Day 15 Oral Hearing: Prevention of Money Laundering Act

Challenges to the Prevention of Money Laundering Act

On February 22nd 2022, the Supreme Court heard Senior Advocates Siddharth Agarwala and Mahesh Jethmalani and Mr. Abhimanyu Bhandari arguing against various provisions of the Prevention of Money Laundering Act, 2002.

Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar have spent all month hearing the petitioners argue that the provisions for bail, search and seizure and summons give the Enforcement Directorate unchecked investigative powers to the detriment of the rights of the accused. More than a hundred petitioners, most of whom are accused under the PMLA, have challenged the Act in this case. 

Mr. Agarwala, appearing for PMLA accused Mr. Gadi Naga Venkata Satyanarayan, argued against the retrospective application of the Act. He stated that in the case of his client and in similar cases, the ED had initiated action under the PMLA even if the predicate offence from which proceeds of crime were generated had occurred before the commencement of the Act in 2002. Mr. Agarwala argued that predictability and certainty are the ‘hallmark’ of criminal law—at the time of committing the offence, the accused must  have knowledge that they are doing something illegal. Additionally, Mr. Agarwala briefly submitted that money laundering must have a defined beginning and end point and hence cannot be defined as a ‘continuing offence’. 

Mr. Jethmalani focused on the trial provisions in Section 44. S 44 states that the Special PMLA Court must try accused in both the money laundering offence and the predicate offence. As per this provision, a person accused in the predicate offence but not involved in money laundering will also be tried by the Special Court instead of the appropriate court under the CrPC. Mr. Jethmalani argued that this change of forum was arbitrary. The Bench appeared unconvinced. Khanwilkar J asked whether the accused has a right to be tried in the CrPC Court specifically. He emphasised that Section 44 was ‘procedure established by law’ and could be used to try the accused. 

Mr. Jethmalani further argued against Section 45 of the Act, dealing with bail. He stated that the money laundering offence is committed by an ‘accessory after the fact’. This means that the money laundering accused is not involved in the original crime but only assists the criminal to project the tainted money as untainted. Mr. Jethmalani argued that criminal law recognises that an accused after the fact is a less serious offender than the original criminal. Hence, Mr. Jethmalani argued that the onerous twin conditions for bail in the PMLA are disproportionate and unconstitutional. 

Mr. Bhandari repeated Senior Advocate Kapil Sibal’s earlier argument that mere possession or use of the proceeds of crime was not money laundering. There has to be an attempt at projecting the tainted money as untainted to constitute the crime. 

Ravikumar J stated that when proceeds of crime are used to make a purchase, the buyer is projecting the proceeds as untainted to the seller. He asked why this ‘use’ should not constitute money laundering. Relying on US case law, Mr. Bhandari responded that the use of proceeds of crime would constitute money laundering only if the ‘animating purpose’ of use is to conceal the proceeds from law enforcement. Maheswhari J stated that Indian law adopted a far broader definition of proceeds of crime and money laundering than other jurisdictions. 

The Bench will continue hearing the case on February 23rd, 2022.