In 2002, the Prevention of Money Laundering Act (PMLA) was passed. Numerous references to crimes involving drugs and other illegal substances, terrorism, corruption, and other organised crimes may be found in the statement of aim. Large volumes of the proceeds of such crimes are frequently laundered internationally, which has a negative effect on the financial systems of nations. Thus, the Act was created, which aims to seize the proceeds of certain crimes and penalise those who deal with them.
The Act's requirements are enforced by the Directorate of Enforcement (ED), a financial investigation organisation within the Department of Revenue of the Union Government. The ED is authorised to issue summons, obtain statements, make arrests, conduct searches, and take property in order to conduct investigations. Despite possessing investigative authority, the ED is not considered a “police agency”. This holds true for additional specialised organisations as well, such as the Serious Fraud Investigation Office (SFIO) and the Directorate of Revenue Intelligence (DRI), which are permitted to look into economic offences by other laws.
These organisations are not required to abide by the Code of Criminal Procedure, 1973 (CrPC).
It should be noted that nearly 200 petitioners questioned the authority of these specialised investigation teams that focus on financial crimes. The earliest pending petitions date back to 2014. The PMLA was the subject of more than 80 of these petitions. These included applications submitted by various politicians accused of money laundering, including former Jammu and Kashmir Chief Minister Mehbooba Mufti, former Punjab MP Sarwan Singh Phillaur, and Lok Sabha Member Karti P. Chidambaram.1
Thus, in light of these considerations, it would be this author's aim to understand the evolution of the law relating to bails in India and its interference with fundamental rights.
Constitutionality of the procedure for granting bails in India
P. Chidambaram INX Media case2
In the so-called case, a business called INX Media contacted the Finance Ministry in March 2007 about the issuance of equity and preference shares priced at Rs 10 each, which were to be owned by three non-resident investors. The request was granted by the Finance Ministry’s Foreign Investment Promotion Board (FIPB). Total foreign funding of Rs 4.62 crores was scheduled to be given to INX Media. Another request for downstream foreign fund investment made by INX Media was turned down by the FIPB and was made to its subsidiary, INX News Pvt. Ltd. The corporation continued to collect foreign funds worth Rs 305 crores in contravention of the FIPB ruling, and it also invested money in INX News.
Two investigations into the INX Media case3 have been conducted: one by the Enforcement Directorate and one by the Central Bureau of Investigation (CBI). In the CBI’s case against Chidambaram, the issue of bail centered on the “triple test”, or whether there were concerns that the defendant may flee, tamper with the evidence, or influence witnesses. The courts had to decide whether the “gravity of the offence” should be a criterion in denying an accused person’s right to bail in the ED case, which also contended that the senior Congress politician should not be allowed bail.
Lastly, this implies that the Delhi High Court decided to reject bail because it found the claims of official favouritism, corruption, and money laundering to be troubling enough. The Supreme Court has observed that while the seriousness of an alleged offence might be taken into consideration as one factor, it cannot stand alone as a legal concept and must be assessed in each case individually. The Bench also addressed Solicitor General Tushar Mehta’s claim that since the ED has not yet finished gathering all of the necessary material, it is possible that Chidambaram will influence additional witnesses in the future.
Surprisingly, the highest court has instructed Chidambaram to refrain from speaking publicly or participating in news interviews about the INX Media case4, which involves him or any other co-accused. In addition to a few other conditions, like getting permission before travelling abroad and helping with the inquiry as needed, this is a requirement of his bond. Senior attorneys who specialise in criminal law have called the gag order “uncommon” and noted that it has only occasionally been issued in the past. Other legal professionals, however, pointed out that the Madras High Court had followed a similar procedure when granting bail to Nirmala Devi, the main suspect in the Madurai Kamaraj University Sex-for-Cash case5.
Satender Kumar Antil v. CBI
In the recent Satender Kumar Antil v. CBI decision,8 the Supreme Court clarified when bail should be granted in situations when the accused was not in custody at the time the chargesheet was filed. In some cases, where a person is later arrested despite not being arrested during the inquiry simply because it is over, the judgment prevents needless harassment. Satender Kumar Antil was accused of demanding a bribe while working as an Assistant Provident Fund Commissioner at the regional office of the Employees Provident Fund Organisation, Noida, according to a chargesheet filed by the Central Bureau of Investigation (Anti-Corruption Branch), Ghaziabad, under Section 120-B of the Penal Code (punishment of criminal conspiracy) and Section 7 of the Prevention of Corruption Act (offence relating to public servant being bribed). Throughout the investigation, he was not detained. The trial court acknowledged the chargesheet and sent summons for Antil to appear in court.
When he did not show up, a warrant that could be released on bond was issued, and when he did not show up for the trial court again, a non-bailable warrant was issued. Antil requested anticipatory relief from the Allahabad High Court after fearing arrest, but it was denied since he had not appeared before the trial court and was working as an Assistant Provident Fund Commissioner in the relevant office at the time the bribe money was seized. He filed a special leave petition with the Supreme Court in opposition to this order dated 1-7-2021.
Further, even when two requirements were met—that they were not jailed during the investigation and that they cooperated with the investigating agency—the Supreme Court found it challenging to approve the routine practice of sending the accused to jail. The rules were established in three stages. Guidelines were provided that took into account the two circumstances and divided the offences into four different groups. The four categories are: (a) crimes punishable by imprisonment for a period of seven years or less that do not fall under category (b) or category (d); (b) crimes punishable by death, life in prison, or incarceration for a period exceeding seven years; and (c) crimes punishable by special Acts with strict bail requirements, such as the PMLA, the Narcotic Drugs and Psychotropic Substances Act, 1985.
It could be argued that the repercussions of the same, when analysed could be elaborated are as follows:
The ruling brings to light a number of long-standing issues, including the overcrowding of jails with undertrial inmates who should not have been detained in the first place, the colonial mentality of investigating authorities, the disregard for rules like “bail is the rule while jail is the exception”, and more. Whether or not the judgment is followed will be the true litmus test.
This is not the first instance in which the police and lower courts have disregarded required bail standards established by the Supreme Court. The Supreme Court’s decision in D.K. Basu v. State of W.B.,9 which gave specific criteria for arrest and detention, is an example of a landmark judgment that only exists on paper and is primarily intended for scholarly consideration.
Similar to this, although being restated in the current ruling and set forth in Arnesh Kumar v. State of Bihar,10 the rules are often disregarded. “Bail is the rule, jail is the exception”, a well-liked legal tenet established by the Supreme Court in State of Rajasthan v. Balchand,11 but hardly ever put into practice. Examining the Satender Kumar Antil12 provisions, which the Supreme Court has repeatedly reaffirmed but which are rarely followed, is crucial in light of the past precedents that were disregarded.
The Judge’s discretion is one of the main causes of the non-compliance with bail regulations. The fundamental goal of bail is occasionally defeated because Judges are often guided by their own individualised sense of justice.
The judgment under discussion serves as an important precedent for the Vijay Madanlal Choudhary case13 i.e. the recent judgment on bails and their relevance vis-à-vis fundamental rights, which will be discussed further below in order to paint a clear picture of the judiciary's recent stance on the same.
Vijay Madanlal Choudhary v. Union of India (the PMLA case) and fundamental rights
Historically, the presumption of innocence typically granted to accused parties under criminal law is removed under Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA)14. The accused must establish beyond a reasonable doubt that they are innocent and convince the court that they will not commit another crime before being granted bail.
On July 22, the Supreme Court of India upheld a number of provisions of the Prevention of Money Laundering Act, 2002, including those that deal with the Enforcement Directorate's authority over arrest, attachment, search, and seizure in a 545p. decision in Vijay Madanlal Choudhary v. Union of India15. As a result of this decision, the ED is now free to continue using a number of audacious authorities while conducting their investigation. The PMLA’s “dual bail requirements” are at the heart of this case. These powers can be broadly classified into two categories:
The ability to make an arrest.
The ability to attach property and conduct a search or seizure of any property used in money laundering.
And the four main issues with the verdict are as follows:
(ii) Those that relate to ED’s ability to make arrests without the enforcement case information report (ECIR) and the difficulty of obtaining bail under Section 45 of the PMLA (twin conditions).
(iii) Those that relate to ED’s ability to conduct investigations without adequate restraints and submit statements recorded by other parties.
(iv) Issues relating to the burden of proof placed on the accused in court actions to seize property and in criminal cases involving money laundering.
It would be quintessential to elaborate on these issues in order to understand the debate at hand.
Attachment and seizure of property
A person’s movable or immovable property may be frozen or attached by the ED under the current Act, if it believes that the property is being used for money laundering or is “proceeds of crime”. The adjudicating authority must affirm any such order made by the ED. The property will remain attached upon the adjudicating authority’s confirmation of such attachment throughout the course of the money laundering case’s criminal court trial. Nevertheless, it is more challenging to have the property detached at the judicial level because it is the accused’s responsibility to demonstrate that the property attached does not constitute the proceeds of crime.
The difficulty that arises is that if someone’s property is attached, they may not be able to utilise it for six to seven years because the trials also tend to linger for lengthy periods of time. Even if they are found not guilty, it is possible that the State would appeal the ruling, at which point the higher court may decide to stay the lower court’s ruling. In conclusion, it may be numerous years before someone receives their property back. There are two provisions in the PMLA that deal with property: either you can search and take someone’s property (Section 17 of the PMLA) or you can attach (Section 5) the property. The ED typically has to note justifications for thinking the property is involved in money laundering in this situation. But in the absence of an ECIR mandate, there is no requirement to keep a written record of the entire inquiry, making it very simple for the investigating authority to just give some general justifications without connecting them to the specific offence under investigation. For instance, there is room for the ED to intervene if a scheduled offence has been committed in which person A has defrauded person B of Rs 1 crore. On the excuse that they just have reasons to suspect that person A has moved the money to his family members, the ED also has the authority to simply show up and seize the whole bank account of every member of person A‘s family.
How can one seize someone’s property for such a long time without providing adequate protections for the ED was one of the arguments brought up in the Supreme Court. Furthermore, it is arbitrary and unfair under Section 24 to place the burden of evidence on the owner of the attached property.
Therefore, the courts were required to intervene because of the way the property was attached and detained with the ED for such a long time under Section 17 or Section 5 of the PMLA. However, the courts stayed out of it. Instead, they merely refuted the assertion that there were not enough protections in place before approving the attachments. The ED can currently attach four residences owned by a person and ten of their properties; it just needs to establish prima facie that there is some semblance of a relationship with the primary offence. This renders the accused individuals and property owners helpless. The onus therefore falls entirely on that person to demonstrate that there is no real relationship.
In these situations, parties that have engaged in a legitimate transaction with a person who is afterwards accused of money laundering will find it challenging to prove that the money they received was unaware of it being proceeds of crime. The ED, not a regular individual, should be proving the illegality in that situation. And it gets worse for those who fall under the second sub-clause of Section 24, which in essence covers everyone. Even an accused party is not required. This directly contravenes the right to property under Article 300-A of the Constitution. Even while it may no longer be a fundamental right, it is still a constitutional right, and constitutional rights must be protected in some way. It has a position in the Constitution because of this.
Looking into arrests — Contravening the right to property
The PMLA disregards the right to property as well. The court has ruled that it is not required to record an ECIR. This appears to go against the established rules of criminal law, where it has been observed that some type of document, which provides details of the offences that an accused is suspected of committing, must be documented by the investigative agency. Without such a document, the accused faces the possibility of being charged without having a fair opportunity to defend himself.
However, even if the ECIR is not registered, ED still has the authority to detain and arrest that person. Add that to the challenges an accused faces when requesting bail in a PMLA case. A court may only issue bail if it is convinced that there are reasonable grounds to believe that the accused is not guilty of the alleged crime and that he is not likely to commit another crime while out on bail, according to Section 45 of the Act’s “twin requirements”.
As a result, anyone who has been detained and requests bail from the court must now demonstrate that it is unlikely both that he has committed money laundering and that, should he be released on bond, he will conduct another crime. Given that the accused does not even possess a copy of the ECIR (if one has been registered at all), it is challenging to convince a court that he has not engaged in money laundering because he is not even aware of the full extent of the accusations made against him.
The remedies open to a person are severely constrained if the ECIR is not recorded, as gaining bail is extremely challenging because only the grounds of an arrest must be given to the accused, and those grounds may be very vague and not include specifics of the offences that have been charged. If an ECIR copy had been made accessible, the accused may have demonstrated to the court that there is no evidence to support his bail request. Additionally, just like in FIRs, the accused may contest the legitimacy of the entire ECIR under Section 482 CrPC.
Room for numerous incriminating evidence
The PMLA's provision for recording self-incriminating testimony while an inquiry is ongoing is another significant flaw in it. A person’s testimony may be impacted by a number of factors while giving a statement to the ED, such as lack of knowledge of one’s role in the case (they may assume they will remain witnesses and learn later that they stand in the role of an accused), fear, or coercion, but unlike in police investigations, all statements recorded by the ED are admissible as evidence in a court of law.
The court ruled that Article 20 only applies to accused persons and those who are summoned are not in the role of an accused. Petitioners had argued against the applicability of this article, claiming it violates Article 20 of the Constitution (protection against self-incrimination).
The issue with that logic is that the ED process is so opaque that even if someone is a prime accused in the case, they would not know it when they are called for questioning because they will not be given access to even a copy of the ECIR.
As a consequence, an accused person will be treated on an equal footing with a simple witness and may be asked to testify against themselves, which will be used against them at the trial stage. To give the PMLA a harmonic structure with the privilege against self-incrimination, the court should have added some protections. The same may have been accomplished by ruling that, despite the admissibility of any other testimony, any confession obtained from a witness under Section 50 of the PMLA shall not be included in evidence against him. But the highest court did not offer any such exception.
Burden of proof and other related issues
The burden of proof issue, which we briefly discussed in the lines above, is yet another major issue with the Act.
According to the Supreme Court’s ruling, ED must first demonstrate that you are the target of a prima facie case while charging you. However, under criminal law, where the court has said that the burden of proof will always be on the prosecution (and not just in proceedings before the adjudicating authority), merely establishing a prima facie case is insufficient to transfer the burden of proof to the accused. Because your life and freedom are in jeopardy according to criminal law.
A case that seems strong on the surface is called prima facie. At the very least, the burden of proof in money laundering cases, when a sentence of up to 10 years in prison is possible, should remain with the prosecution. Additionally, the Supreme Court has contrasted Section 24 with other clauses and laws. However, the majority of these additional rules reverse the burden of proof when specific existing facts support doing so.
The burden of proof falls on the accused under the Protection of Children from Sexual Offences (POCSO) Act, 2012, for instance. However, this is because it is an extremely delicate act and the survivor frequently finds it difficult to provide credible testimony, which puts the prosecution at a disadvantage. It is a law that serves society as a whole and for the greater benefit. To preserve the interests of the Act, a shift in the burden of proof is justifiable, but it is unclear how the crime of money laundering should be viewed as one where the prosecution will be unable to prove its case.
In an apparent effort to legitimise the vigorous prosecution and stringent bail conditions, the top court has also contradicted itself by asserting that money laundering is a stand-alone offence. This is due to their assertion that money laundering cannot occur without the presence of criminal proceeds and that a scheduled offence serves as a required prerequisite to the commission of money laundering. Given this apparent contradiction, it is unclear how, despite the fact that money laundering cannot occur without the presence of criminal proceeds, the burden of proof for the scheduled offence falls on the prosecution while it is the accused’s responsibility for the money laundering offence.
Furthermore, given that simple “possession” of the proceeds of crime has been affirmed as a legitimate basis for the allegation of money laundering, how can money laundering in most cases be more serious than the scheduled offence? This implies that even merely possessing the proceeds of crime, without using them, constitutes money laundering. Even in these situations, the money laundering trial will be skewed sharply against the accused as opposed to the trial for the scheduled offence.
In the interesting case of Nikesh Tarachand Shah v. Union of India,16 the Supreme Court ruled that this provision was unconstitutional. In 2018, the Union Government changed the clause. According to the ED, this modification brought the clause into compliance with Nikesh Tarachand Shah17. The petitioners claimed that the change restored the original twin requirements and undercut the judgment. It was argued that Section 50, which authorises the ED to force suspects to make self-incriminating statements under threat of a fine, violates the suspects’ fundamental rights under Article 20 of the Constitution. The petitioners argued that the investigative agencies effectively wield police authority and therefore be required to adhere to the Code of Criminal Procedure at all times. Importantly, because the ED is not a police organisation, any statements made by the accused to ED personnel during an inquiry may be used against him or her in court.
Hence, a three-Judge panel led by Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar upheld all of the PMLA's contested sections on 27-7-2022. This decision does not address the issue of whether certain revisions to the PMLA could not have been passed by the Parliament via a Finance Act. The ruling of the larger Bench (5 Judges) of this Court in Rojer Mathew v. South Indian Bank Ltd.18 leaves the same open for examination before, during, or after. The term “investigation” in clause (na) of Section 2(1) of the 2002 Act is interchangeable with the duty of “inquiry” to be carried out by the authorities under the Act and does not limit itself to the issue of investigation concerning the offence under the Act. There were two requests for factual reports made throughout the hearing. It was observed that evaluating a statute should take into account more than just the wording of the law and should also take into account how the law is actually applied in practice. The purpose of the first report was to tabulate how frequently people were found guilty under the Act. It came out that this figure was a startlingly low 0.5%. From the perspective of personal freedom, this means that 99 out of 100 people should not have been detained and, even worse, should not have had their bail requests denied. However, this consideration was completely disregarded in the Vijay Madanlal Choudhary judgment19.
The way forward for fundamental rights
According to the Constitution, petitioners may at any time file a petition with the Supreme Court and request a review under Article 137 of the Constitution. After the review, they may also submit a curative petition. These, however, cannot be agitated like an appeal and can only be made on very specific grounds (such as inaccuracy that is obvious from the record alone, etc.). In fact, a review petition was filed by Karti P. Chidambaram and the Supreme Court vide order dated 25-8-2022 was pleased to issue notice in the review petition to the aspect of, (i) the reversal of presumption of innocence qua Section 45(2) of the PMLA; and (ii) non-supply of copy of ECIR.
If the Rojer Mathew20 decision rules against the State, the changes can be invalidated. It is disappointing to see that the court has provided a myopic view on the issues of personal liberty and other fundamental rights, even if the issue there is one of procedure. Of course, the Supreme Court can convene a five-Judge Bench to review this decision, but that is only likely to occur if a subsequent decision conflicts with a significant aspect of this decision (like the Suresh Kumar Koushal v. Naz Foundation21 was revisited and overturned after privacy was held to constitute a fundamental right in K.S. Puttaswamy v. Union of India22).
Nonetheless, it is unlikely that a ruling that merits an immediate reconsidering of the one under discussion will arise anytime soon because the rights diminished by this judgment are already pre-existing fundamental rights.
Lastly, it is hoped that the highest court, through later judgments, at least mitigates the impact of this verdict in order to prevent further harm. The court may issue rulings that limit or restrict the interpretation provided by this one, for instance, when it is dealing with particular instances brought by individuals who are being investigated for money laundering.
In the present case, it would be desirable for the entire court, consisting of nine justices, to convene in order to hear this case due to the broad scope, harsh character of its provisions, and influence on a large number of potential offenders, including leaders of political parties. Smaller Benches of two or three would necessarily present the issue that Judges were allocated according to their individual beliefs and preferences. The best course of action is to have the nine Judges who have served the longest sit in order to hear this case. This maintains a balance of opinions and prevents a Senior Judge from making decisions with little input from far more junior justices. After all, there is safety in numbers and some strength in seniority.
Furthermore, the only inference we can make is that these instances were not appropriate for institutionalisation because the Union Government will not consent to admitting the incompetence of its ED officers and prosecutors. If that is the case, then using the Act for unintended and unrelated purposes certainly suggests itself as a justification for starting these proceedings. If these rules are upheld, it must imply that the continued abuse of harsh laws against civilians is sanctioned by the courts.
The Act’s initial justification was to take action against criminals and the proceeds of their crimes relating to narcotics, terrorism, corruption, and other activities involving large sums of money and that are, by their very nature, detrimental to society globally.
Because it would be appropriate and necessary to subject the offenders and proceeds of such crimes to extraordinary surveillance, regulation, and punishment, if this had remained the exclusive focus, things might have been looked at differently.
Surprisingly, it was discovered that successive Governments led by various political parties had expanded the list of scheduled offences to include a broad spectrum of what would be regarded as “regular” criminal offences. Fraud, forgery, deception, kidnapping, infringement of copyright and trade marks, environmental crimes, and even the immoral trafficking of women are included in this.23
On the other hand, the PMLA eliminates these protections and places the accused at the mercy of an ED without any monitoring or procedure. The executive is free to choose which individuals would be subject to the draconian PMLA restrictions. The executive is unguided and unrestrained; by this, we do not just mean the ED officers, but also—and this is crucial—the political executive, which is in charge of these officers. There is undoubtedly no greater threat to liberty and fundamental rights than having the harshest penalties imposed on the basis of whim, fancy, extortionate motives, or political gain.
Conclusively, the PMLA's strict provisions were maintained by the Supreme Court, however this weakens several citizen rights and the legal protections against administrative overreach. The panel headed by Justice A.M. Khanwilkar has supported the ED's authority under the PMLA, ruling that the law’s strict provisions for property attachment and property arrest are both constitutional and free from arbitrary decision-making. Many of the PMLA’s provisions have faced harsh criticism for deviating from acknowledged legal norms and rules established by the court in earlier rulings. Hence, it is still a hope that the future judiciary will take effective steps to remedy this explicit wrong and ease some of the provisions of the draconian PMLA. It is only a hope that the sentinel on the qui vive shall uphold the decision of itself in Nikesh Tarachand Shah24 once the review petitions are heard and a verdict is delivered.
† Advocate-on-Record, Supreme Court of India.
The author acknowledges the work of Arushi Bhagotra, 4th Year — B.A. LL.B (H) — NLIU Bhopal.
5. CRL OP(MD) No. 3744 of 2019