Case Title:
Supreme Court Upholds Various Contested Provisions of PMLA
Date Of Order:
27 July 2022
Judges:
Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar
Parties:
Petitioner: VIJAY MADANLAL CHOUDHARY & ORS.
Respondent: Union Of India & Ors.
Subject
The Supreme Court on July 27 upheld the core amendments made to the Prevention of Money Laundering Act (PMLA), which grants the government and the Enforcement Directorate (ED) virtually unrestricted powers of summons, arrest, and raids; makes bail virtually impossible; and shifts the burden of proof of innocence from the prosecution to the accused.
Important Provisions
1. PMLA
A. Sections 5
B. Sections 8(4)
C. Sections 15
D. Sections 17
E. Sections 19
F. Section 44 (1)(d)
G. Section 3
H. Articles 20 and 21
I. Sections 18
J. Section 2(1)(u)
Brief Facts
- The apex court described the PMLA as a statute against the "scourge of Money launderingand not a tool used to smear dissenters and rival politicians.
- More than 240 petitions were submitted in opposition to the modifications, which the petitioners argued violated the constitution's mission, legal process, and individual liberties.
- According to the court, Section 45 of the PMLA, which addresses offences that are both cognizable and non-bailable and have two requirements for release on bail, is reasonable and does not suffer from the vice of arbitrariness or unreasonableness.
- It asserted the constitutional validity of Section 5 of the Act, which deals with the attachment of property used in money laundering.
Questions Raised
- About the absence of a system to conduct investigations and summon people
- About no provision for sharing the ECIR with the accused
- About how there was no protection or measures for safeguard provided by the magistrate.
- Concerning the Twin Bail conditions without Protections.
- Concerning situations where even if Section 19 arrest is not made, the twin condition is still in effect.
- About how the punishment and twin bail requirements are not proportionate
- About how under PMLA, the only offence is to "legitimise the proceeds of crime."
- Concerning how the ECIR registered based only on the predicate offence without supporting proof that the proceeds of crime were justified.
- Concerning how the statements of the accused is utilised in proceedings of the underlying offence and was acceptable under Section 50 of the PMLA.
- About how Articles 20(3) and 21 are broken by summoning suspects and obtaining their statements under Section 50 of the PMLA.
- About how investigation under the PMLA is only allowed if the primary offence has been established.
- Concerning how money laundering is not a crime committed on its own.
- Concerning how the penalties for money laundering cannot be harsher than the penalties for producing criminal proceeds.
- About how the PMLA has strayed from its basic objective of controlling the proceeds of illegal drug trafficking.
- Concerning the endless list of scheduled offences
- About how a money bill had now been used to amend the PMLA.
- Concerning the police officers who are also officers of ED
- About the Explanation under Section 5 of the PMLA and how it is broad enough to cover even genuine property buyers.
- On how Section 24 of the PMLA flips the burden of proof and violates Articles 20 and 21.
- There aren't any checks and balances in the search and seizure process.
- At the threshold, taking control of the attached property
Arguments Advanced by The Appellant
- The appellant emphasised that after conducting 1700 raids and 1569 targeted investigations since 2011, ED personnel had only managed to win 9 convictions.
- The absence of employees at the PMLA Appellate Tribunal was also brought to the Bench's attention.
- The appellant also mentioned how only one of the committee's five members was still in office as of February 16, 2022.
- It was claimed that the Appellate Tribunal's alleged dysfunction seriously impedes efforts to obtain redress for unlawful attachments made by ED officers.
- It was further pointed out by the appellant that the lack of a procedure for starting an investigation and summoning people was one of the biggest problems, this was according to a claim, the PMLA's design precludes the use of its provisions.
- It was also pointed out that the Lack of a requirement for ED personnel to disclose the Enforcement Case Information Report with the accused means that they are unable to inform them of the grounds for their arrest.
- The appellant also argued that the Magistrate was unaware of why the accused was detained upon taking cognizance under Section 157 of the Criminal Procedure Code.
- The twin bail requirement listed in Section 45, which encourages preventative detention without the usual protections which was blatantly in violation of Article 21, was another important issue that needed to be addressed.
- The appellant mentioned that the Court had to be inferentially convinced that the accused is innocent in order for the accused to be granted bail under the PMLA.
- However, the appellant further explained, neither at the pre-complaint stage nor at the post-complaint stage did the accused have enough evidence to prove their innocence.
- The appellant continued by pointing out how frequently arrests were made when the accused was called before ED officials without adhering to the procedure outlined in Section 19 of the PMLA. This circumstance included the power to arrest. The accused must pass the twin test even if they are arrested.
- The appellant further claimed that it fails the proportionality test because, despite the fact that the maximum period of punishment (7 years) suggests that the offence is not serious, the bar for obtaining bail is too high.
- It was further mentioned that the PMLA does not criminalise the generation of "proceeds of crime" from the predicate offence. Even hiding "proceeds of crime" would not count as money laundering in and of itself. The only offence that carries a penalty is legitimising the corrupted money.
- The appellant argued about how the ECIR registered based only on the predicate offence without supporting proof that the proceeds of crime were justified
- The appellant further stated that the predicate offence was no longer under investigation by the local police after ECIR was registered based on it and how the ED personnel use their authority granted by Section 50 of the PMLA to record the accused's comments, which are then admissible as evidence under the PMLA. The predicate offence is then prosecuted using this statement as evidence, and both offences are tried concurrently.
- It is a clear constitutional infringement for ED agents to summon anyone under Section 50, record their statement, and force them to sign it without any protections.
- How prior to the subsequent changes, the PMLA only permitted power of provisional attachment, search, and seizure after a chargesheet had been filed. Therefore, an investigation shouldn't have start until the predicate crime had been tentatively proven.
- The appellant also pointed out that money laundering is an offence that cannot exist without a schedule offence. Section 44 (1)(d) PMLA's Explanation one conveys the idea that money laundering is a separate offence that can be committed on its own. It violates Section 3 of the PMLA and exhibits "manifest arbitrariness."
- The argument of how the consequences for money laundering is not more severe than the consequences for generating proceeds of crime was made by the appellant in light of the fact that in some instances, even though the predicate offences are bailable, when they fall under the purview of the PMLA, they are not only non-bailable but also subject to the twin bail conditions, which is in violation of Article 14.
- The appellant also mentioned how The UN General Assembly's passage of a resolution in 1998 to address the grave problem of drug money being used to support terrorism marks the beginning of PMLA however The PMLA is now being extended to include "everyday offences."
- The appellant further pointed out that the original list of scheduled offences was extended to the point where the majority of them had no longer a rational connection to PMLA’s objectives.
- The appellant also talked about The Finance Act, which was introduced as a Money Bill, was amended, showing a demonstrable use of authority. In the process, it has been handily dodged the Rajya Sabha's examination.
- Given that the PMLA is a penal act, the officers to whom it refers are police officers. Therefore, in accordance with the ruling of the Apex Court in Toofan Singh v. State of Tamil Nadu (CRIMINAL APPEAL NO.152 OF 2013), confessions made to these officers should be excluded from consideration as evidence.
- Additionally, the appellant claimed that the Explanation to Section 5 PMLA had expanded the scope of the provision to the point where attachments might now be authorised even against bona fide property buyers.
- The appellant further argued about how without sufficient safeguards, Section 24 presumes a violation of the PMLA.
- The appellant also pointed out that there aren't any checks and balances in the search and seizure process.
- the appellant finally argued about hoe all assets, including money and property, are attached as soon as an ECIR is registered, w without any legislative confirmation of the offence, possession of the attached property and may be taken under Section 8(4) PMLA. The appellant stated that result of the same is a permanent loss of possession up until the accused is found not guilty.
Arguments Advanced by the Respondent
- The respondent argued about how all assets, including money and property, are attached as soon as an ECIR is registered, without any legislative confirmation of the offence, possession of the attached property may be taken under Section 8(4) PMLA.
- The respondent stated that result of the same is a permanent loss of possession up until the accused is found not guilty.
- It was contended by the respondent that possession of criminal proceeds alone was sufficient to constitute a crime under the PMLA. The law's definition of an offence does not just refer to the projection of criminal proceeds as pure.
- The respondent pointed out that attachments made before the FIR or chargesheet is submitted have enough protection; in some circumstances, attachments can be made before the FIR or chargesheet is filed. However, ED officials are required to document the urgency in the attachment.
- The respondent further mentioned that the PMLA considers stronger protections than Cr.P.C. The PMLA is not dependent on the provisions of Cr.P.C. to be a full code. It was suggested that the PMLA contains more protections than the Cr.P.C. While under the Cr.P.C., arrests can be made based solely on suspicion, under the PMLA there must be evidence and a recording of satisfaction before any action can be taken, and only the Director or Deputy Director, not Police Sub-Inspectors (PSIs), are authorised to do so.
- The respondent further pointed out that the PMLA proceeding is not automatically terminated by acquittal in the predicate offence; rather, acquittal in the predicate offence would not terminate the PMLA proceeding. Acquittals for the predicate offence may occasionally be based on technicalities, in which case ending the PMLA procedures would not be just.
- He imposed two bail conditions while arguing in favour of the validity of Section 45 of the PMLA. It was claimed that the arbitrary linkage of the twin criteria with the predicate offence or portion of the predicate offence ("Part A of the Schedule"), which has since been abolished, was what made Nikesh Tarachand Shah v. Union of India and Anr. (2018) 11 SCC 1 unconstitutional. The argument used to deem the clause unlawful has been refuted, and the clause has been reinstated..
- The ASG representing ED stressed that "concealment and possession" is an ongoing offence on a crucial date for the PMLA. The date on which it is discovered would be significant if the "proceeds of the crime" were acquired before the offence was designated as a scheduled offence but the "concealment and possession" were discovered after it was classified as a scheduled offence.
- The respondent further stated that when it is impossible to divide the property, the entire property may be attached; however, the portion paid for with legal funds may be used for other things, such as a mortgage. This applies to properties bought with both proceeds from crime and lawful funds.
- The respondent finally argued that the Constitution is not violated by Section 50 of the PMLA since it does not contravene Article 20(3). When it comes to the problem of admissibility, neither Section 25 of the Indian Evidence Act (confession to a police officer not to be proved) nor Section 162 Cr.P.C. (statements to police not to be signed) apply to Section 50.
Analysis by the Court
The bench held that the ED could not prosecute anyone based on a hypothetical charge or the supposition that a scheduled offence had been committed unless the charge had been reported to the jurisdictional police and/or was the subject of an ongoing investigation or trial, including by way of a criminal complaint before the appropriate forum.
The bench made it plain that upon receiving such information, the jurisdictional police would be required to file a first information report (or "FIR"), depending on whether the information relates to a crime that is punishable by law or not.
The property collected by the authorised officer would only take on the characteristics of profits of crime under Section 2(1)(u) of the PMLA if the offence thus reported is a scheduled offence.
Therefore, if a person is finally cleared of the scheduled offence or the criminal case against them is dismissed by a court with sufficient jurisdiction, neither they nor anyone claiming that the property in question was linked to the offence through them could be charged with money laundering.
Conclusion
The provisions of Sections 5, 8, (4), 15, 17, and 19 of the PMLA, which deal with the powers of ED's arrest, attachment, search, and seizure, were upheld by the Supreme Court as being constitutional.
The Court ruled that Section 24 of the Act's reverse burden of proof is valid and that it has a "reasonable relationship" with the Act's goals.
The Court also affirmed the "twin-conditions" for bail in Section 45 of the PMLA Act and declared that Parliament was still authorised to change the provision in 2018 despite the ruling in the Nikesh Tharachand Shah case by the Supreme Court (which had struck down the twin conditions).
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