Challenges To The Constitutionality Of PMLA

Coverage of this Article

KEY TAKEAWAYS

-PMLA which came into force in 2005 was enacted to prevent money laundering and to provide for confiscation of property derived from money laundering.

INTRODUCTION

-Money laundering is the processing of the criminal proceeds, which generate profit for the individual or group, to disguise the illegal origin of the monetary profits.

PREVENTION OF MONEY LAUNDERING ACT

-PMLA, 2002 came into effect on 1st July 2005. It was further amended in years- 2009, 2013 and 2015.The purpose of the PMLA, according to the preamble, is to prevent money laundering and to provide for the confiscation of property derived from or involved in money laundering in order to punish the perpetrators of the crime. 

IMPORTANT PROVISIONS:

-Section 8- Outlines adjudication following a provisional attachment under section 5(1) and a complaint under section 5(5).

B. Rama Raju v. Union Of India, 2011 SCC Online AP 152

In the case the petitioner had appeared before the Adjudicating Authority who had passed an order affirming the petitioners' property attachment. Before the HC of Telangana provisions of PMLA such as Sections 5(1), 8(1), 8(2), 8(3), 8(4), 23 and 24 were challenged.Section 2(u) had outlined an expansive definition of “proceeds of crime” which was said to have inflicted gross and unreasonable consequences on innocent persons as it infringed Articles 14, 20, 21 and 300 – A of the Constitution.

Gorav Kathuria vs Union Of India 2016

-The Petitioner had alleged that offence under section 132 of the Customs Act 1962 fell within the ambit of Scheduled Offence specified in Part B of the Schedule would attract offence under section 3 of PMLA and would be punishable under Section 4 of the Act.

Nikesh Tarachand Shah vs. Union of India (UOI) and Ors. (23.11.2017 - SC): MANU/SC/1480/2017

-The constitutional validity of Section 45 of PMLA was challenged in the appeal. Section 45 of PMLA had imposed two conditions for granting bail for offence under Part A of the Schedule to the PMLA which were that when the Public Prosecutor was given an opportunity to oppose the bail application, the Court reasonably believed that:

Srs Mining vs Union Of India & Ors. 2018

-The writ petition filed under Article 226 of the Constitution of India challenged the second proviso to Section 5 (1) of PMLA on the ground that it was ultra vires Article 14 of the Constitution of India.

Sri Sumit Roy vs The Union Of India & Ors 2021

-The petitioner was listed under Supplementary list placed after recess after the notice given toAdditional Solicitor General of West Bengal. He had challenged the constitutional validity of Section 50(2), (3) and (4) of PMLA which were read with Section 24, 63 and 66 of the Act as the ultra vires of the Constitution of India. The PMLA was challenged so as to quash and to set aside the summons issued against the petition under Section 50(2) of PMLA.

CONCLUSION

-Over the time, there have been many proceedings against the PMLA challenging it on the grounds that it is ultra vires to the fundamental rights incorporated in the Part III of the Constitution. Most of them were dismissed except the Nikesh Tarachand Shah vs. Union of India.

KEY TAKEAWAYS

• PMLA which came into force in 2005 was enacted to prevent money laundering and to provide for confiscation of property derived from money laundering.
• The provisions of PMLA were challenged on the grounds of their vagueness and ambiguity, however there were good reason / legislation intent / sufficient safeguards for which they stood constitutionally valid.
• The Section 45 of PMLA held to be unconstitutional by the Supreme Court as it was noted to be infringing the Article 14 and 12 of the Constitution.
• The Vijay Madanlal Choudhary vs Union of India which is a proceeding challenging the PMLA is being currently adjudicated by the Supreme Court.

INTRODUCTION

Money laundering is the processing of the criminal proceeds, which generate profit for the individual or group, to disguise the illegal origin of the monetary profits. In the past, the economic interest of the country was affected a lot by large scale money laundering. Menace of money laundering even had international ramifications. The Political Declaration and Global Programme of Action, which have been annexed to the resolutions adopted by the United Nations General Assembly on February 23, 1990, and the Political Declaration adopted by the Special Session of the United Nations General Assembly in June 1998, both called on Member States to enact national anti-money-laundering legislation and programs.

The Prevention of Money Laundering Act was enacted to prevent money laundering and to provide for confiscation of property derived from money laundering. Presently, Vijay Madanlal Choudhary vs Union of India is sub judice before Supreme Court of India where the various provisionsof PMLA are being interpreted.

PREVENTION OF MONEY LAUNDERING ACT

PMLA, 2002 came into effect on 1st July 2005. It was further amended in years- 2009, 2013 and 2015.The purpose of the PMLA, according to the preamble, is to prevent money laundering and to provide for the confiscation of property derived from or involved in money laundering in order to punish the perpetrators of the crime. The PMLA's statement of object and reasons emphasises the importance of taking effective measures to combat the threat of money laundering, which is no longer limited to any geopolitical boundary. The PMLA not only confers powers on authorities under the Act to take steps to combat money laundering, but it also imposes a duty on them to take effective steps.

IMPORTANT PROVISIONS:

• Section 2(y)(ii)- Defines the phrase “scheduled offence”.
• Section 2(u)- Provides definition of “proceeds of the crime”.
• Section 5 – Provides for Attachment of property involved in money-Laundering.
• Section 8- Outlines adjudication following a provisional attachment under section 5(1) and a complaint under section 5(5).
• Section 23- Presumption where inter-connected transactions has occurred is outlined
• Section 24- Outlines Burden of Proof
• Section 45- Offences under PMLA are cognizable and non-bailable
• Section 50- Outlines Adjudicating Authorities power relating to summons, production of documents and evidences
• Section 63- Punishment for false information and failure to provide information is specified
• Section 66- Outlines disclosure of information

B. Rama Raju v. Union Of India, 2011 SCC Online AP 152

In the case the petitioner had appeared before the Adjudicating Authority who had passed an order affirming the petitioners' property attachment. Before the HC of Telangana provisions of PMLA such as Sections 5(1), 8(1), 8(2), 8(3), 8(4), 23 and 24 were challenged.Section 2(u) had outlined an expansive definition of “proceeds of crime” which was said to have inflicted gross and unreasonable consequences on innocent persons as it infringed Articles 14, 20, 21 and 300 – A of the Constitution.

Section 5(1) of the Act was challenged on the ground that- the phrase “involved in money-laundering” was vague and ambiguous. The nature or degree of involvement within the ambit of the phrase was not evident. It was further not evident whether the liability was in regards with the property or only in respect of property belonging to a person charged with committing offense under the Act. The provision was alleged bereft of guidelines consistent and commensurate with the serious consequences those followed. The Scheme of adjudication that was laid down in section 8(1) to (3) was said to be vague, unfair, diffused and infringing article 14 of the Constitution.

The Court opined that the provisions of the act which had clearly and unambiguously enabled the initiation of proceedings for attachment and individual confiscation of property in possession of the person who was not an offender under PMLA did not violate the provisions of the Constitution including Article 14, 21 and 300- A and where operative proprio vigore.

The presumption under Section 23 of the Act was considered gross, unreasonable, excessively disproportionate and placed an irrational burden upon the accused thus violating Article 14 and 300-A. In M. Narsinga Rao v State of A.P. 2001, it was held that the presumption was just an inference of a certain fact drawn from other proved facts and was not the final conclusion drawn

Under Section 24 of PMLA, the burden of proof laid upon the accused was considered vague and contradictory . Section 102 of Indian Evidence Act 1872 stated that the burden of proof in a proceeding was upon the person who would fail if no evidence was presented from either side. The petition was therefore dismissed without any merit.

Gorav Kathuria vs Union Of India 2016

The Petitioner had alleged that offence under section 132 of the Customs Act 1962 fell within the ambit of Scheduled Offence specified in Part B of the Schedule would attract offence under section 3 of PMLA and would be punishable under Section 4 of the Act. The petitioner challenged the Section 2(y)(ii) of PMLA where after amendment the monetary threshold was enhanced from "Rs. 30 lakhs or more" to "Rs. one crore or more". He had further stated that the amendments to the Act which came into effect in 2015 were unconstitutional and Ultra vires and even contrary to the objectives of PMLA. Section 45(1) of PMLA imposed the limitation on the grant of bail and was considered erroneous.

The issue was not whether offences under PMLA are bailable or not. It was rather the twin conditions imposed vide Section 45(1) for granting bail in cases of PMLA. Section 71 of PMLA had outlined that the said limitations under Section 45(1) had an overriding effect over the provisions of bail in CrPC. The intention of the legislation was to put persons who committed any scheduled offence under Part A in a class distinct from those offenders who could be dealt with under the normal bail provisions CrPC. Thus, the offenders falling within this group were singled out for special treatment by enforcing stringent twin conditions as per Section 45(1) of PMLA. No question of any discriminatory treatment should arise as legislative intent was to create a reasonable intelligible differentia in the classification of offenders. In Organo Chemical Industries v. Union of India, it was stated that a legislation should not be mechanically interpreted from the words rather its intention must be found by reading it wholly.

The "Statement of Objects and Reasons" which was incorporated in Para 3(j) in the Prevention of Money-laundering (Amendment) Bill, 2011 had recorded that the only object of the amendment was to overcome the monetary threshold limit of Rs. 30 lakhs. The High Court of Punjab and Haryana had dismissed the writ petition holding the constitutional validity of PMLA.

Nikesh Tarachand Shah vs. Union of India (UOI) and Ors. (23.11.2017 - SC): MANU/SC/1480/2017

The constitutional validity of Section 45 of PMLA was challenged in the appeal. Section 45 of PMLA had imposed two conditions for granting bail for offence under Part A of the Schedule to the PMLA which were that when the Public Prosecutor was given an opportunity to oppose the bail application, the Court reasonably believed that:

a. The accused was not guilty of the offence and

b. The accused would most likely not commit the offence while they are on bail.

The said provision was manifested as arbitrary, discriminatory and violative of the Petitioner's fundamental rights Under Article 14 read with Article 21 of the Constitution. It had drastically turned on its head presumption of innocence which was fundamental to a person accused of any offence. In the Magna Carta, in Clause 39, provision for bail is provided. In Gudikanti Narasimhulu v. Public Prosecutor, 1978, it was held that the issue of bail related to liberty, justice, public safety and burden of the public treasury.

Leave was granted in the case and Section 45(1) of PMLA was declared unconstitutional as it violated Articles 14 and 21 of the Constitution of India. The cases where the bail had been denied by the Court under the twin condition of Section 45 of PMLA were to be set aside. The SC directed respective Courts to take up the cases at earliest and give fresh decision. The Court provided that decision noting that accused were languishing in jail and the non-granting of their bail involved their personal liberty.

Srs Mining vs Union Of India & Ors. 2018

The writ petition filed under Article 226 of the Constitution of India challenged the second proviso to Section 5 (1) of PMLA on the ground that it was ultra vires Article 14 of the Constitution of India. The Divisional Bench in the High Court of Delhi examined the constitutional validity of the second proviso to Section 5 (1) PMLA.The second proviso to Section 5 (1) PMLA was inserted by the amendment in 2015 which provided that the property of the accused should be attached under this section if Director or an officer above the rank of Deputy Director reasonably believed that the non-attachment of the property would likely frustrate the proceeding under PMLA.

The first proviso to Section 5(1), resisted the applicability of Section 5(1) to personas facing trial for scheduled offence and the second proviso dealt with any property of such person. The second proviso was consistent with Section 5(1) PMLA. It began with a non-obstante clause and was effectively made as a proviso to the first proviso. It was intended to have an overriding effect on the first proviso. There was a good reason for the introduction of the second proviso to Section 5(1) PMLA and it also covers any person in possession of any proceeds of crime.

A mere possibility of abuse, however, would not be a ground to strike down the provision considering it Ultra vires Article 14 of the Constitution. In Sushil Kumar Sharma v. Union of India, it was held that a Court while examining the constitutional validity of a provision on the ground of possible abuse of the powers should satisfy that there were sufficient safeguards present in the sufficient safeguards. For the application of second proviso to Section 5(1) PMLA several conditions have to be satisfied and further judicial review was an available safeguard. Therefore, the Court was not satisfied that the second proviso to Section 5(1) of the PMLA was unconstitutional.

Sri Sumit Roy vs The Union Of India & Ors 2021

The petitioner was listed under Supplementary list placed after recess after the notice given toAdditional Solicitor General of West Bengal. He had challenged the constitutional validity of Section 50(2), (3) and (4) of PMLA which were read with Section 24, 63 and 66 of the Act as the ultra vires of the Constitution of India. The PMLA was challenged so as to quash and to set aside the summons issued against the petition under Section 50(2) of PMLA.

In the State of Uttar Pradesh v. Kartar Singh, the Apex Court had held that when a party sought to impeach the validity of an Enactment, the burden of proof is passed upon the pleader. In Pathumma & Ors. v. State of Kerala & Ors., a seven-Judge Bench of the SC had held that when it was evident that a Statute violated the rights of citizen conferred in Part III of the Constitution or the Act was beyond the legislative competence of the legislature, the Court could interfere. However, the it was the petitioner’s onus to prove the unconstitutionality of the statute.

The Supreme Court had noted that the petitioner was required to cooperate for the investigation conducted by the respondent Authority and he was not an accused according to the FIR. The petition was dismissed.

CONCLUSION

Over the time, there have been many proceedings against the PMLA challenging it on the grounds that it is ultra vires to the fundamental rights incorporated in the Part III of the Constitution. Most of them were dismissed except the Nikesh Tarachand Shah vs. Union of India. The case had challenged constitutional validity of Section 45 of PMLA and succeeded. The said provision was earlier challenged by the Gorav Kathuria vs Union Of India 2016.