client money,
3. Securities or other assets;
4. Management of bank, savings or securities accounts;
5. Organization of contributions for the creation, operation, or management of companies;
6. Creation, operation, or management of companies, limited liability partnerships or trusts, and
7. Buying and selling of business entities.

10. 9th May Notification

This Notification does not purport to be restricted to any designated professionals, nor are the professionals excluded. Chartered Accountants would therefore be covered under the ambit of this Notification also if they carry out the notified activities in the course of their business on behalf of or for another person.

1. Acting as a formation agent of companies and limited liability partnerships;
2. Acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a firm or a similar position in relation to other companies and limited liability partnerships;
3. Providing a registered office, business address or accommodation, correspondence or administrative address for a company or a limited liability partnership or a trust;
4. acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another type of trust; and
5. acting as (or arranging for another person to act as) a nominee shareholder for another person.

10.1 Understanding the 9th May Notification

Explanation.– For removal of doubts, it is clarified that the following activities shall not be regarded as activity for the purposes of sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the Act, namely:-

• any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax as defined under section 194-I of Income-tax Act, 1961 (43 of 1961);
• any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment; or
• any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of a company to the extent of filing a declaration as required under clause (b) of sub-section (1) of section 7 of Companies Act, 2013 (18 of 2013); or
• any activity of a person which falls within the meaning of an intermediary as defined in clause (n) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002.

11. Obligation of Reporting Entities

The obligation of reporting entity is primarily contained in Section 12 of the PMLA, which requires every reporting entity to: –

• Maintain a record of all transactions (five years from the date of the transaction between a client and the reporting entity), including information relating to transactions covered under clause (b), in such manner as to enable it to reconstruct individual transactions;
• Furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed;
• Maintain a record of documents (five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later) evidencing the identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.

11.1 The action to be taken against a defaulting Reporting Entity

The action to be taken against a defaulting Reporting Entity is to be recorded in an order and a copy of the order is to be furnished to every person who is a party to such proceedings. If the Director, in the course of any inquiry, finds that a reporting entity or its designated director on the Board or any of its employees has failed to comply with the obligations under this Chapter, then he may—

• issue a warning in writing; or

(b) direct such reporting entity or its designated director on the Board or any of its employees, to comply with specific instructions; or

(c) direct such reporting entity or its designated director on the Board or any of its employees, to send reports at such interval as may be prescribed on the measures it is taking; or

(d) by an order, impose a monetary penalty on such reporting entity or its designated director on the Board or any of its employees, which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure.]

• No prosecution is contemplated by Chapter IV of the PMLA for defaults in compliance. In fact, Section 14 of the PMLA contemplates that no civil or criminal proceeding shall lie against the Reporting Entities, its directors and employees for furnishing information.

12. Circular of 17.07.2023

• The entities carrying out the activities mentioned in above para are referred as ‘Trust and Company Service Providers (TSPs)’. TCSPs are therefore covered within the definition of ‘Reporting Entity’ by virtue of the aforesaid Government of India’s notification dated May 09, 2023. As a result, TCSPs are required to strictly comply with the obligations under the
• PMLA and PML Rules that includes inter-alia registration on FINNET 2.0 portal with FIU- INDIA, appointment of Principal Officer and Designated Director, formulating risk management practices, performing customer due diligence, record keeping, training of employees and implementation of internal mechanisms to detect and report suspicious transactions to FIU-IND. Registration with FIU-INDIA is a pre-requisite for a reporting entity to become compliant with the reporting obligations under PMLA.
• Al the Designated Directors and Principal Officers of the REs concerned are requested to immediately register themselves with FIU-IND in FINNET 2.0 portal in order to comply with the reporting obligations under PMLA.

13. The FATF 40 Recommendations

13.1 3rd May 2023 Notification

• Recommendation 23 (a) reads as follows: Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction in relation to the activities described in paragraph (d) of Recommendation 22. Countries are strongly encouraged to extend the reporting requirement to the rest of the professional activities of accountants, including auditing.
• Recommendation 22 (d) reads as follows: Lawyers, notaries, other independent legal professionals and accountants – when they prepare for or carry out transactions for their client concerning the following activities:

1. 1. buying and selling of real estate;
   2. managing of client money, securities or other assets;
   3. management of bank, savings or securities accounts;
   4. organisation of contributions for the creation, operation or management of companies;
   5. creation, operation or management of legal persons or arrangements, and buying and selling of business entities. These seem to be the genesis of the 3rd May circular. We can expect the the reporting requirements may be extended even to auditing activities.

13.2 9th May 2023 Notification

• Recommendation 23 (c) reads as follows: Trust and company service providers should be required to report suspicious transactions for a client when, on behalf of or for a client, they engage in a transaction in relation to the activities referred to in paragraph (e) of Recommendation
• 22 Recommendation 22 (e) reads as follows:
• Trust and company service providers – when they prepare for or carry out transactions for a client concerning the following activities:

1. 1. acting as a formation agent of legal persons;
   2. acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons;
   3. providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement;
   4. acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another form of legal arrangement;
   5. acting as (or arranging for another person to act as) a nominee shareholder for another person.

14. Important Judgments

14.1 Vijay Madanlal Choudhary 2022 SCC OnLine SC 92, [2022] 140 taxman.com 61 (SC)

• The Supreme Court held that the 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 Prevention of Money Laundering Act. As it stands today, no section of the Income- tax Act, 1961, finds itself in the schedule to the PMLA and therefore based on the judgement of the Supreme Court, it is reaffirmed that not only is it required that the property in question is derived/obtained from an offence but it is equally important that the offence must be included in the schedule to the PMLA.
• The Supreme Court in the same judgement also observed 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 Prevention of Money Laundering 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 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 Act.

14.2 Directorate of Enforcement v. Padmanabhan Kishore 2022 SCC OnLine SC 1940, [2022] 144 taxman.com 28 (SC)

The Supreme Court held in the context of giving a bribe that so long as the amount is in the hands of a bribe giver and till it does not get impressed with the requisite intent and is actually handed over as a bribe, the money in questions would definitely be untainted money. If the money is handed over without such intent (of giving a bribe – i.e. without the requisite mens rea), it would be a mere entrustment. If the money given in entrustment is thereafter appropriated by the public servant, the offence would be of misappropriation or species thereof but certainly not of bribe. The crucial part is the requisite intent to hand over the amount as bribe and normally such intent must necessarily be antecedent or prior to the moment the amount is handed over. Thus, the requisite intent (mens rea) would always be at the core before the amount is handed over. If such intent has been entertained well before the amount is actually handed over as a bribe, the person concerned would certainly be involved in the process or activity connected with “proceeds of crime” including inter alia, the aspects of possession or acquisition thereof. By handing over money with the intent of giving bribe, such person will be assisting or will knowingly be a party to an activity connected with the proceeds of crime. Without such active participation on part of the person concerned, the money would not assume the character of being proceeds of crime. The Supreme Court held that relevant expressions from Section 3 of the Prevention of Money Laundering Act are thus wide enough to cover the role played by such person. This judgement again shows the centrality of the term proceeds of crime with respect to the offence of money-laundering.

14.3 Murali Krishna Chakrala v. The Deputy Director Criminal Revision Case No. 1354 of 2022 and Crl. M.P.No.14792 of 2022, Dated 23rd November 2022 (Madras High Court)

• When for issuing certain certificates, a Chartered Accountant is not required to go into the genuineness or otherwise of the documents submitted by his clients, he cannot be prosecuted for granting the certificate based on the documents furnished by the Clients.
• The Court observed that this could be compared with the legal opinion that are normally given by panel lawyers of banks, after scrutinizing title documents without going into their genuinity. A Panel Advocate, who has no means to go into the genuinity of title deeds and who gives an opinion based on such title deeds, cannot be prosecuted along with the principal offender.
• Would this change when the professional is required to certify the authenticity of the documents but fails to do so?

14.4 Rajiv Chakraborty Resolution Professional of EIEL v. Directorate of Enforcement 2022 SCC OnLine Del 3703, [2022] 145 taxman.com 21 (Delhi)

• The Court observed that an order of attachment when made under the Act does not result in the corporate debtor or the Resolution Professional facing a fait accompli. The statutes provide adequate means and avenues for redressal of claims and grievances.
• It could be open to a Resolution Professional to approach the competent authorities under the Act for such reliefs in respect of tainted properties as may be legally permissible.
• A Provisional Attachment Order made by the Enforcement Directorate under the Act does not invest in that authority a superior or overriding right in property.
• Ultimately the claims of parties over the property that may be attached, and the question of distribution and priorities would have to be settled independently and in accordance with law.

14.5 V. Senthil Balaji v. State represented by Deputy Director & Ors. 2023 SCC OnLine 934, [2023] 153 taxman 224 (SC)

• The Hon’ble Supreme Court in V. Senthil Balaji v. State represented by Deputy Director & Ors. 2023 SCC OnLine 934 held that, “It is in the nature of a warning to an officer concerned to strictly comply with the mandate of Section 19 of the PMLA, 2002 in letter and spirit failing which he would be visited with the consequences. It is his bounden duty to record the reasons for his belief in coming to conclusion that a person has been guilty and therefore, to be arrested. Such a safeguard is meant to facilitate an element of fairness and accountability.
• To effect an arrest, an officer authorised has to assess and evaluate the materials in his possession. Through such materials, he is expected to form a reason to believe that a person has been guilty of an offence punishable under the PMLA, 2002. Thereafter, he is at liberty to arrest, while performing his mandatory duty of recording the reasons. The said exercise has to be followed by way of an information being served on the arrestee of the grounds of arrest. Any non-compliance of the mandate of Section 19(1) of the PMLA, 2002 would vitiate the very arrest itself. Under sub-section (2), the Authorised Officer shall immediately, after the arrest, forward a copy of the order as mandated under sub-section (1) together with the materials in his custody, forming the basis of his belief, to the Adjudicating Authority, in a sealed envelope. Needless to state, compliance of sub-section (2) is also a solemn function of the arresting authority which brooks no exception.
• When an arrestee is forwarded to the jurisdictional Magistrate under Section 19(3) of the PMLA, 2002 no writ of Habeus Corpus would lie.
• Any plea of illegal arrest is to be made before such Magistrate since custody becomes judicial. Any non-compliance of the mandate of Section 19 of the PMLA, 2002 would ensure to the benefit of the person arrested. For such noncompliance, the Competent Court shall have the power to initiate action under Section 62 of the PMLA, 2002.

14.6 Pankaj Bansal v. Union of India 2023 SCC OnLine SC 1244, [2023] 155 taxman.com 39 (SC)

• The Hon’ble Supreme Court in Pankaj Bansal v. Union of India 2023 SCC OnLine SC 1244 while holding the Enforcement Directorate accountable for basic procedural mandates, observed that,

“We may also note that the language of Section 19 of the Act of 2002 puts it beyond doubt that the authorized officer has to record in writing the reasons for forming the belief that the person proposed to be arrested is guilty of an offence punishable under the Act of 2002. On the above analysis, to give true meaning and purpose to the constitutional and the statutory mandate of Section 19(1) of the Act of 2002 of informing the arrested person of the grounds of arrest, we hold that it would be necessary, henceforth, that a copy of such written grounds of arrest is furnished to the arrested person as a matter of course and without exception.”

• This chronology of events speaks volumes and reflects rather poorly, if not negatively, on the ED’s style of functioning. Being a premier investigating agency, charged with the onerous responsibility of curbing the debilitating economic offence of money laundering in our country, every action of the ED in the course of such exercise is expected to be transparent, above board and conforming to pristine standards of fair play in action. The ED, mantled with far-reaching powers under the stringent Act of 2002, is not expected to be vindictive in its conduct and must be seen to be acting with utmost probity and with the highest degree of dispassion and fairness. In the case on hand, the facts demonstrate that the ED failed to discharge its functions and exercise its powers as per these parameters.
• We may also note that the failure of the appellants to respond to the questions put to them by the ED would not be sufficient in itself for the Investigating Officer to opine that they were liable to be arrested under Section 19, as that provision specifically requires him to find reason to believe that they were guilty of an offence under the Act of 2002. Mere non-cooperation of a witness in response to the summons issued under Section 50 of the Act of 2002 would not be enough to render him/her liable to be arrested under Section 19.
• Needless to state, this format would be followed all over the country by the authorized officers who exercise the power of arrest under Section 19(1) of the Act of 2002 but, in certain parts of the country, the authorized officer would inform the arrested person of the grounds of arrest by furnishing the same in writing, while in other parts of the country, on the basis of the very same prescribed format, the authorized officer would only read out or permit reading of the contents of the grounds of arrest. This dual and disparate procedure to convey the grounds of arrest to the arrested person cannot be countenanced on the strength of the very same arrest order, in the afore-stated prescribed format.
• That being so, there is no valid reason as to why a copy of such written grounds of arrest should not be furnished to the arrested person as a matter of course and without exception. There are two primary reasons as to why this would be the advisable course of action to be followed as a matter of principle. Firstly, in the event such grounds of arrest are orally read out to the arrested person or read by such person with nothing further and this fact is disputed in a given case, it may boil down to the word of the arrested person against the word of the authorized officer as to whether or not there is due and proper compliance in this regard.
• The second reason as to why this would be the proper course to adopt is the constitutional objective underlying such information being given to the arrested person. Conveyance of this information is not only to apprise the arrested person of why he/she is being arrested but also to enable such person to seek legal counsel and, thereafter, present a case before the Court under Section 45 to seek release on bail, if he/she so chooses.

14.7 The latest word from the Apex Court Ram Kishor Arora v. Directorate of Enforcement CRIMINAL APPEAL NO. 3865 OF 2023(@ SLP (Crl.) No. 12863 of 2023) dated 15th December 20236

• A division bench of the Hon’ble Supreme Court has given the final view on the application of the Pankaj Bansal judgment. The term ‘henceforth’ in the judgment will not apply retrospectively.
• The Court observed that

“As discernible from the judgment in Pankaj Bansal Case also noticing the inconsistent practice being followed by the officers arresting the persons under Section 19 of PMLA, directed to furnish the grounds of arrest in writing as a matter of course, “henceforth”, meaning thereby from the date of the pronouncement of the judgment.”

• “The very use of the word “henceforth” implied that the said requirement of furnishing grounds of arrest in writing to the arrested person as soon as after his arrest was not the mandatory or obligatory till the date of the said judgment.”
• “Hence non-furnishing of grounds of arrest in writing till the date of pronouncement of judgment in Pankaj Bansal case could neither be held to be illegal nor the action of the concerned officer in not furnishing the same in writing could be faulted with.”
• The Court held that if the Accused is informed or made aware orally about the grounds of arrest at the time of his arrest and is furnished a written communication about the grounds of arrest as soon as may be i.e as early as possible and within reasonably convenient and requisite time of twenty-four hours of his arrest, that would be sufficient compliance of not only Section 19 of PMLA but also of Article 22(1) of the Constitution of India.

14.8 Saumya Chaurasia v. DE 2023 SCC OnLine SC 1674, [2023] 157 taxman.com 326 (SC)

• The use of the expression “may be” in the first proviso to Section 45 clearly indicates that the benefit of the said proviso to the category of persons mentioned therein may be extended at the discretion of the Court considering the facts and circumstances of each case and could not be construed as a mandatory or obligatory on the part of the Court to release them. Similar benevolent provision for granting bail to the category of persons below the age of sixteen years, women, sick or infirm has been made in Section 437 Cr. P.C. and many other special enactments also, however by no stretch of imagination could such provision be construed as obligatory or mandatory in nature, otherwise all serious offences under such special Acts would be committed involving women and persons of tender age below 16 years. No doubt the courts need to be more sensitive and sympathetic towards the category of persons included in the first proviso to Section 45 and similar provisions in the other Acts, as the persons of tender age and women who are likely to be more vulnerable, may sometimes be misused by the unscrupulous elements and made scapegoats for committing such Crimes, nonetheless, the courts also should not be oblivious to the fact that nowadays the educated and well placed women in the society engage themselves in the commercial ventures and enterprises, and advertently or inadvertently engage themselves in the illegal activities. In essence, the courts should exercise the discretion judiciously using their prudence, while granting the benefit of the first proviso to Section 45 PMLA to the category of persons mentioned therein. The extent of involvement of the persons falling in such category in the alleged offences, the nature of evidence collected by the investigating agency etc., would be material considerations. The
• Supreme Court was concerned with the part of Section 45 that grants greater discretion to the Special Court to grant bail in certain conditions.- Under the Age of 16 years, is a woman or is sick or infirm etc.

14.9 Pavana Dibbur v. DE 2023 SCC OnLine SC 1586, [2023] 157 taxman.com 10 (SC)

The Supreme Court held that:

• It is not necessary that a person against whom the offence under Section 3 of the PMLA is alleged, must have been shown as the accused in the scheduled offence;
• Even if an accused shown in the complaint under the PMLA is not an accused in the scheduled offence, he will benefit from the acquittal of all the accused in the scheduled offence or discharge of all the accused in the scheduled offence. Similarly, he will get the benefit of the order of quashing the proceedings of the scheduled offence;
• The first property cannot be said to have any connection with the proceeds of the crime as the acts constituting scheduled offence were committed after the property was acquired;
• The issue of whether the appellant has used tainted money forming part of the proceeds of crime for acquiring the second property can be decided only at the time of trial; and
• The offence punishable under Section 120-B of the IPC will become a scheduled offence only if the conspiracy alleged is of committing an offence which is specifically included in the Schedule.

15. PMLA v. IBC

• In P. Mohanraj v. Shah Bros. Ispat (P) Ltd., (2021) 6 SCC 258, [2021] 125 taxman.com 39 (SC) the Supreme Court distinguishes Section 32A from Section 14 of IBC. The two Sections are not pari materia and Section 32A has nothing to do with a moratorium. The Supreme Court observed

“that Section 32-A cannot possibly be said to throw any light on the true interpretation of Section 14(1)(a) as the reason for introducing Section 32-A had nothing whatsoever to do with any moratorium provision. At the heart of the section is the extinguishment of criminal liability of the corporate debtor, from the date the resolution plan has been approved by the adjudicating authority, so that the new management may make a clean break with the past and start on a clean slate. A moratorium provision, on the other hand, does not extinguish any liability, civil or criminal, but only casts a shadow on proceedings already initiated and on proceedings to be initiated, which shadow is lifted when the moratorium period comes to an end. Also, Section 32-A(1) operates only after the moratorium comes to an end. At the heart of Section 32-A is the IBC’s goal of value maximisation and the need to obviate lower recoveries to creditors as a result of the corporate debtor continuing to be exposed to criminal liability.”

• The Supreme Court held that Section 32A would apply to all offenses that were committed prior to commencement of CIRP. It can therefore be theorised that the date of provisional attachment or confirmation of provisional attachment is irrelevant. The Court held

“ Section 32-A(1) cannot be read in this fashion and clearly incudes the liability of the corporate debtor for all offences committed prior to the commencement of the corporate insolvency resolution process. Doubtless, a Section 138 proceeding would be included, and would, after the moratorium period comes to an end with a resolution plan by a new management being approved by the adjudicating authority, cease to be an offence qua the corporate debtor.”

• In Manish Kumar v. Union of India, (2021) 5 SCC 1, [2021] 123 taxman.com 324 (SC) the Constitutional validity of Section 32A of the IBC was challenged. The Supreme Court upheld the validity and emphasised on the clean slate principle.
• Nitin Jain Liquidator PSL Ltd. v. ED 2021 SCC OnLine Del 5281, [2021] 133 taxman.com 184 (Delhi) considers objectives underlying introduction of Section 32A.

“The provision was contained in Clause 10 of the Insolvency and Bankruptcy Code [Second Amendment] Bill, 2019. The Standing Committee on Finance while dealing with that Bill and the proposed Section 32A noted as under” – Para 42. The SOA of Act 1 of 2020 also alludes to the need to ensure that the successful bidder is kept immune from the liabilities attached to the commission of an offense by the corporate debtor prior to the commencement of the CIRP under certain circumstances. The SOA in more explicit terms alludes to Section 32A when it records that it is intended “to provide immunity against prosecution of the corporate debtor and action against the property of the corporate debtor and the successful resolution applicant subject to fulfilment of certain conditions.” – Para 43

• It was held that

“The issue of reconciliation between the IBC and the PMLA, in so far as the present cause is concerned, needs to be answered solely on the anvil of Section 32A. Once the Legislature has chosen to step in and introduce a specific provision for cessation of liabilities and prosecution, it is that alone which must govern, resolve and determine the extent to which powers under the PMLA can be permitted in law to be exercised while a resolution or liquidation process is ongoing”.

• In Vimal Oil and Foods Ltd. v. State of Gujarat 2022 SCC OnLine Guj 1123 the Gujarat High Court held that

“through Section 32A of IB Code, the insulation is provided to corporate debtor and to its properties as they would be susceptible to investigations or proceedings related to criminal offences committed by its, prior to the commencement of a CIRP, which would lead to imposition of liabilities and restrictions on the corporate debtor and its properties even after they were lawfully acquired by a resolution applicant or a successful bidder respectively. Section 29A read with section 35(1)(f), places restrictions on related parties of the corporate debtor from proposing a resolution plan and purchasing the property of the corporate debtor in the CIRP and liquidation process respectively. The proceedings under the IB Code are designed to ensure maximization of value, that requires transfer of the corporate debtor to bonafide persons, where position is safeguarded by ring-fencing them from prosecution and liabilities under offences committed by erstwhile promoter etc. When bonafide persons, takes over the management of the corporate debtor, they should not be penalized for the action of erstwhile management of the corporate debtor. Thus, VOFL as a going concern and its properties would not be liable for the alleged fraud of the earlier management.”

• In Rajiv Chakraborty Resolution Professional of EIEL v. Directorate of Enforcement, 2022 SCC OnLine Del 3703, [2022] 145 taxman.com 21 (Delhi) the Delhi High Court held that Section 32A would constitute the pivot by virtue of being the later act and thus govern the extent to which the non obstante clause enshrined in the IBC would operate and exclude the operation of the PMLA. As has been observed hereinabove, while both IBC and the PMLA are special statutes in the generic sense, they both seek to subserve independent and separate legislative objectives. The subject matter and focus of the two legislations is clearly distinct. When faced with a situation where both the special legislations incorporate non obstante clauses, it becomes the duty of the Court to discern the true intent and scope of the two legislations. Even though the IBC and Section 238 thereof constitute the later enactment when viewed against the PMLA which came to be enforced in 2005, the Court is of the considered opinion that the extent to which the latter was intended to capitulate to the IBC is an issue which must be answered on the basis of Section 32A. The introduction of that provision in 2020 represents the last expression of intent of the Legislature and thus the embodiment of the extent to which the provisions of the PMLA are to give way to proceedings initiated under the IBC.
• The Court independently came to the conclusion that the power to attach under the PMLA would not fall within the ken of Section 14(1)(a) of the IBC. Through Section 32A, the Legislature has authoritatively spoken of the terminal point whereafter the powers under the PMLA would not be exercisable. The events which trigger its application when reached would lead to the erection of an impregnable wall which cannot be breached by invocation of the provisions of the PMLA. The non obstante clause finding place in the IBC thus can neither be interpreted nor countenanced to have an impact far greater than that envisaged in Section 32A.