Do you know what is the difference between a murder accused and an individual accused of defaulting bank loans?
An individual accused only of murder may just find it easier to secure bail at a pre-trial stage.
Or at least that is one logical conclusion that can be drawn from the Supreme Court order on Wednesday, 27 July, in which a bench lead by Justice AM Khanwilkar upheld several provisions of the Prevention of Money Laundering Act, 2002 (PMLA). These provisions included the "twin-bail condition" under Section 45 of the Act, which was incidentally struck down by the apex court itself in 2017.
The “twin conditions” 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.
In their judgment, the Supreme Court wrote:
"Article 39 of the Constitution mandates the State to prevent concentration of wealth, thus, to realise its socialist goal, it becomes imperative for the State to make such laws, which not only ensure that the unaccounted money is infused back in the economic system of the country, but also prevent any activity which damages the economic fabric of the nation.”
And that is all well and good. But what happens when the State, even in a bid to prevent concentration of wealth, goes on to infringe upon civil liberties, poses threat to principles of natural justice, and acts in violation of fundamental rights guaranteed to a citizen by the Constitution of the country?
The Supreme Court, it would seem, is perfectly fine with all that.
SC Allows ED a Wide Net of Powers, Says 'They Aren't Police'
They've got to do what they've got to do, the Supreme Court seemed to suggest this time around, as they revived the “twin conditions” for grant of bail mentioned under Section 45 and upheld the ED’s powers of attaching immovable property (under Section 5) and conducting search and seizure (Section 17).
It should be noted that back in 2017, the Supreme Court had itself struck down the twin conditions, which were then stubbornly reinserted by the Modi government.
The court also upheld the constitutionality of several other provisions of the PMLA and permitted the ED to possess a wide net of powers (which had all faced important challenges) including that:
Enforcement Case Information Report (ECIR) cannot be equated with an FIR, and ED officers are not mandated under law to register an ECIR before initiating investigation or at any other stage of the case
Supplying of Enforcement Case Information Report (ECIR) is not mandatory and disclosure of reasons during arrest is enough
Authorities under the PMLA (ED officers) are not the same as police officers and the evidentiary value granted to statements of witnesses and accused persons recorded by the ED (Section 50) is not ultra vires Article 20 of the Constitution (that provides the right against self incrimination)
The powers of arrest granted to the ED under Section 19, PMLA are in sync with purpose of the statute
Mere possession of proceeds of crime (without any integration, layering etc.) are sufficient to allege money laundering
The Quint reached out to lawyers, specialising in the PMLA, to get a sense of how this judgment will impact investigation, inquiries and bail.
Responding to our questions, Rajiv Bhatnagar (Partner, Khaitan and Co) and Ishan Khanna (Principal Associate, Khaitan and Co) wrote:
"By virtue of being granted the right to not register an ECIR or any similar document altogether, the ED will now find it easier to object to anticipatory bail petitions (as the applicants would find it difficult to showcase their threat of arrest). Further, retaining persons arrested in jail would also be easier, in the absence of any document recording the allegations against them (barring grounds of arrest)."
They also point out that the absence of a formally registered ECIR already obliterates the line between inquiry and investigation and the non-availability of it prevents the accused from availing the remedy for quashing of proceedings (as under 482 CRPC) . This only pushes bail further out of reach.
What's more, considering that any statement given by the accused during the inquiry and investigation stage (even before the individual is officially dubbed an accused) is admissible during the legal proceedings, the case is already tilted in favour of the prosecution.
In any case, bail is not going to be easy to come by in a PMLA case with the "twin conditions" at play.
It is also quite staggering that despite detailed arguments from the petitioners about how this was dangerous, the burden of proof still remains with the accused in PMLA cases, striking at the very heart of 'presumption of innocence' — a general legal principle adopted by courts across the country, emanating from Articles 20 and 21 of the Constitution of India.
So how exactly is an accused supposed to convince the court that they are both not guilty and not likely to commit any offence while on bail?
The 'Revival' of Twin-Conditions
"We must not forget that Section 45 is a drastic provision which turns on its head the presumption of innocence which is fundamental to a person accused of any offence," the Supreme Court had said in 2017 in the Nikesh Tharachand Shah case, as they struck down the "twin conditions", showing just how obvious these concerns are.
Speaking to The Quint in the aftermath of Wednesday's judgment which revived these conditions, advocate Kartika Sharma said:
“Revival of the twin conditions completely ignores the fundamental problem with them which is that it allows curtailment of liberty of the accused as it requires an accused to satisfy the court at the bail stage that there are reasonable grounds to believe that he is "not guilty" of such offence and that he is "not likely" to commit any offence while on bail.”
“Pertinently, even in the commission of (the existing) heinous crimes you just have to satisfy certain conditions at the time of bail like you are not a flight risk, you will not evade procedure, you will always cooperate with the investigation etc.”Advocate Kartika Sharma
“(But) Section 45 of PMLA says that if you want bail, then you have to prove that you will not commit any such offence, which literally means you have to prove your innocence, which will result in a mini-trial at the stage of adjudication of bail applications,” she added.
Not only did the Supreme Court dub money laundering a heinous crime, specifically stating that “we do not agree with the observations (in the Nikesh Tarachand Shah judgment) suggestive of that the offence of money-laundering is less heinous offence than the offence of terrorism,” they also contradicted the settled law on bail, that bail is the rule and jail, the exception.
“Additionally, it does not appeal to reason how a judge (adjudicating a bail plea) is expected to reach such a finding, especially as the ambit of ‘offence’ under Section 45 is not limited to offences under PMLA only. Hence, a judge must record a finding to the effect that a person is unlikely to commit any offence, whatsoever, before he is enlarged on bail under PMLA,” Bhatnagar and Khanna told The Quint.
The 'And' in Section 3 and How Little it Takes for a Money Laundering Case to Be Filed
Further, the petitioners had argued that as per definition of Section 3 of the PMLA, the accused can either directly or indirectly commit money-laundering if he is connected by way of any process or activity with the proceeds of crime and has projected or claimed such proceeds as untainted property.
They also said that that the ED must satisfy itself that the proceeds of crime have been projected as untainted property for the registration of an ECIR or the application of the PMLA.
But the court rejected that argument and said that "and" in Section 3 has to be read as "or".
“Section 3 of the 2002 Act has a wider reach and captures every process and activity, direct or indirect, in dealing with the proceeds of crime and is not limited to the happening of the final act of integration of tainted property in the formal economy,” the court said.
This essentially means that if an individual is found to be in mere possession of proceeds of crime, it is enough to register a money-laundering case against them.
There may however be a chance that this interpretation is subsequently undone, as the amendment to Section 3 was brought in by a Finance Act (ie a Money Bill), and the Supreme Court had said that the amendments to PMLA enhanced by way of a Finance Act are “left open for being examined along with or after the decision of the Larger Bench (of seven judges)."
This is in view of the reference order passed in Rojer Mathew v South Indian Bank Limited and Others, by which the issue of whether a Money Bill (which does not need assent of the Rajya Sabha) can include provisions not involving government finances, was referred to a seven-judge.
No Guidelines Either for ED
Khanna opined that while the constitutionality of several provisions of the PMLA has been considered in the latest judgment and all of them have been upheld, the Court should have at least placed some additional safeguards on exercise of powers by the ED.
Pointing out that the top court also did not provide an exact step-wise process at pre-prosecution complaint stage to determine when investigation of a case if formally said to have started, or when a person can be said to stand in the nature of an accused, Khanna said:
“We feel that while the SC has given a broad interpretation of most provisions of the PMLA and allowed the ED to possess a wide net of powers (which some may argue are unbridled), no safeguards for exercise of such powers have been provided in the judgment.”
This, as per Khanna and Bhatnagar is unlike the case with other judgments of the Supreme Court (for example, the Arnesh Kumar judgment which gave guidelines for restraint of arrests) where the exercise of police powers have been restricted via guidelines and directions.
To what extent can the argument that the authorities under the PMLA are not police officers hold, if they go on to carry out investigations and arrests in a capacity quite similar to that of the police and with even more of a free rein?
“Allowing a draconian power of arrest to stand (without any mandate on ED to even record an ECIR) and then imposing strict conditions on bail, the PMLA has curtailed the right to personal liberty to a large extent,” Khanna and Bhatnagar said.
Further, according to the two experts, the ED (under Section 50) is also not required to show relevancy of any documents that may be summoned from witnesses or accused persons as evidence. This even though, in such cases, the citizen’s right to privacy stands compromised.
But One Good Thing...
But there is one good thing that has also emanated from Wednesday’s judgment, Sharma noted.
“The Supreme Court in today’s judgment held that a person cannot be proceeded against under the PMLA unless a first information report (FIR) has been registered in respect of the predicate offence and/or a case is awaiting trial before a competent forum.”
What used to happen, the advocate explained, is that previously if there was an FIR against someone for robbery, an ED case could ensue from that FIR. But even if the individual was acquitted in that FIR, ED would still continue to pursue their case against them.
“But the court has now essentially said that if an FIR has been quashed, then the ECIR no longer holds either,” she noted.
This is even more of consequence, considering that the Act under which the ED case is registered appears to have flung far away from the legislative intent with which It was enacted in 2002.
The Original Legislative Intent
“The United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, to which India is a party, calls for prevention of laundering of proceeds of drug crimes and other connected activities and confiscation of proceeds derived from such offence,” Kartika Sharma told The Quint.
The United States of America, she said, became the first country to adopt the Money Laundering Control Act, 1986 declaring the offence of money laundering a federal crime punishable with fines and imprisonment up to 20 years.
“The scope of the (American) Act was limited to criminalizing money laundering only when committed with respect to drug trafficking and related activities,” she noted, before stating:
“Therefore, it is trite that the PMLA was introduced to curb the menace of drug trafficking and terrorism but has been reduced and diluted to imposing the provisions of the PMLA to a person accused of defaulting bank loans, or a trivial predicate offence.”
Is A Further Constitutional Challenge Possible?
Is the Supreme Court’s Wednesday judgment open to a further constitutional challenge then?
“It may be referred further to a five or seven judge bench but the likelihood of the same immediately is not high,” Khanna said.
“As we have seen in the past, judgments of constitutional significance tend to be revisited (if at all) after several years when a situation arises which renders such interference absolutely necessary.”Ishan Khanna
“But yes a larger bench is already considering the issue of whether amendments can be passed to PMLA under Finance Act like a money bill,” Khanna added.
It may be worth pointing out, however, that it can sometimes take years for a Constitution Bench (a five, seven or nine-judge bench of the top court) to arrive at a conclusion.