Supreme Court Judgment On Interpretation Of PMLA Provisions Expected Soon : A Recap Of The Main Issues

As we await the Apex Court's judgment, it might be beneficial to recapitulate the propositions put forth by the petitioners for its consideration.

Absence of procedure to commence investigation and summoning

Unlike the Cr.P.C.,the PMLA, also a penal statute, lacks procedure for commencing investigation and also that for summoning. The same is in the teeth of the protection to life and liberty guaranteed under Article 21 of the Constitution of India. The scheme of PMLA excludes the application of provisions of Cr.P.C. However, it is trite that the vacuum in special legislations is to be filled up by the provisions of Cr.P.C. Moreover, Section 65 PMLA also contemplates application of Cr.P.C. as long as it is not inconsistent with the provisions of PMLA.

Accused is not made aware of the contents of the ECIR

The workings of the PMLA is dependent on the internal manual which requires recording of Enforcement Case Information Report (ECIR), but does not mandate sharing of the ECIR with the prospective accused. This leaves the registration of the ECIR at the whims and fancies of the ED officers. It also jeopardizes the right to liberty under Article 21 of the Constitution. In Youth Bar Association v. Union of India the Apex Court had ruled that an accused is entitled to a copy of FIR and the same requirement ought to be extended to ECIRs. PMLA arrest process is referred to as the Frankenstein's Monster, wherein no disclosure is made about the material on the basis of which arrest is made by the authorities.

There is no Magisterial oversight

The legitimacy of Section 45 PMLA was also assailed on the ground that it renders it impossible for the Magistrate taking cognizance under Section 157 of the Cr.P.C. to know why the accused had been arrested.

Twin bail conditions Exists Without Safeguards

The twin conditions under Section 45 PMLA pushes the threshold to secure bail higher, which, in essence, imposes restrictions, in the nature of preventive detention without the safeguards of preventive detention. Unfettered discretion with no procedural safeguards violates protection envisaged under Article 21. At the pre-complaint stage, the accused has no means to prima facie satisfy the Court that they are not guilty. And also at the post-complaint stage, the accused has no opportunity to rebut as there is no cross-examination or evidence at the said stage.

Even when accused not arrested under Section 19 PMLA, twin condition is applied

Arrests are frequently made when the accused appear on being issued summons, before the ED officials and not following the procedure under Section 19 PMLA dealing with power to arrest. As a matter of concern, even in such cases of arrest, the accused is required to meet the twin test. If the same is, at all, permissible needs to be settled by the Apex Court.

The punishment and twin bail conditions are disproportional

Though the punishment for money laundering is a maximum term of 7 years, which from a legislative perspective, is not a grave crime, the standard for securing bail, by virtue of the twin condition in Section 45 PMLA has been made extremely high. Thus, it fails the test of proportionality.

Legitimising 'proceeds of crime' is the offence under PMLA

Generation of 'proceeds of crime' from the predicate offence is not punishable under PMLA. Even concealment of "proceeds of crime" by itself would not qualify as money laundering. What is punishable, then? It is the act of legitimising the tainted money. The projection of the money as untainted and its integration into the economy would constitute an offence of money laundering. The ED registers ECIR merely on the basis of the predicate offence, without any evidence to show that either attempts have been made to legitimise the proceeds of crime or the tainted money has actually been legitimised. Because of ambiguity in provisions of PMLA, scheduled offences committed 20 years ago are being investigated for money laundering.

Statement of accused admissible in evidence under Section 50 PMLA is used for predicate offense

Once ECIR is registered based on the predicate offence, the predicate offence is no longer investigated by the local police officials. Exercising power under Section 50 PMLA, the ED officials record statements of the accused, which is admissible in evidence. The statement is then used as evidence for the predicate offence and both are tried simultaneously.

Concept of summoning the accused and taking their statements under Section 50 PMLA is violative of Articles 20(3) and 21

The power that the ED officers are entrusted with under Section 50 PMLA to summon anyone and record their statement and force them to sign their statement, devoid of the safeguards enumerated in the Cr.P.C and the Indian Evidence Act, is in gross violation of the Constitution. To emphasise, an accused has a constitutional right to remain silent and the same cannot be held against them to deny bail.

Investigation under PMLA to commerce only after predicate offence is prima facie established

As per the original PMLA, power of provisional attachment and search and seizure could be exercised only after the chargesheet had been filed. However, with subsequent amendments diluting the safeguards of filing of chargesheet before investigation begins, considering the statute postulates serious consequences, investigation should be initiated only after the predicate offence is preliminary established.

Money Laundering is not a standalone offence

The existence of schedule offence is sine qua non for the offence of money laundering. The insertion of Explanation (i) to Section 44(1)(d) PMLA by way of the Finance Act which permits trial under PMLA to proceed even if there is an order of acquittal in the scheduled offence, gives the impression that money laundering can be a standalone offence. It is contrary to Section 3 PMLA and suffers from 'manifest arbitrariness'.

Consequences for laundering proceeds of crime cannot be more severe than consequences of generating proceeds of crime

This argument was raised in view of the fact that in some cases even though the predicate offenses are bailable, when they fall under the ambit of PMLA they are not only non-bailable but also amenable to the twin bail conditions, which was in derogation of Article 14.

PMLA has deviated from its original purpose to check the proceeds of illicit drug trafficking

In order to combat the serious concern of drug money being used to promote terrorism, UN General Assembly had passed a special resolution in 1998. Mr. Sibal argued that the said resolution marked the genesis of the PMLA. He was perturbed that at present, PMLA is made applicable to 'ordinary crimes' (for eg - offence punishable under Section 420 IPC, which is otherwise compoundable) as scheduled offence. Though the statute may be made applicable to serious offences related to organised crimes, but not individualistic acts falling within the ambit of ordinary law.

PMLA has now been amended by way of a Money Bill

The amendments made by way of the Finance Act which was introduced as a Money Bill indicates colourable exercise of power as the scrutiny of the Rajya Sabha has been conveniently avoided in the process. The larger issue regarding whether such amendments can be introduced by way of a Money Bill has been referred to a 7-judge Bench in the Aadhaar matter.

Unlimited list of scheduled offences

The original list of scheduled offences have been expanded to the extent that most of them do not have rational nexus to objects and reasons of PMLA and therefore they would not pass muster with Article 14 of the Constitution.

Officers of ED are police officers

PMLA being a penal statute, the officers referred therein are police officers. The purpose of the statute and the nature of powers exercised by the officers, both suggest that ED officers are police officers and therefore, confession to these officers ought to be inadmissible in evidence as per the Apex Court's judgment in Toofan Singh v. State of Tamil Nadu.

Explanation Under Section 5 PMLA is wide enough to include even bona fide purchasers of property

The Explanation to Section 5 PMLA, which deals with the attachment of property involved in money-laundering has made the ambit of the provision so wide, that attachment can now be ordered even against a bonafide purchaser of the property.

Section 24 PMLA reverses the burden of proof and falls foul of Article 20 and 21

Section 24 PMLA presumes offence under PMLA without adequate safeguards like in other statutes including the POTA, TADA, UAPA and NDPS. Upon the trial court frames charges, the burden of proof is on the accused.

No checks and balances in search and seizure

By virtue of Sections 17 and 18 PMLA, the ED officials can carry out search even without the existence of an FIR in the predicate offence.

Taking possession of the attached property at the threshold

The moment ECIR is registered, 'all' assets - monies and properties are attached. Under Section 8(4) PMLA, the possession of the attached property can be taken over without any statutory confirmation of the offence. The effect of the same is permanent deprivation of possession until the acquittal of the accused. By the time the accused is acquitted, their business is already in shambles.

Only 9 convictions in PMLA Cases out of 1700 Raids by ED Since 2011

Even with 1700 raids conducted and 1569 specific investigations by the ED officials since 2011, it has secured only 9 convictions. But in all these cases, the officials have not shied away from seizing and attaching property, making arrests, conducting months of interrogation and forcing the accused to self-incriminate.

Post 2019, the Appellate Tribunal is unstaffed

With no further appointments, no chairperson, members retiring systematically, the Appellate Tribunal is unstaffed. The condition was so abysmal as on 16.02.2022 (when the submission was made), that only one member of the five person committee was serving. The unserviceability of the Appellate tribunal acts as a serious impediment in securing remedy for unjustified attachment.

Union Defending the Statue

The contentions raised by the Senior Counsels appealing on behalf of the petitioners were vehemently controverted by the Solicitor General (SG). As per his submissions, out of 4700 cases that have been investigated by the ED officials till date only 313 arrests have been made and 388 searches have been conducted. In comparison to other jurisdictions - UK, USA, China, Australia, Hong Kong, Belgium and Russia - India is investigating fewer PMLA cases. Out of 33 lakh predicate offences that were registered, ED has decided to take up only 2186 cases for investigation, in the last five years. Proceeds of crime worth INR 98,000 crores were identified and attached as per Section 5 PMLA, out of which INR55,899 crores have been confirmed by the adjudicating authority and INR 853.63 crores have already been confiscated by the Central Government.

Refuting submissions that only projection of 'proceeds of crime' as untainted constitutes offence under PMLA, SG argued that the mere possession of such proceeds was enough. Though in certain cases attachment can be effected even before the FIR or chargesheet is filed, there is adequate safeguard - the ED officials have to record reasons for the urgency in attachment. Being a complete code in itself PMLA already provides for a separate procedure, either expressly or by implication and provisions of Cr.P.C. are not applicable to it. It was urged that higher safeguards are postulated in the PMLA than the Cr.P.C. Under Cr.P.C. arrest can be made on suspicion, but under the PMLA there has to be material in possession; recording of satisfaction and only the Director or Deputy Director and not Police Sub-Inspectors (PSIs) are authorised to take action. Moreover, acquittal in a predicate offence itself would not end the PMLA proceedings. Sometimes acquittals in predicate offence might be on technicalities and dropping the PMLA proceedings in those cases would not be fair.

SG defended the constitutionality of Section 45 PMLA, imposing twin bail conditions. What the Supreme Court had considered to be unconstitutional in Nikesh Tarachand Shah v. Union of India And Anr. (2018) 11 SCC 1 was arbitrarily linking the twin conditions only with the predicate offence or part of the predicate offence ("Part A of the Schedule"). The PMLA was amended by the Finance Act, 2018 whereby the words "punishable for a term of imprisonment of more than three years under Part A of the Schedule" in Section 45 were substituted with the words "under this Act". The ground on which the provision was declared unconstitutional, being cured, the provision has been revived.

Additional Solicitor General SV Raju appearing for ED emphasised that 'concealment and possession' is a continuing offence. If the 'proceeds of the crime' were acquired before the offence was classified as a scheduled offence, but the 'concealment and possession' is found after it becomes a scheduled offence, the date on which it is found would be the crucial date. If the property which is purchased using both proceeds of crime and legitimate money cannot be divided by metes and bounds then the whole property can be attached, but, the portion bought with legitimate income can be used for other purposes like mortgaging. Argument was furthered that Section 50 PMLA does not violate Article 20(3) of the Constitution. Neither Section 25 of the Indian Evidence Act (confession to police officer not to be proved) nor Section 162 Cr.P.C. (statements to police not to be signed) is applicable to Section 50 on the issue of admissibility.