Last month, Arvind Kejriwal – the sitting chief minister of the National Capital Territory of Delhi – was arrested by the Enforcement Directorate (ED) in connection with its “reason[s] to believe” of his commission of the money laundering offence, having its predicate in his involvement as the “kingpin” of the criminal conspiracy to obtain an “undue pecuniary advantage” through deliberate irregularities in the framing and implementation of the Delhi Excise Policy, 2021-22 (Policy).
These irregularities involved, inter alia, a rise in the payments the state made to liquor distributors, which the Supreme Court, in Manish Sisodia v. CBI, held to possibly constitute the “proceeds of crime”, a product of the same criminal conspiracy that Kejriwal is alleged to have masterminded (¶21). In addition, it was alleged that liquor licenses were allotted arbitrarily to chosen distributors, some of whom were patronised by a “South Group” – a set of politicians having financial stakes in successful liquor distributors – which, in turn, paid the Aam Aadmi Party (AAP) for such licenses’ preferential allotment.
The case against Kejriwal is premised on this factual base, with the ED alleging his involvement in the larger criminal conspiracy, as well as his criminal liability accruing from his control over AAP, an offence committed by all members of AAP – by virtue of their membership of the party – u/s 70 of the Prevention of Money Laundering Act, 2002 (“PMLA”).
In this essay, I discuss the merits of the case against Kejriwal based on presently available factual material, proposing three legal considerations that make the case appear rather weak: first, the absence of factual material corresponding to the laundering offence’s constituents, given the allegations – taken at their very best – showing his role in facilitating the generation of the conspiracy’s proceeds, not its use or acquisition.
Second, the crux of the actual laundering case centering on his membership in a conspiracy for laundering money, with the conspiracy’s objective to launder and the identity of proceeds being insufficiently established.
And third, the argument of an automatic imputation of liability based on his leadership of AAP being unlikely, given the difficulties in construing a political party as a “company” u/s 70. These considerations, I propose, make the formation of a genuine belief into Kejriwal’s guilt in having committed the laundering offence highly unlikely, a relevant consideration for courts adjudicating the issue of his arrest’s vitiation.
The generation-acquisition conundrum: Is corrupt policymaking enough?
The ED’s application seeking Kejriwal’s custody, which contains the bulk of its allegations, points to three facts showing his personal involvement as grounds for custody (and arrest): first, his supervision and control over the Policy’s drafting exercise; second, his role in demanding kickbacks – through his affiliates – for having drafted the Policy in a manner that it could be operationalized to favour select liquor distributors; and third, his association with persons transacting in kickbacks (ED’s Remand Application, pages 12-18).
Of the three distinct allegations of his personal involvement, none demonstrate the commission of the money laundering offence u/s 3 of the PMLA, and are instead concerned with the possible commission of the predicate offence of a public servant obtaining an “undue advantage” in the performance of their public duty – the offence u/s 7 of the Prevention of Corruption Act, 1988 that the Central Bureau of Investigation (“CBI”) – and not the ED – is presently investigating. Even if Kejriwal’s commission of the above three factual allegations is established, it offers the ED no jurisdictional grounds for its own case – for effecting arrest or otherwise – which must, instead, be obtained specifically through proving the constituent elements of the laundering offence.
These concern, inter alia, the “concealment, possession, acquisition or use” of the crime’s proceeds u/s 3 of the PMLA, which means – at the very minimum – that mere generation of proceeds cannot constitute the ED’s case, for that is the predicate’s preserve, not that of the laundering offence. Vijay Madanlal Choudhry v. Union of India – the case having upheld PMLA’s constitutionality – also noted the centrality of the predicate/laundering distinction, observing that the laundering offence is made possible only by the predicate’s commission, and the generation of proceeds thereby (¶253). The activity generating the proceeds, therefore, is the predicate, and the commission of the six specified activities with such proceeds constitutes laundering.
Kejriwal’s supervision and control over the Policy’s drafting, demanding kickbacks from liquor distributors, and having proximity with persons transacting with kickbacks only goes to show that he sought to obtain undue pecuniary advantages by exploiting his public position, which is the content of predicate offence, and does not show his use or acquisition of the proceeds. This becomes significant considering the high threshold of PMLA’s Section 19 – the provision necessitating ED’s well-informed belief in an accused’s guilt as a precondition for effecting arrest – whose absence, pursuant to Senthil Balaji v. State, has the effecting of vitiating it altogether (¶39).
ED’s belief in Kejriwal’s role in generating proceeds, therefore, is irrelevant to its case, and cannot be the basis for its belief in his commission of money laundering. The Supreme Court, in Sisodia, also noted that a substantial chunk of the ED’s case – carrying the same factual basis as the instant case – concerned allegations of corrupt policymaking responsible for generating proceeds, not the use or acquisition thereof (¶15-16).
Conspiracies and competing absurdities: Are there “proceeds of crime”?
The part of ED’s case that does involve laundering, and seeks to pin the blame on Kejriwal, contains two allegations – first, given his role as AAP’s convener, the authorization of the use of the kickback-based money – which was done for its Goa election campaign – likely coming straight from him; and second, AAP being an overall beneficiary of the crime’s proceeds, Kejriwal – as a member and leader of the party – being automatically responsible for his party’s criminality u/s 70 of the PMLA (Remand Application, pages 19-30). Both these allegations concern his liability arising through indirect means, based on his implied participation in laundering committed either by the criminal conspiracy – the same conspiracy alleged to have committed corruption – or by AAP itself.
In proving Kejriwal’s membership to the conspiracy having twin objectives of corruption and laundering, one must be convinced of at least three sets of facts before being able to form a genuine belief into his guilt: first, the conspiracy’s tangible, worldly existence, i.e., an assessment of whether persons consciously agreed to do the sum of illegal acts constituting ED’s case; second, whether the conspiracy’s “common objective” – apart from that of engaging in corruption – also extended to laundering its proceeds; and third, Kejriwal’s own, conscious membership of the conspiracy – which can also, in certain circumstances, be inferred from conduct – indicating his participation in its twin common objectives. This information, however, is glaringly absent in ED’s case: while it does point towards the likely existence of a conspiracy to commit certain illegalities in the Policy’s formulation and implementation, it does not seek to establish that the same conspiracy also possessed the objective of laundering its proceeds. Only a single accused – Vijay Nair – appears in the ED’s assessment of both corruption and laundering, and all others accused of the predicate offence do not appear in its case alleging the use of its proceeds (compare Sections 6.2.1, 6.2.2, 6.2.3 of the Remand Application with Section 6.2.4).
It is possible, therefore, that the conspiracies for corruption and use of its proceeds were distinct, given the appearance of two distinct groups committing two distinct varieties of offences – one engaged in the generation of proceeds, and the other in its utilisation. In imputing liability on Kejriwal for laundering, it must be demonstrated how these two separate groups were acting in pursuit of the common objective of laundering, and if not, how Kejriwal became a participant to at least the laundering conspiracy.
This must be distinguished from the Supreme Court’s observations in Pavana Dibbur v. ED, where it noted that a person disconnected from the commission of the predicate offence can be held liable for laundering when they “knowingly assist” the former in using the proceeds (¶15): this question, I consider, becomes relevant only when one deciphers the existence of two distinct conspiracies, and then argues that participants to the laundering conspiracy possessed knowledge of the proceeds’ status as tainted. Arguments in the instant case, however, are at a more preliminary stage, where the ED – for making its jurisdictional claims or for effecting Kejriwal’s arrest – must first show either the existence of a single overall laundering conspiracy that Kejriwal joined, or show that of the two distinct conspiracies to generate and launder, Kejriwal consciously joined at least the latter.
Even if one is to decipher his participation impliedly from his conduct, ED must, therefore, examine his conduct – an analysis starkly absent in the Remand Application. Insofar as the laundering conspiracy goes, it presents only two sets of facts showing his culpability: first, his proximity with Vijay Nair, who allegedly transacted with the criminal proceeds; and second, an employee of an AAP-engaged electioneering agency also being an employee of the Delhi Government (Remand Application, pages 19-23). These two facts are too remote to suggest Kejriwal’s participation in the conspiracy to launder, necessitating much stronger facts suggesting a link between Kejriwal and the acts of laundering. The case against him, therefore, concerns only a facilitation of the generation of proceeds, giving the ED little jurisdictional basis to effect arrest.
This is further complicated by the requirement of there being an identity between the proceeds generated through the predicate’s commission and the proceeds laundered. This proposition, apart from being derivable from PMLA’s Section 3, has also been affirmed in English case-law interpreting analogous laundering provisions – in R v. Montila, the House of Lords found that the state must mandatorily demonstrate a “coincidence” between the property generated through the predicate and the property laundered, and to show that “the property being converted was in fact the proceeds of that activity” (¶6, 41). It held, therefore, that the state must objectively show that the proceeds laundered were, in fact, the proceeds arising from the predicate offence.
A protest among lawyers for Arvind Kejriwal. Photo: X/@AamAadmiParty
In the instant case, however, there is surprisingly little unanimity over the origin and total sum of the criminal proceeds generated, as well as the amount of proceeds utilized, making one question whether the money laundered (i.e., used in Goa) is the same as the money originating from the predicate (i.e., from corruption), and what the components of the predicate really are. ED, on one hand, states that Rs. 100 crores were received by Vijay Nair – on behalf of Kejriwal (and AAP) – from the “South Group” as a “kickback” for preferential policymaking, while on the other, its Remand Application cites inconsistent figures of only Rs. 25 (or 30) crores as having been given to various co-conspirators by liquor enterprises (Section 6.2.2).
Added to this, the Supreme Court – in Sisodia – refused to accept the theory of Rs. 100 crores constituting criminal proceeds, finding it to be a “a matter of debate” (¶12), proceeding to give its own rendition of what constituted criminal proceeds, one the ED has chosen to wholly ignore in the instant case. In Sisodia, after rejecting the ED’s Rs. 100 crore theory, the Supreme Court made a claim – one whose absurdness is difficult to grapple with – that the amount paid by the Government of Delhi (not AAP, but the Government) to liquor distributors in the form of commissions, alongside the amount made by the Government of Delhi (again, not AAP, but the Government) would constitute the criminal proceeds!
…
The difference between the 12%; minus 5% of the wholesale profit margin [the commissions paid by the Government] plus Rs.70,00,00,000/- [the license fee collected by the Government]; it is submitted, would constitute proceeds of crime, an offence punishable under the PML Act.
(words in brackets mine).
This claim’s absurdity has many facets, a few of which must be noted. First, for state-paid commissions to constitute criminal proceeds, the money being disbursed by the state to liquor enterprises must derive from criminal activities, and the State Government should be alleged to have “laundered” its money by using it – u/s 3 of the PMLA – in favour of liquor enterprises. The Government, however, cannot commit a crime, given its status as a juristic entity immune from criminal proceedings.
The money made by any Government, as is well known, derives from taxes, which, as is also well known, are legal – it makes, therefore, little conceptual sense to claim that state-paid commissions constitute criminal proceeds. Second, the Rs. 70 crores mentioned in Sisodia above, which the Government obtained from liquor enterprises in exchange for the allocation of licenses in accordance with the Policy (see Section 3.13), cannot constitute criminal proceeds, for the Government obtained them in accordance with the law (in accordance with the Policy). Lastly, given that the state cannot commit a crime, it cannot commit a predicate offence either, making financial transactions done with or by the state legally impossible to bring within the fold of money laundering.
There is, therefore, an utter lack of clarity on what constitutes criminal proceeds in the instant case, with a theory rejected by the Supreme Court being invoked nevertheless, the composition of the Rs. 100 crore theory wholly absent in the ED’s case, and the Supreme Court-suggested alternative composition of criminal proceeds suffering from fundamental infirmities. The requirement of the predicate’s proceeds themselves being laundered appears to have been wholly abandoned, further indicating that sufficient material to form an opinion as to Kejriwal’s guilt was not present with ED when effecting arrest.
PMLA’s Section 70: Political party as corporation?
The last prong of ED’s case concerns AAP – as a distinct entity – being liable for laundering, whose liability is automatically imputed to Kejriwal, given his membership to, and leadership of the party. This, the ED claims, can be done u/s 70 of the PMLA, given AAP’s status as an “association of individuals”, whose persons-in-charge would suffer vicarious liability for its criminality (Remand Application, pages 25-30).
In Sisodia, the Supreme Court rejected this contention, noting that AAP had not been formally arraigned as an accused entity, and one’s vicarious liability for an offence committed by a company would flow only if the company was the subject-matter of the laundering case (¶12). This conclusion must similarly apply to the instant case, given that AAP has not distinctly been named as an accused, and Kejriwal cannot – in its absence – be made vicariously liable for its criminal acts.
Further, a political party is unlikely to fall within the mischief addressed through Section 70, whose explanation defines the term “company” as a “body corporate, [including] a firm or other association of individuals”. This phrase, while possessing a sufficiently elastic segment targeting an “association of individuals”, must be construed in accordance with its surrounding terms, which specifically concern entities constituted for profitmaking purposes possessing separate legal personalities, the recovery of whose criminal proceeds necessitated their inclusion into PMLA (278). While the legal status of political parties needs to be examined in greater detail to definitively conclude PMLA’s applicability, the specifically designated electioneering purpose of a political party, which is conceptually distinct from profitmaking and the possession of a separate legal personality, may imply that a party may not constitute a “company” under the PMLA.
Further, and more importantly, the predicate offence for which AAP has used criminal proceeds is unexamined, and the only ground for imputing liability to AAP is the utilization of such proceeds for its benefit as part of its Goa election campaign. This use of proceeds, however, would be insufficient to make AAP liable, given the necessity – u/s 3 – of “use” occurring with the knowledge that the money constitutes criminal proceeds. The same infirmities discussed above, therefore, apply to this part of the ED’s case too: first, “knowledge” of the accused as to the proceeds’ status as criminal proceeds introduces the same problems as those in navigating two distinct conspiracies – one to generate, and another to launder; and second, the identity between the predicate’s proceeds and the sum laundered is not substantiated here either, making this part of the case doubtful too.
Conclusion
Overall, therefore, the case against Kejriwal – given presently available factual material – appears quite weak, suffering from various fundamental infirmities, spanning from Kejriwal’s role in facilitating the generation of criminal proceeds constituting the chunk of ED’s case despite being wholly irrelevant to it, to an insufficient examination of his membership to the laundering conspiracy, to there being negligible clarity over what actually constituted the proceeds of crime. Given these fundamental infirmities surrounding Kejriwal’s involvement in the laundering offence, the existence of an objective belief into his guilt appears unlikely – a relevant consideration before courts adjudicating the ongoing challenge to his arrest u/s 19.
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