The purpose of the Act is to prevent money laundering and to confiscate the property derived from the same. Directorate of Enforcement is the agency which enforces the provisions of the act and conducts investigation for the offence of money laundering.

A recent Supreme Court's Judgement granted ED special powers regarding arrest and inquiry. The Judgement in the case of Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929, addressed the ECIR and the challenges that were put forth by the petitioners regarding Section 3, Section 5, Section 24, Section 45 and Section 50 of the Prevention of Money Laundering Act, 2002 which upheld the Constitutional validity.

Money Laundering
Section 3 of PMLA Act 2002, is when any person, intentionally assists or being involved in any action or procedure connected with proceeds of crime like possession, acquisition, concealment or use of property and projecting the same as untainted, is said to have committed an offense under this section.

Section 2 (1) (u) of PMLA Act 2002, a process in which any person directly or indirectly obtains any property resulting in criminal act mentioned under the scheduled offense in Section 2(1) (y), is proceeds of crime.

Suit before the Supreme Court:
Around 241 petitions have been filed before the Hon'ble Supreme Court challenging various provisions of the PMLA Act, 2002. The three Judge bench comprising of Justice A.M. Khanwilkar, Justice Dinesh Maheswari and Justice C.T. Ravikumar clubbed all the petitions for hearing which later disposed the matter by providing a clear judgement on every issue raised by the Petitioner on July 27 of 2022.

Issues raised on PMLA provisions:
In the case of Vijay Madanlal Choudary v. Union of India, 2022 SCC OnLine SC 929, the Judgement included,

Section 3 of PMLA 2002, was challenged contending the necessity of the word 'projecting'. The Petitioners suggested an interpretation that an offense of Money Laundering is committed only upon projecting or claiming the property as untainted property, which was rejected by the apex court.

The court interpreted the section and construed that the word 'and' to be replaced by 'or' which means an offense of Money laundering is said to have been committed by the person not only when he projects the property as untainted property but also involving in every process of crime. The court held the section is not limited to projecting of property as untainted.

Example: 'A' earned Rupees 5 crore through drug dealing. 'A' wants to convert this illegal source of money to white money. He opens a restaurant or luxury hotel and projects the money as legitimate source of money.

Old interpretation of Section 3 made only 'A' is guilty of Money Laundering whereas new interpretation said that every person involved in the process of converting 'A's money to white money is guilty under Section 3 of PMLA 2002.

Section 5 of PMLA 2002, the director or deputy director may attach the property if he has the reason to believe that:

1. Any person is in possession of proceeds of crime
2. Such person is charged for committing the offense mentioned under scheduled offense;
3. Such proceeds of crime involve concealment, transfer resulting in confiscation of property.

With reference to above provision, the court held that pre-registration of Scheduled offence is required to initiate the prosecution for offense under Section 3 of the Act but the same is not necessary under Section 5 of the Act.

It was also said that the Director or Deputy Director can only attach the property which is in connection with proceeds of crime and not the other property of the accused.

The Petitioner argued that the Second Proviso permits emergency attachment of property by the officers which is against the procedural safeguards provided in First Proviso. The Court held that both the Proviso has reasonable nexus with the purpose and objects of the PMLA 2002.

First Proviso: No provisional attachment can be issued unless a report is submitted to the Magistrate as per Section 173 of 1973 code.

Section 24 of PMLA 2002, is when a person is accused of having committed the offense of Money Laundering under Section 3 of the act, then burden of proving that the proceeds of crime are untainted property shall be on the accused himself.

The Petitioner challenged this provision arguing that it violated Article 14 of the Constitution of India which is because, the burden of Proof in any criminal offenses like murder, lies on Prosecution. The fact that on whom the burden of Proof lies is different for criminal offenses and Money Laundering offenses, Right to Equality has been violated and the above provision is unconstitutional, the Petitioner argued.

The Hon'ble Court held that Section 24 of the act has reasonable nexus with the purposes and object of the PMLA Act 2002. Hence, the above provision is constitutionally valid.

Section 45 of PMLA 2002, provides twin conditions for bail which requires the accused to give double surety. Bail is granted only when the court is satisfied that:

1. There are reasonable grounds to believe that the accused is not guilty of offense under Section 3 of the act.
2. The accused is not likely to commit any offense after release.

In the case of Nikesh Tarachand Shah v. Union of India, 2018 11 SCC 1, the court held that the twin conditions for bail as unconstitutional saying, there was no need of double surety for bail. In 2018, the Parliament through the Money Bill, reintroduced this provision to PMLA Act 2002.

The Petitioner challenged the provision contending that the Parliament has no power to reintroduce twin bail conditions through Money Bill into PMLA 2002. The issue before the Hon'ble Supreme Court is that the amendment made in 2018 is valid or not where the same was recommended to the larger bench of the court.

Section 50 of PMLA 2002, empowers the investigating officer to summon and record the statements of the accused and note down the same to mark in the official set of records.

This provision was challenged to be removed as it provides that the statements given by the accused to investigating officers of Enforcement Directorate can be used against him unlike the normal criminal cases mandating the statements given by the accused to the Police officers cannot be used against himself. This is because Article 20 (3) of the Constitution and Section 25 of the Evidence Act 1872 provides that no person accused of any offense shall be compelled to be a witness against himself.

The court held that ED officers are not police officers and hence protection cannot be provided under Article 20 (3) of the Constitution.

However, an exception is that if the accused statement is recorded post arrest by ED official then protection under Article 20 (3) of the Constitution and Section 25 of the Evidence Act 1872 shall be used.

The Court also held that ECIR (Enforcement Case Information Report) is an internal document of ED and cannot be equated with FIR. Hence, providing ECIR to the accused is not mandatory and disclosure of reasons during arrest is enough.

Conclusion
The Hon'ble Supreme Court made it very clear through its judgement that the provisions challenged were valid under the Constitution of India. The Judgement guides everyone to understand the powers of ED, twin conditions of bail, the difference between ED officials and Police officers also between ECIR and FIR.

Importance of protection under Article 20 (3) of the Constitution for money laundering offenses has been dealt and the new interpretation for Section 3 of the act penalizing every person involved in every process of crime. Thus, it has paved a way in making the litigation process of Money Laundering cases easy.

References
Statute

1. Prevention of Money Laundering Act, 2002.
2. The Indian Evidence Act, 1872.

Websites:

1. https://articles.manupatra.com/article-details/What-is-Money-Laundering-in-India.
2. https://dea.gov.in/sites/default/files/moneylaunderingact.pdf.
3. https://www.livelaw.in/top-stories/supreme-court-constitution-bench-excommunication-protected-right-dawoodi-bohra-community-209790?infinitescroll=1.
4. https://www.scconline.com/blog/post/2022/07/29/your-cheat-sheet-to-supreme-courts-545-pages-long-money-laundering-verdict/.

Cases:

1. Vijay Madanlal Choudary v. Union of India, 2022 SCC OnLine SC 929.
2. Nikesh Tarachand Shah v. Union of India, 2018 11 SCC 1.

Award Winning Article Is Written By: Ms.Bindu Gowda, 4th Year Law Student, Presidency University, Bangalore.

Authentication No: SP227360816075-30-0922