PMLA Judgment Pronouncement: All Challenged Provisions Upheld

Challenges to the Prevention of Money Laundering Act

By 10:30am on July 27th 2022, the swathes of lawyers representing the over 100 petitioners in the challenges to the Prevention of Money Laundering Act, 2002, (PMLA) were jostling to find space in Courtroom 3. Many more, including Solicitor General Tushar Mehta, had joined virtually to hear the Judgment. Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar assembled at 11am. Justice Khanwilkar nonchalantly read out one of the most impactful Judgments he has written in his tenure. He ran quickly through the long list of powers of the Enforcement Directorate (ED) that the petitioners had challenged—every single provision was upheld. 

Definition of Money Laundering Must Be Read Expansively

Section 3 of the PMLA defines the crime of money laundering. The provisions state that anyone involved in any activity connected to proceeds of crime and is projecting it as untainted, is guilty of money laundering. 

The petitioners argued that projecting tainted money to be clean is an essential component of money laundering. It is not enough to have raised proceeds from crime or to have used the proceeds. 

The Bench rejected this argument. Justice Khanwilkar stated that the ‘and’ in the provision must be read as ‘or’. Effectively, one may now be charged with money laundering if they have received or used proceeds from crime, without attempting to pass the proceeds off as untainted. 

ED Does Not Have Police Powers, Need Not Follow Police Investigation Procedure

During the hearings, the petitioners argued that the ED has powers akin to the police, and their investigations should accordingly be governed by the same procedural safeguards as the police. 

The Bench noted today that Section 50 of the PMLA empowers ED to conduct an inquiry—significantly different from a criminal investigation. This means that the ED’s power under Section 50 to record statements from the accused with threat of penalty is constitutional. The Bench held that Section 50 does not violate the right against self-incrimination, since ED inquiries are not criminal investigations. 

According to the Bench, the ED hence had no police powers, and need not meet the same procedural requirements as the police. 

The Bench further clarified that the Enforcement Case Information Report (ECIR) is an internal document for the ED, not an FIR. The ED is hence not bound to share the ECIR with the accused. 

Additionally, the Bench upheld the ED’s wide powers of attachment of property (Section 5 and 8), search and seizure (section 17). 

Bail, Arrest and Burden of Proof

Section 45 of the Act lays down onerous conditions for bail under PMLA. It requires the accused person to prove that they are not guilty before the trial commences. Section 24 of the Act reverses the burden of proof in general criminal law. Usually, the Court presumes the accused is innocent and the State must prove guilt. Under the PMLA, the accused is assumed to be guilty and must disprove all the State’s allegations.

The SC declared Section 45 unconstitutional in Nikesh Tarachand Shah v Union of India (2017), holding that the reversed burden was unconstitutional. The Court also found it arbitrary that the provision required the accused to prove innocence under the ‘predicate offence’ from which the proceeds arose, instead of the money laundering offence. 

The Union government amended the provision in 2018. It removed the predicate offence requirement but retained the reversed burden. 

In the Judgment, the Court upheld the amendment to Section 45, stating that the reversed burden was necessary to counter the heinous crime of money laundering. Justice Khanwilkar stated that the ED’s wide powers of arrest under Section 19 are also justified for the same reason. 

After reading out the operative parts of the Judgment, the Bench expressed satisfaction at having concluded this long pending and mammoth case. The Solicitor General nodded his agreement. Senior Advocate Kapil Sibal, leading the case against the PMLA, dejectedly said, ‘My experience tells me, milords, matters are never concluded’, perhaps alerting us to the possibility that more confusion remains even as the Act is upheld.