The Supreme Court on 27th July 2022, in the case of Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. SLP (CRL) 4634 of 2014 upheld the constitutional validity of specific provisions of the Prevention of Money Laundering Act, 2002 (“PMLA”) relating to powers of the Enforcement Directorate (“ED”) under Sections 5, 8(4), 15, 17, and 19 and the ‘twin-conditions’ for bail under Section 45 of the PMLA.
A bench of the Apex Court ruled on a batch of 242 petitions which challenged various provisions of the PMLA. The Apex Court noted that apart from the challenge to the constitutional validity and interpretation of provisions under the PMLA, special leave petitions were filed against various orders of High Courts/Subordinate Courts across the country, whereby prayer for grant of bail/quashing/discharge stood rejected. The bench, thus, without dealing with facts and issues in each case, confined itself to examining the challenge to the relevant provisions of the PMLA.
Specific observations with regard to powers of the ED:
- The Supreme Court noted that the ED officials under the PMLA are not Police Officers. Thus, the statements recorded by authorities under the PMLA, of persons involved in the commission of the offence of money-laundering or the witnesses for the purposes of inquiry/investigation, cannot be covered under Article 20(3) of the Constitution which guarantees the fundamental right against self-incrimination. The punishment of fine or arrest for giving false information cannot be construed as testimonial compulsion.
- Further, the Court found force in the stand taken by the ED that the Enforcement Case Information Report (“ECIR”) is an internal document created by the department before initiating penal action or prosecution against the person involved with process or activity connected with proceeds of crime. The ECIR cannot be equated to a First Information Report (“FIR”) as it is not a statutory document and is also not (under the PMLA) required to be recorded or furnished by the ED to the accused (unlike under Section 154 of the CrPC). While supplying of the ECIR is not mandatory, it would suffice if the ED contemporaneously disclosed the grounds of arrest to the person being arrested. The Court while dissecting the provisions regarding search and seizure under the PMLA found that there exist adequate inbuilt safeguards to keep a check on the ED and, therefore, the impugned provisions have a reasonable nexus with the objects and purposes of the PMLA.
- With respect to attachment of ‘untainted property’, the Apex Court rejected the argument that offence of money laundering under Section 3 of the PMLA would be attracted only if the property is “projected” as being untainted/clean, rather, the offence includes “every” process or activity indulged into by anyone, including projecting or claiming the property as untainted property to constitute an offence of money-laundering on its own. The court held that an offence under Section 3 is concerning the process or activity connected with such property in question, which constitutes offence of money-laundering. The property must qualify the definition of “proceeds of crime” under Section 2(1)(u) of the PMLA.
Upholding ‘twin-conditions’ for bail:
- Section 45 of the PMLA provides the following ‘twin conditions’ for bail:
- The Public Prosecutor has been given an opportunity to oppose the application for such release; and;
- Where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail
- It was argued by the Petitioners in the present case that the bail twin conditions were struck down by the Apex Court in Nikesh Tarachand Shah v. Union of India and Anr (2018) 11 SCC 1, on account of being violative of Article 14 and 21 of the Indian Constitution. In Nikesh Tarachand Shah, the Court inter alia reasoned that the bail twin conditions under Section 45 required that the Court apply its mind to determine whether an individual is guilty of a ‘scheduled offence’ (under Part A of the Schedule under the PMLA, prior to the 2018 amendment) which included offences from various statutes and was not limited to the offence of money laundering. Further, the Court in Nikesh Tarachand Shah also noted that the twin conditions reversed the presumption of innocence by requiring the Court to determine whether an individual is ‘not guilty’ of an offence. While the requirement under Section 45 of the PMLA was remedied by the 2018 amendment to be limited to the offence of money laundering only, the reversal of the presumption of innocence was not addressed under the 2018 Amendment.
- In the present case the Apex Court held that the ‘twin-conditions’ post the amendment of the PMLA in 2018 are reasonable and have direct nexus with the purposes and objects sought to be achieved by the PMLA to combat the menace of money-laundering having transnational consequences including impacting the financial systems and sovereignty and integrity of the countries.
- Additionally, the Apex Court also clarified that an anticipatory bail is nothing but a bail granted in anticipation of arrest and is ordinarily granted in exceptional cases where the accused has been falsely implicated in an offence with a view to harass and humiliate him. Therefore, the limitations imposed on granting bail under Section 45 of the PMLA would extend to anticipatory bail as well. The underlying principles of Section 45 and the requirement to fulfill the ‘twin-condition’ would get triggered in either case before the relief of bail is taken forward.
The object and purpose of the PMLA is to strengthen the mechanism of prevention and regulation of process or activity resulting in the commission of the offence of money laundering along with ensuring that the proceeds of crime are properly dealt with.
News reports indicate that the Supreme Court has issued notice in a petition to review the Vijay Madanlal Choudhary judgment. Certainly the judgment gives cause for concern in respect of the following, namely (i) the twin conditions for bail by which the onus to prove innocence shifts to the accused (ii) the grant of power in favour of the ED to institute money laundering investigations where there is no underlying predicate offence present and; (iii) the ability of the ED to take possession of provisionally attached property at the stage of confirmation of offence by the adjudicating authority leading to potential miscarriage of justice in case an accused was to be acquitted at a subsequent stage.
While money laundering is a significant challenge and a law to deal with such economic crimes is indeed necessary, conflating money laundering offences with terrorism increases the risk of a draconian misuse of the law. Accordingly, a balance needs to be struck between the imperative of the State with the Constitution and the fundamental rights guaranteed under the same.