Deep dive into top court’s verdict on PMLA ambit, ED powers
The Supreme Court, by its judgment on Wednesday, approbated the wide powers of the Enforcement Directorate (ED) sanctioned under the 2002 Prevention of Money Laundering Act (PMLA). Ratifying the agency’s powers to summon individuals, make arrests, conduct raids, and attach properties, the top court justified its special powers to tackle the “heinous” offence of money laundering.
A deep dive into Wednesday’s verdict will elucidate how the Supreme Court dealt with the spate of challenges and rejected most of them clause-by-clause, strengthening ED’s hand, while, at the same time, stressing on certain safeguards built into the system.
Money laundering and activities punishable under PMLA
Section 3 of the Act defines money laundering. It initially read that anyone involved in an activity connected with the proceeds of crime including its “concealment, possession, acquisition or use” and projecting or claiming it as untainted property shall be guilty of money-laundering.
In 2019, the government made a change to Section 3, adding “or” between the words “concealment”, “possession”, and “acquisition”. The petitioners complained that the 2019 amendment enlarged the ambit of the principal section by including mere concealment or possession.
Rejecting this argument, the court ruled that Section 3 has a wider reach and captures every process and activity, direct or indirect, in dealing with the proceeds of crime, and is not limited to the final act of integration of tainted property in the formal economy. Concealment, possession, acquisition, and use of proceeds of crime, said the court, would also be covered.
In Ishwar Singh Bindra & Ors Vs The State of Uttar Pradesh (1969), Joint Director of Mines Safety Vs Tandur & Nayandgi Stone Quarries (1987) and Gujarat Urja Vikas Nigam Ltd Vs
Essar Power Ltd (2008), the top court interpreted the word “and” in the concerned laws as “or” to give full effect to the legislative intent. The PMLA judgment endorsed this view.
In its judgment, the court also underlined a statement by then Union finance minister P Chidambaram in Parliament in December 2012 on bringing PMLA in line with global watchdog Financial Action Task Force’s (FATF) recommendations. In Apparel Export Promotion Council Vs AK Chopra (1999) and Pratap Singh Vs State of Jharkhand & Anr (2005), the court enunciated that international treaties, covenants and conventions should be accorded due regard when they are not inconsistent with domestic laws and tend to fill gaps in the same.
Adding an important clarification regarding the application of the 2002 law, the Supreme Court held that people will be liable for prosecution under Section 3 if they continue to indulge directly or indirectly in dealing with proceeds of crime even though the crime might have taken place before PMLA was brought into force.
At the same time, ED investigation must stop if the prosecution against an accused is quashed, held the court — an important ruling that may result in the closure of some cases.
Attachment, adjudication and confiscation
Section 5 of PMLA lays down powers regarding provisional attachment and confiscation of properties if there are reasons to believe that any person is in possession of proceeds of crime.
The provision initially required preregistration of a main FIR on the basis of which the predicate offence of money laundering could be investigated by ED. However, through an amendment in 2015, the law empowered ED to make emergency attachment of properties for a period of 180 days without a preregistered criminal case. Within 180 days, the order of provisional attachment needs to be confirmed by the adjudicating authority under PMLA, which is headed by a district judge.
While the petitioners argued that the powers of attachment were sweeping with no safeguards, the top court upheld the amendments, which, it noted, removed the legal impediment that existed before 2015 by making emergency attachment of properties possible so that the proceeds of crime remain available at the time of prosecution.
“Before resorting to action of provisional attachment, registration of scheduled offence or complaint filed in that regard, is not a precondition,” it said, adding that ED can attach properties and then inform the police for registration of an FIR. Under the law, the police are obligated to lodge an FIR if materials disclose commission of a cognisable offence.
A challenge to taking possession of the property even before a final confiscation order was also rejected by the court, saying exceptional circumstances may warrant this. It clarified that while attachment can take place without a base FIR, further prosecution under PMLA would require a principal FIR.
Search, seizure, survey
Sections 16, 17 and 18 authorise ED to enter any place of interest and carry out search and seizure. Pertinent amendments in 2013 added that search and seizures can take place also when a person is suspected of being in possession of either a tainted property or documents relating to such properties. The amendments also authorised ED to freeze properties.
Contending that the absence of sufficient safeguards renders the provisions arbitrary and open to misuse, the petitioners complained against a 2019 amendment that did away with the requirement of informing a court before search and seizure.
The top court rejected the objections, noting the process of searches and seizure under PMLA is not only for the purpose of inquiring into the offence of money laundering, but also for prevention. “It is certainly not an arbitrary power at all,” declared the court, adding that these are reasonable provisions in view of the in-built safeguards.
Power to arrest
Section 19 of the Act empowers ED to make arrests after recording reasons to do so and forwarding the report to the adjudicating authority. The petitioners argued that no arrest should take place without registration of a formal complaint. But the top court highlighted that PMLA intended not only to prosecute persons involved in money laundering but also prevent the crime, and the power to make arrest is quintessential to achieve this objective.
The court added the person arrested should be informed about the grounds of arrest and be taken before a court within 24 hours.
The court identified similar powers under FERA and Customs Act. In Romesh Chandra Mehta Vs State of West Bengal (1969) and Union of India Vs Padam Narain Aggarwal & Ors ( 2008), the Supreme Court upheld the power to arrest when there are safeguards to ascertain that the power is not abused. It also dismissed the challenge to non- supply of Enforcement Case Information Report (ECIR), which is equivalent of an FIR in an ordinary criminal case, noting that ECIR is an internal document of the agency. Since there is no legal requirement for ED to compulsorily register an ECIR, the court said, no directive to share a copy of ECIR can be issued.
Summons and self-incrimination
Section 50 of PMLA authorises an ED officer to summon any person to record statements during investigation. Further, the provision mandates that the person should disclose true and correct facts known to his personal knowledge, or face punishment.
The petitioners argued that this was violative of Article 20(3), which provided protection against self-incrimination. Besides, it was also argued that ED officers should be considered police officers for the purposes of such inquiries, and therefore, statements made before them should be inadmissible as evidence.
The court rejected both these contentions, saying people do not become witnesses against themselves merely upon issuance of summons for giving oral evidence or producing documents. To be entitled to protection under Article 20(3), the court said, a person must be formally an accused (Mohammed Dastagir Vs The State of Madras, 1960).
If the statement made by the person reveals the offence of money-laundering or the existence of proceeds of crime, that becomes actionable under the Act itself, added the court.
The court held that ED officers cannot be considered “police” officers because their roles are distinct under PMLA. It means, the bench said, if an ED officer records an incriminating statement of a witness, suspect or accused, such a statement can become a piece of valid evidence and cannot be thrown out on the ground of being self-incriminatory and thus, violative of Article 20(3).
Reverse burden of proof
PMLA, in sections 24 and 45, invokes the principle of reverse burden of proof, in contrast to the cardinal common law principle of “innocent until proven guilty”.
Section 24 states that a court will presume an accused to be involved in money laundering unless proved contrary. Such a presumption, after a 2013 amendment, ensues in all proceedings, including those before the adjudicating authority.
Likewise, Section 45 imposes the two conditions for bail in PMLA cases — first, an opportunity for a prosecutor to oppose the bail, and second, the prima facie satisfaction of a court on the presence of reasonable grounds that the accused is not guilty of money-laundering and that he is not likely to commit any offence while on bail.
Notably, the twin bail condition was struck down by the top court in a 2018 judgment over discrimination between two sets of offences — those that entail a maximum punishment up to three years, and others with higher punishments. In the same year, the government brought back the twin conditions by amending PMLA. The court upheld both provisions, stating that they are in line with the legislative scheme of PMLA, and are not arbitrary. On the validity of the reverse burden of proof, the court held that although presumption of innocence is a human right, it can be interdicted by a parliamentary law.
Twin bail conditions
On bail under PMLA, the court noted that the 2018 amendment was valid since it removed the edifice of the previous judgment by making the bail conditions uniform across the board. A constitution bench judgment in PV Sundararamier & Co Vs The State of Andhra Pradesh & Anr (1955) held that Parliament is entitled to validate a law by removing the constitutional bar which formed the basis of a court to declare a legislative provision bad. The ruling in Bhubaneshwar Singh & Anr Vs
Union of India & Ors ( 1994) ruled that effect of a judgment can be wiped out by removing the defects in the law.
While upholding the legislative competence of the government to bring back the twin conditions of bail, the court emphasised that money laundering cannot be considered less severe than terrorism, and therefore, tough bail conditions were justified. The court also noted that similar bail conditions under TADA ( now repealed), Customs Act and FERA were upheld by the Supreme Court in previous judgments.
In Usmanbhai Dawoodbhai Memon & Ors Vs State of Gujarat (1988) and Kartar Singh Vs State of Punjab (1984), the Court underlined that liberty of a citizen must be zealously safeguarded by the courts, but at the same time due deference must be given to collective interest of the community and the safety of the nation so that the public may not lose faith in the system of judicial administration and indulge in private retribution.
Wednesday’s judgment also clarified that Section 436A of the Criminal Procedure Code (CrPC) would be applicable in money laundering cases too, entitling an accused to seek bail if he has already served half of the maximum punishment prescribed under the law.
This clarification becomes important in view of the two recent judgments by the Supreme Court on grant of bail. Through a judgment on July 11, the top court urged the Union government to consider framing a new law to facilitate the grant of bail, saying India should never become a “police State” with investigating agencies acting like a vestige of colonial era. It noted that courts should resort to a quicker adjudication in cases of special laws (such as PMLA or NDPS) where the rigours of bail are harsh. Similarly, while granting bail to Alt News co-founder Mohammed Zubair in connection with cases registered against his tweets, the court on July 20 held that individuals must not be punished solely on the basis of allegations, and without a fair trial.