Introduction:
The content of this article is derived from the contentious exchanges between two seasoned attorneys in front of Delhi High Court Judge Swarna Kant Sharma’s bench. Arvind Kejriwal, the National Convenor of the Aam Admi Party and the current Chief Minister of Delhi is the target of an Enforcement Directorate case concerning one of the most notorious frauds involving AAP leaders. This article primarily addresses the Delhi High Court’s viewpoint, which is based on Mr. S. V. Raju’s learned ASG argument that a political party is firm for section 70 of the PMLA and that the petitioner, who is the national convenor, would be in charge of and accountable for its operations.
The apartment of Arvind Kejriwal, the current chief minister of Delhi, was searched by the Enforcement Directorate during their investigation into the scandals involving the Delhi excise policy. At 9:05 p.m., the Delhi government arrested Kejriwal on suspicion of money laundering related to the excise policy for Delhi for 2021–2022, and he was brought before the Rouse Avenue court where the ED is requesting custody. ED is granted judicial custody by the court from April 1, 2024, to April 15, 2024.
Kejriwal challenged the Enforcement Directorate’s arrest because it violated section 19 of the PMLA, 2002, and he asked that the arrest and the proceedings that followed be declared unlawful and unconstitutional in a petition filed before the Delhi High Court under Articles 226 and 227 of the Indian Constitution r/w section 482 Code of Criminal Procedure (Cr.P.C.).
Before the Hon’ble Bench of Her Ladyship Swarna Kant Sharma, Senior Advocate Abhishek Manu Singhvi submitted on behalf of the petitioner, arguing that the timing of the petitioner’s arrest—who is currently the Chief Minister of Delhi—affects “the level playing field” in the upcoming Lok Sabha Election 2024. The phrase “level playing field” includes three crucial components: First, it is a component of free and fair elections; second, democracy and elections go hand in hand; and third, democracy is a component of the “basic structure” of the Indian Constitution.
Therefore, he argued, the PMLA is being used to create an unfair playing field for the upcoming general election, and Kejriwal’s arrest directly interferes with the ability of free and fair elections to be held across the country and violates the petitioner’s right to run in the upcoming Lok Sabha Election 2024.
The learned senior counsel goes on to argue by citing the ruling of the Apex court, which stated that for an authorized officer to make an arrest, he must examine and evaluate the “materials in his possession” and use those materials to develop a reasonable suspicion that the subject of the arrest has committed a PMLA offense. However, in this instance, the ED violated Kejriwal’s fundamental rights by giving the officer permission to arrest him.
Finally, Learned Senior Counsel Mr. Singhvi argues that since section 70 of the PMLA only applies to Companies and the Aam Aadmi Party is a political party under section 2(f) of the Representation of the People Act, 1951, it cannot be held a company and Kejriwal cannot be held vicariously liable for an offense under section 3 of the PMLA. On behalf of the enforcement directorate, the leaned ASG, S.V. Raju, contended that the current case is unmistakably one of consent and waiver. He argued against the petitioner’s position, claiming that the Enforcement Directorate had complied with all procedural requirements outlined in Article 22(1) and (2) of the Indian Constitution and Sections 19(1) and 19(2) of the PMLA. He goes on to argue using the petitioner’s materials.
Additionally, it is argued that the most crucial factor to take into account is the fact that the Aam Admi party is the primary beneficiary of the criminal proceeds generated by the Delhi excise policy 2021–2022. The party used approximately 45 crore in cash during the AAP election campaign in the Goa Assembly Election, 2022. The respondent claims that this constitutes money laundering on the part of the party, which is prohibited by section 70 of the PMLA.
To bolster the argument In rejecting Singhvi’s submission, ASG claimed that the political party had registered under section 2A of the People’s Representative Act of 1951 because only individual associations were permitted to do so. The party also claimed that the petitioner, who is a national convenor due to his membership in the national executive and as head of the political affairs committee, was registered under the RP Act. Therefore, the petitioner bears the final responsibility for the money used for all election-related expenses, including their generation.
Applicability of section 70 of PMLA.
The Hon’ble Delhi High Court examines and compares section 70 PMLA with section 2(f) of the RP Act, 1951 after hearing arguments from the enforcement department and learned senior counsel for Kejriwal. The court refers to PMLA section 70, which says the following:
{“70. Offenses by companies.
- Where a person committing a contravention of any of the provisions of this Act or of any rule, direction, or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of and was responsible to the company, for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
Explanation 1. —For this section, — (I) “company” means any body corporate and includes a firm or other association of individuals; and (ii) “director”, to a firm, means a partner in the firm.
Explanation 2. —For the removal of doubts, it is hereby clarified a company may be prosecuted, notwithstanding whether the prosecution or conviction of any legal juridical person shall be contingent on the prosecution or conviction of any individual.”}[1]
Hon’ble Court also reproduces relevant provisions of the Representations of People’s Act 1951.
These are as under:
{2(f) “political party” means an association or a body of individual citizens of India registered with the Election Commission as a political party under section 29A.}[2]
{29A. Registration with the Election Commission of associations and bodies as political parties. — (1) Any association or body of individual citizens of India calling itself a political party and intending to avail itself of the provisions of this Part shall make an application to the Election Commission for its registration as a political party for this Act.}[3]
After analyzing both provisions, the Delhi High Court concludes that the corporation is an organization of individuals under section 70 of the PMLA and a political party, which is likewise defined as an association or a body of Indian citizens under section 2(f) of the RP Act of 1951.
A political party is a company exclusively under the PMLA Act, the Court ruled. However, what about the fundamental elements, nature, objectives, etc. of a business and a political party? We need to be aware of the definition of a company and the legal precedent that explains the fundamentals of a corporation to comprehend the distinction between a political party and a firm.
According to section 2(20) of the Companies Act, 2013 Company means a company incorporated under this act or any previous company law. Political parties would not register under this act. This definition does not point to the main meaning of the company let us see the definition given by the authorities.
{ Lord Justice Lindley – “A company is an association of many persons who contribute money or monies worth to a common stock and employed in some trade or business and who share the profit and loss arising therefrom. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute to it or to whom it pertains are members. The proportion of capital to which each member is entitled is his share. The shares are always transferable although the right to transfer is often more or less restricted.”
Chief Justice Marshall – “A corporation is an artificial being, invisible, intangible, existing only in contemplation of the law. Being a mere creation of law, it possesses only the properties which the Charter of its creation confers upon it, either expressly or as incidental to its very existence.”
Prof. Haney – “A company is an artificial person created by law, having separate entity, with a perpetual succession and common seal.”}[4]
The firm that is incorporated under the Firm Act is explained in detail in the definition above. Following its registration under the Companies Act of 2013, the business acquires the legal competence to sue or be sued, buy property, and function as a separate and distinct legal entity from its members. This process makes the firm a body corporate.
The company is incorporated to make money from its trade and business, as stated clearly in Lord Justice Lindley’s definition: “A company is an association of individuals who contribute money or money worth stock and employed in some trade or business and who share the profit and loss arising therefrom.” The Political Party is a non-trading organization that supports democracy and strives to carry out its political duties, protect the Constitution, and install a strong and capable national leader.
A political party has a constitution and a manifesto that is not legally binding on the party; neither document is the equivalent of a memorandum. Businesses are required to show their memorandum of association at the time of registration. Political parties participate in democratic processes and serve as a mirror for a variety of societal opinions. They report to the voters and operate in the public interest. Political parties have a vital role in the democratic system even though they are more transparent and nonprofit institutions.
Conclusion:
As we describe in the article, political parties are fundamentally different from profit-driven companies in terms of their goal, responsibilities, and societal function. Consequently, the Hon’ble Delhi High Court has expressed ambiguity regarding whether a political party is a Company, on the fact that both include associations of individuals. The Shiv Sena Case is a historic ruling by the Indian Supreme Court. It involves two factions of the political party, the Shiv Sena: one led by Thackeray and the other by the Shinde group. The leader’s differing ideologies caused division among the political party. Now the party’s objectives and goals were divided by the ideology of the leader. Whereas, the Company has one director and a board of its members who follow the memorandum and Article of association without any division in the company. The Company cannot be divided between two major groups of members. Thus, in the author’s opinion, the Political Parties, which is an association of the individual or body of individuals, have possessed the nature of a company yet are not wholly a company. The Honorable Court relies on the S.V. Raju submission and solely considers the definitional aspects of the Political Parties and the Company, neglecting to consider other aspects of both, which are abstracted in every way. This case needs to be taken to the Supreme Court for an appeal to have the opacity removed.
Author : Harshit Tiwari, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD
Reference:
- Live law – https://www.livelaw.in/
- The Indian Kanoon – https://indiankanoon.org/
- Supreme Court Cases – https://scc-amity.refread.com/
- Taxmann-https://www.taxmann.com/post/blog/what-is-a-company-definition-characteristics-and-latest-case-laws
- Bar and bench – https://www.barandbench.com/
[1] https://indiankanoon.org/doc/1700659/
[2] https://indiankanoon.org/doc/197965473/
[3] https://indiankanoon.org/doc/23690917/
[4] https://www.taxmann.com/post/blog/what-is-a-company-definition-characteristics-and-latest-case-laws
