Comprehensive Analysis of Supreme Court Judgment - Vijay Madanlal Choudhary & Ors v Union of India: Clarifying Provisions and Safeguards under the PMLA 2002

The provisions, provisos, and amendments of the Prevention of Money Laundering Act, 2002 (“PMLA”) were challenged in a batch of petition filed before the Hon'ble Supreme Court of India claiming constitutional and fundamental rights of persons subjected to search, seizure of property or records, summons, and/or arrest as part of investigation under the Prevention of Money Laundering Act, 2002 (“PMLA”) were being violated.

The claims in the petitions were mainly rejected by the Hon'ble Supreme Court of India on the grounds that they were not in sync with the scheme, purpose and objective of the PMLA, which primarily aims at the prevention of money laundering, attachment of proceeds of crime, adjudication, and confiscation thereof. Additionally, the safeguards embedded in the PMLA make it a self-contained law, negating the need for any further safeguards provided in Criminal Procedure Code, 1973.

Highlights of the Judgment:

Ambit of expression “Proceeding” widened: 

The ambit of the expression “proceeding” in Clause (na) of Section 2(1) must include the inquiry procedure followed by the Authorities of ED (S.48), the Adjudicating Authority (S.6), and the Special Court (S.43) and not limit it to only special court or adjudicating Authorities only.

Investigation and Inquiry: 

The expression “investigation” in Clause (na) of Section 2(1) of the 2002 Act is interchangeable with “inquiry” undertaken by the Authorities (S.48) under the Act.

Untainted Property: 

Section 3 explains the offense of money laundering as directly or indirectly attempting to indulge OR knowingly being a party to or actually involved in any process/activity connected with the proceeds of crime and projecting it as untainted and clean white property. The word “and” is to be read alternately and not conjunctively. Committing the offense of money laundering would not only mean reaching the final stage or act of integration of tainted property into the formal economy (i.e., converting black money into white money) but also includes committing of either of the other acts in the provision.

Challenge to Constitutional Validity of Section 5 Attachment, Adjudication, and Confiscation: 

Section 5 is constitutionally valid as it provides procedural safeguards that are effective measures to protect the interests of the person concerned by giving them the opportunity to be heard during the adjudication of complaints filed under section 5(5) or adjudication of applications seeking retention of records or property seized under sections 17(4) & 18(10) by the Adjudication Authority. It also ensures that the proceeds of crime are prevented from becoming unavailable for dealing with them which is the very objective of PMLA.

Challenge to Constitutional Validity of S.8(4) Taking possession of attached property:

 The challenge to the validity of sub-section (4) of Section 8 of the 2002 Act has been rejected, subject to Section 8 being invoked and operated in accordance with the meaning assigned to it above. Section 8(3) provides for the confirmation of provisional attachment orders passed under section 5(1), thereby confirming the attachment of property or retention of seized property or records. The attachment of property and taking possession of the property under section 8(4) is necessary to prevent it from becoming unavailable, thereby frustrating the proceedings pertaining to the confiscation of proceeds of crime under section 8(6) and subsequent vesting of property in the Central Government.

Deletion of proviso to S.17 (1) Search or Seizure challenged: 

The challenge to the deletion of the proviso by the Finance (No.2) Act, 2019, to sub-section 17(1) (which provided for a pre-condition of forwarding a report under section 157 to the Magistrate or filing a complaint with the Magistrate) before conducting search, has been rejected. There are stringent safeguards provided in Section 17 and Rules framed thereunder. The Director before conducting search has to record in writing the reasons on basis of which he seeks search and after such search and sizure is conducted has to forward a copy of the reasons so recorded along with material in his possession to the Adjudicating officer in a sealed envelope. The Director is also under an obligation to apply for further retention of the property or record it has seized within 30 days of search or seizure before the Adjudicating Authority.

Deletion of provision to S.18(1) Search of a person challenged:

 The challenge to the deletion of the proviso by the Finance (No.2) Act, 2019, to sub-section (1) of Section 18 of the 2002 Act (which provided for a pre-condition of forwarding a report under section 157 to the Magistrate or filing a complaint with the Magistrate) before conducting search, has been rejected.

There are similar safeguards provided in Section 18. The Director before conducting search has to record in writing the reasons on basis of which he seeks search of the person and seizure of record or property and search must be in presence of witnesses. The Director immediately after such search and seizure conducted has to forward a copy of the reasons so recorded along with material in his possession to the Adjudicating officer in a sealed envelope. The Director is also under an obligation to produce the person so searched before the Magistrate and the Magistrate may discharge such person if there are no reasonable grounds for further detention. The Director shall apply for further retention of the property or record it has seized within 30 days of search or seizure before the Adjudicating Authority. A Female to be subjected to search by a female only.

Challenge to Constitutional Validity of Section 19 Arrest:

The challenge to the constitutional validity of Section 19 of the 2002 Act on the grounds that no formal complaint/FIR is required as in the CRPC for arrest under PMLA, and resorting to arrest of a person even before a formal complaint is filed under Section 44(1)(b) of the 2002 Act has been rejected based on the stringent safeguards provided in Section 19, such as the production of the person arrested before the Magistrate within 24 hours and the authority so arresting having to forward a copy of the order along with the material in his possession.

Section 24- Burden of Proof- Presumption that “proceeds of crime are involved in money laundering/tainted”:

The burden of proof is not only on the person charged with the offense of money laundering but also on the person in possession of the property. Upon establishing certain foundational facts, a legal presumption would arise that such proceeds of crime are involved in money laundering. If the person concerned can disprove the fact about his involvement in any process or activity connected therewith by producing evidence in that regard, the legal presumption would stand rebutted.

Challenge to post-amendment 2018 to Section 45 Offence to be Cognizable and non-bailable:

The amendment of 2018 provided that no person accused under PMLA shall be released on bail or his bond unless (1) the Public Prosecutor has been given the opportunity to oppose the release application and (2) the Court is satisfied that there are reasonable grounds for believing that he is not guilty.

Challenging to Section 44:

Section 44(1)(b) provides that if the accused was already in custody and facing trial in respect of a scheduled offense elsewhere, then he is not required to be produced before the Special Court at the time of taking cognizance on the complaint filed by the authorized authority. This provision must be regarded as directory or discretionary, and the Special Court trying the offense of money laundering need not insist on producing the accused before it at the time of taking cognizance of the offense of money laundering, provided no prejudice is caused to such accused.

The proviso relating to the filing of a closure report would come into play only where the complaint is yet to be filed owing to the pendency of an inquiry before the authorities. Section 44(1)(c) provides that the court trying the scheduled offense can commit the matter to a special court trying the money laundering case arising out of the scheduled offense. However, the trials have to be conducted and proceeded with in an independent manner even though they may be tried by the same Special Court, as both are distinct and independent offenses. This power to commit a trial to a special court is discretionary and not mandatory and is to be exercised on a case-by-case basis.

Challenge to the constitutional validity of Section 50 (Power of authorities to summon any person and record his statement during the course of investigation):

The process envisaged by Section 50 of the 2002 Act is in the nature of an inquiry against the proceeds of crime and is not “investigation” in the strict sense of the term for initiating prosecution, and the Authorities under the 2002 Act (referred to in Section 48) are not police officers as such. The statements recorded by the Authorities under the 2002 Act are not in violation of Article 20(3) or Article 21 of the Constitution of India.

ECIR:

An ECIR cannot be equated with an FIR under the 1973 Code. An ECIR is an internal document of the ED, and the fact that an FIR in respect of a scheduled offense has not been recorded does not impede the Authorities referred to in Section 48 from commencing inquiry/investigation for initiating “civil action” of “provisional attachment” of property being proceeds of crime. The supply of a copy of ECIR in every case to the person concerned is not mandatory; it is enough if the ED discloses the grounds of such arrest at the time of arrest. However, when the arrested person is produced before the Special Court, it is open to the Special Court to look into the relevant records presented by the authorized representative of ED to determine the need for his/her continued detention in connection with the offense of money laundering.

Conclusion:

By widening the ambit of crucial terms, clarifying procedural safeguards, and dismissing challenges to constitutional validity, the judgment underscores the Act's efficacy in its mission to prevent money laundering and confiscate proceeds of crime. Furthermore, the Court's interpretation and validation of essential provisions not only reinforce the Act's legal standing but also affirm its alignment with constitutional principles, thereby upholding the integrity of the legislative framework designed to combat financial crimes effectively. This landmark ruling sets a significant precedent for the future enforcement and interpretation of anti-money laundering laws in India, ensuring a balanced approach that prioritizes both the prevention of illicit financial activities and the protection of individual rights within the bounds of the law.

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