The Mis-Connection between the Copyright Law and PMLA

22nd October, 2024 - 7:25 am Categories: Copyright 0 Comments

Introduction

The Prevention of Money-Laundering Act, 2002^[1] (hereinafter “PMLA”), contains as a predicate offence,^[2] the Copyright Act, 1957 (hereinafter “CA”). While the framework of PMLA does lend, and improve the funtioning of, the CA—by causing increased reputational risk; compliance improvements; and a further disincentivisation for the internalisation of infringement costs; there are notworthy concerns relating to the manner in which the PMLA shall function qua the CA and the possibility of it disrupting the CA.

Connection between the CA & PMLA

The PMLA essentially has two facets,^[3] the first relates to the criminalisation of the act of money-laundering which forms part of the criminal law facet of PMLA;^[4] while the second consists of attachment and confiscatory proceedings that relate to the civil law aspect.^[5] Importantly, the act of money-laundering, as also the offence, requires a predicate offence—in that sense it is a dependent offence^[6] requiring a past infringement.

Furthermore, the second requirement of the offence is that of proceeds generated from past wrongdoing, which were acted upon by a person accused of violating the PMLA. In other words, the proceeds generated or otherwise connected with the prior violation of the law[7] when operated upon, constitute an infringement of the PMLA.

The connection with the CA then lies in defining the prior/predicate offence as being one under the CA. Thus reading S. 3 with the definition of “proceeds of crime”[8] and that of a “scheduled offence”,^[9] it is ex facie evident that proceeds generated or otherwise connected with the commission of violations under the CA, coupled with operations upon them, constitute an offence under S. 3 of the PMLA, and thereby initiate actions, under PMLA.

The connection between a CA violation and an offence under S. 3 of the PMLA has threefold-advantages and they are as follows:

Increased reputational risk

The first benefit that emanates as a result of the connection between CA and the PMLA relates to increased reputational risk that a corporation or individual needs to account for while dealing with CA infringements. The determination of whether a particular law needs to be abided by is mediated by considerations of—first, the contravailing benefit that may be derived from its violation; and second the degree of harm caused by the violations.

Both the just-mentioned factors have, as broad overarching requirements—certainty and exactitude. Meaning thereby, that the certainty of harm/benfit as also its quantification in monetary terms remain important. However, the certainty and quantification requirements are not sine-qua-non or non-derogable, there are two important cases where both of them may be compromised but the individual or corporation abides by, as also tilts towards accepting the cost of violations. These cases being—legal mandation, and structural mandations.

Beginning first with structural mandations that lie at the centre of the present analysis. The argument being made is the following—in cases where the underlying structure of an individual or corporation’s interest favours/otherwise considers indespensable the non-violation of a particular law, the risk of violating it increases exponentially thereby favouring adherence. The corporations interest or the shareholder’s interest remains fundamentally in its investment in equity—it being the share-value. The share-value determines the monetary reward as also the value and stability of all investments and transactions that are share derivatives or otherwise connected with, or deriving value, from it.

From the perspective of the management, there is a risk associated with the non-compliance of a particular legal rule. A substantial part of this, separate from the legal consequential ramifications, is the reputational risk. The reputation in turn is determined by the perceived value of the company by the market which then decides the shareholder value.

The risk associated with a possible fall in reputation due to allegations of money-laundering are far greater than that of simpliciter violations of the CA. For simplicity, reversing the structure of the above argument, it is because the market considers allegations relating to money-laundering far more damaging to the company, which in turn determines the value of share for the shareholders; effectively meaning that the reputational risk qua the shareholders increase.

On the other front, the reputational risk emerges as a consequence of being possibly deprived of the financial system as a result of either money-laundering allegations or a proper convinction relating to the same. Some have argued that it is not the conviction but the process that is the true penalisation under the PMLA.^[10]

Thus merely being accused of an offence, and undergoing the proceedings has adverse ramifications. An important consequences that arises is the freezing of bank accounts and attachment of assets of the corporation. This in itself disallows access to a person of the financial system. This exclusion from the financial system in turn affects the funtioning of the corporation as also that of individuals and their businesses.

A natural reputational hazard therefore arises due to the inability to function. It is also important to emphasise that deprivation of the financial system in itself can have reputational ill-effects in exclusion to the connecting argument of operational difficulties. Furthermore as has been the case before,[11] attachment proceedings under S. 5 do have effects on the assets of the customers dealing with a particular person or corporation, thus compounding the reputational difficulties.

In simple terms because of the possibility of the assets being attached of a customer with which a company or the business of an individual deals with, as also as a result of the financial system exclusions emanating from proceedings under the PMLA, the risk of a reputational loss arising from non-compliance of a provision increases many fold.

Thus to conclude with the two arguments just-made, through an automatic trigger under the PMLA from proceeds related to CA infringements, the reputational risk associated with nonadherence to the CA increases.

Compliance improvements

The second benefit emanates from, and has as its underlying base, an unconventional interpretation to ‘compliance of CA’. Generally, compliance with CA would be associated with the public respecting the copyright of an individual, and not infringing it. However, the manner in which compliance is understood for the present analysis is an increased reporting for infringement of CA and a dis-interest in dealing with the proceeds relating to it. Thus the broad argument is — there is an increased compliance with the CA as a result of there being better reporting of the infringement of CA and a dis-interest in dealing the proceeds emanating from a violation of CA because of possible legal consequences.

To briefly substantiate upon the perspective on compliance, the compliance to a particular statute may be dependent upon a wide variety of factors; one of them, logically, may be seen to be derived from the impression that a CA violater has of getting caught by the enforcement authorities.^[12] The improved reporting of CA violations thus contributes to the impression in the minds of possible CA violators of actions being taken against them.

Firstly, on the issue of reporting, there does not exist a direct link between the violation of the CA and the ultimate reporting of that particular act. The relation is indirect but important. The obligation under PMLA is not to report the CA violation, but to report proceeds relating to the “scheduled offence”[13] which then in turn includes CA violations.

There are two distinct ways in which proceeds may be related to a violation of CA—first, the proceeds that get involved in the commission of the CA violation are “proceeds of crime”, thus the funds utilised by an individual or corporation if kept in the formalised system, and are come across by a reporting entity ought to be reported by them to the enforcement authorities; second, the usufruct generated from the violation of the CA ought to be reported.

The first case relates to funds used for the actual commision of the CA violation, while the second relates to the fruits derived from the act. In one part, therefore, there is an increase in reporting of the funds and transactions that are aimed towards the commission of a CA violation; in the other it is of what is derived from the violation.

Secondly, the issue of potential disinterest in proceeds emanating from a violation of CA and the ultimate effect of increased compliance has two parts—first, in part borrows from the reporting analysis above, the scrutiny being subjected on the proceeds derived from CA as opposed to the violation itself, results into persons who interact with proceeds coming under the web of the enforcement authorities.

Thus their interaction with the reporting entities which previously went hitherto operated in a smooth fashion, faces obstacles. Second, the substantive criminalising provision of the PMLA gets attracted not merely when a person or corporation who has violated the CA operates upon the proceeds, but also when parties unconnected with the actual commission of the CA violation, engage with the proceeds in a particular manner. Thus the criminalising provision disincentivises acts done upon funds related to the infringement of CA, severed from the act of violating the CA itself. The conclusion to this part of the analysis then is—through the increased reporting of the proceeds emanating from the violation of CA and the resulting increased scrutiny, as also the substantive criminalising provision operating upon operation on proceeds from CA in simpliciter, there is increased compliance with the CA.

Legal complications

After having delved into the benefits of the connection between the CA and the PMLA, this part of the paper shall deal with the legal complications arising from this connection.

Re-criminalising violation of CA

The courts have resisted claims of double jeopardy by claiming that the substantive criminalising provision requires an additional act of projection which is separate and novel in exclusion to the acts that constitute the predicate offence. Thus the underlying assumption of the court is—that the predicate offence can never contain as its intrinsic ingredients the act of projecting as untained that what is tainted. However, in the context of the CA, the justmentioned assumption might be falsified.

The criminalising provision after the amendment of 2019,^[14] inserted an explanation which has been interpretted^[15] as containing within the original provision what had been added through the explanation. A critique of the same is outside the scope of the present paper, however, there are two acts that were made criminal by the amendment which are relevant to the present discussion, them being—possession^[16] and acquisition¹⁷. Thus the just-mentioned two acts when done in relation to the proceeds emanating from a CA violation are offences under PMLA.

The offence under CA, which is part of the schedule^[17] to the PMLA, include S. 63 of CA. This provision then criminalises the intentional infringement of copyright. The proviso to the section creates a distinction between cases where infringement was caused for gain and those where it lacked such an intention. A bare perusal of the language of the section reveals that the offence in the ordinary course includes the gain from the violation of the copyright. The proviso which notably was inserted through an amendment,^[18] then creates a carve out for cases where the gain was absent and provides a different punishment for the same. Thus one of the essential ingredients of the offence, which in turn determines the nature of punishment that shall be imposed, is the determination of gain. Another aspect relating to the proviso, is the treatment that it receives in law, the proviso in statutes has been interpretted as an excepting tool. The exception then cannot surpass the coverage of the main section.

The natural conclusion then is that the cases falling within the main provision are more than those under covered by the proviso/exception. Thus gain is not merely an important ingredient of the offence, it is also the more happening under the offence. Separate from CA, the presumption contained under PMLA of there being the existence of proceeds when a predicate offence, in this case a violation of CA occurs further bolsters the claim of gain itself being part of facts that are separate from what needs to be proved by the authorities under the PMLA to constitute an offence of moneylaundering.

The factum of gain being a natural and essential part of the violation of S. 63 of the CA, the subsequent issue that deserves examination is—are there any acts/omissions that an individual needs to do separate from the act of violating S. 63 of the CA in order to attract the rigour of S. 3 of the PMLA. The answer lies in the negative. The two acts that had been selected from the explanation to S. 3 above, were—acquisition and possession.

To elaborate further, any of the two just-mentioned acts when done in relation to “proceeds of crime” i.e., upon the proceeds emanating from the violation of S. 63 of the CA, constitute an offence of money-laundering. It is then possible to simply transpose the word “gain” upon “proceeds of crime”. This is the case because—firstly, proceeds in simple terms constitute gain; but secondly and more substantively, the definition of “proceeds of crime” under S. 2(1)(u) of the PMLA is broad enough to include gains of most if not all kinds and certainly non-monetary gains. Thus post the transposition, the offence of money-laundering under S. 3 of the PMLA now may be read as constituting the acquisition and possession of gains emanating from a violation of S. 63 of  the CA. Reading the just-mentioned interpretation of S. 3 in light of “gain” itself constituting an ingredient of the offence under S. 63 of the CA; the ultimate offence of money-laundering, in order for it to have any separate character of its own, requires acquisition or possession to be interpretted as excluding the act of gaining from a violation of copyright. It is then impractible, if not impossible, to imagine a situation (which the interpretation forces) where a violater of the CA might have gained from the infringement of copyright but would not have acquirred or possessed the gain. In most cases gaining would mean acquiring or possessing the gain, thus making S. 3 re-criminalise that which has already been treated as an offence under the CA, further raising issues of double jeopardy.

Automatic triggering of civil and criminal proceedings

The subsequent issue which then arises as a result of the connection between the PMLA and the CA is the automatic and simultaneous triggering of civil and criminal actions under the PMLA for a violation of CA, which otherwise would have allowed the owner of the copyright to choose the path best suited for its interests.

The remedies for the infringement of copyright, which are available with the copyright owner are broadly civil^[19] and criminal. The criminal include, inter alia, those mentioned under S. 63, 63A, 63B, and 64 of the CA. The civil remedies then include injunctions which aim at causing the copyright violater to ceise its infringing act; suit for account of profits which pray for the profits which the violator of the copyright had begotten to get trasferred to the owner of the copyright, compensatory suits and suits for damages^[20] which aim at seeking from the violator of the copyright the loss incurred by the owner, as also punitive monetary punishments for the act itself.

It is noteworthy to mention that both these proceedings are made through the framework of the CA, optionally simultaneous i.e., the owner of the copyright is free to intitiate civil and criminal actions, but any one of them shall not result into an automatic initiation of the other. There is thus room and scope that the legislation provides for a certain degree of negotiation to take place between the infringer of the copyright and the owner of it.

In practical terms, the owner of a copyright in lieu of foregoing criminal proceedings may seek a settlement of the civil suit and the infringer may thus be more willing to resolve a particular dispute. Though the offence under S. 63 of the CA is non-compoundable, the courts have allowed quashing of complaints where a settlement has been reached between parties. This has fundamentally been as a result of the origins of S. 63 of the CA being private and contractual.^[21]

With the connection of PMLA and CA being made, once a prosecution begins under S. 63 of the CA, and actions are intitiated under the PMLA, the civil and criminal proceedings shall concomitantly proceed without there being any involvement of the owner of the copyright or them making any determination relating to the same.

The essential facet of proceeds of crime, which as the discussion above had revealed, in the context of CA is “gain” which naturally occurs from the offence of S. 63, then give rise to actions under S. 5 them ultimately culminating into the copyright property, or its value being confiscated; as also S. 3 where criminal punishment is provided to the violator.

Whereas a violation of S. 63 of the CA though non-compoundable has been allowed to achieve the results of compounding, the manner  in which the offence of money-laundering is interpretted by the courts, there does not seem a possibility of a prosecution being foregone because of private agreement between parties.

The copyright owner is then deprived of the opportunity of using the the choice of remedies provided for under the CA as a means of achieving favourable dispute resolution. On a broader level, the connection between the PMLA and the CA, in effect deprives the owner of the copyright a framwork envisaged by the CA, specialised for intellectual property disputes.

Redundancy of confiscatory attachments

The last legal complication stems from the confiscatory attachments under the PMLA making redundant—marivera injuctions which may be granted during the course of a civil suit under the CA; and S. 64 of the CA.

Firstly, the PMLA and its attachment and confiscatory proceedings disregard the intention of marivera injuctions, which are essentially granted to the plaintiff and operate upon certain specified or unspecified assets of the defendant, and restrain them from disposing off or alineating their assets in a manner detrimental to the possible satisfaction of the plaintiff’s claim.[22]

Thus in a civil claim filed by the plaintiff alleging infringement under the CA, the marivera injunction serves an important purpose, and delienates the role of the assets of the defendant in the event the plaintiff succeeds, it being satisfaction of the claim. This role that the asset of the defendant plays is different under the PMLA, where the assets of the person who has violated the copyright are to be attached so as to be ultimately confiscated in the name of the central government. Thus the assets of the defendant are then used not for the purpose of satisfying the claim of the plaintiff but for satisfying the right of the state over them by virtue of them being proceeds of crime.

A corrolory issue that stems is whether a deprivation of a defendant as a result of confiscation under PMLA, would disinherit or disallow the plaintiff from satisfying the claim and the situation that arises vice-versa. Though there is a no judicial pronouncement to this effect, but it seems legally sound to assume that the purported cause of action under the PMLA and for the civil suit being different, the confiscation of defendant’s property under PMLA would not prevent the other assets of the defendant being used to satisfy the plaintiff’s claim.

With the reversed factual scenario, there is a higher degree of certainty in the claim that merely because certain assets have been used in a civil suit to satisfy the claim of the plaintiff, the confiscation and attachment under PMLA shall not ceise. The rationale lies under the definition of proceeds of crime, and the conversion in the nature of property falling under the web of attachment once the existing property has been used to satisfy a decree.

The property which previously was the tainted property and thus was covered under the defintion of proceeds of crime, now shall extend to the the untainted property as being treated as the value of the equivalent of property. What remains common in both the factual scenarios above is the defendant or infringer of the CA being deprived of their property twice thus making the confiscatory and attachment proceedings redundant.

The second issue arises with respect to S. 64 of the CA, wherein an officer may seize infringing copies and may restore the same to the interested party (including the owner of the copyright). In effect, the CA has allowed the copyright owner to utilise the criminal law machinery to attain the results which would have been gotten through the civil remedies. S. 64 essentially plays a restorative role, where the infringed copies may return to the owner of the copyright.

On account of the analysis provided above, the PMLA through attaching and subsequently confiscating the tainted property i.e., the infringing copies and vesting it with the central government, undermines the right of the copyright owner to make a claim to the same.

Thus the conclusion for this part of the paper is—by virtue of the PMLA recriminalising an act which has already been criminalised by the CA; through depriving the copyright owner of their otherwise existing statutory right of opting between remedies as also making mareva injunctions, S. 64 of the CA, and the confiscatory and attachment proceedings redundant, the fundamental set up of the CA has been altered.

Suppremacy of laws

Before delving into the conclusion of the present paper, it is important to note the issue revolving around the question of suppremacy, it being, which law shall supersede in the conflict that been discussed above. The issue is important so as to provide a firm grounding to the conclusion that the PMLA will disturb the functioning of the CA as on individual conflicts the PMLA shall be given way to. While there have been issue-based reasons provided in the present paper, there also exist sound reasons for the law wanting to treat PMLA as superseding CA.

The trite law for resolving the conflict of laws is that that which comes later prevails as the legislature is imputed with the wisdom of being aware of the existence of the earlier law. This being the case, the PMLA being a subsequent enactment shall prevail over CA.

Conclusion

The present paper has demonstrated that while the framework of PMLA does lend, and improve the funtioning of, the CA—by causing increased reputational risk and compliance improvements; the legal issues that arise as a result of the connection between the CA and PMLA cause serious concern. The recriminalising of that which has already been criminalised by the CA, depriving the copyright owner of their otherwise existing statutory right of opting between remedies as also making mareva injunctions, S. 64 of the CA, and the confiscatory and attachment proceedings redundant leads to the conclusion that in the link between CA and PMLA is a misconnection.

While it is important to re-emphasise that the abovementioned remains a theoritical exercise, it provides important guidance relating to the manner in which the law can be interpretted in the future. The analysis above acting as prescient research on the joint framework of CA and PMLA, stresses upon a possible disturbance which could be caused in an important area of intellectual property laws in India because. Through expressly stressing upon the wholistic conflict between the CA and PMLA, and the likelihood of PMLA superseding CA. The solution may lie in an amendment in either of the statutes that excludes the operation of the other.

Author: Preeti, a third-year law student at National Law University Delhi , in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

[1] Act No. 15 of 2003.

[2] Id., para. 20 of Schedule A.

[3] For a detailed division of money-laudering statutes see Millington & Sutherland Williams, ‘Proceeds of Crime’, 5th Ed., 2018, paras. 9.111–9.112, pp. 213–214.

[4] Ibid. (No. 1), Section 3.

[5] Ibid. (No. 1), Section 5 and Section 8.

[6] WLC’s Guide to the PMLA and Proceeds of Crime, 1st Ed., 2022, Editors Critiques and Comments, p. xxix.

[7] Ibid. (No. 1), Section 2(1)(u).

[8] Id.

[9] Ibid. (No. 1), Section 2(1)(y).

[10] Oral hearing of Vijay Madanlal Choudhary v. U.O.I, 2022 SCC OnLine SC 929, per Sr. Adv. Maneka Guruswamy, narrated by The Leaflet, 17 February, 2022, accessible at <https://theleaflet.in/the-process-hasbecome-a-punishment-unto-itself-under-pmla-counsel-tells-supreme-court/>.

[11] Ibid. (No. 6), pp. 284-286.

[12] It is for this reason that environment crimes are increasing due to their “low risk high reward” see Financial Action Task Force, ‘Report on Evironmental Crime’, July 2021, p. 3.

[13] Ibid. (No. 1), Section 12AA.

[14] Finance (No. 2) Act, 2019 (23 of 2019).

[15] Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929.

[16] Ibid. (No. 1), Section 3, Explanation (i)(b).

¹⁶ Id., Explanation (i)(c).

[17] Ibid., (No.2).  

[18] Act 38 of 1993, Section 21.

[19] Copyright Act, 1956, see Sections 55 and 62.

[20] See Microsoft Corp. v. Yogesh Papat & Anr., 118 (2005) DLT 580.

[21] See Shri Teilang v. Nongrum v. State of Meghalya & Anr., Crl Petn. No. 14 of 2020, dt. 16 November, 2020.

[22] Alka Chawla: Law of Copyright, 1^st Ed., 2013, Ch. XI.