BREAKING| Supreme Court Upholds ED's Power Of Arrest, Attachment, Search & Seizure And "Twin-Conditions" For Bail; Says PMLA Has Stringent Safeguards

A Bench comprising Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar pronounced the verdict the case Vijay Madanlal Choudhary v Union of India and 240 connected petitions. Justice Khanwilkar read out the operative portions. 

The Court has left open the question whether the 2019 amendments to PMLA could have been brought through the Finance Act, and left those issues to be decided by the 7-judge bench which is considering the "money bill" issue.

The judgment was reserved on 15.03.2022.

Summary Of Supreme Court's PMLA Judgement- Vijay Madanlal Choudhary Vs Union of India

Issues reaised by the petitioners

The Senior Counsels appearing on behalf of the petitioners assailed various aspects of the statute as it exists today. Apart from the challenges to the statute, it was pointed out that ED officials have secured only 9 convictions after conducting 1700 raids and 1569 specific investigations since 2011. It was also brought to the notice of the Bench that the PMLA Appellate Tribunal is unstaffed. As on 16.02.2022 only one member of the five person committee was serving. It was averred that the non-functioning of the Appellate Tribunal acts as a serious impediment in securing remedy for unjustified attachments made by ED officers.

• Lack of procedure to commerce with investigation and to summon individuals - One of the foremost challenges was regarding the absence of procedure to commence with investigation and for summoning individuals. It was submitted that the scheme of the PMLA excludes the application of provisions of Cr.P.C.
• No provision to share ECIR with accused - The ED officers are not required to share the Enforcement Case Information Report, as a result of which the accused is not aware of the material on which their arrest was made.
• No Magisterial safeguard - While taking congnizance under Section 157 Cr.P.C. the Magistrate is not aware why the accused had been arrested.
• Twin bail conditions without safeguards - Another crucial challenge is to the twin bail condition enumerated in Section 45, which encourages preventive detention, but without the regular safeguards - a blatant violation of Article 21. In order to secure bail under the PMLA, the Court ought to be prima facie satisfied that the accused is not guilty. But, both at pre-complaint stage and post-complaint stage, the accused persons do not have sufficient means to prima facie establish that they are not guilty.
• Twin condition is applied even when arrest is not made under Section 19 - Arrests are frequently made when the accused appear on being summoned before the ED officials, without following the procedure under Section 19 PMLA, dealing with power to arrest. Even for arrests, the accused is required to meet the twin test.
• Punishment and twin bail conditions not in proportion - Maximum term of punishment (7 years) indicates the offence is not grave, but the standard for securing bail is extremely high. Thus, it fails the test of proportionality.
• Only 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. Only the act of legitimising the tainted money is punishable.
• ECIR registered merely on the basis of predicate offence without evidence to show proceeds of crime was legitimised - 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.
• Statement of accused admissible under Section 50 PMLA is used in proceedings of 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 as per PMLA. This statement is then used as evidence for the predicate offence and both offences are tried simultaneously.
• Summoning accused and taking their statements under Section 50 PMLA is violative of Articles 20(3) and 21 - Under Section 50, ED officers are entrusted to summon anyone and record their statement and force them to sign their statement, devoid of the safeguards - is a gross violation of the Constitution.
• Investigation under PMLA to commerce only after predicate offence is prima facie established - Originally, PMLA granted power of provisional attachment and search and seizure only after chargesheet was filed, which was diluted by the subsequent amendments. So, investigation should be initiated only after the predicate offence is preliminarily 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 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 money laundering cannot be more severe than consequences for generating proceeds of crime - This argument was raised in view of the fact that in some cases even though the predicate offences are bailable, when they fall under the ambit of PMLA they are not only non-bailable but also amenable to the twin bail conditions - it is in derogation of Article 14.
• PMLA has deviated from its original purpose to keep a check on the proceeds of illicit drug trafficking - Resolution passed by the UN General Assembly, in 1998, to combat the serious concern of drug money being used to promote terrorism marks the genesis of PMLA. PMLA is now being made applicable to even 'ordinary crimes'.
• Unlimited list of scheduled offences - The original list of scheduled offences have been expanded to the extent that most of them do not bear rational nexus to objects of PMLA.
• 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. The scrutiny of the Rajya Sabha has been conveniently avoided in the process.
• Officers of ED are police officers - PMLA being a penal statute, the officers referred therein are police officers. Therefore, confession to these officers ought to be rendered 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 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 presumes offence under PMLA without adequate safeguards.
• No checks and balances in search and seizure procedure - 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.

Union Government's Defense

The Solicitor General, argued that out of 4700 cases investigated under PMLA only 313 arrests have been made and 388 searches have been conducted, which is quite low in comparison to other jurisdictions - UK, USA, China, Australia, Hong Kong, Belgium and Russia. 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.

• Possession of proceeds of crime enough to constitute offence under PMLA - It was argued that offence under PMLA is not limited to projection of 'proceeds of crime' as untainted; the mere possession of such proceeds is also enough.
• Attachment affected before filing of FIR/chargesheet has sufficient safeguards - in certain cases attachment can be effected before the FIR or chargesheet is filed. But ED officials have to record reasons for the urgency in attachment.
• PMLA contemplates higher safeguards than Cr.P.C. - Being a complete code in PMLA is not reliant on provisions of Cr.P.C. It was urged that higher safeguards are postulated in the PMLA than the Cr.P.C. Under Cr.P.C. arrests can be made upon 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.
• Acquittal in predicate offence does not automatically end PMLA proceedings - 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.
• Defends constituonlity of Section 45 PMLA: He defended the constitutionality of Section 45 PMLA, imposing twin bail conditions. It was stated that the unconstitutional elucidated in Nikesh Tarachand Shah v. Union of India And Anr. (2018) 11 SCC 1 was the arbitrary linking of the twin conditions with the predicate offence or part of the predicate offence ("Part A of the Schedule"), which has now been removed. The ground on which the provision was declared unconstitutional, being cured, the provision has been revived.
• Crucial date for PMLA - The ASG 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.
• Whole property is to be attached, when it's not possible to divide it - 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 mortgage.
• Section 50 PMLA does not violate the Constitution - 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.

ED Authorities Are Not Police Officers; Article 20(3) Protection Available Only After Arrest & Not At Summons Stage : Supreme Court

Summary Of Supreme Court's PMLA Judgement- Vijay Madanlal Choudhary Vs Union of India