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Applicability of PMLA cases throughout India including J&K

Prabhat Nigam

| Updated: Jan 14, 2022 | Category: PMLA

Applicability of PMLA cases throughout India including J&K

A recent judgment of the Karnataka High Court has resolved the dispute regarding the applicability of the Prevention of Money Laundering Act, 2002 (PMLA) in the Union Territories of Jammu and Kashmir (J&K) and Ladakh. The Karnataka High Court has decided that the Enforcement Directorate can enforce proceedings under PMLA throughout India including the Union Territories of Jammu and Kashmir and Ladakh and are not barred anymore by the special protection granted by the repealed Article 370 of Constitution of India.

What is an Anti-Corruption Bureau (ACB)?

Anti- Corruption Bureau or popularly called as ACBs are nothing more than investigative authorities constituted under the respective state’s Prevention of Corruption Acts. These authorities have been entrusted with the task of investigating offences mentioned under Prevention of Corruption Act relating to the crimes of corruption or other types of similar corrupt practices. The states have established their laws for their jurisdictions with regard to preventing acts of corruption in their state jurisdiction.

Facts of the Case

The petitioners approached the High Court of Karnataka challenging the initiation of proceedings against them under the PMLA launched by the Directorate of Enforcement.

The petitioner’s own a spice company. In relation to this business, the company raised loans worth Rupees 308 crores from the J&K Bank, Bangalore during the period of 2002 to 2017. This loan was raised by the petitioner by mortgaging certain properties before the bank. During same time the petitioner company raised further loans worth Rupees 16.5 crores from the HDFC Bank and Rupees 25 crores from the RBL Bank. The point to be noted here is that the loans further raised by the petitioner company from the Banks of HDFC and RBL were taken by serving the same property as security which was given as security with the J&K Bank.

The loan amount raised from the J&K Bank became Non Performing Asset (NPA) at the time of 2017 and the amount left to be paid to the bank by the petitioner is Rupees 285 crores and the remaining unapplied interest of Rupees of Rupees 67 crores.

It was alleged by the ACB that the Managing Director of the petitioner company connived with the senior officials of the bank and released the properties given as security and in lieu of those properties gave other properties that very much undervalued leading to a loss of public money. Further, the petitioner company was accused of diverting the funds so received to some entities.

Owning to such acts, the Anti-Corruption Bureau of J&K registered a case against the petitioners for the offences punishable under sections 5(1)(d) and 5(2) of Jammu and Kashmir Prevention of Corruption Act, 2006 read with section 120B of Ranbir Penal Code, 1989.

Taking into account the FIR filed by the ACB of J&K, the Directorate of Enforcement has also registered an Enforcement Case Information Report alleging money laundering under section 3 punishable under section 4 of PMLA for the acts of illegal diversion of funds, substitution of sub-standard properties, misutilisation of credit facilities etc. The ED formed an opinion that the illegal acts alleged in the FIR of ACB amounted to offences under the Schedule A of the Act defined under sections 2(1)(x), 2(1)(y). 2(ia) and 2(2).

In response to the above allegations, the petitioners in the present writ petition challenged the validity of proceedings initiated by the ED under PMLA citing the fact the applicability of PMLA does not extend to Jammu & Kashmir.

Law Involved in applicability of PMLA

Section 5(1)(d) and 5(2) of J&K PCA, 2006

Section 5(1)(d) of Jammu and Kashmir Prevention of Corruption Act, 2006[1] talks about the criminal misconduct committed by a public servant when he abuses his position of public servant using corrupt and illegal means and obtains either for himself or for any other person any valuable thing or pecuniary advantage.

Section 5(2) of Jammu and Kashmir Prevention of Corruption Act, 2006 talks about the punishment which accrue to a public servant committing the offence mentioned under section Section 5(1)(d) which is punishable with imprisonment for a minimum of one year but which may extend to five years coupled with fine.

Section 2(1)(v) of PMLA

Section 2(1)(v) talks about the definition of property which includes any assets or property of every description whether tangible or intangible, corporeal or incorporeal or movable or immovable. The instruments and deeds which show the interest in or title to such property or its assets and the property of any kind used in the commission of any of the scheduled offences are also included in the definition of property.

Section 3 and 4 of PMLA

Section 3 of the Prevention of Money Laundering Act, 2002 (PMLA) states that any person who directly or indirectly attempts, indulges, assists or knowingly is a party and involved in any process or any other activity which deals in the proceeds of crime which includes its possession, acquisition, concealment or use and projecting it or claiming it as it were an untainted property shall be guilty of money laundering.

Section 4 of the PMLA talks about the punishment for the offence of money laundering which includes rigorous imprisonment for a period from three years to seven years and in some cases may go upto ten years.

Section 5 of PMLA  

The section talks about the power given to the Director or any officer not below the rank of Deputy Director to provisionally attach the property on the basis of any information in his possession which indicates that a person is in possession of proceeds of crime and there is a possibility that such proceeds of crime are likely to be concealed, transferred or dealt in such manner that may frustrate the proceedings of confiscation of such proceeds of crime.

Arguments Advanced in the case applicability of PMLA

Arguments from the side of Petitioner

The counsel from the petitioner’s side argued that the Enforcement Directorate had no jurisdiction to initiate proceedings under the PMLA. The counsel argued that for PMLA proceedings to be initiated against the person, two conditions need to be fulfilled. The accused must have obtained the “proceeds of crime” in relation to the “scheduled offences” according to section 2(1)(u) of the Act.

In the instant case, the counsel contended that none of the schedules contained in the PMLA find mention of the offences in the Ranbir Penal Code, 1989 (RPC). Therefore, the ED cannot initiate the PMLA proceedings against the petitioner and applicability of PMLA does not extend to offences committed in the state of Jammu and kashmir. 

Ratio Decidendi

The court before announcing its decision did go at lengths to explain the Objects and Reasons of the PMLA. It said that the Parliament enacted the Prevention of Money Laundering Act, 2002 to implement the Political Declaration and Global Programme of Action adopted by the United Nations General Assembly in its 17th Session wherein the objective was to ask its member states to frame and implement laws relating to money laundering.

The court observed that the argument put forward by petitioner’s counsel that the offences under RPC, 1989 do not find mention in the schedule of PMLA is true. However, in the field of law, sometimes the things which are left unsaid are far more important than the ones that are mentioned in law. The court buttressed further that absence of RPC under the schedule of PMLA does not put offences committed under RPC outside the ambit of principal object and policy of PMLA.

The court observed that if the court accepts the submissions made by the respondent, then it would go against the all pervasiveness of the Parliamentary policy of preventing money laundering and make J&K a safe haven for those committing money laundering and absolving the culprits for any of their incriminating acts.

The honourable court also shed some light on the post enforcement effects of the Jammu and Kashmir Reorganisation Act, 2019 where section 95 read with the Item number 48, Table-1 in the Fifth Schedule to the Act omits the phrase “except in the State of Jammu and Kashmir” from the applicability section 1 of the Indian Penal Code, 1860 (IPC).

The court also clarified that after the amendments made in the Jammu and Kashmir Reorganisation Act, 2019 makes the IPC applicable across India including the Union Territories of Jammu and Kashmir and Ladakh. The court said that the developments that took place after the enactment of Jammu and Kashmir Reorganisation Act, 2019 solve the issue at dispute in the present writ petition.

Order passed

The Honourable Karnataka High Court declared that the said petition had been drafted in a manner without referring to this new development. Not finding any other issue in the said petition, the court dismissed the petition in favour of the respondents paving way for the ED to continue its proceedings initiated under the PMLA extennding the applicability of PMLA throughout India including the Union Territories of Jammu and Kashmir.

Conclusion

The honourable High Court of Karnataka has clearly concluded that the applicability of PMLA is not exclusive of the jurisdiction of Union Territories of Jammu and Kashmir and Ladakh and extends to the whole of India. This judgement of the High Court has prevented from the UTs of J&K&L from become safe havens for money launders. The honourable court has interpreted the Act in such a manner as contemplated by the law makers at the time of framing of the Act by maintaining the all pervasiveness of the act across the country without any exceptions. The honourable court has also clarified that after the revocation of Article 370 by the Parliament, the special status has gone away with introducing the applicability of the IPC, 1860 in the UTs.

Read our article:Property cannot be attached indefinitely on the pretext of Investigation: PMLA

Prabhat Nigam

Prabhat has done his BA LLB (Hons) and has been writing research papers since his law school days. His interest in content writing made him pursue a career in legal research and content writing. His core areas of interest are indirect taxes, finance and real estate.

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