Challenges to the Prevention of Money Laundering Act #3: Sr. Adv. Kapil Sibal Discusses Objections to the PMLA

Challenges to the Prevention of Money Laundering Act

On October 27th 2021, a 3-Judge Bench comprising Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar heard a group of petitions challenging several provisions of the Prevention of Money Laundering Act, 2002 (PMLA). The petitioners challenging PMLA argue that the Enforcement Directorate (ED) under the PMLA exercises police powers without being bound by the rules of criminal procedure. 

Today, Senior Advocate Kapil Sibal briefly discussed the common problems with the PMLA that arose from this set of petitions. 

First, Mr. Sibal argued that the PMLA established criminal liability for certain acts without setting out any procedure for investigations. The only procedural document is the ED’s internal manual, which requires investigators to record an Enforcement Case Information Report (ECIR). The ED claims that it does not have to make the ECIR available to the accused. Mr. Sibal argued that this lack of procedure violates the accused’s right to life. 

Second, Mr. Sibal argued that the scope of the PMLA was being enlarged, applying to a larger set of offences than originally intended. He stated that in many cases, the ECIR was a copy of the FIR filed in the predicate offence. This went against the intention of the PMLA.

Obtaining or holding money illegally is an offence under the Indian Penal Code. This would be called the predicate offence under the PMLA. To constitute a charge under the PMLA, the accused must do something in addition to the predicate offence, such as attempting to legitimize the illegal money. Therefore, an ECIR specifying the additional steps is necessary under the PMLA. He suggested that the aim of the PMLA was to curb illegally obtained money through drug trafficking. He took the Court through the Schedule to the Act and argued that entirely unrelated offences had been added as predicate offences to the PMLA. This would ‘aggrandize’ power of the Union government. 

Third, Mr. Sibal stated that under Section 50 of the PMLA, investigations of predicate offences were also transferred to the ED. Statements made to the ED by the accused in custody can be used against them in the predicate offence proceedings. Mr. Sibal argued that this was unconstitutional. Justice Khanwilkar agreed that each offence must be tried differently under the relevant law.

Fourth, Mr. Sibal stated that the PMLA Amendment was wrongly passed as a money bill. A similar question pending before a larger bench in the Tribunals and Finance Act case must be decided first before this Bench can opine on the PMLA. 

Fifth, Mr. Sibal stated that all of the accused’s assets can currently be attached by the ED as soon as a complaint is made. This can destroy their business. 

Sixth, Mr. Sibal stated that Section 50 of the Act presumes that every investigation before the ED is a judicial proceeding. He argued that this is unconstitutional, since the accused is not informed of the charge against them when being summoned for the proceedings, as would be necessary in a judicial proceeding. However, by equating the investigation with a judicial proceeding, the accused is compelled to answer all questions posed. The evidence  gathered may then be used against the accused. 

Seventh, Mr. Sibal argued that Section 65 allows the Code of Criminal Procedure, 1973 (CrPC) to apply so long as it is not inconsistent with the PMLA. Despite no major inconsistencies between the Acts, he argued that the CrPC was not applied to PMLA proceedings. 

The matter will now be heard after the Court’s Diwali vacation.