Supreme Court upholds powers of arrest, raids, seizure under PMLA

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The Supreme Court on Wednesday upheld the core amendments made to the Prevention of Money Laundering Act (PMLA), which gives the government and the Enforcement Directorate (ED) virtually unbridled powers of summons, arrest, and raids, and makes bail nearly impossible while shifting the burden of proof of innocence on to the accused rather than the prosecution.

The apex court called the PMLA a law against the “scourge of money laundering” and not a hatchet wielded against rival politicians and dissenters.

“This is a sui generis (unique) legislation… The Parliament enacted the Act as a result of international commitment to sternly deal with the menace of money laundering of proceeds of crime having transnational consequences and on the financial systems of the countries,” a Special Bench of Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar observed in a 545-page judgment.

The verdict came on an extensive challenge raised against the amendments introduced to the 2002 Act by way of a Finance Act in 2019. The three-judge Bench said the method of introduction of the amendments through a Money Bill would be separately examined by a larger Bench of the apex court.

Over 240 petitions were filed against the amendments which the challengers claimed to violate personal liberty, procedures of law and the constitutional mandate. Some of the petitioners included former Ministers Mehbooba Mufti, Anil Deshmukh and Karti Chidambaram, who all claimed that the “process itself was the punishment”. The court’s stamp of approval comes at a crucial time when Congress leaders like Sonia Gandhi are being summoned by the ED and faced with several rounds of questioning spanning hours together.

“Money laundering is an offence against the sovereignty and integrity of the country,” the court noted. It gave an expansive meaning to the offence of “money laundering” to include “every process and activity”, direct or indirect, dealing with the proceeds of the crime.

“Today, if one dives deep into the financial systems, anywhere in the world, it is seen that once a financial mastermind can integrate the illegitimate money into the bloodstream of an economy, it is almost indistinguishable. In fact, the money can be simply wired abroad at one click of the mouse. It is well known that once this money leaves the country, it is almost impossible to get it back. Hence, a simplistic argument that Section 3 (offence of money laundering) should only find force once the money has been laundered, does not commend to us,” Justice Khanwilkar, who authored the judgment, underscored.

The court rejected the submissions of senior advocate Kapil Sibal, the lead lawyer for the petitioners, that the accused are summarily summoned by the ED, and made to sign statements on the pain of threat of arrest. The process was worse than that of drug offences. The ED assumed the powers of a civil court. The process curtailed the liberty of individuals, Mr. Sibal had argued.

But the court said statements were recorded as part of an “inquiry” into the relevant facts in connection with the proceeds of crime. It cannot be equated to an investigation for prosecution. Such summons could be issued even to witnesses in the inquiry conducted by the authorised officials. “A person cannot claim protection under Article 20(3) (fundamental right against self-incrimination) of the Constitution,” Justice Khanwilkar reasoned.

The petitioners had argued that the ED could arrest a person even without informing him of the charges. This power was violative of the right to ‘due process’ enshrined in Article 21 of the Constitution. Besides, Article 22 mandated that no person can be arrested without informing him or her of the grounds of the arrest, they had contended.

The court rejected the notion that the ED has been given blanket powers of arrest, search of person and property and seizure. The court said there were “in-built safeguards” within the Act, including the recording of reasons in writing while effecting arrest.

Besides, the Bench noted that the Special Court could verify using its own discretion if the accused need to be further detained or not.

The court said neither showing the Enforcement Case Investigation Report (ECIR) nor supplying the accused with a copy of the document was a violation of constitutional rights.

“So long as the person has been informed about grounds of his arrest, that is sufficient compliance with the mandate of Article 22(1) of the Constitution,” Justice Khanwilkar observed.

The court justified that the ECIR was an “internal, departmental document”. Revealing its contents before the completion of inquiry or investigation into the proceeds of the crime would have a “deleterious impact” on the final outcome of the case.

The petitioners had argued that the “twin conditions” of bail under the PMLA rendered the hope of freedom non-existent for the accused. The two conditions are that there should be “reasonable grounds for believing that he is not guilty of such offence” and the accused “is not likely to commit any offence while on bail”.

The court replied that money laundering was no ordinary offence. It was an “aggravated form of crime the world over”.

“The offence of money laundering is no less a heinous offence than the offence of terrorism,” Justice Khanwilkar said. There is a need for “creating a deterrent effect” through a stringent law. Even a plea for anticipatory bail would have to undergo the rigours of the twin conditions under PMLA.

However, the court said undertrials could seek bail under Section 436A of the Code of Criminal Procedure if they had already spent one half of the term of punishment in jail for the offence prescribed in law. But, again, this is not an “absolute right” and would depend from case to case.

On the issue of burden of proof resting heavily on the shoulders of the accused, Justice Khanwilkar said the provision did not suffer from the “vice of arbitrariness or unreasonableness”. “Once the issue of admissibility of materials supporting the factum of grave suspicion about the involvement of the person in the commission of crime under the 2002 Act is accepted, in law, the burden must shift on the person concerned to dispel that suspicion,” Justice Khanwilkar wrote.

The court rejected objections to the powers bestowed on the ED to attach a property as proceeds of crime. Mr. Sibal had contended that even property which were not proceeds of crime could be attached by the agency.

The court said Section 5 of the PMLA, which concerns with the provisional attachment of property, cannot be used by the agency “mechanically”.

“Authorities under the 2002 Act cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum,” Justice Khanwilkar emphasised.

The court said the provision provided a “balancing arrangement” between the interests of the accused and that of the State. Further, if the accused was eventually absolved of the crime, no further action could be taken against the attached property suspected to have been linked to the crime.

The petitioners had questioned the inclusion of several offences under the PMLA which bore no rhyme or reason to the objective of the law. They had argued that the punishments prescribed under the Act were far worse than given under the Indian Penal Code to the same offences. The court dismissed this line of argument as “flimsy and tenuous”.

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