Vijay Madanlal Chaudhry V. Union Of India - A Case Fit For Review?

The decision in Vijay Madanlal v. Union of India was delivered on 27 July 2022 by a three-judge Bench of the Supreme Court comprising Hon'ble Justices Mr. A.M. Khanwilkar, Mr. Dinesh Maheshwari, and Mr. C.T. Ravikumar ("the Judgment").^[1] The Court has unanimously upheld the validity of all the impugned provisions of the Prevention of Money Laundering Act, 2002 ("the Act"), including inter alia, finding that Enforcement Directorate ("ED") officers are not police officers,^[2] copies of Enforcement Case Information Report ("ECIR") need not be given to the accused,^[3] the twin-test for bail is constitutional,^[4] and that projecting proceeds of crime as untainted is not an essential ingredient of money laundering.^[5]

Critique and response to the judgment: The judgment has attracted serious critique from various segments of society, be it lawyers,^[6] judges,^[7] politicians,^[8] or businessmen. In fact, a recently retired judge of the Supreme Court, Justice Nageswar Rao, himself said that he "might have taken a different view" and that there is "a general feeling that there is a setback to personal liberty because of what has been stated in the judgement".^[9] Notably, the opposition in the Parliament has presented a unified response to the Judgment, and 17 parties, (including the Congress, TMC, AAP) have signed a joint statement expressing deep apprehensions on the long-term implications of the Judgement and called for its review.^[10] Critics have also pointed out that despite a large number of raids and attachments conducted by the ED, the conviction rate remains abysmally low, and some reports find this to be as low as 0.5%.^[11] In this background, the Judgment's enormous impact cannot be taken lightly.

Importantly, the Supreme Court itself, within a few weeks of passing Vijay Madanlal, has cast doubts on some portions of the Judgment by way of another constitution bench judgment which was dealing with the Benami Prohibition Act, in the following manner:

"17.27 In Vijay Madanlal Choudary & Ors v. Union of India, SLP (Civ.) No. 4634 of 2014 and others, this Court dealt with confiscation proceedings under Section 8 of the Prevention of Money Laundering Act, 2002 ("PMLA") and limited the application of Section 8(4) of PMLA concerning interim possession by authority before conclusion of final trial to exceptional cases. The Court distinguished the earlier cases in view of the unique scheme under the impugned legislation therein. Having perused the said judgment, we are of the opinion that the aforesaid ratio requires further expounding in an appropriate case, without which, much scope is left for arbitrary application."^[12]

Such judicial finding from the Supreme Court itself, that too soon after the passing of the Judgment, gives important insight into the general as well as judicial concerns about the Judgment.

Review Petition: In the meanwhile, a review petition was filed against the Judgment in the Supreme Court by one of the erstwhile Petitioners, Mr. Karti Chidambaram.^[13] Ordinarily, review petitions are extremely limited proceedings, required to strictly fulfil the narrow test of "a mistake or error apparent on the face of the record".^[14] Moreover, they are heard before the judges in chambers, as opposed to an open court hearing.^[15] In this matter, on the other hand, the Supreme Court permitted the review petition to be heard in open court.^[16] Thereafter, on Friday, i.e., 26 August 2022 (which was the last working day of former Chief Justice of India Justice N. V. Ramanna), the matter was heard in open court and thereafter, the Court issued notice on the review petition, stating as follows:

"…prima facie, we are of the view that at least two of the issues raised in the instant petition requires consideration."^[17]

While the order itself does not delineate which are the said two issues, reporting from the Court indicates that the two issues referred to in the said order are (a) no legal requirement to provide ECIR to the accused; and (b) reversal of presumption of innocence.^[18] Considering that the view expressed by the Court on the two abovementioned issues is only a prima facie view, it is imperative to examine these and a few other grounds which could be open to the petitioner to take in the review petition.

1. Amendments to the Act through a Money Bill

Perhaps one of the most crucial aspects which the Petitioner may agitate is that many of the impugned provisions of the Act have been brought in by way of amendments through a Money Bill. The issue of whether this procedure was permissible under the scheme of the Indian Constitution is currently pending adjudication and has been referred to a 7-judge bench by way of judgment of a 5-judge bench in Rojer Mathew v. South Indian Bank.^[19] Rather than referring the PMLA matter in a similar vein, the present J­­­­udgment has brushed aside this objection and proceeded to determine the other aspects, in the following words:

"21. We are conscious of the fact that if that ground of challenge is to be accepted, it may go to the root of the matter and amendments effected vide Finance Act would become unconstitutional or ineffective. ……we proceeded with the hearing of the batch of cases before us to deal with the other challenges regarding the concerned provision(s) being otherwise unconstitutional and ultra vires".

(Emphasis added)

Thus, it may be argued that proceeding with the determination and refusing to go into the fundamental Money Bill question, without adequate reasons, was not proper. If tomorrow, the 7-judges' bench seized of this question reaches a conclusion that the Money Bill amendment procedure was impermissible or invalid, the Judgment would become redundant and the entire exercise would be futile. Thus, it may be open to the review petitioner to assert that instead of passing the Judgment, the Court should have tagged the petition with the Rojer Mathew matter, or that the petition should have been adjourned sine die, pending decision in Rojer Mathew. Any failure to do so is a fundamental mistake and/or error apparent on the face of the Judgment and thus, the review petition ought to be allowed.

2. Over-broad interpretation given to the offence of money laundering

While it is true that the Supreme Court in the Judgment has finally given a much-needed framework to the meaning of "proceeds of crime",^[20] and thereby put a halt to the practice of the ED seizing and/or attaching any and every asset even remotely related to the crime, , considerable lacunae remain when it comes to the ingredients essential to constitute money laundering.

The Supreme Court has held that the ingredient of "projecting or claiming" the proceeds of crime as untainted property is not necessary for the offence of money laundering under the Act.^[21] Consequently, any person who is merely in possession of proceeds of crime without any knowledge of the same or any involvement in the criminal enterprise can be prosecuted under the Act. This understanding, combined with the presumption under Section 24 of the Act (presumption that such proceeds of crime are involved in money-laundering) may completely overturn the fundamental principle of presumption of innocence in criminal law. By this account, even a lawyer who has been paid professional fees by his Client and has received tainted money unawares can be now held liable for the offence of money laundering under the Act.

3. Findings as regards providing the ECIR, statements before the ED and nature of ED officers and proceedings

While issuing notice on the review petition, the Supreme Court itself noted that one of issues for consideration was whether a copy of the ECIR needs to be given to the accused. In this context, the Judgment has a host of related findings which, individually and in conjunction, may lead to severely prejudicial results for an accused. The Judgment has found that:

• ED officers are not police officers;^[22]
• A copy of the ECIR need not be given to the accused by ED;^[23]
• Statement given to the ED by an accused can be used against them;^[24]
• Criminal Procedure Code, 1973 ("CrPC") does not apply till the stage of arrest.^[25]

These findings, apart from perhaps having challengeable legal premises, also have grave ramifications upon the constitutional rights of an accused. Firstly, permitting a practice of using statements of accused against them by a prosecutorial agency may militate against the fundamental protection against self-incrimination in criminal law, as enshrined in the Indian Constitution and as expounded in various landmark judgments such as Selvi, Kathi^[26] Kalu Oghad^[27] and Nandini Satpathy^[28]. Secondly, it is pertinent to mention that under Section 91 of the CrPC, it is open for a person to refuse to answer on the ground that the answers may potentially incriminate them.^[29] However, no such refusal can be given by any person to the ED upon receiving summons, and the Act specifically makes a refusal to answer or to sign the statement recorded by ED as a punishable offence.^[30] It is not out of place to mention that the march of law in India has reflected a general distrust of confessions before police officers in India, and both by virtue of statute as well as judicial precedent, and at present, extra-judicial confessions given by an accused are not admissible as evidence. There are exceptions to this rule, no doubt, but those are carved by specific statutes such as the Customs Act, which are significantly different from ED in scope and functioning.

Further, the Judgment held that the ED is not bound to provide the accused a copy of the ECIR, on the ground that the ECIR is only an internal document and its disclosure may prejudice the investigation. At the same time, the Judgment also upholds the onerous twin test for bail, whereunder the accused would be required to show that they are not guilty of the offence. This may be heralded as an unfair result, because for a person who is unaware of the contents of the ECIR, it is nearly impossible to prove that they did not commit the offence specified in the ECIR. In this regard, the Judgment can also be challenged for being opposed to a basic tenet of natural justice i.e., "audi alteram partem". In fact, the Supreme Court in its own earlier judgment in Youth Bar Association v. Union of India,^[31] has conclusively held that an accused is entitled to obtain a copy of the FIR under the CrPC.

Furthermore, the Judgment also holds that none of the protections under the CrPC would be extended to the accused till the arrest.^[32] In holding so, the judgment provides sparse justifications for creating a new legal framework for pre-arrest situations. Moreover, the Judgment materially ignores Section 65 of the Act, which says that CrPC shall apply to all stages including the arrest, search, seizure, attachment, confiscation, investigation and prosecution, in so far as it does not conflict with the Act. In this background, the Judgment's finding that ED officers are not police officers suffers from material vice, and is also inconsistent with the reading of Section 45(1A) of the Act which permits a police officer to investigate an offence under the Act. Thus, there is an anomalous situation created whereby the police office empowered under Section 45(1A) (and carrying out the functions of the ED) would amount to a police officer, whereas the other ED officers would not.

Thus, in deviating from established criminal procedure, without adequate reasons, the Judgment may be opened up for review.

4. Findings as regards bail twin conditions- overturning Nikesh Tarachand Shah

One aspect of the Judgment which has received the most criticism is its stance on section 45 of the Act. Section 45 comprises the twin conditions for granting bail, namely, that there are reasonable grounds for believing that the accused is not guilty of such offence, and that they are not likely to commit any offence while on bail.

The said twin test had been earlier held to be unconstitutional in Nikesh Tarachand Shah v. Union of India^[33] which was given by a division bench of the Supreme Court, for being manifestly arbitrary, discriminatory, and invalid. However, the Judgment in Vijay Madanlal, in the course of its findings, has effectively overruled Nikesh Tarachand Shah, and reinstated the twin conditions.

While it has been argued that such onerous twin conditions also exist in other laws, it is material to note that firstly, the said other statutes referred to are vastly more serious in import and impact, for instance, TADA,^[34] POTA,^[35] UAPA,^[36] NDPS Act^[37] etc. Many of these offences involve the loss of life and limb, and are usually related to terror. Thus, it may be argued that importing their onerous twin test for a financial crime of much lesser punishment, is not reasonable or fair. Secondly, it may also be noted that in these other statutes, there still remain some constitutional and CrPC protections (albeit limited), unlike under the Act, where the accused would not even have a copy of the ECIR and would only find out of the grounds of arrest upon actual arrest. Moreover, the Judgment has gone a step further and found that the twin test also applies to anticipatory bail. Yet, how a person is to argue that they are not guilty of an offence, even before there exists any ECIR which identifies the said offence, confounds all logic.

5. Presumption of guilt

Lastly, it is pertinent to mention another issue on which the Supreme Court issued notice- the reversal of presumption of innocence. This aspect pertains to Section 24 of the Act, which requires that whenever a person is charged with an offence under the Act, the Court or Authority shall presume that the proceeds of crime were involved in money laundering. The said provision reverses the ordinary burden of proof in a criminal trial, which rests upon the prosecution to prove the offence was committed beyond reasonable doubt, to the accused, who shall have to prove the converse. To be clear, such reversals also exist in other special laws (for instance, the Negotiable Instruments Act), however, the fairness of each must be adjudicated on the anvil of the subject matter of each legislation. The difficulty with providing for such a reversal in case of PMLA is that for an innocent person, it is almost impossible to prove or to lead evidence that the money/assets in question were not laundered. For instance, take the case of the lawyer who innocently received fees which were alleged to be tainted and proceeds of crime. In the trial, the said lawyer would have to provide evidence to show that the money was not, in fact, proceeds of crime, something which is well beyond his knowledge and competence to prove.

The above discussion aims to elucidate upon some of the possible grounds which can be argued in the hearing of the review petition in this matter. It is not out of place to emphasize that the test for review in the Supreme Court are highly limited, and a lot depends on the discretion of the bench as to whether the grounds raised by the petitioner display an "mistake or error apparent on the face of the record".

Authors: Sanjeev Sharma, Sanya Sud, and Siddharth Jain, Saraf & Partners. Views are personal.