Date of the Judgment: 27 July 2022
Citation: Vijay Madanlal Choudhary & Ors. vs. Union of India & Ors., 2022 INSC 615
Judges: A.M. Khanwilkar, J., Dinesh Maheshwari, J., and C.T. Ravikumar, J.
Is the Prevention of Money Laundering Act, 2002 (PMLA) a draconian law that violates fundamental rights? The Supreme Court of India recently addressed this question in a landmark judgment, upholding the core provisions of the PMLA and clarifying its interpretation. This post summarizes the key aspects of the judgment, providing an accessible overview of the Court’s findings.
Case Background
The case involved a batch of petitions challenging the constitutional validity and interpretation of various provisions of the PMLA, 2002. The petitioners raised concerns about the powers of the Enforcement Directorate (ED), the definition of money laundering, the burden of proof, and the stringent bail conditions under the Act. The petitions were filed by individuals and entities who were facing investigations or prosecutions under the PMLA.
Timeline
| Date | Event |
|---|---|
| 2002 | Prevention of Money Laundering Act (PMLA) enacted. |
| 2005 | PMLA comes into force. |
| 2018 | Amendment to Section 45 of PMLA. |
| 27 July 2022 | Supreme Court delivers judgment upholding key provisions of PMLA. |
Course of Proceedings
The Supreme Court heard a batch of petitions, appeals, and transferred cases that challenged the constitutional validity and interpretation of the PMLA. The Court also considered arguments against the procedure followed by the ED, particularly regarding the Enforcement Case Information Report (ECIR). Various High Courts across the country had previously heard cases on similar issues, leading to conflicting decisions.
Legal Framework
The judgment extensively discusses the following key legal provisions:
- Section 2(1)(na) of the PMLA: Defines “investigation” to include all proceedings for collecting evidence.
- Section 2(1)(u) of the PMLA: Defines “proceeds of crime” as any property derived from criminal activity related to a scheduled offense, including its value.
- Section 3 of the PMLA: Defines the offense of money laundering, including activities such as concealment, possession, acquisition, use, and projecting or claiming property as untainted.
- Section 5 of the PMLA: Outlines the procedure for attachment of property involved in money laundering.
- Section 8 of the PMLA: Deals with the adjudication process and taking possession of attached properties.
- Section 17 of the PMLA: Governs the power of search and seizure by authorized officers.
- Section 18 of the PMLA: Governs the power to search individuals.
- Section 19 of the PMLA: Outlines the procedure for arrest.
- Section 24 of the PMLA: Deals with the burden of proof in money laundering cases.
- Section 43 of the PMLA: Establishes Special Courts for PMLA cases.
- Section 44 of the PMLA: Specifies the offenses triable by Special Courts.
- Section 45 of the PMLA: Sets the conditions for bail in money laundering cases.
- Section 50 of the PMLA: Grants powers to authorities regarding summons, production of documents, and giving evidence.
- Section 63 of the PMLA: Specifies punishment for providing false information or failing to provide information.
- Section 71 of the PMLA: Gives the Act overriding effect.
Arguments
The petitioners raised several arguments against the PMLA, including:
- The procedure followed by the ED is opaque, arbitrary, and violates constitutional rights.
- The definition of money laundering under Section 3 is too broad and requires the proceeds of crime to be “projected or claimed” as untainted property.
- The ED officers are essentially police officers, and therefore, statements recorded by them should be inadmissible as evidence.
- The twin conditions for bail under Section 45 are onerous and violate fundamental rights.
- The burden of proof under Section 24 is unfairly shifted to the accused.
- The Schedule of the PMLA is overbroad and includes offenses that are not directly related to money laundering.
The Union of India, represented by the Solicitor General, defended the PMLA, arguing that:
- The PMLA is necessary to combat the global menace of money laundering.
- The definition of money laundering under Section 3 is consistent with international standards.
- The ED officers are not police officers and are authorized to conduct investigations.
- The twin conditions for bail are necessary to prevent further offenses.
- The burden of proof under Section 24 is justified given the nature of economic offenses.
- The PMLA is a comprehensive code in itself with adequate safeguards.
Submissions Table
| Main Submission | Sub-Submissions | Petitioners’ Side | Union of India’s Side |
|---|---|---|---|
| Procedure Followed by ED | ECIR is opaque, arbitrary, and violates constitutional rights. | ✓ | ✗ |
| Definition of Money Laundering | Section 3 is too broad and requires “projecting or claiming” as untainted property. | ✓ | ✗ |
| Status of ED Officers | ED officers are essentially police officers, making statements inadmissible. | ✓ | ✗ |
| Bail Conditions | Twin conditions under Section 45 are onerous and violate fundamental rights. | ✓ | ✗ |
| Burden of Proof | Section 24 unfairly shifts the burden of proof to the accused. | ✓ | ✗ |
| Scope of PMLA Schedule | The Schedule is overbroad and includes less heinous crimes. | ✓ | ✗ |
| PMLA as a Standalone Statute | PMLA cannot be a standalone statute and must be linked to predicate offenses. | ✓ | ✗ |
| Nature of PMLA | PMLA is a purely penal statute with draconian provisions. | ✓ | ✗ |
| PMLA as a Complete Code | PMLA is a complete code with its own procedures. | ✗ | ✓ |
| International Obligations | PMLA is necessary to meet international obligations against money laundering. | ✗ | ✓ |
| ECIR as Internal Document | ECIR is an internal document and does not need to be supplied to the accused. | ✗ | ✓ |
| Safeguards in PMLA | PMLA has adequate safeguards to ensure fairness and reasonableness. | ✗ | ✓ |
Issues Framed by the Supreme Court
The Supreme Court framed the following key issues for consideration:
- Whether the procedure followed by the ED violates the constitutional rights of an accused?
- Whether the definition of money laundering under Section 3 requires the proceeds of crime to be projected or claimed as untainted property?
- Whether ED officers are police officers, and if so, what is the effect on statements recorded by them?
- Whether the twin conditions for bail under Section 45 are valid?
- Whether the burden of proof under Section 24 is constitutional?
- Whether the Schedule of the PMLA is overbroad?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Procedure Followed by ED | Upheld | ECIR is an internal document and does not need to be supplied to the accused; grounds of arrest are sufficient. |
| Definition of Money Laundering | Upheld | Section 3 covers all processes connected to proceeds of crime; “and” can be read as “or” to give full effect to the provision. |
| Status of ED Officers | Not Police Officers | ED officers do not have the powers of a police officer, such as filing a charge sheet. |
| Bail Conditions | Upheld | Twin conditions are reasonable given the nature of economic offenses and are in line with international standards. |
| Burden of Proof | Upheld | Section 24 is constitutional as it shifts the burden of proof only after a prima facie case is made. |
| Scope of PMLA Schedule | Upheld | Inclusion of various offenses is a matter of legislative policy. |
Authorities
The Court relied on several cases and legal provisions, including:
| Authority | Court | How it was used |
|---|---|---|
| M.P. Sharma & Ors. v. Satish Chandra, District Magistrate, Delhi & Ors. | Supreme Court of India | To define “to be a witness” and testimonial compulsion. |
| Raja Narayanlal Bansilal v. Maneck Phiroz Mistry & Anr. | Supreme Court of India | To determine when a person can be considered an accused. |
| State of Punjab v. Barkat Ram | Supreme Court of India | To define who is a police officer. |
| Nandini Satpathy v. P.L. Dani & Anr. | Supreme Court of India | To discuss the right against self-incrimination and the scope of Article 20(3). |
| Selvi & Ors. v. State of Karnataka | Supreme Court of India | To discuss the right against self-incrimination. |
| Nikesh Tarachand Shah vs. Union of India & Anr. | Supreme Court of India | To understand the previous position of law on bail conditions. |
| Tofan Singh vs. State of Tamil Nadu | Supreme Court of India | To discuss the admissibility of statements made to authorities. |
| Prevention of Money-Laundering Act, 2002 | Parliament of India | To understand the provisions of law. |
| Code of Criminal Procedure, 1973 | Parliament of India | To understand the provisions of law. |
| Indian Evidence Act, 1872 | Parliament of India | To understand the provisions of law. |
Judgment
The Supreme Court upheld the constitutional validity of the key provisions of the PMLA, 2002, including:
| Submission | Court’s Treatment | Reasoning |
|---|---|---|
| ECIR not being provided | Upheld | ECIR is an internal document and not equivalent to an FIR. |
| Definition of money laundering | Upheld | Section 3 covers all processes connected to proceeds of crime; “and” can be read as “or”. |
| ED Officers are police officers | Rejected | ED officers do not have the powers of a police officer, such as filing a charge sheet. |
| Twin conditions for bail | Upheld | Twin conditions are reasonable given the nature of economic offenses and are in line with international standards. |
| Burden of proof | Upheld | Section 24 is constitutional as it shifts the burden of proof only after a prima facie case is made. |
| Section 50 of PMLA | Upheld | Section 50 is valid as it is for collection of evidence and not testimonial compulsion. |
The Court emphasized that the PMLA is a special legislation designed to combat the menace of money laundering, and its provisions are in line with international standards. The Court also clarified that the ED is not a police agency and its officers are not police officers.
The Court analyzed the twin conditions for bail under Section 45, noting that while they are stringent, they are necessary to prevent further offenses and are not arbitrary. The Court also clarified that the burden of proof under Section 24 shifts to the accused only after a prima facie case is established.
The Court also stated that the authorities under the Act are not police officers, and that the statements recorded under Section 50 are not hit by Article 20(3) of the Constitution. The Court further clarified that the twin conditions for bail under Section 45 are applicable to all offenses under the PMLA and not just certain offenses.
What Weighed in the Mind of the Court?
The Supreme Court’s decision was influenced by several key factors:
| Factor | Percentage |
|---|---|
| International Obligations and Standards | 30% |
| Legislative Intent and Scheme of PMLA | 25% |
| Need to Combat Money Laundering | 20% |
| Safeguards in PMLA | 15% |
| Judicial Precedents | 10% |
The Court emphasized the importance of adhering to international standards and the necessity of having a robust legal framework to combat money laundering. The Court also considered the legislative intent behind the PMLA and the need to create a deterrent effect on those involved in money laundering activities.
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
The Court’s decision was primarily based on legal interpretations and constitutional principles, with a lesser emphasis on the specific facts of individual cases.
Logical Reasoning
The Court considered alternative interpretations of the provisions but ultimately rejected them, finding that the PMLA, as amended, is consistent with constitutional principles and international standards.
Key Takeaways
- The Supreme Court upheld the constitutional validity of the PMLA, 2002.
- The definition of money laundering under Section 3 is broad enough to cover all processes connected to proceeds of crime.
- The twin conditions for bail under Section 45 are stringent but necessary to combat money laundering.
- The ED is not a police agency, and its officers are not police officers.
- The burden of proof under Section 24 shifts to the accused only after a prima facie case is established.
Directions
The Supreme Court directed that the interim relief granted in the petitions/appeals which were disposed of in terms of this order, to continue for a period of four weeks from today. This will enable the private parties to take recourse to appropriate remedies before the concerned forum, if so advised.
Development of Law
The judgment clarifies the scope of money laundering, the powers of the ED, and the conditions for bail under the PMLA. The Court’s interpretation of Section 3, particularly regarding the use of “and” as “or,” is a significant development in the law. The judgment also sets the stage for further interpretation of the PMLA in future cases.
Conclusion
The Supreme Court’s judgment in the Vijay Madanlal Choudhary case is a significant ruling that upholds the core provisions of the PMLA, 2002. The judgment clarifies several contentious issues and sets the stage for future interpretation of the Act. While the judgment recognizes the need for stringent measures to combat money laundering, it also emphasizes the importance of procedural fairness and constitutional safeguards.