The Prevention of Money Laundering Act, 2002 (PMLA) was notified on July 1, 2005. The legislation deals with ‘scheduled offence’, as defined in Section 2(y) of the Act. If there is no ‘scheduled offence’, there cannot be any ‘proceeds of crime’ as defined in Section 2(1)(u) of the Act. And, if there is no ‘proceeds of crime’, there cannot be any ‘offence of money laundering’ as defined in Section 3 of PMLA.
So, it is ‘scheduled offence’ that gives the jurisdiction to the Enforcement Directorate (ED) to trigger PMLA. If there is no allegation of ‘scheduled offence’, then the ED cannot acquire or usurp jurisdiction under PMLA.
There are 31 categories of ‘scheduled offence’ in the schedule of PMLA. The Income-Tax Act and the Foreign Exchange Management Act (Fema), 1999, are not within its ambit. So, investigation under PMLA by the ED on ‘black money’, ‘shell company’ or ‘hawala operation’ is without jurisdiction.
In the National Herald case, in which the ED has brought Rahul Gandhi into questioning, the allegation is the following: the shareholding of the Associated Journals Ltd (AJL), the owner of National Herald, changed from 5,000 Congress freedom fighters to 1,057 shareholders of Young Indian (YI) and finally to one, during the time span from 1937 to 2010.
Significantly, both AJL and its final owner YI are companies incorporated under Section 25 of the Companies Act, 1925. Assets of such a company cannot be dissipated. If they are, then GoI is empowered not only to cancel its licence – that the central government issued during the incorporation of the company – but also to initiate all consequential measures to initiate action against the company and those behind the company by lifting the corporate veil.
Admittedly, neither the previous Congress-led UPA government nor the current BJP government has taken any such action. The inevitable conclusion, therefore, is that the assets of AJL have not been dissipated.
Now about other allegations. First, the All India Congress Committee (AICC) worked out a bailout package for AJL that ran into financial difficulties from 2000 to 2008 when the National Herald had to shut down its operations. This bailout package included AICC allowing debt of ₹90 crore to be converted to equity of YI. This may be improper, but surely this does not give jurisdiction to the ED to launch its investigation. Is converting debt to equity a ‘scheduled offence’? It isn’t by any book.
Second, the allegation that Sonia and Rahul Gandhi have amassed wealth personally that belongs to AJL reflects a lack of understanding of basic corporate law. The decision of Britain’s upper house, the House of Lords, in the 1897 ‘Solomon vs Solomon’ case, arrived at by Justice Vaughan Williams, remains valid till date – that a legally incorporated company remains an independent person from its shareholders. Sonia and Rahul Gandhi became major shareholders of YI on February 26, 2011. Where is the question of amassing hundreds of crores personally? In any event, how does the ED acquire jurisdiction to launch an investigation?
Third, AJL had taken a loan of ₹1 crore from a shell company, Dotex Merchandise (Dotex), in 2010. The allegations: Dotex exists in 5, Lower Rawdon Street, in Sreepally of Ballygunge, Kolkata, in the residential apartment Aakash Deep. It is located on the 4th floor, Room No 3. ‘It is only a three-room guesthouse of Dotex!’ is the charge.
Where does the ED come into the picture? If the imputation is that the repayment of the loan is by hawala, even then this is beyond the ED’s jurisdiction since alleged hawala operations falls under Fema, which is not a ‘scheduled offence’.
Since 2012, the National Herald matter has been lingering amid allegations and imputation of fraud, land-grabbing, nefarious activity, criminal intent, public money being used for personal use, hawala operation and cash transaction. Those levelling these allegations do not seem to have read either PMLA, 2002, or Section 25 of the Companies Act.
For the ED to abruptly throw its hat under PMLA is strange. Triggering the I-T Act and/or Fema does not suit those who wish to investigate brandishing the sword of arrest. Neither the I-T Act nor Fema empowers officials to make arrests. Little wonder that the ED does not seem to relish administering Fema to the extent it does PMLA. If PMLA is mixed into any investigation pot, then the threat of arrest looms large. The entire ball game is to exercise the power to arrest. But usurping power without jurisdiction is travesty of due diligence.
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