Vijay Madanlal Choudhary v Union of

India, 2022 SCC ONLINE SC 929

INTRODUCTION:

PMLA was enacted in 2002 in response to India’s global commitment

(including the Vienna Convention) to combat the menace of money
laundering.

Statement of objects and reasons of the PMLA Bill of 1999 refers to

various international conventions and instruments dealing primarily with
money laundering related to crimes involving drugs and narcotics.

The Directorate of Enforcement (ED) is a financial investigation agency under the

Union Government’s Department of Revenue, responsible for enforcing the
provisions of the Prevention of Money Laundering Act, 2002 (PMLA). To conduct
investigations, the ED is empowered to issue summons, record statements, make
arrests, and search and seize property.

Despite having powers of investigation, the ED has not been classified as a ‘police
agency’. This is also true for other specialized bodies, including the Serious Fraud
Investigation Office (SFIO) and the Directorate of Revenue Intelligence (DRI),
which are empowered to investigate economic offenses under other legislations.
These bodies are not obliged to follow the Code of Criminal Procedure Code, 1973
(CrPC).

The Act (with amendments till 2019) gives almost unfettered powers to the ED
for search, seizure, investigation, arrest and attachment of assets considered
to be proceeds of crimes listed under the PMLA along with constrictive bail
provisions – in disregard of Part III rights.
Procedural History:

Nikesh Tarachand Shah vs. Union of India [(2018) 11 SCC 1]

Section 45 twin conditions challenged and struck down in Nikesh Tarachand Shah
vs. Union of India [(2018) 11 SCC 1] being violative of Article 14 of the
constitution
“the statutory scheme, with Section 45 in its present avatar, would therefore,
lead to the same offenders in different cases having different results qua bail
depending on whether Section 45 does or does not apply.This shows that
manifestly arbitrary, discriminatory and unjust results would arise on the
application or non-application of Section 45, and would directly violate Article
14 and 21, inasmuch as the procedure for bail would become harsh,
burdensome, wrongful and discriminatory, depending upon whether a person is
being tried for an offense which also happens to be an offense under part A of
the Schedule, or an offense under part A of the schedule together with an
offense under the 2002 Act.
Obviously, the grant of bail would depend upon a circumstance which has
nothing to do with the offense of money laundering. …..Section 45 would have
to be struck down as being manifestly arbitrary and providing a procedure which
is not fair or just and would, thus, violate both Articles 14 and 21 of the
Constitution."

REVIVAL OF TWIN CONDITIONS

In order to revive the twin conditions, Section 45 of PMLA was amended by way
of Finance Act, 2018

Prior to amendment After amendment

(Section under challenge in Nikesh “45. Offenses to be cognizable and

Tarachand) non-bailable. (1) Notwithstanding
45. Offenses to be cognizable and non- anything contained in the Code of
Criminal Procedure, 1973 (2 of 1974),
bailable.-
(l) Notwithstanding anything contained
in the Code of Criminal Procedure,
1973 (2 of 1974), no person accused of
an offense punishable for a term of
imprisonment of more than three years
under Part A of the Schedule shall be
released on bail or on his own bond
unless-
(i) the Public Prosecutor has been given
an opportunity to oppose the
application for such release; and
(ii) where the Public Prosecutor
opposes the application, the court is
satisfied that there are reasonable
grounds for believing that he is not
guilty of such offense and that he is not
likely to commit any offense while on
bail..”
no person accused of an offense under
this Act shall be released on bail or on
his own bond unless—
(i) the Public Prosecutor has been given
an opportunity to oppose the
application for such release; and
(ii) where the Public Prosecutor
opposes the application, the court is
satisfied that there are reasonable
grounds for believing that he is not
guilty of such offence and that he is not
likely to commit any offence while on
bail…”

Case Facts:

VIJAY MADANLAL CHOUDHARY V. UNION OF INDIA, 2022 SCC

ONLINE SC 929

Nearly 200 petitioners challenged the powers of these specialized investigation

agencies that deal with economic offenses. The earliest petitions were pending
since 2014. More than 80 of these petitions dealt with the PMLA. These included
petitions filed by several politicians accused of money laundering, such as Lok
Sabha Member Karti Chidambaram, former Punjab MP Sarwan Singh Phillaur and
former Jammu and Kashmir CM Mehbooba Mufti.
Instead of dealing with facts and issues in each case,the court decided to confine
themselves to examining the challenge to the relevant provisions of PMLA, being a
question of law raised by parties.

The following provisions of the PMLA were challenged before the Court:

Sections 5 and 8(4) which grants the ED wide discretionary powers to attach the
property of the accused—challenged as arbitrary for violating safeguards meant to
protect the accused.

Section 17 which grants the ED wide powers to enter and search suspected
property without judicial permission. Along with Section 19 which grants the
power of arrest to the ED, and Section 24 which presumes guilt of the accused
until it is disproved, these provisions were challenged for exempting the ED from
following the rules of criminal procedure.

Section 45 of the Act which takes away the presumption of innocence usually
afforded to accused persons under criminal law. To be granted bail, the accused
must prove prima facie that they were not guilty, and satisfy the Court that they
will not commit any further offence. These ‘twin bail conditions’ under PMLA are
central to this case. Interestingly, the SC declared this provision unconstitutional in
Nikesh Tarachand Shah v Union of India (2017). The Union government then
amended the provision in 2018. The ED claimed that this amendment brought the
provision in line with Nikesh Tarachand Shah. The petitioners argued that the
amendment undermined the Judgment, and re-established the original twin
conditions.

Section 50 allows the ED to compel accused to make self-incriminating

statements under threat of a fine, was challenged for violating the fundamental
rights of the accused under Article 20 of the Constitution. The petitioners
contended that the investigation agencies effectively exercise police powers and
should be obligated to follow the CrPC while conducting investigations. Crucially,
since the ED is not a police agency, statements made by the accused to ED
members in the course of an investigation can be used against the accused in
judicial proceedings.
ISSUES RAISED:

The petitioners regarded multiple sections of the PMLA, 2002 as unconstitutional

and in violation of the rights of an accused. The petitioners raised the following
concerns:

1. Is it necessary to obtain a magistrate’s permission before making

arrests under the PMLA?
2. Do the rules of investigation applicable to police agencies under the
Criminal Procedure Code 1973 apply to the enforcement directorate
under the PMLA?
3. Is the 2018 amendment to the bail conditions under the PMLA
constitutional? Does it undermine the judgment in Nikesh Tarachand
(2017)?
4. Does the Nikesh Tarachand judgment lay down the correct proposition
of law on bail conditions?
5. Are the accused person’s fundamental rights violated by the burden of
proof placed on them by PMLA?
6. Is the amendment to Section 3 of the PMLA a permissible expansion of
the meaning of ‘offence’ under the Act?Is money laundering a
standalone offence? Is a complaint about a predicate offence required to
arrest under PMLA?
7. Is money laundering a standalone offence? Is a complaint about a
predicate offence required to arrest under PMLA?
8. Does the ability to use statements of the accused recorded by the
Enforcement Directorate during judicial proceedings violate the right
against self-incrimination?
9. Can the PMLA be applied to acts which occurred prior to the addition
of the offense under the Act?
10.Are the amendments to the rules of search and seizure under PMLA
unconstitutional?
 11.Is the power of arrest granted to special investigation agencies
unconstitutional?
12.Can a Court bar the ED from taking ‘coercive steps’ in all cases under
the PMLA only because the constitutional validity of certain provisions
have been challenged?
13.Do provisions concerning attachment of property under PMLA violate
the right to property under article 300A?

CONTENTION:

Petitioner’s Arguments:

1. The enforcement directorate follows an investigative procedure that

completely undermines the rights of an accused enshrined in our
constitution. (Article 20 of the Indian constitution) The ECIR ((Enforcement
Case Information Report) is cited as an internal document that doesn’t need
to be disclosed, and only the mere hearing of the charges is customary.

2. The definition of Money Laundering in Section 3 of the PMLA, 2002 has

been given a wide interpretation by allowing the word “and” to be read as
“or”, giving way for those who didn’t commit the crime to be charged with
it.

3. The statements of an accused can be used against them as evidence in court,

all while they could be unaware of the charges against them since the ED is
not required to inform them of the same, which clearly leads to self-
incrimination.

4. It was submitted that the ED must satisfy that the “proceeds of crime” were
projected as untainted property for there to be an ECIR filed against an
accused.
 5. The ED is technically the same as the Police and thus should be held to the
same standard and empowered with no power that overrides the rights of an
accused.

6. The fact that a penalty or an arrest can be the consequence of giving an

incorrect statement leads to the conclusion that the provisions under the act
are draconian and unconstitutional.

7. The reverse burden of proof is a destruction of the presumption of innocence

which is the bedrock of our criminal justice system. The ECIR is the same as
the FIR. It contains the grounds of arrest and details of the offenses; and as
such, without the knowledge of the ingredients of such a document, the
ability of the accused to defend himself at the stage of bail cannot be fully
realized. It may also hamper the ability to prepare for the trial at a later
stage. The PMLA, 2002 does not have adequate safeguards to guarantee a
fair investigation and a fair trial and is limited to Sections 16 to 19 and 50 of
the PMLA, 2002.

8. As Section 45 of the PMLA, 2002 was held unconstitutional by the decision

in Nikesh Tarachand Shah, it cannot be brought back to life by a subsequent
amendment that seeks to remove the constitutional objection.

9. The ED has in the past widened its investigation beyond what was contained
in the ECIR which was not the intent at the time of enactment, due to the
lack of efficient safeguards.

Respondent’s Arguments:

1. The arguments against the severity of the provisions of the act do not take
into consideration the international impact and its subsequent obligation to
 the state. Financial crimes such as money laundering affect the economies of
other countries as well and thus call for strict actions against it.

2. The PMLA, 2002 is not a penal statute but a hybrid statute with
preventative, regulatory, and penal aspects. Thus, it cannot be equated with
acts that regulate other crimes such as the CrPC 1973.

3. The PMLA, 2002 is a conscious departure from the CrPC, 1973 due to the
peculiar nature and far-reaching consequences of Money Laundering since
the CrPC, 1973 is a generic procedural law and does not have any universal
application due to the peculiar nature and far-reaching consequences of
Money Laundering. The wide interpretation of Section 3 of the PMLA, 2002
is preventative in nature. If a person conceals something (proceeds of crime),
it is an act committed knowingly and, thus, the question of that person
projecting that very thing either as tainted or untainted does not arise.
Further, all the terms in the definition after the word “including” are not
dependent on each other to be construed as a crime but independent of the
offense of Money Laundering. The word “and” in the definition was always
meant to be read as “or” as any interpretation other than this would fail to
fulfill the legislative purpose of the act.

4. The arguments against the legislature’s decision to enact a law with

provisions not in compliance with the CrPC, 1973 are unfounded. The
parliament is well within its right to prescribe a different procedure than the
ones in CrPC, 1973, provided that there are safeguards to ensure that it
aligns with the constitutional values.

5. The Enforcement Directorate cannot be treated as police officers as they are

not police officers under this act and can thus, not be held to the same
standards as a police officer would.

6. Due to the nature of the offence, and the potential criminal having the
resources to flee the charges, the provision of an FIR, or prior submission of
it before an arrest was deliberately avoided by the legislature. The ECIR is
an internal document only meant for administrative convenience.
 7. The contention regarding the lack of safeguards is unjustified. There are
multiple safeguards to all the sections highlighted by the petitioners,
especially in Sections 5&19 such as the arrested person to be produced
before the magistrate within 24 hours of the arrest and the reasons for the
accusation to be put in writing and submitted.

8. It is stated that the twin conditions under Section 45 of the PMLA, 2002 are
reasonable from the standpoint of the accused and his rights under Article 21
of the Constitution, which provides an objective criteria and intelligible
differentia, hence, does not violate Article 14 of the Constitution.

9. The recording of a statement under Section 50 of the PMLA, 2002 does not
violate Article 20(3) of the Indian constitution if there hasn’t been a formal
complaint against the person and he is not accused yet.

10.The burden of proof in this act deliberately shifted to the accused was
imperative due to the seriousness and gravity of the offense and to prevent
the offenders of such serious crimes to be beneficiaries while the society
suffers an economic loss.

HOLDING:
On July 27th 2022, a 3-Judge Bench comprising Justices A.M. Khanwilkar, Dinesh
Maheshwari, C.T. Ravikumar upheld all the challenged provisions of the
Prevention of Money Laundering Act, 2002.

It gave the following rationale to establish the validity of the challenged

provisions:

Section 3 of the PMLA, 2002

The court held that the interpretation was not too wide and if a person was directly
or indirectly involved in the offence, he must be held guilty of committing the
same. Such was the legislative intent of the act and the view that the crime has only
been committed if the money is laundered is invalid.

Section 5 of the PMLA, 2002

The court cited the various safeguards present in the act and cited them in the
judgement upholding the validity of the act.

Section 8 of the PMLA, 2002

The court clarified the petitioners’ doubt regarding the possession of property by
stating that it was only to be done in exceptional cases and not unless an order of
confiscation is formally passed .

Sections 16 & 17 of the PMLA, 2002

The court justified the sections by citing inbuilt safeguards available such as
mandating exercise only by high-ranking officials and the recording of reasons.

Section 18 of the PMLA, 2002

The court cited safeguards justifying the provisions such as the accused being
released if the magistrate holds that there are no grounds for arrest as well as a list
required to be made of all things taken in possession by the authorities and upheld
the validity of the same.
Section 19 of the PMLA, 2002
The court stated that the act provides for inbuilt safeguards to be adhered to by the
ED such as the recording of reasons for believing the accused’ involvement in
money laundering.

Section 24 of the PMLA, 2002

The court refuted the arguments against the act by stating that the rule that the
burden of proof is on the prosecution is not a “fossilised doctrine” and can be
reversed to prevent offenders to be major beneficiaries.

Section 44 (2), 45, 46 of the PMLA, 2002

The court rejected the claim that the twin bail conditions were disproportionate,
stating the severity and farfetched consequences of the crime along with the
influential nature of the offenders.

Section 50 of the PMLA, 2002

The court clarified the stages of investigation that allow for statement by the
accused to be admitted as evidence and upheld its validity.

Section 63 of the PMLA, 2002

The court stated that this provision is only an enabling provision meant to reduce
non-compliance with the officers and refuted the arguments against it.

These explanations and interpretations offer direction for the ED’s future activities
and a foundation for those who have been wronged to seek redress. It emphasises
how the ED must demonstrate a direct link between the scheduled offence and the
alleged proceeds of crime in order to operate under the PMLA. However, a review
petition has been submitted to the Apex Court, raising the issue of whether the
ED’s authority is legitimate.

Ongoing Status of the case

The Supreme Court today posted to July 2024 the pleas calling for reconsideration
of the judgment in Vijay Madanlal Choudhary v. Union of India, which upheld
constitutional validity of various provisions of the Prevention of Money
Laundering Act (PMLA).