The Supreme Court on Wednesday upheld the Constitutional validity of Prevention of Money Laundering Act (PMLA) [Vijay Madanlal Choudhary v Union of India].
The judgment was pronounced by a bench of Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar on a batch of 241 petitions challenging the validity of the law.
The Court upheld the validity of Sections 3 (definition of money laundering), 5 (attachment of property), 8(4) [taking possession of attached property), 17 (search and seizure), 18 (search of persons), 19 (powers of arrest), 24 (reverse burden of proof), 44 (offences triable by special court), 45 (offences being cognizable and non-bailable and twin conditions for grant of bail by court) and 50 (statements made to ED officials).
The Court also held that the supply of Enforcement Case Information Report (ECIR) under PMLA proceedings is not mandatory since ECIR is an internal document and cannot be equated to a First Information Report (FIR).
“ECIR cannot be equated with FIR and ECIR is an internal document of ED.
Supply of ECIR to accused is not mandatory and only disclosure of reasons during arrest is enough. Even the ED manual is not to be published since it is an internal document,” the Court held.
The Court also rejected the argument about proportionality of punishment under PMLA act with respect to scheduled offences as wholly “unfounded”.
However, the Court held that question of enactment of amendments in 2019 to PMLA Act as money bill has to be decided by a larger bench of seven judges before whom the same question is already pending.
Justices AM Khanwilkar, Dinesh Maheshwari & CT Ravikumar
Justices AM Khanwilkar, Dinesh Maheshwari & CT Ravikumar
What the Court ruled
On Section 3 (money laundering definition)
Section 3 has wider reach and it deals with direct and indirect proceeds of crime. Explanation to Section 3 is clarificatory in nature.
“We are clearly of the view that the expression “and” occurring in Section 3 has to be construed as “or”, to give full play to the said provision so as to include “every” process or activity indulged into by anyone,” the Court stated.
Thus, projecting a property as untainted property would constitute money laundering on its own being an independent process or activity.
“The interpretation suggested by the petitioners that only upon projecting or claiming the property in question as untainted property that the offence of Section 3 would be complete, stands rejected,” the Court thus said.
This would mean that mere concealment or possession or acquisition or use of proceeds of crime will amount to money laundering.
The explanation inserted to Section 3 by way of amendment on 2019 does not expand its purport but was only clarificatory, the court held.
“Being a clarificatory amendment, it would make no difference even if its introduced by way of the finance act or otherwise,” the Court added.
On predicate offence
The Court made it clear that the offence under Section 3 is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property which constituted the offence of money laundering.
The authorities under the 2002 cannot prosecute any person on notional basis or on the assumption that a scheduled offence is committed unless it is so registered with the jurisdictional police and/ or is pending inquiry trial before a competent forum, the Court held.
Pertinently, acquittal or discharge in predicate offence or quashing of such offence will lead to offence of money laundering also falling.
“If a person is finally discharged and acquitted of the scheduled offence or criminal case against him is quashed by a court of competent jurisdiction, there can be no offence of money laundering against him or anyone claiming such property being linked to the stated scheduled offence to him,” the judgment held.
On Section 5 (attachment of property)
Section 5 is constitutionally valid. It provides a balancing act and shows how proceeds of crime can be traced.
“It provides a balancing arrangement to secure the interests of the person as also ensures that proceeds of crime remain available to be dealt with in the manner provided under the Act. The procedural safeguards as delineated are effective measures to protect the interests of persons concerned.”
On Section 24 (reverse burden of proof on accused)
Section 24 has reasonable nexus with the purposes and objects sought to be achieved.
On Section 44
The proviso in Clause (a) of sub-section (1) of Section 44 of the 2002 Act is to be regarded as directory in nature and this provision is also read down to mean that the Special Court may exercise judicial discretion on case-to-case basis.
On Section 45 (twin conditions for bail)
Section 45 post the amendments is also legal and not unreasonable.
“The provision in the form of Section 45 of the 2002 Act, as applicable post amendment of 2018, is reasonable and has direct nexus with the purposes and objects sought to be achieved by the 2002 Act and does not suffer from the vice of arbitrariness or unreasonableness,” the judgment said.
In this regard, the Court held that its earlier judgment in Nikesh Tarachand Shah declaring the twin conditions in Section 45(1) of the 2002 Act, as it stood at the relevant time, as unconstitutional in no way obliterated the provision from the statute book.
“It was open to the Parliament to cure the defect noted by this Court so as to revive the same provision in the existing form,” the judgment stated.
The Court said that it cannot agree with the observations in Nikesh Tarachand Shah in view of the Constitution Bench decision in Kartar Singh as well as the serious threat posed to the country by money laundering activities.
Regarding grant of bail, the underlying principle and rigours of section 45 may apply.
As regards the prayer for grant of bail, irrespective of the nature of proceedings, including those under Section 438 of the 1973 Code or even upon invoking the jurisdiction of Constitutional Courts, the underlying principles and rigours of Section 45 may apply.
The beneficial provision of Section 436A of the 1973 Code could be invoked by the accused arrested for offence punishable under the 2002 Act, the Court clarified.
On Section 50 (statements by accused to ED)
The Court held that statements made by accused to ED officials are not hit by Article 20(3) which lays down rule against self-incrimination.
In this regard, the Court held that Section 50 is in the nature of inquiry and ED officials are not police officers.
“Section 50 is in nature of inquiry and is not investigation and the authorities are not police officers. The punishment of fine or arrest for giving false information cannot be construed as a compulsion to give statement. The statements are not hit by Article 20,” the Court said.
On Section 63
Section 63 of the 2002 Act providing for punishment regarding false information or failure to give information does not suffer from any vice of arbitrariness.
On inclusion of predicate offences under PMLA schedule
The Court held inclusion or exclusion of any particular offence in the Schedule to the 2002 Act is a matter of legislative policy and the nature or class of any predicate offence has no bearing on the validity of the Schedule.
On the Enforcement Case Information Report
It was found that in view of the special mechanism envisaged by the PMLA, the ECIR could not be equated with an FIR under the Code of Criminal Procedure (CrPC).
The Court emphasised that the ECIR is an internal document of the ED, and the fact the FIR in respect of scheduled documents has not been recorded does not come in the way of authorities referred to in Section 48 to commence enquiry or initiating civil action of provisional attachment of property.
Further, it was stated that supply of a copy of the ECIR to the person concerned, is in every case, is not mandatory.
“It is enough, if ED at the time of arrest, discloses the grounds of such arrest.”
This was, however, caveated by saying that when the arrested person is produced before the special court, it would be open to the court to look into the relevant records presented by the authorised representative of ED for answering the issue of need for continued detention.
“Even the ED manual is not to be published, being an internal document issued for the guidance of the officials, i.e. ED officials,” the Court added.
Lawyers who appeared
Senior Advocates Kapil Sibal, Sidharth Luthra, Abhishek Manu Singhvi, Mukul Rohatgi, Amit Desai, S Niranjan Reddy, Menaka Guruswamy, Aabad Ponda, Siddharth Aggarwal, Mahesh Jethmalani, Vikram Chaudhari, Advocates Abhimanyu Bhandari, N Hariharan and Akshay Nagarajan appeared for the petitioners.
Solicitor General Tushar Mehta, Additional Solicitor General SV Raju and Panel Counsel Kanu Agrawal appeared for the Union of India
The petitioners had questioned various aspects of the law including the wide powers given to ED for search, seizure and attachment, the reverse burden cast on accused to prove innocence, the admissibility of statements made to ED as evidence, the stringent conditions for grant of bail and the impact of predicate offence and its outcome, on PMLA case.
The Central government had argued that the offence of money laundering under Section 3 is a standalone offence so long as there is a predicate offence irrespective of whether there is acquittal or conviction in such predicate offence.
Pertinently it was also argued by the government that money laundering under Section 3 is a continuing offence, irrespective of time at which the predicate offence is included in the Schedule.