TaxTMI 
TaxTMI 
2025 (7) TMI 569
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...., 2023 (BNS) and the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS). A further question that necessarily follows is whether such references in the PMLA are now to be construed as referring to the corresponding provisions under the new legislative regime embodied in the BNS and BNSS. 2. By this application filed under Section 483 of the BNSS and Section 45 of the PMLA, the applicant seeks regular bail in connection with ECIR/MBZO-II/20/2024 registered by the Directorate of Enforcement, Mumbai Zonal Office-II. The said ECIR corresponds to Special Case (PMLA) No. 191 of 2025, concerning offences punishable under Sections 318(4), 338, and 340(2) of the BNS, the new penal code which has replaced the IPC. The applicant has been in custody since 20th November 2024 in relation to this case. 3. The prosecution case, in brief, is that during the period in question a huge amount of over 100 Rs. crore was deposited in fourteen newly opened accounts at the Nashik Merchant Cooperative Bank, Malegaon, District Nashik. These transactions were allegedly layered and routed in a manner to conceal their illicit origin, giving rise to suspicion of money laundering. FIR No. 295 of 2024 was regist....
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....ment to the Schedule, the Enforcement Directorate cannot, by executive action, treat an offence under the BNS as one of the scheduled offences under the PMLA. The notification dated 16th July 2024 issued by the Ministry of Law and Justice was characterized by the learned counsel as ineffective to alter the PMLA. He submitted that such a notification cannot be equated with an Act of Parliament. 7. In support of his legislation by incorporation argument, Mr. Bhise placed reliance on several judicial precedents. He cited the judgment of the Supreme Court in Mahindra & Mahindra Ltd. vs. Union of India & Anr., (1979) 2 SCR 1038, wherein the distinction between legislation by reference and legislation by incorporation was discussed. He urged that the Supreme Court held that when one statute incorporates provisions of another statute by specific reference, the incorporated provisions become a part of the former as they existed at that time, and subsequent amendments in the latter statute would not automatically affect the former. Learned counsel contended that the PMLA's Schedule "incorporated" the IPC offences as they were at the time of enactment; therefore, the replacement of the IP....
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....rganization of the IPC as it carries forward the same core offences such as cheating, criminal conspiracy, etc. though with some amendments and re-numbering. There is nothing to indicate that Parliament, by enacting the BNS, intended to drop those offences from the ambit of anti-money laundering law. Learned PP urged the Court to adopt an "updating construction" of the PMLA, meaning that the law should be interpreted in light of the current enactments. This doctrine of updating construction has been recognized by courts to ensure that statutes are not applied in a manner that freezes them in time when the legislature makes formal updates without altering the substance of the law. He submitted that the offences alleged in this case under BNS Sections 318(4), 338, 340(2) are in substance the same as offences under the IPC which were listed in the PMLA Schedule, and thus treating them as predicate offences is in full conformity with the legislative intent and the text of the General Clauses Act. 10. The learned PP further highlighted that the Supreme Court in Vijay Madanlal Choudhary & Ors. (supra) has underscored the interdependence of the PMLA offence on the existence of a predic....
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....us, he maintained that the PMLA proceedings in the present case are well-founded in law despite the change in nomenclature of the penal law. 12. On the aspect of merits of the case, Mr. Venegavkar submitted that the Enforcement Directorate has gathered significant material indicating the applicant's involvement in laundering the proceeds of the scheduled offence. However, since the applicant's counsel did not address the factual merits or make submissions on the evidence during the hearing having focused purely on the legal issue of the BNS not being in the Schedule, the prosecution refrained from elaborating on those aspects. He stated that, if required, the Department was prepared to demonstrate that the applicant had a key role in the creation and operation of the bank accounts through which Rs. 100 crore were laundered. In any event, learned PP urged that no case for bail is made out on facts or in law, and the application deserves to be rejected outright. 13. I have given my anxious consideration to the submissions of both sides and perused the record. The central issue that arises for determination is whether, in the wake of the Indian Penal Code's repeal and repl....
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....fence, the offence of money laundering under Section 3 of the PMLA cannot be independently sustained. 17. The Schedule attached to the PMLA carefully lists out various serious offences taken from different laws, especially from the IPC, under Part A. Some examples of these are: Section 120B (which deals with Criminal Conspiracy), Section 302 (for Murder), Section 304 (for Culpable Homicide Not Amounting to Murder), Section 307 (for Attempt to Murder), and Section 308 (for Attempt to Commit Culpable Homicide). It also includes several sections related to extortion, robbery, dacoity, cheating, forgery, and counterfeiting. The listing of these specific IPC sections by their numbers and title is not accidental, it is important because it shows the exact legal link between the PMLA and the serious crimes mentioned in the Indian Penal Code. These section numbers help us clearly identify which crimes, if committed, can lead to a money laundering case under PMLA. 18. With effect from 1st July 2024, the IPC, 1860 has been repealed and substituted by the BNS. Consequently, the offences previously defined under IPC are now re-enacted and codified under different section numbers in the B....
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....e between these two is very important to decide whether the provisions of the BNS and BNSS will automatically take the place of the earlier IPC and CrPC for the purpose of the PMLA. 23. Where there is mere reference to or citation of one enactment in another without incorporation. Section 8(1) applies and the repeal and re-enactment of the provision referred to or cited has the effect set out in that section and the reference to the provision repealed is required to be construed as reference to the provision as re-enacted. If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just as if they had been actually written in it with the pen, or printed in it, and, the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all.[See: Collector of Customs, Madras vs Nathella Sampathu Chetty and Anr. (1962) 3 SCR 786 and Mahindra & Mahindra Ltd. v. Union of India, (1979) 2 SCC 529]. 24. Legislation by Reference occurs when a statute refers to the provisions of another existing statute without physically reproducing....
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....orporated into another law, then only those specific provisions apply. Any later changes made to the original law do not become part of the new law. 27. 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. This section thus provides for the automatic substitution of references to repealed laws with their re-enacted equivalents, unless a contrary legislative intent is explicitly demonstrated. Section 8(1) plays an important role in making sure that the law continues to work smoothly when a law is repealed and re-enacted. This means that, unless a contrary intention is shown, the law will automatically replace the reference to the old law with the reference to the new re-enacted law. 28. Applying the aforesaid principles to the present case, it becomes impe....
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...., thereby creating a massive lacuna in the legal framework. This Court finds that the legislative exercise here is one of "repeal and re-enactment" with modifications, rather than a simple "incorporation" of specific provisions. 32. The PMLA refers to various offences listed under the Indian Penal Code, 1860 (IPC) by mentioning their section numbers in the Schedule appended to the Act. For example, it includes references such as Section 120B (criminal conspiracy), Section 420 (cheating), and so on. However, these sections are not reproduced word-for-word in the PMLA. Instead, the PMLA only makes a mention or citation of those IPC sections. This method of reference is what is legally known as "legislation by reference", and it is different from "legislation by incorporation". In the case of legislation by reference, one law points to another law without copying its contents, thereby leaving the referred law dynamic, any changes or updates made to the referred statute automatically apply to the referring law. On the other hand, if a statute incorporates the exact text of another provision, it becomes frozen in time. In such a situation, future amendments to the original statute do....
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....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: 35. When one law simply refers to another law without copying its exact words, such a method of drafting is legally called "legislation by reference". In such cases, the reference is not frozen in time but is treated as living and dynamic, meaning, it keeps pace with any changes or amendments made to the law it refers to. 36. This legal position has been firmly laid down by the Supreme Court in the case of Mahindra & Mahindra Ltd. (Supra). In that case, the Court held that when a statute refers to another enactment, and there is no indication in the language of the law that the reference is to be fixed as it stood at the time of enactment, then such a reference must be understood to be dynamic. That is, any future amendment, substitution, or even complete re-enactment of the referred statute will automatically ....
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.... present context, the PMLA still contains references to various sections of the IPC in its Schedule. For example, it refers to Section 420 of IPC which deals with the offence of cheating. However, with effect from 1st July 2024, the IPC has been repealed and replaced by the BNS. Under BNS, the offence of cheating is now defined under Section 318(4). 41. This raises the question: does the reference to IPC Section 420, 467 and 471 in the PMLA Schedule become meaningless now? The clear legal answer is no, and that answer flows directly from Section 8(1) of the General Clauses Act. 42. As per this provision, even if the IPC has been repealed and replaced, the references in PMLA to IPC sections must now be interpreted as referring to the corresponding sections in BNS, so long as the substance of the offence remains the same. That is to say, if the definition and ingredients of the offence under the new law are substantially similar, then the reference remains legally valid and binding. 43. Even if the new enactment has a different structure or numbering, what matters is the substance and continuity of the offence. If the same offence is now found under a different section numbe....
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....y laundering cases. The real object was to include these categories of criminal activity as scheduled offences, not to preserve the exact legal labels or numbering from the IPC. Therefore, when read in this proper context, it becomes clear that the Schedule must be interpreted in a dynamic way, that is, the references to IPC offences should be understood as referring to the corresponding offences in BNS, which now defines the same crimes under different section numbers. The PMLA refers to various offences under the IPC in its Schedule, for the purpose of identifying predicate or scheduled offences. These references are made by mentioning section numbers, such as Section 120B (Criminal Conspiracy), Section 420 (Cheating), and others. However, it is important to note that nowhere in the PMLA is it stated or implied that these references to IPC sections are to be fixed or frozen as per the IPC as it stood at the time of enactment. There is no clause in the PMLA saying that an offence must be under the IPC and no other law to qualify, the IPC was mentioned because it was the operative penal law then. Likewise, the statutes that introduced the new BNS and BNSS in 2023 do not contain any....
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....al reference must be treated as continuing and updated, and the offences under BNS must be treated as valid scheduled offences under the PMLA. 50. 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. 51. 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 refere....
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....t of the PMLA, as stated in its Statement of Objects and Reasons and reflected throughout its scheme, is to prevent and punish the laundering of proceeds of crime, and to attach and confiscate property derived from such criminal activity. The Act is intended to be strict and continuous in its operation, targeting those who use money generated from criminal activity for legitimate-looking business or investments. If the enforcement of the PMLA is disrupted just because the IPC has been replaced with a new code, the entire mechanism would come to a halt, and offenders would escape liability due to a technicality. That is clearly not what Parliament intended. 56. It is a well-settled rule of interpretation that the court must avoid any construction of a statute that leads to absurd, anomalous, or unjust consequences, especially when a sensible, lawful, and purposive interpretation is available. The Supreme Court in multiple decisions has emphasized that laws must be interpreted to give effect to their purpose and not in a manner that frustrates their operation. In K.P. Varghese v. ITO, (1981) 4 SCC 173, the Court observed that where two interpretations are possible, one which leads....
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....t of any statute. It states that where any Central Act refers to another law, and that referred law is later repealed and re-enacted, then, unless the context of the original law suggests otherwise, such reference shall be read as a reference to the reenacted law. This provision is automatic in nature. It works like a presumption or default rule. Courts and statutory authorities can apply it to harmoniously interpret the law, especially when the original statute does not itself specify how to deal with such repeal-and-replacement situations. The purpose is to avoid confusion and ensure continuity in legal interpretation. However, it is crucial to understand that Section 8 does not give any power to the Executive or the Government. It is not a power-conferring provision. It does not authorise the Central Government to issue any notification, circular, or order to amend the text of existing laws or to substitute one set of penal provisions for another across statutes. It is for the Courts to apply this interpretative rule, when required, and not for the Executive to issue directives under the guise of clarifying the law. 61. The scheme of separation of powers under the Constitutio....
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....on the functions of the Legislature. It can only issue administrative directions and take such steps as are permissible under existing laws. 64. This makes it clear that executive power is not law-making power, and cannot be used as a substitute for legislative action. The executive may act within the framework of existing laws, but cannot change the meaning or operation of a law by issuing a clarification or circular that effectively rewrites or substitutes statutory provisions. Therefore, the attempt of the Central Government to use Article 73 as a source of authority for issuing a clarification that references to the IPC in various Central laws should now be read as references to the BNS goes beyond the permissible scope of executive power. Substituting penal provisions across multiple legislations, even if for administrative convenience, is not an administrative function, but a legislative act. Such substitution affects substantive rights and obligations under statutory laws, including penal consequences, and can only be done by amendment through Parliamentary legislation. The Constitution does not permit the executive to indirectly amend or interpret laws made by Parliament....
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.... of valid executive action, and cannot be enforced as a legally binding instrument having the force of law. It may, at best, reflect the internal understanding of the executive departments, but it cannot be treated as an official legal clarification or amendment applicable to the public at large or to statutory interpretation. As such, this notification is not covered under the definition of "law" under Article 13(3)(a) of the Constitution, as it neither carries statutory authority nor is it issued through a constitutionally mandated process. 67. Article 13(3)(a) of the Constitution of India explains what is meant by the term "law" for the purpose of protecting fundamental rights. It includes not only Acts of Parliament but also any Ordinance, order, bye-law, rule, regulation, notification, custom or usage that has the force of law in the territory of India. This inclusive definition is important because it brings within its scope all kinds of instruments or actions that have a binding legal effect and can affect the rights of citizens. However, the crucial phrase here is "having the force of law". Merely giving a document the title of a "notification" is not enough to make it l....