Decoding the Challenges to the Prevention of Money-Laundering Act, 2002 Judgment: Vijay Madanlal Choudhary v Union of India

Introduction

The Supreme Court of India (Hon’ble Court) has upheld the constitutional validity of the Prevention of Money Laundering Act, 2002 (PMLA) in Vijay Mandanlal Choudhary v. Union of India by upholding all the stringent provisions of PMLA in proceeds of crime, search and seizure, power of arrest, attachment of properties, and bail, which were under challenge in the court.

The judgement has been pronounced by a bench of Justice AM Khanwilkar, Justice Dinesh Maheshwari and Justice C.T. Ravikumar.

Issues & Challenges

The question before the Hon’ble court was related to various aspects of the law. It also includes the wide powers given to the Enforcement Directorate (ED) for search, seizure and attachment, the reverse burden cast on the accused to prove innocence, the admissibility of statements made to ED as evidence, the stringent conditions for grant of bail and the impact of predicate offence and its outcome, on PMLA case.

Another major challenge, that filing PMLA charges on cases that occurred before 2002 (when PMLA came into existence) is unconstitutional, was also turned down. The Centre justified it by saying that money laundering is a continuing offence, and not a single act but a chain. Proceeds of crime could have been generated before 2002 but could have still been in possession or in use by the accused post-2002.

The contentions raised in the form of arguments were that unchecked power to arrest the accused without informing them of grounds of arrest or evidence is unconstitutional, the Enforcement Directorate (ED) recording incriminating statements from an accused during questioning under the threat of being fined for withholding information amounts to compulsion.

The contentions raised in the form of arguments were that putting the burden of proof on the accused violates fundamental rights like the right to equality and the right to life. The Centre, represented by Solicitor General Tushar Mehta, responded by saying that owing to the serious nature of the money laundering offences and the societal need to curb it, putting the burden of proof on the accused is justified.

That the judgement pronounced is for a batch of 241 petitions challenging the Constitutional validity of PMLA.

Court Held:

That the Hon’ble court held that question of enactment of PMLA Amendment 2019 (2019 AMENDMENT) as a money bill has to be decided by a larger bench of Seven Judges, the Hon’ble court was of the view that special investigation under section 2(1) of the act does not limit the investigation to the offences under the act and is interchangeable with the functions of the enquiry to be undertaken by the authority under the act.

The Hon’ble court upheld the validity of the following sections:

  • Sections 3 (definition of money laundering);
  • Section 5 (attachment of property);
  • Section 8(4) (taking possession of attached property);
  • Section 17 (search and seizure);
  • Section 18 (search of persons);
  • Section 19 (powers of arrest);
  • Section 24 (reverse burden of proof);
  • Section 44 (offences triable by special court); and
  • Section 45 (offences being cognizable and non-bailable).

The Hon’ble court further concluded that Enforcement Case Information Report (ECIR) under PMLA cannot be equated to a First Information Report (FIR):

  • The Hon’ble court also held that: –

“Supply of ECIR to accused is not mandatory and only disclosure of reasons during arrest is enough. Even the ED manual is not to be published since it is an internal document”

That the Hon’ble court rejected the arguments about the proportionality of punishment under PMLA with respect to scheduled offences as wholly “unfounded”

The counterargument upon the issue of proportionality of punishment was raised by the central government by stating that Money Laundering under Section 3 of PMLA is a standalone offence and a continuing offence, irrespective of the time at which the predicate offence is included in the schedule.

Conclusion

Regarding the PMLA and the ED’s actions, the judgement supported the status quo. It has drawn a lot of criticism since it upholds clauses that provide the state unrestricted authority to wield the statute as a weapon in a political vendetta. Currently, the judgement is being reviewed. The SC determined that the following two concerns should be given another look while still allowing the parties to provide a list of the topics they want to address during the review: 

In contrast to the prosecution proving guilt, it is the accused’s responsibility to prove that the property is untainted.

That an ECIR is an internal document of the ED, and a copy of the same is not required to be provided to the accused.

While the scope of the SC’s jurisdiction is narrow under the review proceedings, several other issues deserve re-examination. One could only hope that those challenging the PMLA,2002 do not have to embark on another decade-long journey.

Section 3 of PMLA

The offence of money laundering.

Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of the offence of money laundering.

Section 5 of PMLA

Attachment of property involved in money laundering.

(1) Where the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that

(a) any person is in possession of any proceeds of crime;

(b) such person has been charged with having committed a scheduled offence; and

(c) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to the confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding 9 [one hundred and fifty days] from the date of the order, in the manner provided in the Second Schedule to the Income-tax Act, 1961 (43 of 1961) and the Director or the other officer so authorised by him, as the case may be, shall be deemed to be an officer under sub-rule (e) of rule 1 of that Schedule.

Section 8 (4) of PMLA

Adjudication:
(4) Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the attached property.