2025 (7) TMI 569 - HC - Money Laundering

Money Laundering - seeking grant of Regular Bail - scheduled offences - effect of repeal of IPC and CrPC and coming into effect of BNS - effect of references made in the PMLA to the provisions of the Indian Penal Code 1860 (IPC) and the Code of Criminal Procedure 1973 (CrPC) subsequent to repeal of those enactments through the coming into force of the Bharatiya Nyaya Sanhita 2023 (BNS) and the Bharatiya Nagarik Suraksha Sanhita 2023 (BNSS) - HELD THAT - The IPC was repealed by the Parliament and brought back in a new and changed form as the BNS which came into effect from 1st July 2024. The offences for which the applicant has been charged are Sections 318(4) 338 and 340(2) of the BNS which were not there in the statute before that date in those exact numbers. However it is clear that these new sections 420 467 and 471 relate to the same offences which were earlier part of the IPC. The Schedule to the PMLA as it stood in 2024 had included various offences under the IPC like cheating forgery criminal breach of trust criminal conspiracy and so on as scheduled offences under Paragraph 1 of Part A of the Schedule. Now because the IPC is repealed and BNS has been enacted the numbers and placement of these offences have changed but their substance remains the same. PMLA refers to IPC offences by section numbers and not by incorporation - HELD THAT - Applying well-settled principles to the context of PMLA it is clear that the references to IPC offences in its Schedule are dynamic and must be interpreted in light of the current law in force which is now the Bharatiya Nyaya Sanhita 2023 replacing the IPC. The nature of reference in the PMLA is such that the repeal and substitution of IPC by BNS does not disrupt or invalidate the operation of the Schedule. The offences that were earlier specified by their IPC section numbers must now be read as referring to their corresponding provisions in the BNS by applying Section 8 of the General Clauses Act 1897. Thus the PMLA Schedule continues to remain operational and meaningful even after the IPC has been repealed because the legal mechanism of legislation by reference ensures continuity by treating references as living and dynamic not static or frozen in time. Legislation by reference is dynamic in nature - HELD THAT - The PMLA refers to various offences under the IPC in its Schedule but does not incorporate the actual text of those IPC sections. Hence this is a classic case of legislation by reference. Now that the IPC has been repealed and replaced by the BNS the references in the PMLA must be read dynamically that is as referring to the corresponding new sections in BNS. To interpret otherwise would create an unintended legal vacuum rendering the PMLA toothless with respect to those scheduled offences. That would be against public interest and legislative intent. Therefore in view of the settled principle of law and particularly relying on the judgment of the Supreme Court in Mahindra Mahindra Ltd. 1979 (1) TMI 194 - SUPREME COURT it must be held that legislation by reference continues to operate dynamically and the references in the PMLA Schedule to IPC offences now stand substituted by the corresponding provisions of the BNS by automatic operation of law under Section 8(1) of the General Clauses Act. Section 8 of the General Clauses Act applies to such dynamic references - HELD THAT - The operation of laws like PMLA does not get disrupted just because of changes in numbering or restructuring of the penal code. It also prevents legal uncertainty or technical loopholes which could otherwise be misused to defeat the objectives of special laws dealing with serious offences like money laundering. Therefore in view of the above settled legal position and applying Section 8(1) of the General Clauses Act it is held that the references to IPC offences in the Schedule to PMLA must now be read as references to the corresponding offences under the Bharatiya Nyaya Sanhita 2023 including Section 318(4) of BNS in place of Section 420 of IPC since both provisions deal with the same offence of cheating in substance. This approach preserves the legislative intent upholds the rule of law and ensures that the enforcement of the PMLA continues without interruption or ambiguity. No different intention appears in the PMLA - HELD THAT - Because the PMLA is silent on the point of different intention and does not contain any contrary language the general legal rule under Section 8(1) of the General Clauses Act 1897 becomes applicable. This provision says that where a Central Act refers to another enactment and that other enactment is later repealed and re-enacted then the reference must be read as referring to the new law unless a different intention appears. Here since no different intention appears in the PMLA the law must be interpreted in a way that ensures its effective and continuous operation. That means the references to IPC offences in the PMLA Schedule must now be understood as referring to the corresponding offences under the BNS which has replaced the IPC from 1st July 2024 - Therefore in the present legal framework it is held that since no different or contrary intention appears in the PMLA the application of Section 8(1) of the General Clauses Act is fully justified and necessary to preserve the intent and function of the law. The references to IPC offences must now be read as referring to the corresponding provisions under the BNS in order to maintain legal continuity and prevent any disruption in enforcement of the PMLA. Avoiding absurdity and upholding legislative intent - HELD THAT - In the present case the notification issued by the Central Government which claims that references to IPC in existing laws shall now be read as references to BNS is not shown to have been issued under any valid statutory provision. It is not based on any rule-making power conferred by a specific law nor is it a delegated legislation passed under authority given by Parliament. The notification also does not amend or repeal any law nor does it flow from any legislative competence delegated to the executive. Instead it only reflects an executive opinion or understanding of how laws should be interpreted after the repeal of IPC. Such an understanding however well-intentioned cannot bind the Courts or override the principles of statutory interpretation. The interpretation of statutes especially criminal statutes is the exclusive function of the judiciary and must be done according to settled legal doctrines such as legislation by incorporation and legislation by reference. Therefore this notification does not have the force of law and hence it cannot be treated as law within the meaning of Article 13 of the Constitution. It does not have the status of a law that can affect limit or expand the fundamental rights of citizens nor can it be used to support any action that impacts an individual s legal status under existing statutes. This Court is satisfied that offences under the Bharatiya Nyaya Sanhita 2023 which correspond to offences listed in the PMLA Schedule as erstwhile IPC provisions are to be regarded as scheduled offences for the purposes of PMLA 2002. The absence of a textual amendment of the Schedule does not disable the prosecution so long as the new law covers the same field of criminality. Therefore the contention of the applicant that the Enforcement Directorate had no jurisdiction to register the ECIR or proceed under PMLA due to the change in law is devoid of merit. The prosecution is lawfully maintaining the case treating the BNS offences as predicates and there is no illegality in the invocation of PMLA on this ground. Since the only contention urged on behalf of the applicant pertains to a pure question of law which has already been answered by this Court as discussed above and no submissions on merits have been advanced in view of the conclusion already recorded on the said question of law the present application does not merit any further consideration - The application stands rejected.

Summary

The primary legal question considered is whether the references in the Prevention of Money Laundering Act, 2002 (PMLA) to offences under the Indian Penal Code, 1860 (IPC), and procedural provisions under the Code of Criminal Procedure, 1973 (CrPC), remain effective following the repeal of those enactments and their replacement by the Bharatiya Nyaya Sanhita, 2023 (BNS) and Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS). Specifically, the Court examined if the PMLA's Schedule, which enumerates predicate offences primarily by reference to IPC sections, continues to apply to corresponding offences under the BNS despite the absence of a formal amendment substituting BNS provisions in place of IPC offences.

Another issue was the legal status and effect of a Central Government notification dated 16th July 2024, which purported to clarify that references to IPC, CrPC, and the Indian Evidence Act in existing laws should be read as references to the corresponding provisions in the new enactments (BNS, BNSS, and a new Evidence Act). The Court was called upon to determine whether such a notification has the force of law under the Constitution and the General Clauses Act, 1897, and whether it could validly substitute legislative amendment.

Additionally, the Court considered the applicability of Section 8(1) of the General Clauses Act, 1897, which provides that references in a Central Act to a repealed and re-enacted enactment shall be construed as references to the re-enacted provisions unless a different intention appears.

The applicant challenged the maintainability of the PMLA prosecution on the ground that the predicate offences were now under the BNS, which is not expressly listed in the PMLA Schedule, and hence the Enforcement Directorate lacked jurisdiction to proceed under the PMLA. The applicant contended that the PMLA Schedule incorporated IPC offences statically ("legislation by incorporation"), and thus repeal of IPC rendered the Schedule inapplicable to BNS offences absent a legislative amendment. The applicant also disputed the legal validity of the Government notification as a substitute for parliamentary amendment.

The prosecution, on the other hand, argued that the repeal and re-enactment of IPC as BNS is a comprehensive legislative exercise, and under Section 8(1) of the General Clauses Act, the references in PMLA to IPC offences must be read as references to the corresponding BNS offences. The prosecution maintained that no "different intention" appears in the PMLA to exclude this operation, and that the notification issued by the Government is a valid clarificatory instrument consistent with statutory interpretation principles. They emphasized the doctrine of "updating construction" to prevent legal vacuum and uphold the PMLA's purpose.

Regarding the legal framework and precedents, the Court examined the distinction between "legislation by reference" and "legislation by incorporation." Legislation by reference involves a statute referring to another statute's provisions without reproducing them, thus keeping the reference dynamic and subject to future amendments or repeal and re-enactment of the referred statute. Conversely, legislation by incorporation involves physically incorporating provisions from another statute, rendering them static and unaffected by subsequent changes to the original statute. The Supreme Court's decision in Mahindra & Mahindra Ltd. v. Union of India was cited to illustrate this distinction.

The Court found that the PMLA Schedule does not incorporate IPC provisions textually but refers to them by section numbers and offence descriptions, indicating legislation by reference rather than incorporation. This means that the repeal of IPC and its replacement by BNS triggers the operation of Section 8(1) of the General Clauses Act, which mandates that references to repealed enactments be construed as references to the re-enacted provisions, unless a different intention appears.

The Court held that no different intention is discernible in the PMLA to exclude the application of Section 8(1). The PMLA's purpose is to target specified categories of offences as predicate offences for money laundering, not to freeze references to particular section numbers or the title "IPC." The BNS largely retains the substance of the offences formerly under IPC, albeit with renumbering and some modifications. Therefore, the references in the PMLA Schedule to IPC offences must be read as references to corresponding BNS offences to maintain legal continuity and the efficacy of the PMLA.

Regarding the Government notification dated 16th July 2024, the Court analyzed whether it constitutes "law" within the meaning of Article 13(3)(a) of the Constitution, and whether the Executive had authority under Section 8 of the General Clauses Act or Articles 73 and 77 of the Constitution to issue such a notification. The Court concluded that Section 8 is a rule of statutory construction and does not confer legislative or executive power to amend laws or substitute statutory references. The Executive's power under Article 73 cannot be stretched to effect legislative changes by notification, as this would violate the constitutional separation of powers. Further, the notification was not issued in the name of the President nor authenticated under the Rules of Business framed under Article 77, rendering it legally ineffective and not binding as law. Consequently, the notification does not have the force of law and cannot substitute for legislative amendment.

The Court emphasized that interpretation of statutes, especially penal statutes, is the exclusive domain of the judiciary. The Executive's issuance of clarificatory notifications cannot override judicial authority or established doctrines of statutory interpretation. The notification may reflect the Executive's understanding but lacks legal binding force.

The Court applied the principle of purposive construction and the doctrine of avoiding absurdity, holding that interpreting the PMLA Schedule as frozen to repealed IPC offences would create a legal vacuum and absurd consequences, effectively disabling the PMLA's operation for offences committed after the BNS's commencement. This would undermine the PMLA's object to combat money laundering and allow offenders to evade liability on technical grounds. Such an interpretation is untenable.

In conclusion, the Court held that the references to IPC offences in the PMLA Schedule are dynamic and must be read as references to the corresponding BNS offences by operation of Section 8(1) of the General Clauses Act, 1897. The absence of a textual amendment to the PMLA Schedule does not impair the prosecution's ability to proceed under the PMLA for offences under the BNS which correspond substantively to the erstwhile IPC offences. The Government notification dated 16th July 2024 does not have the force of law and cannot substitute legislative amendment. The Enforcement Directorate's invocation of the PMLA based on BNS offences as predicate offences is lawful and valid.

The Court rejected the bail application, noting that the sole contention raised pertained to this pure question of law, which had been resolved against the applicant, and no submissions were made on the merits of the case.

Significant holdings include the following verbatim excerpts:

"Section 8(1) of the General Clauses Act, 1897, is a foundation for ensuring legal continuity when enactments are repealed and re-enacted. This statutory provision mandates that where a Central Act or Regulation repeals and re-enacts, with or without modification, any provision of a former enactment, then references in any other enactment or instrument to the repealed provision shall, unless a different intention appears, be construed as a reference to the re-enacted provision."

"The PMLA Schedule does not incorporate the IPC offences textually but refers to them by section numbers and offence descriptions. Such listing is indicative of referral to those offences as defined in that statute from time to time, unless explicitly limited. The doctrine of 'updating construction' buttresses this reasoning."

"The Executive power under Article 73 cannot be stretched to justify substitution of legislative references through notifications. That would amount to legislation by executive fiat, which is constitutionally impermissible."

"The notification dated 16th July 2024 is not shown to have been issued in the name of the President nor authenticated in accordance with the Rules of Business framed under Article 77. In the absence of such authentication, the notification cannot be treated as law."

"Interpreting the PMLA Schedule as frozen to repealed IPC offences would produce an absurd and unintended consequence, rendering the PMLA toothless for all predicate offences committed after the commencement of the BNS."

Core principles established include:

• References in a statute to another statute that is repealed and re-enacted are to be construed as references to the re-enacted statute unless a different intention appears, ensuring continuity of legal effect.
• Legislation by reference is dynamic, whereas legislation by incorporation is static; the PMLA Schedule's references to IPC offences are by reference, not incorporation.
• The Executive cannot amend or substitute statutory provisions by notification; legislative amendments require parliamentary action.
• Interpretation of statutes must avoid absurd results and preserve the legislative intent and purpose.

Final determinations on the issues are:

• The PMLA Schedule's references to IPC offences are to be read as references to corresponding offences in the BNS following repeal and re-enactment, under Section 8(1) of the General Clauses Act.
• The Government notification dated 16th July 2024 is not law and cannot substitute legislative amendment or bind courts.
• The prosecution under the PMLA based on BNS offences as predicate offences is maintainable and lawful.
• The bail application is rejected as the legal contention raised is without merit and no other grounds were urged.