SPECIAL LEAVE PETITION (CRIMINAL) NO. 4634 OF 2014
VIJAY MADANLAL CHOUDHARY & ORS. …PETITIONER(S)
VERSUS
UNION OF INDIA & ORS. …RESPONDENT(S)
Date of Judgement: 27th July 2022 ……J. (A.M. Khanwilkar)
……J. (Dinesh Maheshwari)
……J. (C.T. Ravikumar)
- Vijay Madanlal Choudhary V. Union Of India is a 545-page landmark ruling on the Prevention of Money Laundering Act.
- It addressed arguments regarding the constitutionality of the Prevention of Money Laundering Act, 2002, its interpretation, and the process the Enforcement Directorate used to look into and investigate PMLA offenses, which violated the agency’s mandate.
- It preceded after the Union of India v. Nikesh Tarachand Shah ruling.[1] In the present case a total of 241 civil and criminal writ petitions, appeals, special leave petitions, transferred petitions, and transferred cases were filed before the Supreme Court.
- These cases were grouped together and raised legal issues related to the constitutional validity of the statutes as well as the interpretation of specific provisions of other statutes, such as the Companies Act of 2013, the Prevention of Corruption Act of 19887, the IPC of 1860, etc, all of which are also under challenge.
- But here, it is restricted to a PMLA’s provisions. PMLA,1882 has come enforced on the backdrop of the Vienna Convention,1988; FATF; UNTOC; Basel Convention; IOSCO; Political Declaration adopted by UNGA, etc.[2]
Since the constitutionality of multiple PMLA sections was contested, there is no gainsaying that the ruling rendered by the SC in this case[3] is nothing less than a book on the PMLA. Also, ED now has more fangs and authority as an agency due to this judgment.
Contention:
There has been submission in this part from both parties including several private submissions also starting from Kapil Sibal, Mukul Rahtogi, Amit Desai, S. Niranjan Reddy etc from which Supreme Court frames several issues by compiling all the contentions which is mentioned below.
Issues:
- Will the CRPC take precedence over the PMLA, and what is the legal position regarding s. 45, anticipatory bail, and the twin test scenarios associated with it?
- Do the PMLA’s provisions allow the reversal of the burden of proof to infringe on the accused person’s fundamental rights?
- Will a confession made to the ED be accepted or rejected?
- Is the ED’s adjudicating and attaching power constitutional? Is the Attachment and Adjudicating power of ED is constitutional or not?
- Whether it is necessary to file a chargesheet, complaint, or FIR for the primary offence before using the PMLA’s arrest power? In the context of section 3 read with section 2(u) of PMLA, is it possible for money laundering not to be a stand-alone offence?
- Does Section 19 of the PMLA’s arrest powers defy Articles 14 and 21 of the Constitution?
- Is it illegal and discriminatory to use the search and seizure powers under Section 17 of the PMLA, as amended?
- Does section 25 of the Evidence Act invalidate judicial proceedings that rely on statements obtained by Enforcement Directorate officers during their investigation and violate Article 20(3) of the Constitution?
Rationale:
Chapter 12 CrPC does not mandate that investigations begin or continue by the guidelines set forth by the PMLA. A special method for identifying and investigating money laundering offenses is provided by the PMLA.
The PMLA is a special legislation, and the CrPC is a general law, according to Hon. Justice Pinaki Chandra Ghose’s in Gautam Kandu case[4] in paragraph 28 held that S.5 of the CrPC states that the special legislation would not be superseded by the CrPC. Further section 65 and Section 71 r/w S.5 CrPC make it unambiguous that PMLA will override general law. In the present case, the SC discussed the relation between S.45 PMLA and S.439 CrPC and by following the ratio of Gautam Kandu case[5] held that special law will prevail over general law.
The PMLA’s S.45 begins with the non-obstante clause and two conditions for obtaining bail under Section 45 PMLA, as amended, are constitutional if an offense falls under Part A of the Schedule and carries a sentence longer than three years.
Section 45 also requires twin testing.
- First, the public prosecutor must be given the chance to contest the motion.
- Secondly, the court must find, based on reasonable grounds, that the accused is not guilty of the offense in question and that, if granted bail, he would not commit any new crimes. Further SC stated that it had no nexus with the objects.
In this case, SC held that the Tofan Singh case ratio did not apply as the NDPS Act, 1985 differs from the PMLA. The ED’s employees aren’t considered police officers under the PMLA. A confession given to an E.D is exempt from section 25 of the Indian Evidence Act and Article 20(3) will not apply to any statements made to E.D authorities under Section 50.[6]
Adjudicating Authority and Attachment are dealt with in Sections 5 through 11A. While ensuring that the proceeds of crime must be accessible for use in the investigation or inquiry, S.5 strikes a balance between the person’s interests[7] and offers several protective measures. An “Approved Deputy Director” or Director, is the only person who can issue a “Provisional Attachment Order” (PAO). He needs to meet the two requirements listed in S.5(1). There must be cause for suspicion that the subject is in possession of the money obtained from the crime and that he intends to transfer or hide it. This kind of attachment is only intended to last for 180 days.[8]
There are two different kinds of attachment: “Final Attachment” and “Provisional Attachment,” which are adjudicated under Sections 5 and 8.
A ‘provisional attachment’ is made and a ‘provisional attachment order (PAO)’, is issued by E.D. for a maximum of 180 days throughout the investigation, PAO is in effect. E.D’s director must file a complaint with the “Adjudicating Authority” within 30 days of the day the attachment is made, following the creation of a provisional attachment.[9] During an inquiry or the duration of the case, such attachment may remain for up to 355 days after the “Adjudicating Authority” certifies the “PAO”.[10]
In this case, the Court noted that the PMLA is a unique law. The Court stated that considering the complexity of the inquiry/investigation both to initiate civil action as well as prosecution, the non-supply of ECIR in a given case could not be faulted.[11] The accused is presented within 24 hours. Disclosure of ECIR will frustrate the object of attachments the person may transfer property immediately.
There is no violation of the accused’s fundamental rights by the PMLA’s rules regarding the burden of proof. Section 24 of the PMLA. The comments that E.D. agents record during investigation are admissible in court proceedings do not violate Article 20(3) of the Constitution.
The arrest power provided by Section 19 of the PMLA does not contravene Articles 14 or 21 of the Constitution. The provision is sensible and provides safeguards against arbitrary arrests in the context of combating money laundering.
Under Section 3 of the PMLA, money laundering may be prosecuted as a separate offence if there has been an illicit acquisition of property as a result of criminal activity associated with a scheduled offence.
PMLA Act, S.2(1)(p) states that “money laundering” has a definition in S.3 of the Act. In 2019, the Explanation was added. A “launderer” is the individual who handles this money in some way.
S.3 applies to both directly and indirectly engaged parties as well as those who are unaware of their involvement in the acquisition, possession, or concealment of proceeds of crime. It is evident from this explanation that projection as pure property is not required ‘OR’ has been utilized in the explanation both before and after it was projected as pure property. In this case[12], the SC addressed the definition of money-laundering and ruled that it is not required to project the proceeds of crime as untainted property.
The Court interpreted the word “and” in the definition should be interpreted as “OR” The Court stated that the Act’s goal will be defeated if projection as untainted property becomes mandatory. The Court said that if ‘and’ will be read to denote two requirements of Section 3, the whole Act will be frustrated. The Court provided an example. When one person has property acquired through criminal activity and another person projects that same property as untainted property, neither party will be protected by Section 3 of the PMLA Act.[13] The TADA Act’s interpretation in the Sanjay Dutt case was comparable to this one.[14]
Defects of Law:
The SC’s decision highlights several flaws in PMLA. First off, the Court considers “projecting” or “claiming” proceeds of crime as clean property to be a separate act of money laundering that may give rise to unjust accusations, even in the absence of additional evidence of unlawful action.
Second, the ruling allows for temporary property attachments without requiring the predicate offense to be registered, which may lead to arbitrary behavior and abuse of power. In addition, when a confirmation complaint is not filed within 365 days, property that has been provisionally attached has an ambiguous status, which adds to the uncertainty.
Furthermore, putting the onus of proof on the accused to show that the proceeds of the crime are clean violates the principle of “innocent until proven guilty.” Furthermore, a person is only charged with the predicate offence and not under PMLA, it could result in discriminatory treatment if PMLA gets precedence.
Lack of transparency in ED raises questions about arbitrary decision-making, and using money bills to amend it goes against both the legislative process and bicameralism. These shortcomings serve as a warning that, to maintain a just and equitable legal system and prevent future abuse of power.
Inference:
The Supreme Court examined several facets of the PMLA Act. It was apparent that offenses involving money laundering under the PMLA are not subject to all of the regulations in Chapter 12 of the CrPC. The Court found that the dual conditions for releasing someone under Section 45 also apply to anticipatory bail.
It confirmed the validity of the Section 24 burden of proof and acknowledged that statements made by Enforcement Directorate agents during their investigations were admissible. The Court emphasized that there were adequate safeguards in place while upholding Section 19 ability to make arrests. It also made it clear that the PMLA applies to activities committed before the crime specified in the Act’s Schedule was added. The ruling provides PMLA with much-needed clarification, ensuring an effective legal framework to combat money laundering while upholding constitutional principles.
In addition, the Centre ought to guarantee the efficient execution of the FATF’s 40+9 principles as it is a global threat to financial institutions, national sovereignty, and integrity This ratio was also adhered to in several decisions, such as Directorate of Enforcement v. State in Parvati Kollur & Anr. Additionally, as of October 18, the matter is being examined by a three-judge bench.
By- Rishav Anand
Faculty of Law, University of Delhi
[1] Union of India v. Nikesh Tarachand Shah (2018) 11 SCC 1
[2] General Assembly Resolution Adopted on the report of the AD HOC COMMITEEof the 17th Special Session https://www.unodc.org/documents/commissions/CND/Political_Declaration/Political_Declaaration_1990/1990_Political_Declaration_and_Programme_of_Action.pdf (last visited Nov.12, 2023).
[3] Vijay Madanlal Choudhary v. Union Of India https://main.sci.gov.in/supremecourt/2014/19062/19062_2014_3_1501_36844_Judgement_y17-Nov.-2023.pdf (last visited October 09, 2022)
[4] Gautam Kandu v. State of West Bengal https://main.sci.gov.in/judgment/judis/43201.pdf (last visited Nov.15,2023)
[5] Gautam Kandu v. State of West Bengal https://main.sci.gov.in/judgment/judis/43201.pdf (last visited Nov.13, 2023)
[6] Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 022 LiveLaw (SC) 633
[7] Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, at para 187
[8] Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, at para 287
[9] The Prevention of Money-laundering Act, 2002, §5(5), No.15, Acts of Parliament (India)
[10] The Prevention of Money-laundering Act, 2002, §8(3), No.15, Acts of Parliament (India).
[11] Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, Para 178.
[12]Vijay Madanlal Choudhary & Ors v. Union of India & Ors https://main.sci.gov.in/supremecourt/2014/19062/19062_2014_3_1501_36844_Judgement_27-Jul- 2022.pdf (last visited November 09, 2023)
[13] Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, at Para 41
[14] Sanjay Dutt v. State through C.B.I., Bombay (II) (1994) 5 SCC 410.