Challenges to the Prevention of Money laundering Act: Union Defends ED’s Power To Record Statements Of Accused Under S50

Challenges to the Prevention of Money Laundering Act

On March 9th, 2022, Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar continued final hearings in the challenges to the Prevention of Money Laundering Act, 2002 (PMLA)

Solicitor General Tushar Mehta, on behalf of the Union government, briefly addressed the Supreme Court’s (SC) question as to whether Section 436A of the Code of Criminal Procedure, 1978 (CrPC) would apply to bail granted to the accused under Section 45 of the PMLA. Additional Solicitor General S.V. Raju took over after Mr. Mehta, arguing that the Enforcement Directorate’s (ED) power to note incriminating statements of the accused under Section 50 of the PMLA is constitutional. 

The Bench has been indulgent with its time in this case. Over 100 petitioners, many of whom are accused of money laundering themselves, have argued over 15 days that the PMLA disregards the accused’s constitutional rights to liberty and a fair trial. The Union government has spent six days defending the Act so far.  As many of the petitioners’ arguments remain unaddressed, hearings are unlikely to conclude this week. 

SG Mehta Argues Against Limit On Undertrial Detention Under PMLA, Bench Unconvinced

Mr. Mehta appeared to have failed to convince the Bench that Section 436A of the CrPC will not apply to the PMLA. The provision seeks to prevent the extended undertrial detention of accused persons. It states that an accused must be released on bail if they have been in prison for half of the maximum sentence possible for their alleged crime. Justice Khanwilkar mentioned an incident in which a PMLA accused spent six years in prison awaiting trial for an offence punishable by a maximum sentence of seven years. 

Mr. Mehta continued by arguing that money laundering is a ‘peculiar offence’ that affects the economic health of the entire country. The transnational nature of the crime makes it easy for the accused to reap the benefits of laundered funds parked abroad. Mr. Mehta argued that the grave nature of the offence, along with the non-obstante clause in Section 45 of the PMLA—which excludes the application of the CrPC to PMLA bail—justifies the non-application of Section 436A of the CrPC to those accused of money laundering. The Bench was unconvinced. Justice Khanwilkar highlighted that there is a need to balance the gravity of the offence against the rights of the accused. 

ASG Raju Argues Section 50 Does Not Compel An Accused To Be A Witness Against Themselves 

The petitioners previously argued that Section 50 of the PMLA violates the accused’s right against self-incrimination, enshrined under Article 20(3) of the Constitution. Section 50 empowers the Enforcement Directorate to record incriminating statements from an accused during questioning under the threat of being fined for withholding information. Incriminating custodial statements are usually inadmissible in criminal proceedings since they can be obtained under force and duress. On the other hand, the PMLA allows the ED to present such statements in Court against the accused. 

Mr. Raju stated that three conditions must be fulfilled for an Article 20(3) violation. First, the person whose statement is recorded must be an accused. Second, the challenged provision, Section 50, must compel the accused to make statements. Third, the compulsion of the provision must be to make the person a witness against themselves

Mr. Raju argued that the Supreme Court had previously held that a person is formally considered an accused only after an FIR or complaint has been filed against them at the time they make their statement. Section 50(1) of the PMLA empowers the ED to take statements from the accused which later form the basis for the complaint against them. At the time of making the statement, therefore, the person is not an accused. The Bench expressed agreement with this argument. 

Mr. Raju further argued that the statutory threat of a fine is not sufficient to compel an accused to incriminate themselves. Factors such as ‘physical threats, psychic torture, atmospheric pressure, environmental coercion or overbearing and intimidatory methods’ of interrogation constitute compulsion. Whether these factors existed while the accused was providing their statement to the ED is a question of fact, Mr. Raju argued. This should be determined on a case-to-case basis by the trial court. Whether the statement is self-incriminating must also be determined on a case-to-case basis. 

Mr. Raju concluded that Section 50 of the PMLA did not meet any of the three requirements for an Article 20(3) violation. 

ASG Raju: Section 25 of Evidence Act Does Not Apply To PMLA Since ED Is Not Police

Section 25 of the Evidence Act states that confessions made to a police officer cannot be proved against an accused during a trial. Mr. Raju argued that Section 25 would not apply to statements obtained by the ED under Section 50 of the PMLA since ED officers are not police officers. 

First, Mr. Raju argued that police officers must necessarily have the power to file a chargesheet. ED officers lack this power. Second, he argued that the SC had devised the main purpose test in Barkat Ram (1961) to determine whether an ED officer has police powers. The main purpose of the police is to prevent crime to maintain law and order. On the other hand, the main purpose of the ED, according to Mr. Raju, is to confiscate property derived from money laundering. This, he argued, is clear from the Introduction and Statement of Objects and Reasons of the PMLA. Third, Mr. Raju argued that the ED exercises the power to record statements under Section 50 of the PMLA while carrying out its judicial functions, which are not police functions. This is evidenced by the ED’s judicial power to impose a penalty for false statements by the accused during Section 50 enquiries. 

Mr. Raju will continue his defence of the PMLA  on March 10th, 2022. He will make submissions defending the constitutionality of Section 24 of the PMLA, which reverses the usual burden of proof in criminal trials. Under Section 24 , the Court assumes that the accused is guilty and the accused must disprove this assumption. 

To access court documents, and to read more of SCO’s incisive journalism on past hearings of the PMLA case, click here.