Traversing the Intricacies of PMLA by Analyzing Vijay Madanlal Choudhary vs. Union of India (2022)

Kim Samtaney,

NMIMS School of Law

Court

Supreme Court of India

Case

Criminal Appellate Jurisdiction through Special Leave Petition

Judge

Justice A.M. KHANWILKAR

Brief Facts

At the very onset, the court clarified that this case consists of a bunch of cases challenging the amendment to Section 45 of the Prevention of Money Laundering Act, 2002, hereinafter referred to as PMLA, following the discrepancies as noted by the Apex Court in Nikesh Tarachand Shah vs. Union of India & Anr. The twin conditions for giving bail to the accused of offences described in Part  A of Scheduled Offences were struck down. After the amendment, the accused is not required to prove that he is not guilty of any offence under scheduled offences but only has to prove he is innocent of the charges of money-laundering under PMLA even to get bail under the twin mandate.[i]

Further, section 45 of PMLA was still challenged in various High Courts as it caused a reversal in the presumption of innocence until proven guilty beyond a reasonable doubt. The section puts the burden on the accused to prove his innocence and is presumed guilty which is violative of the Fundamental Rights of Article 21 and Article 20(3). The provision sets an unprecedented and disproportionate bar to grant bail at a pre-trial stage which is challenging and arbitrary.

At the same time, several writ petitions challenging several provisions of the PMLA have been taken up and clubbed in one case. For convenience, the court decided not to delve into the laborious task of examining the facts and circumstances of each case and only examine the questions of law and issues raised on the interpretation and the constitutionality of various provisions. [ii]

Also, several amendments introduced through the Finance Act are being taken up by a larger bench of seven judges in the case of Rojer Mathew and thus not examined in this particular case. [iii]

The Ratio-Decidendi

The judgement analysed at lengths various provisions of PMLA and the following decisions and reasoning were weighted out:

i. The Legislative Intent:

At the onset, after hearing the petitioner and the central government, the judgement described the legislative intent and sought to examine the backdrop of PMLA and its various amendments. The threat to the financial system, security and sovereignty of the country due to money laundering activities is taken up by the International Community through the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, Basel Statement of Principle, 1989 and most importantly the Financial Action Task Force (FATF) which gives out recommendation on each of its member countries and makes a Grey Liat and Black List for countries. [iv] India has been a signatory to the Political Declaration and Global Programme of Action by the General Assembly of the United Nations and the Vienna and Palmero Convention of organized Crimes.

The  FATF mandates more strict and robust procedural regulations combined with stringent punishments for money laundering and continuously examines the legal systems of its member countries. The court seems to agree with the defence counsel's arguments stating that if the recommendations of FATF are not followed, then it would result in greater financial harm to the country as it would severely impact the creditworthiness of the country on international forum, increase the rate of interest on credit and impact the trade with other countries. The courts also look into the Parliamentary Debates and speeches by the Finance Ministers over the years to interpret the broader legislative intent for further discussions on the provisions,[v]

ii. Section 2(1)(na): Definition of Investigation

The counsel for the petitioners presents extensible arguments around the definition of investigation under PMLA being the same as the definition in CrPC. It covers all Act-related processes led by the Director or a body designated by the Central Government to gather evidence by this Act. Without a doubt, the phrase "all the proceedings under this Act" relates to the measures done by the authorized authorities as well as the acts of attachment, adjudication, and confiscation.

Hence, it is not necessary to interpret the term "proceedings" narrowly to refer just to proceedings before the Court or the Adjudicating Authority, as is argued; rather, it must be interpreted in the context of the whole. This is further supported by the Act's structure, which acknowledges that the statements made by the Director throughout the investigation are considered to constitute court proceedings for Section 50(4) of the 2002 Act. The adjudicating authority mentioned in Section 6 of the 2002 Act is not the same as the authorities mentioned in Section 48 of the Act.

The court expands the ambit of the definition to refer to it contextually and "is required to be given expansive meaning to include inquiry procedure followed by the Authorities of ED, the Adjudicating Authority, and the Special Court.” [vi]

iii. Definition of Money Laundering

The court also interpreted Section 2(1)(u) explanation giving it a sense of explanation and not a tool to widen the scope of property derived from the proceeds of an illegal activity either directly or indirectly. The definition of money laundering given u/s 3 is amended to keep in line with FATF recommendations for India. The purview of Section 3 of the 2002 Act is broader, encompassing all processes and activities—direct or indirect—that deal with the proceeds of crime. It is not restricted to the final act of integrating tainted property into the formal economy. The 2019 amendment to Section 3 added an explanation, which serves only as a clarification, without expanding its scope.[vii]

The operative word “and “ used in Section 3 preceding the expression 'projecting or claiming' is merely interpreted as "or" by way of explanation inserted.[viii]

The illegal acquisition of property as a consequence of criminal behaviour connected to a scheduled offence is a requirement for the offence under Section 3 of the 2002 Act. According to the 2002 Act, the Authorities are not permitted to prosecute anyone based only on a criminal complaint filed with the appropriate forum, or on the theory that a scheduled offence has been committed unless it is registered as such with the jurisdictional police and/or is the subject of an ongoing investigation or trial. [ix]

iv. Section 5: Provisional Attachment of Property

 The provisional attachment of property can be done through a deputy director and powers are given to the central government. It was argued that the procedure of Section 173 CrPC mandates that the complaint should be forwarded to the Magistrate. Before the amendment, it was a prerequisite to file a report with the Magistrate but the amendment removed such provisions and the comparison to the search and seizure provisions of CrPC mandating FIR registrations was drawn and it was argued that the safeguards given under CrPC were not given under PMLA.

The court decided that PMLA is an amalgamation of both procedural and substantive aspects of money laundering activities making it a self-contained legislation separate from CrPC. It is meant to strengthen the financial system to prevent money laundering and filing of complaint with authorities can cause a time lag which may give perpetrators enough time to manipulate the proceeds of the crime in this digital age. The court thinks that the Act itself contains necessary safeguards to prevent miscarriage of justice while maintaining stringency of the law.[x] 

v. Section 17: Search and Seizure

This section empowers the authorities to conduct search and seizure without prior registration of an FIR. The Court maintained the legality of PMLA Section 17. The Court reasoned that while Section 17 deals specifically with search and seizure for money laundering offences, PMLA is a unique Act. The Court also emphasized that the PMLA's goal of search and seizure includes both money-laundering prevention and criminal investigation. According to the ruling, the PMLA's power of search and seizure is a unique provision that supersedes the CrPC's general provisions.

The PMLA's built-in protections guarantee that the authorities use their authority sensibly and responsibly.[xi]

vi. Section 19: Arrest of a Person

This section allows ED to arrest without a formal complaint or FIR being registered Aagin the counsel for the petitioners has drawn parallels to CrPC Section 167 which makes FIR a prerequisite for arrest in case of cognizable offences. The court again upheld the constitutionality of Section 19 citing that the PMLA is a comprehensive law that aims to prevent crime and seize the revenues of it, in addition to pursuing prosecution. Under PMLA, authorities gather evidence for confiscation procedures rather than looking into criminal offences. There are provisions for similar arrests under other special legislation, such as the Customs Act and FERA. The PMLA has enough safeguards in place to stop arbitrary arrests.[xii]

vii. Burden of Proof:

The accused is required by Section 24 of the Prevention of Money Laundering Act, 2002, to demonstrate that the proceeds of crime are uncontaminated property. It has been argued that this section is unconstitutional.  The Financial Action Task Force's proposals, which aimed to align Indian anti-money laundering legislation with global norms, led to the section's 2013 amendment. Section 24 addresses two scenarios: when an individual is accused of money laundering and when any other individual is implicated. Section 24(a) stipulates that the court will assume the proceeds of crime are involved in money laundering for an individual facing money laundering charges. The accused may, however, refute this assumption. Section 24(b) permits the court to assume that the profits of crime are being used for money laundering by any other individual. This is a purely subjective assumption.

Section 24's presumption is predicated on proving basic facts, such as the existence of proceeds of crime and the individual's participation in the proceeds.  The accused has the chance to refute the assumption by presenting information that comes from their own experience. Noting that Section 24 has a plausible relationship to the goals of the Prevention of Money Laundering Act, the Supreme Court has maintained the law's legitimacy.[xiii]

viii. Bail

Following the amendment improving and correcting the twin mandate, Section 45 is again challenged in the present bundle of cases. The Court determined that the dual requirements outlined in Section 45 are reasonable and directly relate to the goals of the PMLA. The nation's financial system and sovereignty are seriously threatened by the crime of money laundering.  The Court rejected the claim that anticipatory bail petitions are exempt from Section 45's restrictions on bail grant, asserting that Section 45's restrictions on bail would be applicable in any case involving PMLA violations.

Nonetheless, the Court determined that PMLA cases would be covered by Section 436A of the Code of Criminal Procedure, which allows for bail once an undertrial has been detained for up to half the maximum sentence. This is to protect the basic right to a prompt trial under Article 21 of the Constitution. It was decided that Section 436A, a statutory bail provision akin to default bail under Section 167 of the CrPC, ought to be employed where the accused is detained for an extended period yet the trial is not proceeding as planned.[xiv]

ix. Section 50: Recording of the statement of Accused

Section 50 of the PMLA Act, which permits authorized authorities to call anybody and record their remarks while conducting an inquiry, was contested by the petitioners. The petitioners claimed that this is against the Constitution's Articles 20(3) and 21.  The Supreme Court ruled that the person being summoned had to be formally accused of a crime at the relevant period for Article 20(3) to apply. Since there isn't a formal allegation against the individual at the time of the Section 50 summons, they cannot claim protection under Article 20(3). Rather than launching an investigation to bring charges, the authorities under the PMLA Act are only gathering data and supporting documentation. The information gathered may lead to a legal charge against the individual in the future.

Since their primary goal is not to prevent and detect crimes, the authorities under the PMLA Act are not regarded as "police officers." Their main goal is to look into issues about money laundering and proceeds of crime. The Supreme Court separated this case from Tofan Singh, in which declarations made to NDPS Act-designated officials were deemed inadmissible. There are several differences between the NDPS Act and PMLA Act programs. In light of the aforementioned, the Supreme Court ruled that Article 20(3) of the Constitution does not apply to comments made by authorities under Section 50 of the PMLA Act. On the other hand, the Evidence Act's Section 25 could be applicable in some circumstances.[xv]

Analysis

The Apex Court has upheld almost all the sections challenged in the above petition with small amends made by widening the interpretation. The main argument promulgated that the special legislation would prevail over all general provisions of CrPC. The stringency of laws was upheld to promote integration with international conventions and FATF recommendations. Yet, the aspect of the Central Government misusing such a tool was not discussed even by the private parties appearing on behalf of the Petitioners.

Recently Justice Sanjiv Khanna orally observed that Section 45 of PMLA does not bar the constitutional courts from granting bail to the accused in case of prolonged incarceration. [xvi]

The Kejriwal Liquor Policy Case again opens a pandora's box of discussions on PMLA and now all eyes are set on the seven Judge bench of the Supreme Court deciding the Rjer Mathew Case.

References

[i] Nikesh Tarachand Shah vs. Union of India & Anr., 2018, Supreme Court, (2018) 11 SCC 1, para 35, (India).

[ii] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 21, Para. No. 1(a)-1(c)  

[iii] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 241, Para. No. 21  

[iv] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 114, Para. No. 18(xii), 18(xxvii), 18(xxix)  

[v] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 231-235, Para. No. 19-20  

[vi] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 247-250, 532, Para. No. 26-28, 187(iii).

[vii] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 251-256, 532, Para. No. 30-33

[viii] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 257, 532, Para. No. 34 187(iv).

[ix] See Supra Note 7

[x] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 299-319, 534, Para. No. 56-69, 187(vi).

[xi] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 338-353, 534, Para. No. 77-86, 187(viii).

[xii] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 359-369, 535, Para. No. 89-90, 187(x).

[xiii] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 369-378 535, Para. No. 91-96, 187(xi).

[xiv] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 407-420, 536, Para. No. 115-121, 187(xiii).

[xv] Vijay Madanlal Choudhary & Ors.  vs. Union Of India & Ors., 2022, Supreme Court, MANU/SC/0924/2022, (India), Pg. No. 466-499, 537\2, Para. No. 150-172, 187(xv).

[xvi] Livelaw News Network, S.45 PMLA doesn’t Bar Power of court to grant bail if there’s delay in trial : Justice Sanjiv Khanna Live Law (2024), https://www.livelaw.in/top-stories/s45-pmla-doesnt-bar-power-of-court-to-grant-bail-if-theres-delay-in-trial-justice-sanjiv-khanna-252861 (last visited Jun 6, 2024).