FACTS:-
A crucial piece of legislation in India designed to halt the process of money laundering and confiscate assets linked to such activities is the Prevention of Money Laundering Act, 2002 (PMLA). Its primary objectives are to prevent and manage money laundering, confiscate and forfeit assets obtained through or utilized in money laundering, and combat financial offenses. The PMLA defines money laundering as any act or process that involves hiding, obtaining, using, transferring, or claiming the income from criminal activities as legitimate assets. As outlined in Section 3 of the Act, anyone who knowingly assists, participates in, or even attempts to participate in any activity or plan related to the income from criminal activities—directly or indirectly—is liable for money laundering. Section 4 of the Act outlines harsh penalties for money laundering, which include a fine and a minimum of three years’ imprisonment, up to a maximum of seven years. Two facets of the legal domain can be considered in this respect: firstly, the nature of powers conferred upon through PMLA , 2002 grants authorities like the Enforcement Directorate (ED) broad powers for investigation. Secondly,
the PMLA which was enacted and took effect on July 1, 2005, showcasing India’s dedication to combating money laundering, as seen in the legislation’s preamble and the Supreme Court’s interpretation of the PMLA’s provisions in the Judgment , which grants authority to the Directorate to penalize or investigate for economic offences, including special powers for confiscating disproportionate assets. In this regard, a series of petitions beginning from 2014 were filed before the Hon’ble Supreme Court challenging powers of these specialised investigation agencies that deal with economic offences.
ISSUES RAISED :-
The main issues raised in relation to the petitions filed before the Hon’ble Court , comprising of a Bench headed by Justice AM Khanwilkar, Justice Dinesh Maheshwari, and Justice CT Ravikumar are as follows;
i. Whether the power of arrest granted to special agencies , the Enforcement Directorate herein in general and other government agencies, in particular unconstitutional in nature?
ii. Whether the Court can bar the ED from taking ‘coercive steps’ in all cases under the PMLA only because the constitutional validity of certain provisions have been challenged?
iii. Whether the 2018 amendment to the bail conditions under the PMLA is constitutional? Does the amendment undermine the Court’s decision in the Nikesh Tarachand case [2017]
iv. Whether provisions concerning attachment of property under PMLA violate the right to property under article 300A?
These were broad issues that were elaborated upon with the case arriving at the Apex Court back in the later half of July, 2022 in what turned out to be a landmark judgement of the Highest Court of Appeal in this regard .
CONTENTION:-
Petitioner’s Arguments:-
Senior counsel Mr. Kapil Sibal, appearing on behalf of the petitioners in the relevant matter(s), submitted that the process the ED used to register the Enforcement Case Information Report[ECIR] is arbitrary, opaque, and violates an accused person’s constitutional rights. The argument put up was that the PMLA’s strict procedures are in violation of fundamental criminal justice principles and the rights guaranteed in Part III of the Indian Constitution, including Articles 14, 20, and 21.Further, other senior counsels including Mr. Abhishek Manu Singhvi, Mr. Siddarth Luthra among others contended that hat the crime of money laundering consists of three components: the accused must have tried to portray the proceeds of the crime as legitimately acquired money, there must be a predicate offense, and revenues from this offense must be generated. If the prosecution establishes the first two elements, Section 24 requires the judge to assume that the third condition is satisfied. This, according to Dr. Singhvi, shifts the burden of proof for the necessary component of the money laundering offense. Further, The ED is authorized by Section 50 of the PMLA to call on anyone and record their statement when conducting an inquiry. Even “more draconian” legislation, such as the Terrorism and Disruptive Activities (Prevention) Act of 1987, the Prevention of Terrorism Act of 2002, and the Narcotic Drugs and Psychotropic Substances Act of 1985, according to Dr. Singhvi, provide some protections for the accused by shifting the burden of proof. Because the PMLA lacks protections, it is challenging for the accused to obtain an acquittal. Dr. Singhvi contended that this is against Article 21. There were several loopholes in the PMLA pertaining to the investigative process. The petitioners urged the Court to make it clear that, rather than relying on the Enforcement Directorate’s discretion, these gaps should be filled in accordance with the Code of Criminal Procedure, 1973. Senior Advocate Amit Desai’s arguments against the Act’s numerous revisions that would have added a wide range of predicate crimes took up much of the session. Additionally, Mr. Desai argued against the Act’s retroactive application.
Respondent’s Arguments:-
The arguments brought about by the Union of India, represented by Solicitor General Tushar Mehta, went on to challenge the Court’s decision in Nikesh Tarachand Shah case in relation to the Court that Both the money laundering offense and the predicate offense were to be tried by the Special Court, and bail is granted only if the twin conditions are met under Section 45 (1) and contended that it must be held per incuriam, i.e., the previous Court Judgment has failed to pay attention to relevant statutory provision or precedents. further argued that money laundering is committed by any and all actions connected to the proceeds of crime, including solitary possession, concealment, use, or acquisition. separate from the final projection. in order to properly carry out the Act in its intended spirit, this kind of interpretation is required. It is argued that, taking into account the definition that is in use in India, any action or proced-ure that occurs in the definition after the word “including” must be regarded as just
illustrative and not restrictive. According to the respondents, the PMLA’s validity must be evaluated against the backdrop of global development and India’s responsibility to combat money laundering because it affects not only the nation where the predicate offenseoccurs but also the economies of other nations where “proceeds of crime” are laundered.
RATIONALE
In response to the aforementioned arguments, the Supreme Court of India ruled that Section 17 of the 2002 Act is constitutional and contains built-in safeguards. These safeguards require high-ranking officials, not only to exercise their authority as Directors (not lower than the rank of Additional Secretary to the Government of India, appointed by a committee chaired by the Central Vigilance Commissioner in accordance with Section 25 of the CVC Act) or Deputy Directors authorized by the Director in that regard but also to record their reasons for believing they have information in their possession that leads to the commission of money-laundering crimes and the possession of proceeds from those crimes.
DEFECTS OF LAW
Despite its robust framework, the PMLA has several perceived defects and areas of concern that have sparked significant debate and criticism. These issues primarily revolve around the extensive powers granted to the Enforcement Directorate (ED), the stringent conditions imposed on bail, and concerns related to property rights.
1. Arbitrary Powers
· Broad Discretionary Powers- The PMLA grants the ED extensive powers, including the ability to arrest individuals, conduct searches and seizures, and attach properties suspected to be involved in money laundering. These powers, while necessary for effective enforcement, have been criticized for being overly broad and lacking sufficient checks and balances.
· Lack of Transparency- The process of registering the Enforcement Case Information Report (ECIR) by the ED has been highlighted as particularly opaque. Unlike the First Information Report (FIR) under the Indian Penal Code, the ECIR is not provided to the accused, which limits their ability to challenge the charges against them. This lack of transparency undermines the principles of natural justice and procedural fairness, leading to allegations of arbitrariness.
· Potential for Abuse- The wide-ranging powers of the ED can potentially lead to misuse. There have been concerns that these powers could be used selectively or politically, targeting individuals or entities without sufficient cause. The absence of stringent oversight mechanisms increases the risk of arbitrary actions, thereby infringing on the fundamental rights of individuals.
2. Stringent Bail Conditions
· 2018 Amendment-The 2018 amendment to the PMLA introduced stringent conditions for granting bail. This amendment requires that the court must be satisfied that there are reasonable grounds for believing that the accused is not guilty of the offense and that he is not likely to commit any offense while on bail. This dual requirement significantly raises the bar for obtaining bail under the PMLA.
· Violation of Presumption of Innocence-The stringent bail conditions have been criticized for potentially violating the principle of presumption of innocence, which is a cornerstone of criminal justice. The requirement for the court to be convinced of the accused’s innocence at the bail stage shifts the burden of proof onto the accused, contrary to the established legal principle that a person is innocent until proven guilty.
Impact on Personal Liberty
· The tough bail conditions under the PMLA have resulted in prolonged detentions, impacting the personal liberty of individuals. This has been particularly concerning in cases where the investigation is protracted, leading to accused persons being incarcerated for extended periods without trial. Such detentions without timely judicial scrutiny and trial infringe upon the right to personal liberty guaranteed under Article 21 of the Indian Constitution.
3. Property Rights
· Attachment of Property- The PMLA provides for the attachment of property suspected to be involved in money laundering. This power is intended to prevent the dissipation of assets that may be proceeds of crime. However, the attachment process has raised significant concerns regarding the violation of property rights.
· Article 300A of the Constitution- Article 300A of the Indian Constitution guarantees the right to property, stating that no person shall be deprived of their property save by authority of law. The PMLA’s provisions for property attachment, without adequate judicial oversight, have been challenged as violating this constitutional right. The broad powers to attach property, sometimes even before a formal charge sheet is filed, can result in the deprivation of property without due process.
· Judicial Scrutiny and Safeguards- The attachment of property under the PMLA often occurs with limited judicial scrutiny, raising concerns about the fairness and reasonableness of such actions. There have been instances where properties have been attached based on mere suspicion, leading to significant financial and reputational harm to the individuals or entities involved. The lack of prompt and effective judicial remedies exacerbates these concerns, highlighting the need for robust safeguards to protect property rights.
INFERENCE
In spite of the fact that the Prevention of Money Laundering Act (PMLA), 2002, is a critical tool in the fight against financial crimes, it has certain serious downsides. There are stresses over possible misuse and a lack of transparency due to the Enforcement Directorate’s (ED) extensive discretionary powers. The 2018 amendment’s strict bail prerequisites violate the assumption of guiltlessness and may result in long detentions that limit an individual’s freedom. Furthermore, due to a need for judicial control, the PMLA’s property attachment provisions run the possibility of infringing upon the property rights ensured by Article 300A of the Indian Constitution. Judicial examination and legislative reassessment are required in order to guarantee the Act’s legitimate execution while protecting Fundamental Rights. Maintaining the legitimacy and viability of the PMLA in combating money laundering requires striking a balance between strict enforcement and constitutional provisions
CONCLUSION
In conclusion, the above highlighted case underscores the complexities of the PMLA, highlighting concerns over the Enforcement Directorate’s broad powers, stringent bail conditions, and potential violations of property rights. While the PMLA is crucial for combating financial crimes, its implementation raises significant constitutional issues. Balancing strict enforcement with fundamental rights is essential to maintain the act’s legitimacy and effectiveness. Judicial scrutiny and legislative reassessment are necessary to ensure the PMLA’s proper application while safeguarding individual freedoms and property rights.
Submitted by Chaitanya Krishna Talapoola, School of Law, Christ University, Bangalore