Has ED missed a basic legal point in the National Herald case?

Of late, the Enforcement Directorate (ED) has become active in pursuing the Prevention of Money Laundering Act, 2002 (PMLA). PMLA can be set in motion only if there is an allegation of a “scheduled offence”, as defined in Section 2 (y) of the Act.

More than 160 offences exist in The Schedule of PMLA. Each scheduled offence can be tried dehors (outside the scope of) PMLA. Like the National Herald case that is being tried in the court of metropolitan magistrate, Delhi from 2012.

Watch: The Federal News Sense Episode 3 | National Herald under 30 mins

In 2014, summons were issued to the accused for alleged offences under Sections 403 (dishonest misappropriation of property), 406 (punishment for criminal breach of trust) and 420 (cheating and dishonestly inducing delivery of property), read with Section 120-B (punishment for criminal conspiracy) of IPC. Though Sections 420 and 120-B of IPC are scheduled offences, the ED did not trigger PMLA.

ED and National Herald case

The ED has triggered PMLA now. How does this impact the National Herald case pending before the court of metropolitan magistrate since 2012?

A bare reading of Sections 43 and 44 of the PMLA indicates that the metropolitan magistrate loses jurisdiction, since offences under PMLA can be tried only by a court of session, being a special court, as defined under Section 2 (z) of PMLA. Section 2 (z) reads: “Special Court means a Court of Session designated as Special Court under sub-section (1) of Section 43”. The court of metropolitan magistrate is not a court of session.

Also read: A step-by-step explanation of the National Herald case

So, by triggering PMLA midway through proceedings pending before the metropolitan magistrate, the ED has disabled the metropolitan magistrate from proceeding further in the matter for want of jurisdiction. It has not even committed the case before a special court, following procedure under Section 43 and 44 of PMLA.

So, the ED’s case is destined to fail. It can either proceed with PMLA, or let the metropolitan magistrate proceed without PMLA. The two can’t co-exist. That is the scheme of PMLA. It is surprising how the ED has missed this basic legal point. It is still more surprising as to how no one has so far pointed this out.

Objectives of PMLA

The twin objectives of PMLA are: confiscating proceeds of crime {Section 2(1) (u)} and conviction for offence of money laundering (Section 3). Both are inextricably intertwined. Unless a person is convicted by a special court under Section 3, the proceeds of crime cannot be confiscated. These follow from Sections 8 (5) and 8(6) of the PMLA, as explained hereinafter.

Section 8 (5) stipulates that where on the conclusion of the trial of an offence under the PMLA, the special court finds that the offence of money-laundering has been committed, it shall order that such property involved in money-laundering shall stand confiscated to the Central government.

Section 8 (6) stipulates that where on conclusion of a trial under PMLA, the special court finds that the offence of money-laundering has not taken place, it shall order release of such property to the person entitled to receive it. So, if there is no trial before the special court, there can be no conviction by the special court; consequently, no property can be confiscated.

Section 6 of CrPC categorises four different criminal courts — courts of session; judicial magistrates of the first class, and in any metropolitan area, metropolitan magistrates; judicial magistrates of the second class; and, executive magistrates. Clearly, court of metropolitan magistrate is different from a court of session.

The ED should have taken note of settled principle of law laid down by the privy council in the case of Nazir Ahmad vs Emperor (AIR 1936 PC 253), that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all; and other methods of performance are necessarily forbidden.

PMLA confers the ED with sweeping powers with contra responsibilities. The ED can make arrests under Section 19, attach properties under Section 5, seize properties under Section 17 (1) and freeze properties under Section 17 (1A). An adjudicating authority (AA) then records a finding under Section 8 (2): “whether all or any of the properties” is involved in money laundering. The AA is empowered to close the case. If he does not, then under Section 8 (3) the AA confirms the attachment or seizure or freezing the properties during pendency of proceedings before the special court. The AA’s order (attachment, etc.) then can be appealed under Section 26 and 42 before the appellate tribunal and the high court, respectively.

Attachment followed by confiscation

But attachment is not an end in itself. The end is confiscation of properties. And confiscation cannot take place unless the person is convicted by a special court, as discussed above, through Section 8 (5). The exercise of powers by the ED in Chapters III and V (attachment, search, seize, arrest, etc.) without a machinery to try offences under Chapter VII (Special Courts) of the Act is thus without jurisdiction.

Also read: Enforcement Directorate raids up 26 times since 2014: Govt data

Out of about 5,422 cases filed by the ED under PMLA, only 25 persons have been convicted by courts. The success rate is 0.5 per cent. Since confiscation of assets and convictions are linked under the PMLA, the rate of confiscation of attached assets is also 0.5 per cent. Do we really need the ED? Only to harass, arrest and fail in 99.5 per cent cases ultimately?

(The writer is Senior Advocate, Supreme Court of India, and former Additional Solicitor General of India)

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal)