In a 545-page judgment in Vijay Madanlal Choudhary vs Union of India, the apex court on Wednesday, 22 July, upheld several provisions of the Prevention of Money Laundering Act, 2002, including those which relate to the power of arrest, attachment, and search and seizure conferred on the Enforcement Directorate (ED).
Thus, by effect of this judgment, the ED has been allowed to retain a lot of brazen powers that can be exercised by them during the course of their investigation.
Broadly, these powers can be divided into two parts:
Power of arrest
Power of attachment of property and search/seizure of property involved in money laundering
And the problems with the judgment can be divided into four key points:
Those pertaining to ED’s power to indiscriminately attach and seize property of both accused as well as witnesses, are in direct contradiction with Article 300A of the Constitution (right to property)
Those pertaining to ED’s power to carry out arrests without the ECIR and the difficulty of securing bail under 45 of the PMLA (twin conditions)
Those pertaining to ED’s ability to carry out investigations without adequate fetters and submit statements recorded during the course of investigation (including those which may be self-incriminating) as admissible evidence in court
Those pertaining to the burden of proof that falls upon the accused in proceedings for attachment of property as well as the criminal trial for money laundering
Each of these problems, albeit viewed separately for the purpose of this article, are snugly intertwined with each other.
Concerns Pertaining to Attachment (and Seizure) of Property
The ED, under the present Act, is authorised to freeze/attach any movable or immovable property of any person if it feels that this property is involved in money laundering or constitutes 'proceeds of crime.' Any such order by the ED is subject to confirmation by the Adjudicating Authority. Once the Adjudicating Authority confirms such attachment, the property will remain attached for the entire duration of the trial for money laundering before a criminal court.
However, because the burden of proving that the property attached does not constitute proceeds of crime, is upon the accused, it becomes extremely difficult to get the property unattached at the judicial level.
A lawyer’s personal experience may suggest that in most cases the Adjudicating Authority confirms the freezing/attachment of property. Their perspective perhaps arises from the fact that the trial is yet to start and tomorrow if it turns out that the accused had in fact committed money laundering, then this entire property can be lost.
But the trials also tend to last for long spells of time, and therefore, the problem that emerges is that if somebody’s property is attached, they might not be able to use it for six-seven years. And even then, if they are acquitted, it is likely that the state might appeal the decision, and then, the higher court might stay the lower court’s judgment. So all in all, it can take up to several years before a person gets their property back.
Under the PMLA, there are two property-related provisions: you can either search and seize (Section 17 PMLA) someone’s property or you can attach (Section 5) the property.
Typically, here, the ED has to record reasons to believe that the property is connected to money laundering. But because there is no mandate to maintain a written record of the entire investigation, in the absence of an ECIR mandate, it becomes very easy for the investigating authority to just provide some broad-based reasons, without linking the same with the exact offence being investigated.
For example: if a scheduled offence has been committed where person A has cheated person B of Rs 1 crore, there is room for the ED to step in. The ED also has the power to just come and attach the entire bank balance of every family member of person A on the pretext that they merely have reasons to believe that A has transferred the money to his family members.
In the Supreme Court, one of the issues that was raised was how you can attach somebody’s property for such a length of time in the absence of sufficient safeguards on the ED. Plus, under Section 24, to put the burden of proof on the person whose property is attached is also unreasonable and arbitrary.
Thus, the manner in which the property is attached and kept with the ED for a lengthy span of time under Sections 17 or 5 of the PMLA, called for interference by the courts. But the courts did not interfere. Instead, they simply contradicted the claim of insufficient safeguards and went on to allow the attachments.
But this leaves the accused persons and property owners (whose properties have been attached) near remediless. Why?
Because the ED can currently attach four houses belonging to a person, 10 of their properties, and it just needs to prima facie show that there is some semblance of a connection with the main offence. And then the entire burden of proving that there is not an actual connection will shift to that person.
In such cases, parties who have entered into a bona fide transaction with a person later accused of money laundering will find themselves in a difficult position to establish that the money received by them was without knowledge of the same being proceeds of crime.
That is something that the ED, not a common person, should be doing – proving the illegality.
And this is worse for people who are covered under second subclause of section 24, which essentially includes any person. It need not even be an accused.
This is in direct contradiction with Article 300A of the Constitution – right to property. It might not be a fundamental right anymore, but it is a constitutional right and some sort of protection has to be given to a constitutional right. That is why it has a place in the Constitution.
But alright. Even if the right to property is a constitutional right which is not as important as a fundamental right, what about the right to liberty? Surely, that’s a fundamental right!
What About Right to Liberty? Looking Into Arrests
And yet, it can be argued that the PMLA does not appear to pay much regard to the right to liberty either. Here’s how:
The court has held that recording an ECIR is not mandatory. This seems to be against the established principles of criminal law, where it has been seen that some or the other document must be recorded by the investigating agency, which contains details of the offences that an accused is suspected to have committed. Unless you have a document like that, the accused suffers the threat of being prosecuted without having a proper chance to defend himself.
But even if the ECIR is not registered, ED still holds the power of arresting that person and of retaining that person in jail. Add that to the difficulty an accused has to endure while applying for bail in a PMLA case.
The “twin conditions,” under Section 45 of the Act, dictate that a court can grant bail only if it is satisfied that there are reasonable grounds for believing that the accused is not guilty of such offence AND that he is not likely to commit any offence while on bail.
Hence, any arrested person approaching the Court for bail must now prove that it is unlikely that he has committed any money laundering and that further, he is unlikely to commit an offence if let out on bail. Considering the accused person does not even have a copy of the ECIR (if one has been registered at all), it is difficult to satisfy any Court that he has not committed the offence of money laundering, as he does not even know the scope of allegations against him.
Not recording the ECIR heavily restricts the remedies available to a person as getting bail is very difficult because only grounds of arrest are required to be provided to an accused, which may be very limited and need not record details of the offences alleged against such person.
Had an ECIR copy been made available, the accused could show to the Court, considering his bail application, how prima facie no case is made out against such person. Further, the accused could also challenge the validity of the entire ECIR under 482 CrPC, like it is done in FIRs. Till the time ED does not register an ECIR against an accused person, the accused person is in no position to challenge the prosecution launched against him, even though he faces constant threat of arrest. In the absence of an ECIR, obtaining anticipatory bail is also difficult as the accused will be unable to demonstrate that he has a valid threat of arrest. Additionally, now that the bail conditions under Section 45 have been extended to anticipatory bails, the threshold for the same is anyway too high. Hence, the right to personal liberty stands heavily compromised.
Room for Incriminating Evidence
Another major problem with this Act is that it provides for recording of self-incriminating testimonies during the stage of investigation. While giving a statement to the ED, a person’s testimony may be affected by several factors, including absence of awareness of one’s position in the case (they can assume they will remain witnesses and only later find out that they stand in the character of an accused ) or even fear or coercion, but unlike in police probes, all statements recorded by the ED are admissible as evidence in a court of law.
Petitioners had argued against the applicability of this provision, stating that it is in contravention of Article 20 of the Constitution (right against self-incrimination), but the Court held that Article 20 applies only to accused persons and those who are summoned are not in the capacity of accused.
But the problem with that reasoning is that the entire process of the ED is so opaque: a person might be a prime accused in the case, but when they are called for questioning, they will not be informed of this fact as even a copy of the ECIR will not be made available to them. Hence, an accused person and a simple witness will be put on the same level and can be asked to testify against themselves, which will then be used against them at the stage of trial.
The court ought to have placed some safeguards to give the PMLA a harmonious construction with the right against self-incrimination. The same could have been done even by holding that any confession recorded from a witness under Section 50, PMLA, shall not be admissible in evidence against him even though any other testimony may be admissible. But no such exception was provided by the top court.
Burden of Proof & Other Related Concerns
Another tremendous problem with the Act is one that we have touched upon in the preceding paragraphs as well – the problem of the burden of proof.
The Supreme Court judgment says that ED needs to first show, at the stage of framing of charge, that a prima facie case exists against you. But when it comes to criminal law – and the court has said that the burden of proof will be on the accused even in criminal proceedings under the PMLA (and not only in proceedings before the Adjudicating Authority) – merely establishing a prima facie case is not good enough to shift the burden of proof to an accused person. Because, under criminal law, your life and liberty are at stake.
A prima facie case only looks into the top layer of the facts of the case. In money laundering cases, where someone can be imprisoned for a period of up to 10 years, at least the burden of proof should remain with the prosecution which wants to put you behind bars.
The Supreme Court has also compared Section 24 with other provisions and statutes. But most of these other provisions reverse the burden of proof when certain existing facts justify such reversal. For example: under the Protection of Children from Sexual Offences (POCSO) Act, the burden of proof is on the accused. But this is because it is a very sensitive act and the survivor is often not able to easily give clear testimony, so the prosecution is already on the backfoot. It is a socially beneficial legislation, where the larger good is concerned. However, it is not apparent how the offence of money laundering should be seen as such an offence where the prosecution will be unable to prove its case and hence, to protect the interests of the Act, a reversal of burden of proof is justified.
The apex court has also contradicted itself in saying that money laundering is a stand-alone offence, in a bid seeming to justify the rigorous prosecution and tough bail conditions. This is because they have, on the other hand, said that money laundering cannot happen without the existence of proceeds of crime and hence, a scheduled offence is a necessary precursor to the offence of money laundering.
Considering this apparent contradiction, it becomes unclear how even though money laundering cannot happen without the existence of proceeds of crime, the burden of proof in the scheduled offence is on the prosecution, but, for the money laundering offence, is on the accused. Also, how can money laundering in most cases be more grievous than the scheduled offence, especially when mere ‘possession’ of proceeds of crime has been upheld as a valid basis to allege money laundering? This means that mere possession, even without any use of proceeds of crime also becomes money laundering. However, even in these cases, the trial for money laundering will be heavily tilted against the accused, as against the trial for the scheduled offence.
Can This Judgment Be Challenged in a Court of Law?
As per the Constitution, the petitioners can always approach the Supreme Court via a petition and seek a review under Article 137 of the Constitution. They can also file a curative petition after the review. But those can be done are on very limited grounds (such as error apparent on the face of the record, etc) and cannot be agitated like an appeal.
The amendments might fall if the Rojer Mathews judgment goes against the State. However, the issue there concerns a procedural question and it is disheartening to see that the Court has given a myopic view on the issues of personal liberty and other fundamental rights.
The Supreme Court can, of course, constitute a five-judge bench to revisit this judgment, but that’s only likely to happen if a future judgment contradicts a key element of this judgment (like the Naz Foundation judgment was revisited and overturned after privacy was held to constitute a fundamental right in the Puttuswamy case).
However, as the rights diluted by this judgment are anyway pre-existing fundamental rights, it is unlikely that a judgment that warrants an immediate revisiting of the one under discussion would come anytime soon.
For damage control, we hope that the top court, via subsequent judgments, at least waters down the effect of this judgment. For example, while dealing with specific cases brought by persons facing proceedings for money laundering, the Court might pass judgments which restrict or limit the interpretation given via this one.
(As told to Mekhala Saran.)
(Rajiv Bhatnagar is a Partner in the disputes practice group of Khaitan and Co and regularly advises clients on PMLA and various other white-collar statutes. Ishan Khanna is a Principal Associate in the Disputes practice of Khaitan & Co., and specialises in white-collar criminal litigation and advisory. This is an opinion piece and the views expressed are the authors' own. The Quint neither endorses them nor is responsible for them)