Supreme Court: The 3-judge bench of AM Khanwilkar*, Dinesh Maheshwari and CT Ravikumar, JJ has, in 545-pages-long judgments, has dealt with various aspects of the Prevention of Money Laundering Act, 2002 and has upheld the validity of certain impugned provisions by holding that the same have reasonable nexus with the object sought be achieved i.e. combatting the menace of money laundering.

We have put together the key highlights from the judgment:

ECIR vis-à-vis FIR

  • The offence of money-laundering cannot be registered by the jurisdictional police who is governed by the regime under Chapter XII of the 1973 Code.
  • Being a special legislation providing for special mechanism regarding inquiry/investigation of offence of money-laundering, analogy cannot be drawn from the provisions of 1973 Code, in regard to registration of offence of money-laundering and more so being a complaint procedure prescribed under the 2002 Act.
  • Considering the mechanism of inquiry/investigation for proceeding against the property (being proceeds of crime) under this Act by way of civil action (attachment and confiscation), there is no need to formally register an Enforcement Case Information Report (ECIR), unlike registration of an FIR by the jurisdictional police in respect of cognizable offence under the ordinary law.
  • The fact that such ECIR has not been recorded, does not come in the way of the authorities referred to in Section 48 of the 2002 Act to commence inquiry/investigation for initiating civil action of attachment of property being proceeds of crime by following prescribed procedure in that regard.
  • ECIR is an internal document created by the department before initiating penal action or prosecution against the person involved with process or activity connected with proceeds of crime. It may contain details of the material in possession of the Authority and recording satisfaction of reason to believe that the person is guilty of money laundering offence, if revealed before the inquiry/investigation required to proceed against the property being proceeds of crime including to the person involved in the process or activity connected therewith, may have deleterious impact on the final outcome of the inquiry/investigation. So long as the person has been informed about grounds of his arrest that is sufficient compliance of mandate of Article 22(1) of the Constitution.
  • In 2002 Act, the arrested person for offence of money-laundering is contemporaneously informed about the grounds of his arrest; and when produced before the Special Court, it is open to the Special Court to call upon the representative of ED to produce relevant record concerning the case of the accused before him and look into the same for answering the need for his continued detention. Viewed thus, supply of ECIR in every case to person concerned is not mandatory.
  • ECIR cannot be equated with an FIR which is mandatorily required to be recorded and supplied to the accused as per the provisions of 1973 Code. Revealing a copy of an ECIR, if made mandatory, may defeat the purpose sought to be achieved by the 2002 Act including frustrating the attachment of property (proceeds of crime). Non-supply of ECIR, which is essentially an internal document of ED, cannot be cited as violation of constitutional right.

Section 45 – Twin Conditions for release of bail

The twin conditions provided under Section 45 of the 2002 Act, though restrict the right of the accused to grant of bail, do not impose absolute restraint on the grant of bail. The discretion vests in the Court which is not arbitrary or irrational but judicial, guided by the principles of law as provided under Section 45 of the 2002 Act.

The twin conditions are:

  • that there are reasonable grounds for believing that the accused is not guilty of such offence; and
  • that he/she is not likely to commit any offence while on bail.

The same is held to be applicable to anticipatory bails as well.

Read more:

Supreme Court holds “twin conditions” under Section 45 of PMLA reasonable: Applicability to anticipatory bail, non-cognizable offences discussed; Exception highlighted 

Section 19 – Arrest

The provision provides that

  • the high-ranking officials i.e. Director, Deputy Director, Assistant Director, or any other officer authorised in this behalf by the Central Government, if has material in his possession giving rise to reason to believe that any person has been guilty of an offence punishable under the 2002 Act, he may arrest such person.
  • recording reasons for the belief regarding the involvement of person in the offence of money-laundering.
  • the obligation to produce the person so arrested before the Special Court or Judicial Magistrate or a Metropolitan Magistrate, as the case may be, within twenty-four hours.

These safeguards ensure that the authorised officers do not act arbitrarily, but make them accountable for their judgment about the necessity to arrest any person as being involved in the commission of offence of money-laundering even before filing of the complaint before the Special Court under Section 44(1)(b) of the 2002 Act in that regard. If the action of the authorised officer is found to be vexatious, he can be proceeded with and inflicted with punishment specified under Section 62 of the 2002 Act.

This power has been given to the high-ranking officials with further conditions to ensure that there is objectivity and their own accountability in resorting to arrest of a person even before a formal complaint is filed under Section 44(1)(b) of the 2002 Act.

Hence, Section 19 has been held to be constitutional.

Section 24 – Burden of Proof

The change effected in Section 24 of the 2002 Act is the outcome of the mandate of international Conventions and recommendations made in that regard. It allows the person charged or any other person involved in money-laundering, to disclose information and evidence to rebut the legal presumption in respect of facts within his personal knowledge during the proceeding before the Authority or the Special Court. Hence, by no stretch of imagination, provision in the form of Section 24 of the 2002 Act, can be regarded as unconstitutional.

Section 50 – Summon

The validity of this provision has been challenged on the ground of being violative of Articles 20(3) and 21 of the Constitution. The Section

  • allows the authorised officer under the 2002 Act to summon any person and record his statement during the course of investigation.
  • mandates that the person should disclose true and correct facts known to his personal knowledge in connection with the subject matter of investigation. T
  • obligates the person to sign the statement so given with the threat of being punished for the falsity or incorrectness thereof in terms of Section 63 of the 2002 Act.

The provision has been criticised essentially because of subsection (4) which provides that every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 of the IPC. However, Article 20(3) will not come into play in respect of process of recording statement pursuant to such summon which is only for the purpose of collecting information or evidence in respect of proceeding under this Act.

Noticeably, the summon is issued by the Authority under Section 50 in connection with the inquiry regarding proceeds of crime which may have been attached and pending adjudication before the Adjudicating Authority. It is not necessarily for initiating a prosecution against the noticee as such

At the stage of recording of statement for the purpose of inquiring into the relevant facts in connection with the property being proceeds of crime is, in that sense, not an investigation for prosecution as such; and in any case, there would be no formal accusation against the noticee. Such summons can be issued even to witnesses in the inquiry so conducted by the authorised officials. However, after further inquiry on the basis of other material and evidence, the involvement of such person (noticee) is revealed, the authorised officials can certainly proceed against him for his acts of commission or omission. In such a situation, at the stage of issue of summons, the person cannot claim protection under Article 20(3) of the Constitution. However, if his/her statement is recorded after a formal arrest by the ED official, the consequences of Article 20(3) or Section 25 of the Evidence Act may come into play to urge that the same being in the nature of confession, shall not be proved against him.

Section 63 – Penal Consequences for giving false information or non-disclosure of information

This is an enabling provision that provides for consequences for not discharging the burden or cooperating with the authorities during the proceedings before the Authority and pursuant to summons, production of documents and to give evidence is issued by such Authority in exercise of power under Section 50 of the 2002 The Director is empowered to take consequential steps for attachment and confiscation of the property involved in such money-laundering to be vested in the Central Government. Absent such authority given to the Director under the 2002 Act, the inquiry or investigation required to be done for fulfilling the mandate predicated under the 2002 Act, would eventually result in paper inquiry and no meaningful purpose would be served much less to combat the menace of money-laundering. The provision is, hence, valid.

Scheduled offences

It was argued that there is no consistency in the approach as it includes even minor offences as scheduled offence for the purposes of offence of money-laundering, more so even offences which have no trans-border implications and are compoundable between the parties.

It has, however, been held that the prosecution under this Act is not in relation to the criminal activity per se but limited to property derived or obtained from specified criminal activity. Resultantly, the inclusion of criminal activity which has been regarded as non-cognizable, compoundable or minor offence under the concerned legislation, should have no bearing to answer the matter in issue. In that, the offence of money-laundering is an independent offence and the persons involved in the commission of such offence are grouped together as offenders under this Act. There is no reason to make distinction between them insofar as the offence of money-laundering is concerned.

Section 4 – Punishment

It was argued that Section 4 of the 2002 Act makes no distinction between person directly involved in the process or activity connected with the proceeds of crime and the other not so directly involved.

However, the Court has observed that the punishment under Section 4 is not in relation to the predicate offence, but offence of money-laundering under Section 3 of the 2002. The person may be involved in any one or more than one process or activity connected with the proceeds of crime. All of them are treated as one class of offender involved in money-laundering. The proceeds of crime may be derived or obtained as a result of criminal activity with which the offender involved in money laundering offence may not be directly concerned at all. Even so, he becomes liable to be proceeded under Section 3 and punished under Section 4 of the 2002 Act.

Usage of ED Manual

Even when ED manual is not to be published being an internal departmental document issued for the guidance of the Authorities, the Court has suggested that the feasibility of placing such document on the official website of ED may be explored since the inquiry in due course ends in identifying the offender who is involved in the process or activity connected with the proceeds of crime and then to prosecute him, it is possible for the department to outline the situations in which that course could be adopted in reference to specific provisions of 2002 Act or the Rules framed thereunder; and in which event, what are the options available to such person before the Authority or the Special Court, as the case may be. Such document may come handy and disseminate information to all concerned.

Vacancies in Appellate Tribunal

It is necessary that the forum should be functional and accessible to the aggrieved persons uninterruptedly, hence, the Executive must take necessary corrective measures in this regard. Absent such forum, the aggrieved persons have to rush to the High Court on every occasion which indeed is avoidable.

Issues to be decided by Larger bench 

The 2002 Act has been amended from time to time. The same have been questioned for being brought about by the Parliament by taking recourse to Finance Bill/Money Bill. The issue, however, was not dealt with by the COurt in the present case as the same is pending for consideration before the Larger Bench as per decision in Rojer Mathew v. South Indian Bank Limited, (2020) 6 SCC 1.

[Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929, decided on 27.07.2022]

*Judgment by: Justice AM Khanwilkar

For private parties:  Senior Advocates Kapil Sibal, Sidharth Luthra, Dr. Abhishek Manu Singhvi, Mukul Rohatgi, Amit Desai, S. Niranjan Reddy, Dr. Menaka Guruswamy, Aabad Ponda, Senior Counsel 9Siddharth Aggarwal, Mahesh Jethmalani, N. Hariharan, Vikram Chaudhari, and Advocates Abhimanyu Bhandari and Akshay Nagarajan,

For Union of India:  Tushar Mehta, Solicitor General of India and S.V. Raju, Additional Solicitor General of India

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