In July 2022, the Indian Supreme Court ("SC") pronounced its judgment1 ("Judgment") in a batch of writ petitions challenging the various provisions of the statute, namely, the Prevention of Money Laundering Act, 2002 ("PMLA"). This article aims to summarise the history of PMLA, reasons for challenging the said statute, the decision of the SC, and its implications.
Historical Context
The history of the PMLA can be traced back to the later part of the 1980s, when an urgent need was felt among various nations to protect their financial systems from money-laundering. In 1990, the United Nations General Assembly2 called upon its member nations to develop mechanisms to prevent financial institutions from crumbling due to money-laundering, and to achieve the same by enacting laws in the respective countries. Eventually, in 1998, the United Nations in the 'Special Session on Countering World Drug Problem Together' passed a declaration on the need to combat money-laundering, to which India is a signatory.
India's international commitment to combat money-laundering forms the basis of the legislative intent behind the enactment of the PMLA which came into force on 01 July 2005. This is reflected in the statutes' preamble, and in the SC's interpretation of the provisions under PMLA in the Judgment.
Over the years since its inception, it was believed by individuals facing charges under the PMLA that certain provisions of the statute were arbitrary, disproportionate and violated the rights of accused persons guaranteed under the Indian Constitution.
A batch of matters ranging from special leave petitions, appeals, and writ petitions were filed before the SC over the past decade and a half. Various provisions of the PMLA, including the constitutional validity of some, were challenged. Some were borne out of orders passed by High Courts or subordinate courts rejecting applications for discharge, bail, quashing, etc. Without delving into the factual matrix of each case forming part of the batch of matters, the SC restricted itself to answering the questions of law challenging the provisions of the PMLA. The challenges to the provisions of the PMLA, and the decision of the SC are discussed below.
Key Takeaways from the SC Judgment
Does projecting proceeds of crime as untainted property amount to an offence under the PMLA when such projection is not coupled with concealment, possession, acquisition, or use of proceeds of crime?
It was held by the SC that 'projecting' or 'claiming' the proceeds of crime as untainted property is an independent act of indulging in money laundering and that it need not be coupled with concealment, possession, acquisition, or use of proceeds of crime. It was also clarified that to proceed against an individual alleged to have committed offences under the PMLA, a predicate offence, i.e., an offence based on which proceeds of crime were generated, must have been registered with the jurisdictional police or before the competent forum.
Could properties which are alleged to be proceeds of crime be attached, provisionally or otherwise, without registration of predicate offence?
The SC held that unlike criminal proceedings3, under the PMLA, registration of predicate offence is a prerequisite, for initiating action for provisional attachment of properties, registration of predicate offence is not mandatory. However, an action for provisional attachment of property can be initiated only on the basis of material in possession of the authorised officer indicative of a person being in possession of proceeds of crime. Only those properties which appear to be proceeds of crime could be attached, and not all properties belonging to an accused.
Attachment of a property, once confirmed, can continue to subsist for a period of 365 days, or during the period of pendency of criminal proceedings in or outside India. However, the statute is silent on what would be the status of a property attached provisionally, when a complaint seeking confirmation of attachment is not filed within 365 days.
Once a property is provisionally attached, the authority under the PMLA, i.e., the Enforcement Directorate ("ED") is required to file a complaint before the adjudicating authority seeking confirmation of attachment within 30 days from provisional attachment. Though the statute states that an order confirming attachment could subsist for 365 days, it further states that such order could subsist during the pendency of criminal trial. In view of the same, given that the ED is duty bound under the PMLA to file a complaint seeking confirmation of provisional attachment within 30 days, any doubts with respect to the consequence of failure to file the same within 365 days regard need not arise.
Is a person accused of money laundering liable to give up possession of property attached, provisionally or otherwise?
When an order for provisional attachment of a property passed under is confirmed, it is not confiscated until a specific order for confiscation is formally passed. Any direction for possession of property before a formal order of confiscation is passed merely based on confirmation of provisional attachment order is an exception and not a rule, and the same must be considered on a case-to-case basis.
The provisions for search and seizure of property and search of persons under PMLA are arbitrary and drastic, especially given that the ED is empowered to take action without registration of predicate offence.
It was held by the SC that the provisions under the PMLA for search and seizure of properties and search of persons have inbuilt safeguards, not only by mandating exercise of power only by high-ranking officials but also by requiring them to follow processes guaranteeing fairness, transparency, and accountability regarding the entire process of search and seizure. This is unlike the provision in the Code of Criminal Procedure, 1973 ("CrPC") whereunder any police officer can proceed merely based on allegation or suspicion of commission of a predicate offence. Further, the process of searches and seizures under the PMLA are not only for the purposes of inquiring into the offence of money laundering, but also for the purposes of prevention of money laundering.
The provisions pertaining to arrest under the PMLA are contrary to the corresponding provisions under CrPC and are therefore, arbitrary and unconstitutional.
It was held that the safeguards provided in the PMLA and the preconditions to be fulfilled by the ED before effecting arrest are equally stringent and of higher standard when compared to the CrPC. Merely because the provisions are not exactly like CrPC, the provisions for arrest do not become unconstitutional. The variations have reasonable nexus with the purpose sought to be achieved through the PMLA.
The burden of proof to show that the proceeds of crime are untainted lies on the persons alleged to have committed offence under the PMLA. This is contrary to the settled principle that an individual is innocent until proven guilty.
The provision relating to burden of proof in any proceeding relating to proceeds of crime under the PMLA apply to proceedings before both the Adjudicating Authority with respect to attachment of properties (which is civil in nature) and the criminal proceedings before the Special Courts. The legal presumption of guilt under the PMLA is about the fact that the proceeds of crime are involved in money laundering, which, however, can be rebutted by the person accused by producing evidence within his personal knowledge. Such legal presumption has reasonable nexus with the legislative intent of the PMLA.
When a predicate offence triable before a Magistrate is transferred to a Special Court (which is on par with a Sessions Court) dealing with the proceedings under PMLA, it takes away the right of one appeal or revision from an accused, especially for an individual who is an accused only in the predicate offence, and not under PMLA.
Agreeing with the concerns raised by the petitioners, the SC held that though PMLA permits Special Courts to proceed with the trial in respect of predicate offence, it may be oppressive to an accused who is not charged with the offence of money laundering, but only predicate offence. This would cause him to lose an opportunity of one appeal or revision be before a higher forum. However, the said issue does not require intervention of the SC, or for it to reconsider the constitutionality of the provisions of PMLA on Special Courts. The grievance, albeit genuine, ought to be dealt with directly before the Special Court in an application filed by the ED seeking transfer of trial of predicate offences to itself. Further, such applications must be considered by the Special Courts on a case-to-case basis.
The provisions for bail are unconstitutional given that accused must satisfy twin conditions which are contrary to the provisions of CrPC. Further, the twin conditions are arbitrary and unconstitutional.
At the time of seeking bail under the PMLA, the following two conditions are to be satisfied: (i) an accused must show that he/ she is prima facie not guilty of offence, and (ii) that there is no threat of commission of offence when enlarged on bail. The said conditions apply to anticipatory bails as well.
For (i) above, the Court is not required to record a positive finding that the accused had not committed an offence under the PMLA. The Court at this stage, is not required to appreciate the evidence meticulously but needs to only arrive at a finding based on broad probabilities.
The provision is reasonable and has direct nexus with the purposes and objects sought to be achieved by the PMLA and does not suffer from the vice of arbitrariness or unreasonableness.
Statements given to the ED, or production of documents in response to summons, etc. is admissible as evidence in criminal proceedings. Further, PMLA prescribes punishment for providing false information, or failure to give information, etc. to ED officers. This is unconstitutional and is contrary to the canon of criminal jurisprudence which protects accused persons from self-incrimination.
The processes followed pursuant to a summons are in the nature of 'inquiry', and not 'investigation'. A person being summoned is not an 'accused'. At the stage of issuance of summons, the person summoned cannot claim constitutional safeguards available to an 'accused' against self-incrimination. Further, the ED officers are not police officers. Therefore, statements recorded by them can be used in criminal proceedings as admissible evidence. However, if an individual's statement is recorded after a formal arrest by the ED, the constitutional safeguards against self-incrimination are available. This is so because, upon arrest, an induvial becomes an 'accused'.
Further, ED's power is analogous to power vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of summons, production of documents, taking evidence under oath, etc. Such wide powers have clear nexus with the purposes and objects sought to be achieved by PMLA, i.e., to curb money-laundering.
Initially, the scope of PMLA was limited to serious offences, such as terrorism, operations of drug syndicates, etc. Over the years, the list has expanded to include even offences which are non-cognizable, compoundable, or minor offences. This not only dilutes the purpose of PMLA, but also has become a tool to harass accused persons.
The SC held that prosecution under PMLA is not in relation to the nature of criminal activity/ predicate offence per se but is limited to property derived or obtained from specified criminal activity. Resultantly, the nature of criminal activity, whether serious or minor, cognizable or non-cognizable is irrelevant.
Enforcement Case Information Report (ECIR) which is a document prepared by the ED detailing the offences must be provided to an accused as a matter of right, similar to a first information report (FIR) under CrPC.
It was held by the SC that unlike an FIR, an ECIR is not a statutory document, nor there is any provision in the PMLA requiring the ED to record ECIR or to furnish copy thereof to the accused unlike the provisions relating to FIR in the CrPC. If at the time of arrest, the ED immediately discloses the grounds of such arrest to such person, it is enough.
The 'ED Manual' which details the internal processes followed by the ED must be made public to ensure transparency.
The ED Manual is an internal document for departmental use and is in the nature of a set of administrative orders. An accused or common public is not entitled to have access to such administrative instructions since the same is highly confidential and deals with complex issues concerning mode and manner of investigation, for internal guidance of officers of ED. However, through the Judgment, the SC urges the executive to outline and publish a document containing the processes under the PMLA which may be handy and disseminate information to all concerned.
Vacancies in the ED Appellate Tribunal which, inter alia, deals with challenges to attachment of properties, have stifled speedy disposal of cases. This has rendered the proceedings as meaningless and oppressive.
The grievance that there are vacancies in the Appellate Tribunal could not be the basis to test the validity of the provisions of PMLA or to question the efficacy of those provisions on that account. However, the SC, through the Judgment, impressed upon the executive to take necessary corrective measures in this regard.
Punishment for money-laundering prescribed under the PMLA is disproportionate compared to the punishment prescribed for predicate offences.
The punishment prescribed under the PMLA is independent of the nature of predicate offences, and the punishment is for the offence of money laundering, and not for commission of predicate offences.
Definition of 'investigation' under the PMLA
The SC clarified that the expression 'proceedings' in the definition of investigation includes actions of the ED, the Adjudicating Authority for trial of the attachment proceedings, and the Special Court for trial of the criminal proceedings. Further, the expression 'investigation' must be regarded as interchangeable with the function of 'inquiry' to be undertaken by the ED for submitting evidence before the Adjudicating Authority.
Definition of 'proceeds of crime' under PMLA
The property alleged to be 'proceeds of crime' must have nexus, be it direct or indirect, with the predicate offence. Consequently, the ED cannot act against any person on an assumption that the property recovered by them must be proceeds of crime and that a predicate offence has been committed, unless the same is registered. As a necessary corollary, in the event the person named in the scheduled offence is absolved by a Court by way of discharge, acquittal or quashing of the criminal case dealing with the predicate offence against him/ her, no proceedings will lie under the PMLA.
Amendments to the PMLA between 2015 and 2019 were carried out by way of money bills. Money bills are enacted without the assent of the Rajya Sabha. Amendments to the PMLA, not being a financial matter, ought to have followed the regular process of enactment, instead of following easier way out through money bills. This violates the bicameral structure of the Parliament.
The SC refrained from examining the validity of amendments brought about by the Parliament by taking recourse to money bills as the said issue is pending before a larger bench by virtue of the reference order in Rojer Mathew v. South Indian Bank and Others4.
Status Quo Upheld
The Judgment has upheld the status quo with respect to the PMLA and the actions of the ED. It has been widely criticised as it validates provisions which give the state unfettered powers to use the statute as a tool for political vendetta. The Judgment is presently under review5. While permitting the parties to file the list of issues they want to address under review, the SC identified that the following two issues deserve to be reconsidered:
That the burden of proof lies on the accused to show that the property is untainted, as opposed to the prosecution establishing guilt, and
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 reconsideration. One could only hope that those challenging the PMLA do not have to embark on another decade long journey.
Footnotes
1. Vijay Madanlal Choudhary and Others v. Union of India and Others dated 27 July 2022, Special Leave Petition (Criminal) No. 4634 OF 2014 and connected matters
2. Political Declaration and Global Programme of Action adopted by United Nations General Assembly by its Resolution No. S-17/2 of 23rd February 1990
3. PMLA provides for both criminal action against individuals alleged to have been involved in money-laundering and for civil proceedings with respect to attachment of properties alleged to be proceeds of crime.
4.(2020) 6 SCC 1
5. SC order dated 25 August 2022 in Karti P. Chidambaram v. The Directorate of Enforcement numbered as RP (Crl.) No. 219 of 2022 in TC (Crl.) No. 4 of 2018
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