PMLA provisions need to be reconsidered by a larger bench, argue petitioners

In Vijay Mandanlal, a three-judge Bench had upheld the wide powers of the ED while also holding that the PMLA is not a penal statute

Today, a Special Bench of the Supreme Court comprising Justices S.K. Kaul, Sanjiv Khanna and Bela Trivedi heard the petitions seeking a reference of the Court’s decision in the challenge to the Prevention of the Money Laundering Act (PMLA) in Vijay Madanlal Choudhary v Union of India (2022) to a larger bench. As the Court hears the case, a review petition against the Vijay Madanlal judgement remains pending before the Supreme Court. 

In Vijay Madanlal, a three-judge Bench comprising Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar, upheld the wide powers of the Directorate of Enforcement (ED) to issue summons, record statements, make arrests, and search and seize property. It was also held that the Act, which imposes its own bail conditions, is not a penal law. During the last hearing, Solicitor General Tushar Mehta asserted that the reconsideration of a coordinate bench decision was an “abuse of the process of law”

Opening arguments for the petitioners, Senior Advocate Kapil Sibal summarised the key issues in the case. Before this, however, Mehta, appearing for the Union government, raised some preliminary objections to the proceedings. 

Mehta claimed that on 3 March 2023, the Court in Govind Singh v Union of India (the lead petition in the present case) had listed that case before a three-judge Bench. In Govind Singh, Mehta informed the Court, only Section 15 (Central Government to prescribe procedure of furnishing information) of the PMLA was under question. Subsequently, in Girish Chandra Dewangan v Union of India, a tagged matter, only Sections 15 and 16 (power of survey) of the PMLA were under question. However, last evening, the petitioners filed an amendment petition in a connected case—Sanjay Kumar Chhabaria v Union of India. Under this amendment petition, the petitioners have widened the scope of the proceedings to challenge the constitutionality of the PMLA. 

Sibal and Senior Advocate A.M. Singhvi for the petitioners immediately objected to Mehta’s contention. They claimed that all the issues had already been raised in the present case. In fact, in an SLP filed by the Union, in Directorate of Enforcement v Obulapuram Mining Company, the respondents themselves “brought up the Act” and several of its provisions. Justice Khanna clarified that the respondents had not brought up the vires or the constitutionality of the PMLA in Obulapuram Mining..  Mehta said that his SLP did not challenge Section 3 (definition of money laundering) and even stated he was willing to withdraw it. 

During the course of the hearing, Sibal clarified that he was not challenging the correctness of the Vijay Madanlal judgement but was pointing out that the issues in the case had wide ramifications and may need reconsideration by a larger bench.  

After what seemed like a never-ending bickering session, the Bench asked the petitioners to open the case. A visibly frustrated Justice Kaul remarked “How should I explain that I have understood your point?” to Mehta’s repeated interruptions.

PMLA is derived from two international conventions, not a sui generis legislation

Sibal pointed out that the PMLA was enacted to give effect to two international conventions—the Vienna Convention, 1988 and the Palermo Convention, 2000. The former dealt with drugs, narcotics and illicit money and the second dealt with transnational organised crimes. However, the Bench in Vijay Madanlal held the PMLA to be a non-penal, sui generis legislation. 

Further, Sibal also argued that the domestic laws of each ratifying country were meant to give effect to these conventions.This meant that in India, the Code of Criminal Procedure, 1973 (CrPc) had to apply as the subject matter of the legislation was a criminal offence. However, the PMLA, being declared a non-penal legislation, does away with all the safeguards established by the CrPC, thereby giving wide powers to the ED. 

Towards the end of the day’s hearing, Sibal also stated that the PMLA has “scheduled offences” beyond the scope of the two conventions. Justice Khanna pointed out that a number of countries had extended the conventions and included additional offences. Sibal responded that such extensions must be tested on constitutional principles.

“Laundering” proceeds of a crime essential to constitute an offence

Section 3 of the PMLA defines the crime of money laundering. It states that anyone involved in any activity connected to proceeds of crime and is projecting it as untainted, is guilty of money laundering. Projecting tainted money to be clean is an essential component of money laundering. To constitute the offence, it is not enough to raise proceeds from crime or simply use the proceeds. 

Sibal contened that in Vijay Madanlal, the Bench erroneously upheld that ‘and’ in the explanation of the definition must be read as ‘or’. Effectively, this meant that a person may be charged with money laundering even if they have received or used proceeds of a crime without actually trying to pass them off as untainted assets. 

When Mehta raised objections that Sibal was bringing in the constitutionality of Section 3, Sibal clarified that he was not on constitutional grounds. Rather, he was only raising a question of interpretation. 

Continuity of the offence or retrospective application?

Sibal went on to highlight that the Vijay Madanlal judgement gave the Director of the ED discretion to prosecute a person for proceeds from predicate offences (offences from which the laundered proceeds originated) that took place even before the Act came into force. For instance, it allowed for a person to be summoned for an offence from 1998 or earlier. This was unconstitutional as it led to retrospective application. 

At this juncture, Justice Khanna posed an interesting question. What if the predicate offence occurred before the Act came into force but the proceeds of the crime were being put to use after the Act came into force? Sibal had a simple reply. He pointed out that for it to come within the purview of the Act, the proceeds must result from one of the scheduled offences under the Act. When the Act was not in force, the scheduled offence also did not exist. To prosecute for an offence that occurred before the Act, Sibal argued, was improper. 

Attacks on personal liberty

Sibal also asserted that the Vijay Madanlal decision upheld PMLA provisions that breach Article 21. The Act, he said, allows the ED to summon a person without an Enforcement Case Information Report (ECIR) telling them what they are being summoned for. The individual is not even informed if they are being summoned as an accused or as a witness. This, he argued, was a violation of the right to an individual’s personal liberty. 

Justice Trivedi interjected to ask how Article 21 came into play when a person was merely being summoned under the Act to assist the ED in their investigation. Sibal responded that it denied them basic rights such as applying for anticipatory bail and also forced the person to be self-incriminated. Since ED summons were not criminal summons, they were not bound by the provisions of the CrPC. 

All these reasons, Sibal said, made it clear that the case is beyond the limitation of one person. It involved larger questions on polity and governance. 

Senior Advocate A.M Singhvi will continue arguments on behalf of the petitioners tomorrow, that is 23 November 2023.