Supreme Court Requires Sanction for Public Servants under PMLA: Directorate of Enforcement vs. Bibhu Prasad Acharya (2024)

Introduction

Date of the Judgment: November 06, 2024
Citation: 2024 INSC 843
Judges: Abhay S. Oka, J., Augustine George Masih, J.
Can public servants be prosecuted for money laundering without prior government sanction? The Supreme Court of India recently addressed this crucial question, examining the relationship between the Prevention of Money Laundering Act, 2002 (PMLA) and the Code of Criminal Procedure, 1973 (CrPC). The court determined that prior sanction under Section 197 of the CrPC is indeed required before prosecuting public servants for offences under the PMLA. This judgment clarifies the legal procedures for prosecuting public servants accused of money laundering, ensuring they are not subjected to frivolous prosecutions while also holding them accountable under the law. The bench comprised Justices Abhay S. Oka and Augustine George Masih, with Justice Oka authoring the opinion.

Case Background

The Directorate of Enforcement (appellant) filed complaints under Section 44(1)(b) of the PMLA against Bibhu Prasad Acharya (first respondent), Adityanath Das (second respondent), and others. The complaints alleged offences under Section 3 of the PMLA, punishable under Section 4. The Special Court took cognizance of these complaints and issued summons to the accused, including the respondents. Both respondents, being public servants, filed writ petitions in the High Court, challenging the cognizance and seeking to quash the complaints, arguing that prior sanction under Section 197(1) of the CrPC was necessary. The High Court upheld their contention and quashed the orders of cognizance against the respondents. The Enforcement Directorate then appealed to the Supreme Court.

Timeline

Legal Framework

The core legal provisions at play in this case are:

• Section 197(1) of the Code of Criminal Procedure, 1973 (CrPC): This section mandates that no court can take cognizance of an offence alleged to have been committed by a public servant while acting or purporting to act in the discharge of their official duty, without prior sanction from the government. The section states:
  
  “197. Prosecution of Judges and public servants. — (1) When any person who is or was a Judge or Magistrate or a public servant not removable from his office save by or with the sanction of the Government, is accused of any offence alleged to have been committed by him while acting or purporting to act in the discharge of his official duty, no Court shall take cognizance of such offence except with the previous sanction…”
• Section 65 of the Prevention of Money Laundering Act, 2002 (PMLA): This section states that the provisions of the CrPC apply to proceedings under the PMLA, insofar as they are not inconsistent with the PMLA. The section states:
  
  “65. Code of Criminal Procedure, 1973 to apply. — The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply, in so far as they are not inconsistent with the provisions of this Act, to arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings under this Act.”
• Section 71 of the PMLA: This section gives the PMLA an overriding effect over other laws, stating that the provisions of the PMLA shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The section states:
  
  “71. Act to have overriding effect. — The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”

The key issue is whether the overriding effect of Section 71 of the PMLA excludes the requirement of prior sanction under Section 197(1) of the CrPC, or whether Section 65 of the PMLA makes Section 197(1) applicable to proceedings under the PMLA.

Arguments

Appellant (Enforcement Directorate):

• The learned Additional Solicitor General (ASG) argued that Section 71 of the PMLA gives it an overriding effect over other statutes, including the CrPC. Therefore, the requirement of obtaining a sanction under Section 197(1) of CrPC is inconsistent with the provisions of the PMLA.
• The ASG submitted that the first respondent, while holding the position of Vice Chairman and Managing Director of Andhra Pradesh Industrial Infrastructure Corporation Ltd., was not a public servant within the meaning of Section 197(1) of the CrPC. He argued that the first respondent was not removable from office save by or with the sanction of the Government, and was not employed in connection with the affairs of the State Government. The ASG relied on the decisions in S.S. Dhanoa v. Municipal Corporation Delhi and Others [(1981) 3 SCC 431] and Mohd. Hadi Raja v. State of Bihar and Another [(1998) 5 SCC 91].
• The ASG contended that the issue of the requirement of sanction should be decided at the time of the trial and that the respondents’ act of money laundering cannot be considered to have been done in the discharge of their official duties.

Respondents (Bibhu Prasad Acharya and Adityanath Das):

• The learned senior counsel for the respondents argued that the power to appoint and remove a Director of the Corporation, including the first respondent, vested in the State Government, as per the Memorandum and Articles of Association of the Corporation. Therefore, the first respondent continued to be a public servant as contemplated by Section 197(1) of the CrPC.
• The respondents argued that the plea of absence of sanction can be raised at any stage of the proceedings and it is not necessary to wait until the final hearing of the complaint.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether prior sanction under Section 197(1) of the CrPC is required for prosecuting public servants for offences under the PMLA.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Court distinguished S.S. Dhanoa v. Municipal Corporation Delhi and Others [(1981) 3 SCC 431] and Mohd. Hadi Raja v. State of Bihar and Another [(1998) 5 SCC 91], stating that they were not applicable to the first respondent, who was a civil servant appointed on deputation.
• The Court referred to Prakash Singh Badal and Another v. State of Punjab and others [(2007) 1 SCC 1] to emphasize that the question of sanction can be raised at any stage of the proceedings.
• The Court relied on Centre for Public Interest Litigation v. Union of India [(2005) 8 SCC 202] to interpret the phrase “acting or purporting to act in the discharge of official duty.”
• The Court also referred to P.K. Pradhan v. State of Sikkim [(2001) 6 SCC 704], to highlight the reasonable connection between the act and official duty.

What weighed in the mind of the Court?

The Supreme Court’s reasoning was primarily influenced by the need to protect public servants from frivolous prosecutions while ensuring accountability. The Court emphasized that Section 197(1) of the CrPC is a safeguard for honest officers, ensuring that they are not prosecuted for actions taken in the discharge of their duties. The Court found that the acts alleged against the respondents were indeed related to their official duties, thus necessitating prior sanction. The Court also clarified that the provisions of the CrPC apply to proceedings under the PMLA unless there is an explicit inconsistency, which was not found in this case.

Logical Reasoning:

The Court reasoned that “The object of Section 197(1) must be considered here. The object is to protect the public servants from prosecutions. It ensures that the public servants are not prosecuted for anything they do in the discharge of their duties.” The Court further stated, “Section 65 makes the provisions of the CrPC applicable to all proceedings under the PMLA, provided the same are not inconsistent with the provisions contained in the PMLA.” Finally, the Court clarified that “A provision of Cr. P.C., made applicable to the PMLA by Section 65, will not be overridden by Section 71. Those provisions of CrPC which apply to the PMLA by virtue of Section 65 will continue to apply to the PMLA, notwithstanding Section 71.”

Key Takeaways

• Prior sanction under Section 197(1) of the CrPC is mandatory before prosecuting public servants for offences under the PMLA.
• The provisions of the CrPC apply to proceedings under the PMLA unless they are explicitly inconsistent with the PMLA.
• Section 71 of the PMLA does not override the applicability of Section 197(1) of the CrPC to PMLA proceedings.
• The judgment protects public servants from frivolous prosecutions for acts done in the discharge of their official duties.

Directions

The Supreme Court directed that:

• The orders of the Special Court taking cognizance against the respondents, B.P. Acharya and Adityanath Das, are set aside.
• The order of cognizance against the other accused will remain unaffected.
• The appellant is at liberty to move the Special Court to take cognizance of the offence against the two respondents if a sanction under Section 197(1) of the CrPC is granted in the future. This liberty will be subject to legal and factual objections available to the respondents.

Development of Law

The ratio decidendi of this case is that prior sanction under Section 197(1) of the CrPC is mandatory for prosecuting public servants for offences under the PMLA. This judgment clarifies the interplay between Section 65 and Section 71 of the PMLA, holding that Section 71 does not override Section 65, and that Section 197(1) of the CrPC is applicable to proceedings under the PMLA. This is a reaffirmation of the importance of procedural safeguards for public servants.

Conclusion

The Supreme Court’s judgment in Directorate of Enforcement vs. Bibhu Prasad Acharya, etc. clarifies that prior sanction under Section 197(1) of the CrPC is required before prosecuting public servants for offences under the PMLA. The Court held that Section 65 of the PMLA makes the provisions of the CrPC applicable to PMLA proceedings unless they are inconsistent with the PMLA. The Court found no such inconsistency with Section 197(1) of the CrPC and rejected the argument that Section 71 of the PMLA overrides the applicability of Section 197(1) of the CrPC. This ruling ensures that public servants are protected from frivolous prosecutions while also being held accountable under the law.