Supreme Court clarifies the definition of “proceeds of crime” under the Prevention of Money Laundering Act, 2002 in bribery cases: Directorate of Enforcement vs. Padmanabhan Kishore (31 October 2022)

Introduction

Date of the Judgment: 31 October 2022

Citation: 2022 INSC 545

Judges: Uday Umesh Lalit, CJI and Bela M. Trivedi, J.

Can a person who gives a bribe be charged under the Prevention of Money Laundering Act (PMLA), even if the bribe money hasn’t yet reached the public servant? The Supreme Court of India recently addressed this question in a case involving allegations of bribery and money laundering. The core issue was whether the bribe money, while still in the hands of the giver, can be considered “proceeds of crime” under the PMLA. The Supreme Court, in this judgment, clarified the scope of “proceeds of crime” under the Prevention of Money Laundering Act, 2002, emphasizing that the intent of the bribe giver is crucial in determining whether they are involved in money laundering.

Case Background

The case began with the Central Bureau of Investigation (CBI) recovering ₹50,00,000 in cash from a car parked in front of the house of Andasu Ravinder, an Additional Commissioner of Income Tax in Chennai, on 29 August 2011. Andasu Ravinder and Uttam Chand Bohra were allegedly present in the car at the time.

During the investigation, it was revealed that Padmanabhan Kishore, the respondent in this case, had allegedly given the ₹50,00,000 to Andasu Ravinder as a bribe. Padmanabhan Kishore’s income tax file was pending with Andasu Ravinder, and it was alleged that he paid the bribe to get certain benefits.

The CBI registered a First Information Report (FIR) on 29 August 2011, and filed a charge sheet in 2013 against Andasu Ravinder, Padmanabhan Kishore, and others for offences under Section 120B of the Indian Penal Code, 1860, and Sections 7, 12, 13(1)(d) read with 13(2) of the Prevention of Corruption Act, 1988.

Following this, the Enforcement Directorate registered a case in 2016 under the Prevention of Money Laundering Act, 2002 (PMLA), because the CBI case disclosed a ‘schedule offence’ under the PMLA. The Enforcement Directorate filed a complaint in 2018 against Padmanabhan Kishore and others for offences under Sections 3 and 4 of the PMLA. Padmanabhan Kishore then filed a writ petition seeking to quash the proceedings against him under the PMLA, which led to the present appeal before the Supreme Court.

Timeline

Course of Proceedings

The High Court of Judicature at Madras accepted the respondent’s argument that the money was not tainted until it was received by the public servant. The High Court observed that the sum of ₹50,00,000 could not be considered tainted money while it was in the hands of Padmanabhan Kishore, as there was no evidence that he had obtained it through criminal activity. The High Court stated that the money became “proceeds of crime” only when Andasu Ravinder accepted it as a bribe. Since the CBI intervened and seized the money before Andasu Ravinder could project it as untainted, the High Court concluded that the prosecution of Padmanabhan Kishore under the PMLA was misconceived and quashed the proceedings against him.

Legal Framework

The Supreme Court examined the following key legal provisions:

• Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 (PMLA): This section defines “proceeds of crime” as “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…” The explanation to this section clarifies that “proceeds of crime” include property derived from the scheduled offence and any property derived from criminal activity related to the scheduled offence.
• Section 3 of the PMLA: This section defines the offence of money laundering as “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 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.”
• Section 4 of the PMLA: This section prescribes the punishment for money laundering.
• Paragraph 8 of Part A of the Schedule to the PMLA: This paragraph lists the offences under the Prevention of Corruption Act, 1988, as “scheduled offences” under the PMLA. This includes offences under Sections 7, 12, and 13 of the Prevention of Corruption Act, 1988.

Arguments

Arguments on behalf of the Respondent:

• The respondent argued that the money, while in his possession, was not tainted. It only became tainted once it was received by the public servant as a bribe.
• The respondent contended that since he did not obtain the money through any criminal activity, he could not be connected with the “proceeds of crime” and could not be prosecuted under the PMLA.

Arguments on behalf of the Appellant (Directorate of Enforcement):

• The Directorate of Enforcement argued that the respondent was involved in an activity connected with the “proceeds of crime” by handing over the money with the intention of giving a bribe.
• The Directorate of Enforcement submitted that the definition of “proceeds of crime” under the PMLA is broad enough to include the actions of the bribe giver, as they are knowingly involved in an activity connected with the proceeds of crime.
• The Directorate of Enforcement contended that the intent to give a bribe, which is formed before the money is handed over, is sufficient to bring the bribe giver within the ambit of Section 3 of the PMLA.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the respondent, Padmanabhan Kishore, can be proceeded against under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA).

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court held that the High Court’s view that the respondent could not be held liable under the PMLA was incorrect. The Court emphasized that the relevant expressions from Section 3 of the PMLA are wide enough to cover the role played by a person who gives a bribe.

The Supreme Court observed:

• “It is true 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, it would definitely be untainted money.”
• “The crucial part therefore 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.”
• “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.”

The Supreme Court set aside the judgment of the High Court and directed that the respondent shall continue to be arrayed and proceeded against in accordance with law in the case registered by the Enforcement Directorate.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of Section 3 of the Prevention of Money Laundering Act, 2002. The Court emphasized that the intent of the bribe giver is crucial in determining whether they are involved in an activity connected with “proceeds of crime.” The Court reasoned that once a person hands over money with the intent to give a bribe, they become involved in the process of money laundering, even if the money is not yet received by the public servant. The Court also noted that the definition of “proceeds of crime” is broad enough to include the actions of the bribe giver.

Key Takeaways

• Bribe givers can now be prosecuted under the Prevention of Money Laundering Act, 2002 (PMLA), even if the bribe money has not yet reached the public servant.
• The intent to give a bribe is sufficient to involve the giver in an activity connected with the “proceeds of crime” under the PMLA.
• This judgment broadens the scope of the PMLA and may lead to increased scrutiny of those involved in bribery.
• This may act as a deterrent for those contemplating giving bribes and strengthen anti-corruption efforts.

Directions

The Supreme Court set aside the judgment of the High Court and directed that the respondent, Padmanabhan Kishore, shall continue to be arrayed and proceeded against in accordance with law in E.C.I.R. No. 13 of 2016 registered by the Enforcement Directorate.

Development of Law

The ratio decidendi of this case is that a person who hands over money with the intent to give a bribe is involved in an activity connected with the “proceeds of crime” under the Prevention of Money Laundering Act, 2002, and can be prosecuted under the Act. This judgment clarifies the scope of “proceeds of crime” and extends its application to bribe givers, thereby changing the previous understanding that only the recipient of the bribe could be prosecuted under the PMLA.

Conclusion

The Supreme Court’s judgment in Directorate of Enforcement vs. Padmanabhan Kishore clarifies that a bribe giver can be prosecuted under the Prevention of Money Laundering Act, 2002, for being involved in the process or activity connected with “proceeds of crime” if they hand over money with the intent to give a bribe. The Court emphasized that the intent is crucial and that the definition of “proceeds of crime” is broad enough to include the actions of the bribe giver. This judgment has significant implications for anti-corruption efforts, as it broadens the scope of the PMLA and may lead to increased scrutiny of those involved in bribery.