Departmental Enquiries and White Collar Crime

By on May 15, 2023

POSTED IN White Collar Crime,

Recent news in the legal sphere has been flooded with reporting on white-collar crime and adjudication of the same, with the Hon’ble Supreme Court of India holding various provisions of the Prevention of Money Laundering Act, 2002 (hereinafter referred to as the PMLA) as constitutional, and dismissing a batch of petitions and appeals which sought to challenge such provisions as being arbitrary and unconstitutional [Vijay Madanlal Choudhary & Ors. vs Union of India & Ors. (2022 SCC Online 929)].

In such circumstances, an important area of study that warrants attention is departmental enquiries under the PMLA, which run parallel to the prosecution of an individual accused of the offence of money laundering.

PARALLEL PROCEEDINGS UNDER THE PREVENTION OF MONEY LAUNDERING ACT, 2002

Departmental Proceedings

2. The Enforcement Directorate is provided with a plethora of powers in terms of the PMLA to conduct investigations into proceeds of crime as well as properties that are the fruit of scheduled offenses under the PMLA. These powers include the power of attachment in terms of section 5 of the PMLA and the power to seize or freeze assets subsequent to the search of places or persons under sections 17 and 18 respectively. Under these sections, an order of provisional attachment, seizure, or freezing by the officer empowered by the PMLA is required to be forwarded to the Adjudicating Authority established in terms of section 8 of the PMLA.

3. Thereafter, the Adjudicating Authority, under section 8 of the PMLA, issues a notice to the person who is believed to have committed an offense under the PMLA or be in possession of the proceeds of crime, calling upon such person to indicate his source of income, earning or assets out of which he has acquired the provisionally

attached/seized/frozen property along with evidence, information and particulars on which he relies.

4. The Adjudicating Authority, in terms of section 8(2) of the PMLA, upon considering the reply filed by a person who has been issued a notice under section 8(1), and after hearing such person as well as the empowered officer and after taking into account all relevant material placed on record before it, record a finding whether the properties referred to in the notice issued under section 8(1) are involved in money laundering or not.

5. In the event the Adjudicating Authority confirms the attachment of property made under section 5(1) of the PMLA, or an order confirming retention of seized or frozen property under sections 17 or 18 of the PMLA, such attachment or retention or freezing, as the case may be, continues for a period of not more than 365 days during investigation, or the pendency of the proceedings relating to an offence under the PMLA before a court or relating to an offence under the corresponding law of any other country before a criminal court outside India and further, becomes final if an order of confiscation is passed in terms of the provisions of the PMLA.

Criminal Proceedings

6. The departmental enquiry before the Adjudicating Authority may run parallel to the trial of the offence of money laundering before a special court, established under section 43 of the PMLA, which has taken cognizance of an offence under section 3 of the PMLA upon a complaint made to it by an authority authorised in this behalf under the PMLA.

EXONERATION IN DEPARTMENTAL PROCEEDINGS

7. A principle in law is that the burden of proof in a criminal trial is substantially higher than a departmental enquiry, and a failure to prove a certain allegation based

on a bundle of facts and circumstances in a departmental enquiry may mean a failure to prove an allegation before a criminal court trying a person accused of an offence arising from the same bundle of facts and circumstances.

8. A full bench of the Hon’ble Supreme Court of India thereafter, by a 2:1 majority, in the landmark judgement of Radheshyam Kejriwal vs State of West Bengal [(2011) 3 SCC 581] distinguished the position of law in respect of cases where parallel proceedings under law, both departmental and criminal, were commenced together, and culled out a ratio from a host of past decisions of the Hon’ble Supreme Court, which broadly stated the following:

(i) Adjudication proceedings and criminal proceedings could be launched simultaneously.

(ii) Decisions in adjudication proceedings are not necessary before initiating criminal proceedings.

(iii) Adjudication proceedings and criminal proceedings are independent in nature to each other.

(iv) The finding against the person facing prosecution in the adjudication proceedings is not binding on the prosecution for criminal prosecution.

(v) Adjudication proceedings by the Enforcement Directorate is not prosecution by a competent court of law to attract the provisions of Article 20(2) of the Constitution of India or section 300 of Code of Criminal Procedure, 1973.

(vi) The finding in the adjudication proceedings in favour of the person facing trial for identical violation will depend upon the nature of finding. If the

exoneration in adjudication proceedings is on technical ground and not on merit, prosecution may continue.

(vii) In case of exoneration, however, on merits where the allegation is found to be not sustainable at all and the person held innocent, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue, the underlying principle being the higher standard of proof in criminal cases.

9. The Court also stated that the yardstick for quashing the prosecution of a person in a case of parallel proceedings would be to judge as to whether the allegation in the departmental adjudication proceedings as well as the proceedings for prosecution is identical and the exoneration of the person in the adjudication proceedings is on merits.

SUBSEQUENT JUDGEMENTS BY THE SUPREME COURT

10. It is pertinent to note that a full bench of the Hon’ble Supreme Court of India, in State (NCT of Delhi) vs Ajay Kumar Tyagi [(2012) 9 SCC 685] gave a view differing from that of the bench deciding Radheshyam Kejriwal (supra), and stated that a criminal case is decided on the basis of the evidence adduced therein and cannot be rejected on the basis of evidence in departmental proceeding or the report of an enquiry officer. However, the Court stated that the prosecution may be quashed in a situation where the prosecution is based solely on a finding in a disciplinary proceeding and the same finding is set aside by a superior authority. Even though Ajay Kumar Tyagi (supra) was decided in the year 2012, it did not consider the view expressed by the co-ordinate bench in Radheshyam Kejriwal (supra).

11. Even in the circumstances described hereinabove, the ratio culled out in Radheshyam Kejriwal (supra) came to be reaffirmed in a decision of the Supreme Court of India in Videocon Industries Limited & Anr. vs State of Maharashtra & Ors. [(2016) 12

SCC 315], where the bench was considering an order passed by the Hon’ble High Court at Bombay assailing the order of discharge by the Additional Sessions Judge, Fort, Greater Bombay, who had relied on Radheshyam Kejriwal (supra), and had ordered discharge on the basis of the Appellate Tribunal of Foreign Exchange dislodging the departmental order imposing penalty on the appellants. The Hon’ble Supreme Court of India stated that the conclusions arrived at by the Appellate Tribunal of Foreign Exchange were founded on an analysis of statutory provisions, the applicability of letters issued by the Reserve Bank of India and the nature of transactions carried out between the parties, and was therefore on merits, and not an adjudication on any technical foundation. While reiterating the ratio culled out in Radheshyam Kejriwal (supra), the Court did not find any reason to disagree with the principles of Radheshyam Kejriwal (supra), found no reason to even refer the same to a larger bench for reconsideration, allowed the appeals, and restored the order of the Additional Sessions Judge, Fort, Greater Bombay.

12. Thereafter, in Ashoo Surendranath Tewari vs Deputy Superintendent of Police, EOW, CBI & Anr. [(2020) 9 SCC 636], a full bench of the Hon’ble Supreme Court of India relied on the ratio culled out in Radheshyam Kejriwal (supra), stated that the standard of proof in a departmental proceeding, being based on preponderance of probabilities, is lower than the standard of proof in a criminal proceeding, and discharged the appellant from the criminal proceeding initiated against him on the ground that a detailed Central Vigilance Commission report had exonerated the appellant and chances of conviction involving the same facts were bleak.

RADHESHYAM KEJRIWAL AND THE PREVENTION OF MONEY LAUNDERING ACT, 2002

13. In the past, the principles that were laid down in Radheshyam Kejriwal (supra) and reaffirmed by the Hon’ble Supreme Court of India had been restricted to either matters concerning foreign exchange [Videocon Industries Limited (supra)] or public

servants [Ashoo Surendranath Tewari (supra)], but in recent times, have also been applied to adjudication proceedings under the PMLA.

14. In J Sekar @ Sekar Reddy vs Directorate of Enforcement [(2022) 7 SCC 370], the Hon’ble Supreme Court of India, while quashing an Enforcement Case Information Report registered by the Enforcement Directorate in respect of offences under sections 3, 4 and 8(5) of the PMLA, opined that the principles laid down in Radheshyam Kejriwal (supra) as well as Ashoo Surendranath Tewari (supra) could be applied to the present case since the Adjudicating Authority, while deliberating on a complaint received under section 5(5) of the PMLA for confirmation of provisional attachment of assets, held that the provisionally attached property was not involved in money laundering. This, coupled with the report submitted by the Income Tax Department that currency notes seized from the premises of the appellant were accounted for, as well as the closure report filed by the Central Bureau of Investigation in the F.I.R. in respect of the scheduled offences made the Court come to an opinion that the chances to prove the allegations even for the purpose of provisions of the PMLA were bleak.

CONCLUSION

In the current atmosphere surrounding the stringency of the provisions under the PMLA, as well as the rigors of attachment and bail under the same, the guiding principles laid down in Radheshyam Kejriwal (supra) continue to be a strong ground available to litigants who may face departmental enquiries under the PMLA and other statutes to possibly seek out the light at the end of the tunnel, and secure liberty when they face prosecution in criminal proceedings while being exonerated in a departmental adjudication proceeding which is carried out on the same cause of action as well as the same bundle of facts and circumstances as the criminal proceeding.