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24 July 2017
The Karnataka High Court recently issued its judgment in Obulapuram Mining Company Pvt Ltd v Joint Director Directorate of Enforcement Government of India, which dealt with the issue of retrospective application of the Prevention of Money Laundering Act 2002. The court held that a person cannot be tried for an offence under the act for the period when the said offence was not inserted in the schedule of offences under the act. The court held that this would deny the writ petitioner the protection offered by Article 20(1) of the Constitution, which is a fundamental right guaranteeing that "no person shall be convicted of any offence except for violation of the law in force at the time of the commission of the offence".
The petitioner was accused of acquiring 1.8 million metric tonnes of iron ore by extracting the same from outside the leased area and thereby committing offences under Sections 120B, 420 and 411 of the Penal Code and Sections 13(2) read with Sections 13(1)(d) and 13(1)(e) of the Prevention of Corruption Act 1988. The petitioner challenged the action of the authorities in lodging and enforcing of an enforcement case information report and an order of attachment under the Prevention of Money Laundering Act.
The petitioner contended that the above alleged offences were committed between June 21 2007 and May 15 2009, whereas these offences were included as scheduled offences(1) only on June 1 2009 by way of an amendment (Prevention of Money Laundering (Amendment) Act 2009), which came into operation on June 1 2009.
It was submitted that all of the offences were allegedly committed before the amendment came into operation and therefore the writ petitioner could not be prosecuted under the Prevention of Money Laundering Act provisions.
On behalf of the enforcement directorate, it was submitted that proceedings under the Prevention of Money Laundering Act are civil in nature and therefore provisions can be invoked with retrospective effect for offences committed before June 1 2009.
The High Court held that the record clearly showed that the offences allegedly committed by the writ petitioner were before the insertion of the provision in the schedule of the Prevention of Money Laundering (Amendment) Act 2009 and, in light of Article 20 of the Constitution, the directorate could not have invoked the Prevention of Money Laundering Act provisions retrospectively. The court quashed the filed enforcement case information report and the order of attachment.
Ex post facto laws and Article 20 of Constitution
Article 20(1) of the Constitution prohibits the conviction of a person or his or her being subjected to penalty for ex post facto laws (ie, it expressly forbids that no person can be convicted of any offence except for the violation of a law in force at the time of the commission of the act charged as an offence). Further, no person can be inflicted a penalty greater than what could have been inflicted under the law at the time when the offence was committed. In light of the above provision, it was therefore held that the Prevention of Money Laundering Act, being a penal statute, cannot be applied retrospectively.
Delhi High Court judgment
A similar issue came before a single judge bench of the Delhi High Court in Mahanivesh Oils & Foods Pvt Ltd v Directorate of Enforcement (January 1 2016).(2) Here, the court laid down that the Prevention of Money Laundering Act cannot be read as to empower the authorities established under the act to initiate proceedings in respect of money-laundering offences before July 1 2005 (when the act came into force) or before the related crime is included as a scheduled offence under the act. The court stated that "unless such acts have been committed after the Act came into force, an offense of money-laundering punishable under Section 4 would not be made out". The Delhi High Court emphasised that the subject matter of the act is not a scheduled offence but the offence of money laundering, and therefore the punishment under Section 4 of the act is not for commission of a scheduled offence, but for laundering proceeds of a scheduled crime.
Therefore, the court held that where the principal offence as well the offence of using its proceeds are alleged to be committed before the act came into force, any proceedings under the Prevention of Money Laundering Act cannot be initiated or sustained, in respect of such an offence, because the act is a penal statute and therefore cannot have any retrospective application. The proceeds of crime which had come into possession and projected and claimed as untainted before the act coming into force would be outside the sweep of the act.
The enforcement directorate recently filed an appeal in the Supreme Court against the judgment of the Karnataka High Court and the issue remains pending. It remains to be seen how the Supreme Court will interpret the relationship between Article 20 of the Constitution and the Prevention of Money Laundering Act, and how it will deal with the issue of retrospective application of the act to offences committed during a period when the said offence was not inserted as a scheduled offence under the act.
Ordinarily, in matters concerning criminal statutes such as the Prevention of Money Laundering Act, the interpretation should weigh in favour of prospective application to ensure certainty to the statute and to be in line with the cardinal principle that an interpretation of criminal laws should weigh in favour of the accused. Such statutes should ordinarily apply retrospectively only when the language of the statute provides for such interpretation.
For further information on this topic please contact Anuj Berry, Malak Bhatt or Sonali Malik at Shardul Amarchand Mangaldas & Co by telephone (+91 11 4159 0700) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Shardul Amarchand Mangaldas & Co website can be accessed at www.amsshardul.com.
(2) The findings of the learned single judge of the Delhi High Court have been stayed by the Division Bench of the Delhi High Court in the interim order dated November 30 2016, passed in LPA 144/2016 and filed by the enforcement directorate against the order of the single judge.
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