Supreme Court’s PMLA Verdict Explained

Key takeaways

• PMLA or the Prevention of Money Laundering Act, 2002 is the primary legislation against money laundering in India.
• It was enacted by the NDA government, and it came into effect on July 1, 2005.
• Recently, the Supreme Court upheld the constitutional validity of certain amendments made to the Act which were challenged in over 200 petitions, under the case title  Vijay Madanlal Chaudhry vs Union of India.
• It gave extensive power to the Enforcement Directorate in investigating money laundering cases.
• It upheld the constitutionality of the amendment that redefined “money laundering”, thus increasing the ambit of the term.

Introduction

Money laundering is an alternate, illegal economic system that exists as a threat to economies around the world. It refers to the illegal conversion of unaccounted black money to white money by faking its origins to be legitimate. In India, it goes popularly by the name of “hawala” transactions. As of 2018, 884 Indian companies with assets of over 50 billion INR are on high alert for money laundering.

The PMLA or the Prevention of Money Laundering Act, 2002 is the most often used legislation in cases of illegal financial transactions. It was enacted by the NDA government, and it came into effect on July 1, 2005. The Act has often been criticised for being used as a tool by the ruling governments to silence political rivals. 

Recently, the Supreme Court issued a 545-page long judgment upholding the constitutional validity of certain amendments made to the Act which were challenged in over 200 petitions, under the case title Vijay Madanlal Chaudhry vs Union of India [2019 (5) TR 2572]. The Court in this judgment observed money laundering to be an “aggravated form of crime world over”. This article tries to explain this verdict by throwing some light upon the controversial amendments in question.

Definition of Money Laundering under PMLA

With the 2019 Amendments made to the Act, the definition of money laundering under Section 3 of the PMLA, 2002 has been redefined to increase its ambit. According to the new definition, it becomes an independent offense, which is chargeable on engagement in any procedure or activity using proceeds of crime that were acquired through criminal behavior connected to or associated with a scheduled offense. That is, it relates to the process or activity by which any illegal property is procured. The purpose of the law seems to be to prosecute and seize any proceeds of crime, no matter how unrelated. The ED would be able to take action against assets of equal worth that are located even outside of the country because of a significant proposed change in the concept of "proceeds of crime."

Consequences of Proceeds Greater Crime than Consequences of Generating the same

There is no way that the penalties for laundering criminal proceeds can be worse than the penalties for committing the crime in the first place. This argument was made in light of the fact that, although the predicate offenses in some circumstances are admissible to bail when they come under the purview of the PMLA, they are not only ineligible for bail but also subject to the dual bail conditions, which violates Article 14.

ECIR (Enforcement Case Information Report)

It is the Enforcement Directorate that conducts probes in cases that come under the PMLA. The ECIR is an inquiry report, which can be considered equivalent to the FIR that is an “internal document”, not accessible to the accused. In the recent judgment, the Supreme Court upheld the validity of this provision, despite challenges raised against it, of being in violation of the Fundamental Right to Life and Liberty guaranteed by the Constitution. It was contended that the right of an accused to know the charges levied against him, and to get a copy of the First Investigation Report should be abided to in cases under PMLA too. However, the Supreme Court held that the supply of ECIR to every person who is accused under the Act is not necessary, as it is an “internal document created by the department”. It was added that revealing a copy of the same would defeat its purpose and that informing the grounds of arrest, at the time of its taking place would be enough to establish compliance with Article 22. The Court also held thatthe ED does not “investigate” in the sense used in the CrPC and that its officers are not police officers. The bench headed by Justice A.M. Khanwilkar pointed out that while Section 154 of the CrPC, 1973 requires the officer in charge of a police station to record information relating to a cognizable offense, there is no such provision in the PNLA necessitating the registration of a money-laundering offense.

Twin Bail

Section 45 (1) of the PMLA deals with bail conditions in money laundering cases.These were contested to be arbitrary and stringent.This Section was struck down by the apex court itself as unconstitutional in Nikesh Tarachand Shah vs Union Of India [2018) 11 SCC 1]. Two requirements are imposed under Section 45 before a bail bond can be issued. The court must be satisfied that the prisoner was not guilty of such a crime and that he would not conduct any crimes while on release. Additionally, the prosecution must have the opportunity to oppose any motion for bail. On upholding the constitutional validity of these conditions, the Court in its recent judgment remarked that there are other legislations too that demand the same conditions. The Supreme Court decision in Kartar Singh v. State of Punjab [(1994) 3 SCC 569], affirmed the TADA's twin criteria was upheld. Additionally, it disagreed with the conclusions drawn in Nikesh Tarachand Shah v. Union of India [(2018) 11 SCC 1 ], which found that the observations made regarding the "heinous aspect" of the Kartar Singh verdicts did not apply to PMLA offenses. It decided that Section 45(1) must pass the test of fairness, reasonableness, and linkage with the goals and objects after concluding that moneylaundering is one of the most serious crimes. This makes getting bail under PMLA very difficult, as the Court has to be convinced that the grounds are reasonable, which means only if the accused is proven not to have committed the crime he is arrested for. This lies the “burden of proof” on the accused, similar to TADA. 

Admissibility of Confessional Statements

Sections 24-26 of the Indian Evidence Act and Sections 161-162 of CrPC hold that any statement given to a police officer during an investigation cannot be held against the accused in the trial. However, under PMLA, the ED can do so. Under Section 50 of the PML Act, the investigating officer has the authority to demand information from the accused and the witnesses and obliges the persons called for, to give true and correct information. Their statements are recorded under oath. This means that, if the person gives a false statement, he could be held liable under sections 197 and 228 of IPC. If he improves his testimony in the course of the trial then he would also be held liable for perjury.

The predicated offense is no longer under investigation by the local police after ECIR is registered based on it. Using their authority under Section 50, ED officials can take the accused's statements, which are then admissible as evidence. The predicated offense is then charged for, using it as evidence, and both are tried simultaneously.

It is a  breach of the Constitutional rights, for ED officers to have the authority granted to them by Section 50 of the PMLA to summon anyone, record their statement, and require them to sign it. To be precise, it cannot be used as evidence against an accused person to deny them bail because they have a constitutional right to remain silent.

Attachment of Property

On confiscating illegal property, the ED has the power to “attach the property” under Section 5 of the PMLA and to confiscate the same by the Government under Section 9. This is done in order to deprive the accused of any advantages that might accrue while he or she had the property as an asset. The accused is not permitted on the property until the legal proceeding is finished and he has been cleared of all allegations. The accused may, however, request access to the property by filing a claim in the High courts or tribunals, according to the legislation. Regarding this, it was clarified by the Court that when a provisional attachment order passed under Section 5(1) is confirmed, it does not mean that the property stands confiscated until a formal order of confiscation is passed. Thus the Bench held that this provision was not unconstitutional. 

These are the main amendments that faced challenges in the petitions filed. Regarding the 2019 Amendments being brought about in Rajya Sabha in the form of a Money Bill, and the same amounting to colourable legislation, the Court has referred the matter to a seven-judge bench for review.  Other Sections that were brought under question were Section 17, which gave permission to the ED to enter any property in the guise of search, even without judicial permission beforehand.  

Conclusion

There are several opinions being raised in an aftermath of this landmark judgment. The most prominent among them is the excessive power given to the ED. Reforms should recognize the necessity of better control of the ED and all other agencies carrying out investigative duties. If that occurs, this period of misuse of government entities like the ED may yet prove to be a moment of learning that would result in better transparency in money laundering cases.