'Affects Right To Liberty' : Kapil Sibal Urges Supreme Court To Reconsider PMLA Judgment Upholding ED's Powers

“The issues involved are very serious and affect the right to liberty. The judgment in ADM Jabalpur was set aside after 40 years. AK Gopalan was set aside in Minerva Mills after many years. Judgments are set aside because new paradigms emerge, and the court has to think of the consequences of those paradigms in the context of our Constitution and the liberty of the people.”

Ahead of the Financial Action Task Force (FATF) mutual evaluation of India's anti-money laundering and terror financing mechanism, a Supreme Court bench of Justices Sanjay Kishal Kaul, Sanjiv Khanna, and Bela M Trivedi today began hearing a batch of applications challenging the interpretation of the Prevention of Money Laundering Act, 2002 given in the July 2022 Vijay Madanlal Choudhary case. In this case, the top court in July last year upheld the constitutional validity of several PMLA provisions relating to arrest, seizure, presumption of innocence, stringent bail conditions etc.

It may be noted that a review of the controversial judgment is also pending before the Supreme Court. Last year in August, while issuing notice on the review petition, a bench led by then Chief Justice NV Ramana had observed that two aspects of the judgment prima facie required reconsideration – one, the finding that a copy of the Enforcement Case Information Report (ECIR) need not be supplied to the accused; and two, the reversal of the presumption of innocence.

Preliminary Objections of the Enforcement Directorate

On the last occasion, the court agreed to hear the clutch of petitions, despite objections raised by Solicitor General Tushar Mehta. Alleging an 'abuse of the process of law', the law officer had argued that the three-judge bench could not 'sit in appeal' over a judgment of a coordinate bench. He also pointed out that a separate petition seeking a review of the Vijay Madanlal ruling was pending. Finally, he urged the court to defer the hearing in view of the upcoming Financial Action Task Force (FATF) mutual evaluation, in which the national anti-money laundering statute will be assessed against global standards.

The Justice Kaul-led bench noted the solicitor-general's objections but refused to defer the hearing of the batch of pleas. It also refused the law officer's contention that the bench did not have the prerogative to revisit the matter. At the same time, it clarified that the Enforcement Directorate would be allowed to address the court on the issue of maintainability on the next day.

Today, Solicitor General Mehta doubled down on his efforts to oppose the batch of pleas, by, among other things, questioning an alleged lack of specific pleadings in the petitions challenging any PMLA provision other than Sections 50 and 63. He argued –

“Possibly, they were tempted to have a wider argument. On the last day, therefore, the petitioners started arguing on a wide canvas – what is Section 3, how it is bad, etc. I objected to this saying that there are no pleadings in the petitions challenging the other provisions. We checked all the petitions and found that no other sections were challenged in any of the petitions.”

The law officer also strongly objected to an amendment petition running into forty pages “challenging virtually everything”, including Sections 3, 19, and 45 of the Prevention of Money Laundering Act. “We are opposing that amendment. If the petitioners confine themselves to Sections 50 and 63, we have no difficulty. But if they are going to make the full argument, it is based on a proposed amendment to a petition and we will oppose that amendment. Something that they could not have done when they filed the petition cannot be done by way of an amendment. Secondly, it changes the entire structure of the petition by introducing five new prayers. If Your Lordships are persuaded to permit the amendment, then we would like to file a reply,” he told the bench.

On behalf of the petitioners, senior advocates Kapil Sibal and Abhishek Manu Singhvi emphatically disputed the solicitor-general's claims. Singhvi said, “First of all, this is almost completely on the law point. Second, Sanjay Chhabria's petition has all the points. So this is covered in the ”

Sibal told the court that the lead petition in the batch of 84 pleas was one preferred by the Enforcement Directorate against a high court judgment striking down several provisions of the PMLA. “In this one, the ED has raised all these points in their grounds because they lost in the high court.”

“We have understood your point,” Justice Kaul told SG Mehta, before asking the petitioners to make their oral arguments. “We'll proceed, but we will go by the pleadings and confine you to them,” the judge cautioned.

Arguments on Merits

Right at the outset of his argument, Sibal clarified that he did not want to “convince the court that Vijay Madanlal was right or wrong”, but only to recommend its reconsideration by a larger bench -

“The issues are so fundamental to the rule of the law that the judgment needs to be reconsidered. It's not for Your Lordships to decide whether the judgment is wrong at this stage. You only need to examine whether this matter requires consideration by a larger bench of five distinguished judges… The issues involved are very serious and affect the right to liberty. The judgment in ADM Jabalpur was set aside after 40 years. AK Gopalan was set aside in Minerva Mills after many years. Judgments are set aside because new paradigms emerge, and the court has to think of the consequences of those paradigms in the context of our Constitution and the liberty of the people. You don't have to go into the facts of each case. If you find as a matter of law that it requires reconsideration, then you may refer it to a larger bench.”

Sibal also laid out the broad issues for the court's consideration. First, questioning the 2022 judgment for classifying the Prevention of Money Laundering Act as a regulatory rather than a penal statute, Sibal argued –

“There is an offence of money laundering and a punishment for the offender. Vijay Madanlal holds that despite this, the PMLA is not a penal statute because provisional attachment, which leads to final attachment and confiscation is the heart of the legislation. This is despite the domestic law coming into force with two conventions dealing only with crime. Many other statutes have confiscation provisions. But what makes PMLA so special that it makes it a regulatory statute?”

For context, the reasoning that PMLA was not a penal statute was central to the dictum in Vijay Madanlal that enforcement officers are not 'police officers', thereby making statements made to them admissible in evidence.

He also pointed out the ambiguity relating to the capacity (accused or witness) in which an individual is summoned, and the non-supply of the Enforcement Case Information Report (ECIR), claiming that these led to a violation of the fundamental rights to liberty and against self-incrimination. He said, “If someone is being summoned, they should be told why. If they are involved in any predicate offence, they should be informed about it. Because before the summons are executed, they may exercise their rights, for whatever they are worth.”

In this connection, he referred to summonses being issued against Govind Singh, Congress legislator and leader of opposition of the Madhya Pradesh legislative assembly right ahead of local elections.

Expressing doubts over Sibal's contention, Justice Trivedi asked, “Summonses are meant for the gathering of information. One is not deprived of their personal liberty, but is called to assist an investigating officer. I want to know how Article 21 comes into play when someone is merely being summoned.”

“If someone does not know if they have been accused in a case, how will they approach a court for anticipatory bail in exercise of their rights?” Sibal countered. He also argued that the anti-money laundering act was being misused to persecute individuals, claiming that the Enforcement Directorate is routinely getting involved in cases immediately after the registration of first information reports (FIR) with respect to the predicate offence.

Singhvi chimed in, “In innumerable cases, Section 120B (criminal conspiracy) of the Indian Penal Code is added as a stand-alone offence.”

Justice Khanna at this juncture disapproved of the practice of ED invoking PMLA even against non-scheduled offences like Income Tax Act offences, by using Section 120B IPC.

Next, Sibal questioned Vijay Madanlal's interpretation of Section 3, which defines an offence of money laundering, saying, “Through the explanation to Section 3, the meaning of the provision was modified, by changing 'and' with 'or'. This was upheld as clarificatory in this judgment. What principle of interpretation is this when the main section says 'and', not 'or'?”

The senior counsel also raised concerns about the rigour of the twin conditions for bail under Section 45 of the PMLA and the blurring of the lines between 'inquiry' and 'investigation' under Section 50. He further questioned whether the act would apply retrospectively and the manner in which the central investigating agency's territorial jurisdiction was determined. Citing the instance of ex-Maharashtra minister Nawab Malik, the senior counsel touched on the concept of a 'continuing offence', asking whether a scheduled offence that is time-barred can be used to invoke the PMLA on the ground that the proceeds of crime continue to be retained. Malik,  is facing money laundering charges in a case dating back to an alleged offence which took place even before the PMLA enactment, he highlighted.

Finally, he argued that the act's provisions neither aligned with international conventions nor constitutional principles. “We are part of the Vienna Convention and Palermo Convention that required us to formulate a domestic law in light of these treaties. All these provisions [under challenge] have been added, and not prescribed by the treaty documents and as such, ought to be tested on the anvil of constitutional principles.”

He also pointed out, “Both these conventions relate to drug trafficking and organised crimes, but the PMLA's ambit has been extended to cover even offences not related to drug trafficking, organised crimes, and other serious crimes.”

“That extension can be made by the legislature,” Justice Khanna reasoned.

“Yes,” Sibal replied, “But, then it can also be tested by this court on the basis of our constitutional principles. That's my argument.”

The arguments will continue tomorrow.

Case Details

Directorate of Enforcement v. M/s Obulapuram Mining Company Private Limited | Criminal Appeal No. 1269 of 2017