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The Hon’ble Supreme Court has pronounced its landmark judgment on 27.07.2022 on the constitutional validity of certain provisions of the Prevention of Money Laundering Act, 2002 (“PMLA Act”). The Judgment has been pronounced by a bench of Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar.
The Hon’ble Supreme Court has been pleased to uphold the constitutional validity of the Impugned provisions except with slight modification in Section 3 of the PMLA Act. The key features of the Judgment are as under:-
1. The Hon’ble Court has given an interpretation to Section 3 (definition of money laundering). It has held that Section 3 has a wider reach and it deals with direct and
indirect proceeds of crime. Explanation to Section 3 is clarificatory in nature. The Hon’ble Court has been pleased to hold that expression ‘and’ in Section 3 has to
be read as “or”. This in effect further widens the definition of the offence of Money Laundering.
2. The Court further upheld the constitutionality of Section 5 which pertains to the attachment of property involved in Money Laundering. The Court observed that it
provides a balancing act and shows how proceeds of crime can be traced.
3. Section 8(4) which stipulated the power to take possession of the attached property has also been upheld.
4. Further, Section 17 of the PMLA pertaining to search and seizure has also been upheld which in effect implies that the Director or any other officer not below the rank
of Deputy Director shall have the right to take appropriate steps for conducting search and taking over the records of any property.
5. Section 18 of the Act which entitled the Court to search the persons and seize the records has also been considered to be constitutionally valid.
6. The power stipulated under Section 19 of the Act authorizing the designated officers to arrest any person guilty of an offence under the PMLA has also been
upheld.
7.Another significant upholding is the shifting of the burden of proof to justify that the amounts involved are not the result of money laundering being upon the
accused as per Section 24 which in nutshell provides for reverse burden of proof. It has been held that Section 24 has a direct nexus with the object of the enactment.
8. Further, the Court held that Section 44 which details the offences triable by special court does not suffer from arbitrariness.
9. The most significant and critical provision of PMLA is the twin conditions for grant of bail to the accused. The offence under PMLA are congnizable and non-bailable.
Stringent conditions are stipulated under Section 45 of the PMLA. An accused can be released on bail only if the Court believes that (i) he is not guilty and (ii) if he is
not likely to commit any offence while on bail. The constitutional challenge to Section 45 has been rejected and the Hon’ble Court has held that the provision of
Section 45, post the amendment (brought by the Finance Act) is legal and not unreasonable.
10. The Hon’ble Court has further held that Enforcement Case Information Report (ECIR) cannot be equated with FIR and ECIR is an internal document of ED.
Supply of ECIR to accused is not mandatory and only disclosure of reasons during arrest is enough, which tightens the rigours of law on the accused.
11. The Hon’ble Supreme Court has also held that the ED officials are not “police officials” and hence the statements recorded by them under Section 50 of the Act
are not hit by Article 20(3) of the Constitution of India. This results in a situation where interrogation and statements made by the accused/witnesses shall itself be
used as evidence against the accused on the ground that ED officials are not police officials. The Supreme Court has left only one issue open for consideration by the 7 Judges’ Bench, which is hearing the issue as to whether laws can be introduced through the Finance Bill as also on the issue regarding amendments brought in PMLA
through the Finance Act.