'PMLA Most Draconian Statute Ever In The Country': Kapil Sibal Urges Supreme Court To Reconsider 'Vijay Madanlal Choudhary' Judgment

“The act gives draconian powers to the Directorate of Enforcement for arrest, attachment, search and seizure. The safeguards provided in the Code of Criminal Procedure are excluded. There are no safeguards at all under the statute", he said.

A bench of Justices Krishna Murari and V Ramasubramanian was hearing a batch of appeals against an order of the Madras High Court ordering a fresh enquiry into the cash-for-jobs scam, in which Tamil Nadu minister, V Senthil Balaji, among others, has been accused of accepting bribes from job aspirants in exchange of appointments to the state transport corporation between 2011 and 2015.

Sibal told the top court today that the application of the Prevention of Money Laundering Act, 2002 and the directorate’s modus operandi are not only against all ‘canons of justice’, but also violative of the principles of federalism. He explained:

“The Enforcement Directorate is going around the country now, targeting people. For the Central Bureau of Investigation to conduct a probe, the state’s consent in needed. But there is no such restriction for the ED. It has started investigating even predicate offences. This violates federal principle. Imagine a scheduled offence has taken place in West Bengal, but a small part of the offence is in Delhi. What does the Enforcement Directorate do? It files a complaint in Delhi and the cases in Bengal get transferred to the capital. These are issues which can affect the polity of the country.”

The senior counsel vehemently argued that the Supreme Court’s July 2022 decision in Vijay Madanlal Choudhary needed a ‘relook’. In this judgement, a three-judge bench of Justices AM Khanwilkar, Dinesh Maheshwari, and CT Ravikumar had upheld the provisions of the Prevention of Money Laundering Act relating to the ED’s power of arrest, attachment, and search and seizure. The top court had also upheld the reverse burden of proof under Section 24 of the Act, saying that it had reasonable nexuses with the objects of the Act.

Sibal pointed out that the offence of money laundering within the meaning of Section 3 of the act, as interpreted by the Vijay Madanlal Choudhary bench, included every process and activity – direct or indirect – in dealing with the proceeds of crime, irrespective of whether such tainted property have been integrated into the formal economy. This has resulted in the distinction between "money laundering" and "proceeds of crime" getting lost. As a consequence of the "erroneous" interpretation given in Vijay Madanlal Choudhary, the mere possession of proceeds of crime will amount to the offence of "money laundering'

He told the bench:

“Suppose I give a bribe. That would be ‘proceeds of crime’. But it would not be money laundering unless that bribe money is used to buy a piece of land or jewellery, on the pretext that it is legitimate money. If there is no conversion of the bribe into land or jewellery, there is no money laundering. However, the distinction between money laundering and proceeds of crime is now lost after this judgment. This interpretation is completely contrary to the language of the statute and against the canons of statutory interpretation. With due respect to the judges, the judgment is constitutionally suspect.”

In this connection, Sibal emphasised the various ways in which the lack of procedural safeguards affected the rights of the accused being investigated for money laundering charges under the PMLA.

“What is happening in the country is, the moment a first information report is lodged, the ED files an enforcement case information report, even though an FIR merely contains information given to the police,” the senior counsel said. He then asked, “When an investigation into an alleged predicate offence is yet to take place, how can the ED conduct a simultaneous investigation?”

He further pointed out that the central agency did not share the enforcement case information report (ECIR) with the accused, claiming that it was an internal document, nor did it maintain a case diary. He also said that while issuing summons, the ED did not indicate whether a person was being summoned as an accused or a witness, therefore vitiating their right against self-incrimination. Besides this, the senior counsel claimed that PMLA offences being non-compoundable even when corresponding scheduled offences were compoundable, was unreasonable, arbitrary, and violative of Article 14. He also told the bench that “the whole sealed cover procedure”, that was recently denounced by a bench led by Chief Justice DY Chandrachud, was started in a PMLA case against senior advocate and former union finance minister, P Chidambaram. “I was a lawyer in that case, and I told the court that the procedure is unconstitutional, which the recent seminal judgment also says,” Sibal recalled.

Finally, Sibal questioned the legal soundness of describing the 2002 Act as a ‘preventive’ act and 'not a penal act', as it was done in the Vijay Madanlal Choudhary judgment. “How can this act be preventive when it is intended to punish persons guilty of money laundering? But the Supreme Court said it was preventive in this judgement. How can it not be penal, when clearly a plain reading shows that is a penal statute which creates an offence.

The consequences of the court holding that the PMLA was not a penal statute, he explained, was that ED officials are not considered to be police officers, even though they were empowered to arrest an accused or seize their property. Further, by a deeming fiction contained in Section 50 of the act, any statement given to such an official would also be considered to be given in a judicial proceeding. “The investigator cannot become the court,” Sibal exclaimed. Since the officials had all the powers of a police officer, they should be considered to be police officers, he said. “How can they be not police officers? And, if they are police officers, statements given to them would become inadmissible.” Not only this, but any statement recorded by the directorate would have a bearing on the mind of the judge trying the predicate offence, even though such a statement would not be directly admissible in that case, said Sibal. This, he added, would cause havoc in trial.

After making his multi-pronged submissions challenging the constitutional validity of the Prevention of Money Laundering Act, Sibal again urged the division bench to refer the questions raised in the present appeal to a larger bench for a reconsideration of the Vijay Madanlal Choudhary judgement. In conclusion, the senior counsel said, “I understand that this bench is bound by the three-judge bench judgment. All that I am saying is, there are reasons to doubt the judgment and if there are doubts, you should refer the judgment to a larger bench.”

The arguments will continue tomorrow.

It may be recalled that the Supreme Court had in August 2022 issued notice in the review petitions filed against the Vijay Madanlal Choudhary judgment to look into the aspects relating to denial of ECIR copy to the accused and the reversal of the burden of proof.

Case Title

Y. Balaji v. Karthik Desari & Anr. | Special Leave Petition (Criminal) No. 12779-12781 of 2022 and other connected matters

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