By doing so, the Supreme Court has in essence overridden its 2017 ruling in the Nikesh Tarachand case. That judgement held bail provisions of the PMLA to be excessive and unconstitutional on the grounds of arbitrariness and lack of due process. However, India’s apex court in its latest judgement, on 27 July 2022, has not only diluted certain safeguards embedded in the search and seizure provisions, but it has also put the PMLA on a pedestal as a specialized code that does not follow all the principles of the code of criminal procedure.
Further, the Supreme Court re-affirmed the wide definition of ‘money laundering’ by giving full play to provisions that cover every process or activity undertaken by any person. India’s top court was faced with a barrage of cases that sought to contend that the powers vested in and exercised by the prosecutorial agencies were unconstitutional.
The following points bring forth the main argument and subsequent findings of the Supreme Court:
Offence of money laundering: When the act first came into force, to prove the offence of money laundering, the prosecution had to establish not only that the accused was concealing and in possession of proceeds of crime, but also that the person was projecting the same as untainted property. The Supreme Court, in view of a 2012 amendment to the Act which sought to bring the Indian regime in line with recommendations of the intergovernmental Financial Action Task Force (FATF), held that projecting proceeds as untainted property was no longer a sine qua non and that mere possession and concealment would suffice. Further, the court made it clear that the offence of money laundering gets triggered only if there are proceeds of crime resulting from criminal activity relating to a scheduled offence. Absent proceeds of crime, the authorities cannot initiate any prosecution. This does not stop authorities from initiating action for the attachment and confiscation of proceeds of crime as a standalone process.
Twin conditions of bail re-affirmed: Section 45 of the PMLA provides twin conditions for the grant of bail: (i) an opportunity to the public prosecutor to oppose it; and (ii) reasonable satisfaction of the court that the accused is not guilty when the bail application is opposed by the prosecution. The Supreme Court in the case of Nikesh Tarachand struck down these twin conditions in 2017, holding them to be unconstitutional as they violated Article 14 and Article 21 of the Constitution.
In 2018, however, Parliament amended that provision. The recent judgement of the Supreme Court makes a distinction that the earlier judgement concerned itself with offences punishable by more than three years imprisonment, and since this defect was removed by Parliament, the judgement would not apply. The main reasons that weighed with the court were: (i) compelling state interest; and (ii) this being a separate class of offences that requires effective and stringent measures.
The application of Section 45 of the Act is not only manifestly arbitrary, as it reverses the burden of proof, but the twin test applies even to anticipatory bail. Similar are the powers of search and seizure, as even without any credible evidence, the Enforcement Directorate (ED), which is the prosecuting agency for PMLA cases, can proceed on the basis of information available that gives rise to a reasonable belief of wrongdoing.
The Enforcement Case Information Report (ECIR) and admissibility of evidence before the ED: The court held that it is not mandatory for the ED to supply the accused with an ECIR, as it is an “internal document" of the ED created before initiating penal action. Also, any statement recorded by the Directorate is admissible in evidence, as ED officers are not police officers under the Act.
Both these provisions are inadequate safeguards to guarantee a fair investigation. It is even more onerous for a person who is applying for bail to be unaware of the gravamen of the charge upon which the person is being detained.
In upholding the constitutionality of the PMLA, the Supreme Court has strengthened the hands of the ED. In doing so, however, the court has diluted some well established principles of criminal law. There is now no requirement to prove foundational facts and there are inadequate safeguards against excessive use of the powers granted to the ED for arrest, search or seizure.
However, it should be mentioned that over time, successive governments have strengthened the provisions of PMLA, a process that was checked only by the Supreme Court’s judgement of 2017 in the case of Nikesh Tarachand.
Yash Johri and Satatya Anand, associates at Cyril Amarchand Mangaldas, contributed to this article. These are the authors’ personal views.
Gauri Rasgotra is a partner at Cyril Amarchand Mangaldas
