Author - Shubhrojyoti Mookherjee
In this essay, I will deal with §3 of the Prevention of Money Laundering Act, 2002 (‘PMLA’). I will be discussing the effect of the amendment made to §3 of the PMLA by the Finance Act, 2019 and its tension with the retrospective application of statute and Article 20(1) of the Constitution of India, 1950, which encapsulates the prohibition against ex post facto application of criminal law.
The Controversial §3 – Pre Amendment and Post-amendment
Prior to the 2019 amendment, for the offence of money laundering, the ingredients of §3 of the PMLA were as follows:
1. Direct or indirect attempts to indulge or knowingly assisting or knowingly being a party or being actually involved;
2. In any process or activity connected with the proceeds of crime;
a. Such processes of activities would include the concealment, possession, acquisition or use of proceeds of crime
3. And projecting or claiming the proceeds of crime to be untainted property.
The 2019 Amendment left the main provision untouched, yet added an ‘Explanation’ to §3 which have two repercussions on the interpretation of main provision in §3. Firstly, the projection of the proceeds of crime as untainted property and the act of claiming the proceeds of crime as untainted property have been made independent grounds in themselves. In effect, the ‘and’ in the main section before ‘projecting’ is sought to be interpreted as an ‘or.’ Secondly, the ‘process or activity’ in the main section is clarified to be a continuing activity. In effect, it seeks to make the offence of money laundering a continuing offence. Therefore, the explanation makes modifications to the main provision in §3. On another level, the depiction of this offence as continuing, it seeks to escape the bar against ex post facto criminal law. Lastly, by making these explanations in a clarificatory language, it seeks to apply these changes retrospectively. I analyse these changes in this essay.
The Centrality of ‘projecting or claiming’: Effect of Explanation (i) on Main Provision
Since ‘projecting or claiming’ is preceded by ‘and,’ it is evident that this ingredient of §3 is mandatorily required by the main provision for the offence to be established. The process of money laundering involves three stages: (a) placement, whereby the accused would place the proceeds of crime into normal financial system; (b) layering, whereby the money introduced in the system is spread into various transactions such that the origin of the wealth is uncertain or not detectable; and (c) integration; whereby the proceeds of crime are used by the accused as untainted money. The Delhi High Court and Bombay High Court noted that the offence of money laundering is over once the third stage of integration is complete. In other words, the third stage of integration corresponds to the requirement of projection of the proceeds of crime as untainted. Further, the first two stages of placement and layering would correspond to the concealment, possession, acquisition or use of proceeds of crime.
By the 2019 Amendment, the last stage of integration is made independent of other grounds, and the activities and processes have been made independent of the integration stage. In other words, the explanation has modified and enlarged the main provision in §3, by obscuring the ‘and’ (placed before ‘projecting’) and in effect, replacing it with an ‘or.’ The reading of ‘and’ as ‘or’ in the main provision of §3 was not possible prior to the amendment since the provision would then not make any grammatical sense. It is settled law that an explanation cannot interfere with, change, defeat or enlarge the scope of the main provision. This is not a case where an obscurity or vagueness in the main provision was sought to be clarified, or provide additional support to an existing position. Rather a substantive change has been made to the purport and effect of the main section, and as such is impermissible under the garb of an explanation. This would raise a further question if such a provision can be retrospectively applied.
Continuing Offence: Effect of Explanation (II) on Main Provision
Through explanation (ii) to §3, the amendment has clarified that the activities mentioned in §3 are continuing in nature, and would continue till such time the person is directly or indirectly enjoying the proceeds of the crime.. Problems would arise when the projection of proceeds of crime happens before the PMLA came into force, or after the PMLA is in force but the scheduled offence was inserted in the Schedule after the ‘projection’ in question.
The aspect of projection is, therefore, key. The Jharkhand HC and the Bombay HC note that the relevant date for PMLA is the date on which the accused projected the proceeds of crime as untainted. Courts have understood that money laundering as an offence is complete once the third stage of integration (i.e. projection) is complete; and that holding otherwise would allow a retrospective operation of a criminal statute which is barred under Art. 20(1) of the Constitution. Thus, the Bombay HC and the Delhi HC have opined that money laundering is not a continuing offence.
It is settled law that continuing offences arise out of failure to comply with a rule and involves a penalty for the period of non-compliance. Every time a disobedience to a law occurs, an offence is committed. It was explained that under continuing offences, an act or omission constitutes a fresh offence every time on which it continues. Whether an offence is a continuing one, would depend on the “language of the statute … the nature of the offence and, above all, the purpose which is intended to be achieved by constituting the particular act as an offence.” In a continuing offence, only the last act needs to be alleged in the indictment since it consists of a series of acts which endures after the period of consummation.
If §3 indeed contained a continuing offence prior to the amendment, then people could be held liable for acts beginning in the past but assuming relevance in prasenti i.e. the activity in question continues till the date of the indictment. Since the date of projection is key to the establishment of the offence, the date on which the scheduled offence was committed is not relevant. The scheduled offence is not the wrongful conduct punishable under PMLA. However, where the property/proceeds were from a crime which was not a scheduled offence, but which became a scheduled offence before the date of projection, the PMLA is attracted. Thus, while courts may have taken a view that §3 is not a continuing offense, the contrary interpretation is plausible even before the amendment. Further, as we will see in the next section, §3 being a continuous offence is not constitutionally impermissible.
Interaction with Article 20(1)
Another possible objection to PMLA being a continuing offence is that a criminal statute would have retrospective effect. The author believes that this argument is misplaced, in as much, continuing offences do not attract the scrutiny of Art. 20(1). The Apex Court has clarified that Art. 20(1) gets attracted only when any penal law penalises an act which was not an offence when it was committed or when the law imposes a greater penalty that what would have been inflicted by the law in force at the time when the offence was committed. Under PMLA, the prosecution is not for the scheduled offence which was committed prior to its insertion in the schedule. Neither would PMLA impose a higher penalty for such scheduled offence. The offence in focus is money laundering with respect to money generated out of the scheduled offence. Thus, all that §3 does is to draw requisites of its ingredients from a time antecedent to its passing; and this by itself does not make the statute retrospective. Therefore, it is permissible to consider the fact of a scheduled offence having been committed and money drawn from such offence, even before such offence was included in the Schedule to the PMLA.
Further, it must be borne in mind that it is also permissible that acts prior to the passage of PMLA can be considered. This is because the Act makes punishable the use, concealment, or possession of proceeds of crime and projecting or claiming it as untainted. All these acts are not made punishable with retrospective effect. It is highly possible that the actus of use, concealment, possession, and projection or claiming continues after the passage of the PMLA. All these acts are not discrete acts which are consummated in one go but are capable of being a series of acts, where each act or omission would give a fresh cause for indictment. In effect, what is being suggested is that the terms used in the main provision of §3 make the offence of money laundering capable of assuming the character of a continuing offence. Further, if, as per the High Courts, the date of projection is key for the PMLA to be attracted, the projection aspect must be the continuing activity. This actus of projection must continue till after the Act has come into force and the predicate offence is made the Scheduled Offence. Thus, in principle, there is no reason why treating the offence under §3 as a continuing offence is constitutionally impermissible.
Clarificatory Nature of the Amendment
With respect to Explanation to §3 being a clarificatory amendment, the permissibility and effect of clarificatory amendments is clear. Clarificatory or declaratory acts are usually retrospective unless otherwise is specified in the Act. They remove doubts existing in the statute or what the Parliament may deem to be a judicial error. An amending Act may be purely clarificatory to say explicitly what was already implicit in the law. The use of the words ‘clarified’ or ‘it is declared’ is not conclusive of the nature of the amendment. One must look at the substance and the nature of the provisions.
With respect to the first part of the explanation, it is clear that the explanation modified and enlarged the scope of the main provision of §3. As such, even if such an explanation is allowed to survive with the status of an ‘explanation,’ it would not have retrospective effect in as much it does not simply clarify the law which was already implicit or clear out any confusion in conflicting interpretation. Instead, it enlarges the scope of the main section by doing clear violence to the text of §3.
With respect to the second part of the explanation, it clarifies the meaning of the term ‘process or activity connected with the proceeds of crime.’ Terms such as ‘concealment,’ ‘possession,’ ‘use,’ ‘projecting’ and ‘claiming’ are implicitly capable of assuming a definition that makes it a continuing activity. This provision does not impose new duties or obligations or modify accrued rights. Therefore, this part of the explanation is truly a clarificatory amendment and seeks to correct the judicial approach adopted that the offence of money laundering is over once the integration stage (corresponding to projection) is over.
In conclusion, it can be stated that while the second part of the explanation is capable of retrospective application and is constitutionally permissible, the first part will not be retrospectively applicable since it is neither explanatory nor it is clarificatory.
[The author is a Fifth Year B.A. LL.B. (Hons.) student at NUJS, Kolkata.]
 Finance Act, 2019, §193 dated 01.08.2019  I will, however, make references to the position of law prior to the amendment in 2019 wherever necessary.  Proceeds of crime has been defined in PMLA, §2(1)(u)  The Explanation is said to be clarificatory in nature. It reads “For the removal of doubts, it is hereby clarified that, -.”  PMLA, §3, Explanation (i)(e)-(f).  PMLA, §3, Explanation (ii). This means that the activity would continue till such time the person is directly or indirectly enjoying the proceeds of the crime.  There are no conclusive decisions on this point with respect to the PMLA. So, I rely on settled principles of law to analyse these changes in the context of PMLA.  Binod Kuman Sinha v. State of Jharkhand through DoE, W.P.(Cr.) No.257 of 2012, Cr.Rev.No.920 of 2012 and Cr. Rev. No. 699 of 2011 (High Court of Jharkhand).  These stages are generally accepted and have been quoted with approval in Mahanivesh Oils & Foods Pvt. Ltd. vs. Directorate of Enforcement, W.P.(C) 1925/2014 and CM No. 4017/2014 (Delhi High Court); B. Rama Raju v. Union of India,  164 Comp Cas 149 (AP).  Mahanivesh Oils & Foods Pvt. Ltd. vs. Directorate of Enforcement, W.P.(C) 1925/2014 and CM No. 4017/2014 (Delhi High Court); Hasan Ali Khan S/o. Ghousudin Ali Khan vs. Union of India (UOI), Thru' Asst. Director, Directorate of Enforcement and Anr., 2012 BomCR (Cri) 807 (Bombay High Court).  Such as the concealment, possession, acquisition or use of proceeds of crime  Hardev Motor Transport v. State of MP & Ors., (2006) 8 SCC 613, ¶31; S. Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591, ¶53 [summarising the position of law after an exhaustive discussion of authorities on this point]; See also Swedish Match AB v. SEBI, (2004) 11 SCC 641.  These are permissible by way of an explanation. See S. Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591, ¶53.  In other words, this is not a case where it was explained what ‘projecting,’ ‘claiming,’ ‘use,’ or other terms were clarified or sought to be explained to remove ambiguity. A good example of this would be Swedish Match AB v. SEBI, (2004) 11 SCC 641, ¶58, 69, 72. Rather, it introduced independent grounds to establish the offence and accordingly, is impermissible.  See discussion infra under ‘Clarificatory nature of the Amendment.’  Clearly, if such a provision is sought to be enforced retroactively; there is not much difficulty in implementation of the principle.  Hari Narayan Rai vs Union of India & Ors, W.P. (Cr.) No. 325 of 2010, ¶¶4-7 (6 August, 2010); Hasan Ali Khan S/o. Ghousudin Ali Khan vs. Union of India (UOI), Thru' Asst. Director, Directorate of Enforcement and Anr., 2012 BomCR (Cri) 807.  Hasan Ali Khan S/o. Ghousudin Ali Khan vs. Union of India (UOI), Thru' Asst. Director, Directorate of Enforcement and Anr., 2012 BomCR (Cri) 807.  Mahanivesh Oils & Foods Pvt. Ltd. vs. Directorate of Enforcement, W.P.(C) 1925/2014 and CM No. 4017/2014  State of Bihar v. Deokaran Neshi, AIR 1973 SC 908  Emperor v. Karandas, AIR 1957 All 343 [ “(the provision of law in question laid down) two distinct offences:; (1)establishing a new factory in which mechanical power was intended to be used without the permission, and (2) working such a factory in which mechanical power was intended to be used without permission. The High Court held that the first offence will be completed when a now factory was established without permission, an offence completed one and for all …while the other offence would be committed whenever such a factory without the permission was worked that is on every day that it was worked without the permission.” See State of Bihar v. Deokaran Neshi, AIR 1973 SC 908.] In this case thus, the operation of factory before the Act came into operation would not be subject to the Act. Yet when the Act was in operation and the factory was operating in breach of the second rule, irrespective of the fact that the factory was established prior to the commencement of the Act, the rule is broken in prasenti.  State of Bihar v. Deokaran Neshi, AIR 1973 SC 908, ¶4 [“… the distinction between the two kinds of offences is between an act or omission which constitutes an offence once and for all and an act or omission which continues and therefore, constitutes a fresh offence every time or occasion on which it continues. In the case of a continuing offence, there is thus the ingredient of continuance of the offence which is absent in the case of an offence which takes place when an act or omission is committed once and for all…”].  Bhagirath Kanoria & Ors. v. State of M.P. & Ors. AIR 1984 SC 1688.  Gokak Patel Volkart Ltd vs Dundayya Gurushiddaiah Hiremath, (1991) 2 SCC 141 [Citing Black’s Law Dictionary].  PMLA, §3 Explanation (ii).  Hasan Ali Khan S/o. Ghousudin Ali Khan vs. Union of India (UOI), Thru' Asst. Director, Directorate of Enforcement and Anr., 2012 BomCR (Cri) 807, ¶20.  Rao Shiv Bahadur v. State of Vidhya Pradesh, AIR 1953 SC 394.  Maxwell on Interpretation of Statutes 211 (R. Wilson & B. Gaplin, 11th Ed, 1962).  See State of Maharashtra v. Krishnarai Dudhappa Shinde, (2009) 4 SCC 219, ¶¶6,8; Sajjan Singh v. State of Punjab, AIR 1964 SC 464, ¶¶12-15.  Mohan Lal v. State of Rajasthan, (2015) 6 SCC 222, ¶24.  See text accompanying fn 17-19.  See Central Bank of India v. Workmen, AIR 1960 SC 12, ¶29 onwards.  Central Bank of India v. Workmen, AIR 1960 SC 12, ¶29.  State Bank of India v. V. Ramakrishnan, (2018) 17 SCC 394, ¶33.  R. Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCC 630, ¶¶17, 18.  GP Singh, Principles of Statutory Interpretation 315 (5th Ed., 1992) referred to in R. Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCC 630.  See text accompanying fn 11 to 15.  See discussion under ‘Centrality of “Projecting or Claiming”: Effect of Explanation (i) on Main Provision.’  Concealment is “The act of refraining from disclosure; esp., an act by which one prevents or hinders the discovery of something.” See P Ramanatha Aiyar: The Major Law Lexicon (Citing the Black’s Law Dictionary, 7th Ed., 1999; Accessed on Lexis Advance India Research.) [It is also an affirmative act or intentional suppression of fact/truth known to the prejudice of another.]  See Mohan Lal v. State of Rajasthan, (2015) 6 SCC 222, ¶24 [‘possession’ is a continuing act]; “Possession, the visible possibility of exercising physical control over a thing, coupled with the intention of doing so, either against all the world, or against all the world except certain persons. There are, therefore, three requisites of possession. First, there must be actual or potential physical control. Secondly, physical control is not possession, unless accompanied by intention; hence, if a thing is put into the hand of sleeping person, he has not possession of it. Thirdly, the possibility and intention must be visible or evidenced by external signs, for the thing shows no signs of being under the control of anyone, it is not possessed,” See Gurucharan Singh v. Kamla Singh, (1976) 2 SCC 152; See also ‘continuous possession’ in P Ramanatha Aiyar: The Major Law Lexicon (Accessed on Lexis Advance India Research.)  ‘Use’ means to put into service, employment, application to a purpose, ‘making use of.’ [As defined in the Oxford Dictionary as cited in Ravi S. Sharma v. State of Rajasthan, AIR 1993 Raj 117.]. Use also means “the usage of an article whether or not it undergoes a visible change in form or substance … Whether or not there should be change in the article would depend upon the nature of the article and the purpose of its employment.” See Jafarabad Municipality v. Kathiawar Industries Ltd., AIR 1969 Guj 344.  In other words, all these acts are capable of being done repeatedly, so as to ensure that the offence remains continuing.  CIT, New Delhi v. Vatika Township Pvt. Ltd., (2015) 1 SCC 1, ¶29.  See text accompanying fn 11 to 15.